EX-99.2 3 a15-21676_1ex99d2.htm EX-99.2

Exhibit 99.2

 

 

IAC REPORTS Q3 2015 RESULTS AND
ANNOUNCES CONTRACT EXTENSION WITH GOOGLE

 

NEW YORK— October 26, 2015—IAC (NASDAQ: IACI) released third quarter 2015 results today and published management’s prepared remarks on the Investors section of its website at www.iac.com/Investors.

 

SUMMARY RESULTS

($ in millions except per share amounts)

 

 

 

Q3 2015

 

Q3 2014

 

Growth

 

Revenue

 

$

838.6

 

$

782.2

 

7

%

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

141.1

 

134.6

 

5

%

Adjusted Net Income

 

90.3

 

82.0

 

10

%

Adjusted EPS

 

1.01

 

0.92

 

10

%

 

 

 

 

 

 

 

 

Operating Income

 

87.1

 

101.0

 

-14

%

Net Income

 

65.6

 

326.8

 

-80

%

GAAP Diluted EPS

 

0.74

 

3.68

 

-80

%

 

See reconciliations of GAAP to non-GAAP measures beginning on page 11.

 

Q3 2015 HIGHLIGHTS

 

·                  IAC announced that it has extended its partnership with Google for four more years.  The new agreement, through which Google will continue to provide IAC and its network partners with sponsored listings and other search-related services, runs from the end of IAC’s current agreement on March 31, 2016 and continues through March 31, 2020.

 

·                  The Match Group revenue increased 19%, or 25% excluding the effects of foreign exchange, driven by 17% growth in Dating Average PMC(1) to nearly 4.2 million globally and the contribution from The Princeton Review.  The Match Group Adjusted EBITDA increased 37% versus Q3 2014.

 

·                  Within Search & Applications, Applications queries and revenue increased 28% and 2%, respectively, the first quarter of revenue growth since Q3 2013, driven by 20% growth from B2C.

 

·                  In the Media segment, Vimeo grew paid subscribers 22% to over 650,000 with revenue increasing 27%.  Vimeo also expanded its Vimeo on Demand content catalog to nearly 27,000 titles from over 8,000 creators, with over one million buyers using the service in 217 countries and territories cumulatively.

 

·                  In the eCommerce segment, HomeAdvisor domestic revenue (84% of total HomeAdvisor revenue) increased 46%, the 8th consecutive quarter of accelerated growth, driven by a 53% increase in service requests and over 30% growth in paying service professionals.  Total eCommerce Adjusted EBITDA increased 100% versus the prior year period driven by total HomeAdvisor revenue growing 32%.

 

·                  On October 16, 2015, Match Group, Inc. filed a Form S-1 registration statement with the Securities and Exchange Commission relating to the proposed initial public offering of its common stock, originally announced on June 25, 2015.  The initial public offering is expected to be completed during the fourth quarter of 2015.

 

·                  IAC declared a quarterly cash dividend of $0.34 per share, payable on December 1, 2015 to IAC stockholders of record as of the close of business on November 15, 2015.

 

Note 1: Please see Page 6 for the definition of Average PMC.

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

 

1


 

DISCUSSION OF FINANCIAL AND OPERATING RESULTS

 

 

 

Q3 2015

 

Q3 2014

 

Growth

 

 

 

$ in millions

 

 

 

Revenue

 

 

 

 

 

 

 

Search & Applications

 

$

377.1

 

$

394.7

 

-4

%

The Match Group (2)

 

274.2

 

230.2

 

19

%

Media

 

57.3

 

49.9

 

15

%

eCommerce

 

130.0

 

107.8

 

21

%

Intercompany Elimination

 

(0.1

)

(0.3

)

65

%

 

 

$

838.6

 

$

782.2

 

7

%

Adjusted EBITDA

 

 

 

 

 

 

 

Search & Applications

 

$

74.4

 

$

93.1

 

-20

%

The Match Group (2)

 

84.3

 

61.4

 

37

%

Media

 

(7.7

)

(7.7

)

-1

%

eCommerce

 

7.7

 

3.9

 

100

%

Corporate

 

(17.6

)

(16.1

)

-9

%

 

 

$

141.1

 

$

134.6

 

5

%

Operating Income (Loss)

 

 

 

 

 

 

 

Search & Applications

 

$

65.4

 

$

80.4

 

-19

%

The Match Group (2)

 

71.9

 

66.4

 

8

%

Media

 

(8.3

)

(8.7

)

5

%

eCommerce

 

4.2

 

(1.6

)

NM

 

Corporate

 

(46.2

)

(35.5

)

-30

%

 

 

$

87.1

 

$

101.0

 

-14

%

 

Note 2:  The figures in the table above are for The Match Group segment and include DailyBurn, which will not be part of Match Group, Inc., the company undertaking the proposed initial public offering.  Excluding the results for DailyBurn and, after giving effect to carve-out allocations of Corporate general and administrative expenses, Match Group, Inc. revenue and Adjusted EBITDA for Q3 2015 are $269.0 million and $82.7 million, respectively, reflecting growth of 18% and 30%, respectively, over the prior year period.  Match Group, Inc. operating income for Q3 2015 is $58.4 million, reflecting a decline of 7% over the prior year period.

 

Search & Applications

 

Websites revenue decreased 10% due primarily to a decline in revenue at Ask.com and certain legacy businesses, partially offset by strong growth at About.com driven primarily by increased marketing.  Applications revenue increased 2% due to 20% growth in B2C driven by higher queries from our desktop search applications and the contribution from mobile applications (via our acquisition of Apalon on November 3, 2014), partially offset by lower revenue in B2B.  Adjusted EBITDA decreased 20% due primarily to the lower revenue at Ask.com, certain legacy businesses and B2B, as well as a significant increase in marketing spend in B2C.

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

 

2


 

The Match Group

 

Dating revenue grew 11% due to 11% growth in both the North America and International businesses driven by increased Average PMC, partially offset by foreign exchange effects at the International business.  Excluding foreign exchange effects, total Dating revenue would have increased 17% and International revenue would have increased 29%.  Non-dating(3) revenue grew 108%, benefiting from a full quarter contribution from The Princeton Review (acquired on August 1, 2014).  Adjusted EBITDA increased 37% due primarily to the higher revenue and the prior year period impact related to the write-off of $9.3 million of deferred revenue in connection with The Princeton Review and FriendScout24 acquisitions, partially offset by $2.5 million of costs in the current year period related to the ongoing consolidation and streamlining of our technology systems and European operations at our Dating businesses.  Operating income increased 8% as the prior year period benefited from a $14.3 million contingent consideration fair value adjustment.

 

Media

 

Revenue grew 15% versus the prior year due primarily to strong growth at Vimeo.  The Adjusted EBITDA loss reflects increased investment in Vimeo, partially offset by increased profits from Electus.

 

eCommerce

 

Revenue and Adjusted EBITDA increased 21% and 100%, respectively, due to significant growth at HomeAdvisor.

 

Corporate

 

Adjusted EBITDA loss increased due primarily to certain transaction related costs, as well as higher compensation costs.  Operating loss reflects an increase of $8.5 million in stock-based compensation expense due primarily to the modification of certain equity awards in the current year period.

 

Note 3: Includes The Princeton Review, Tutor.com and DailyBurn.

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

 

3


 

OTHER ITEMS

 

Q3 2015 Other income, net includes a $33.6 million pre-tax gain from a real estate transaction.

 

The effective tax rates for continuing operations and Adjusted Net Income in Q3 2015 were 38% and 37%, respectively.  The effective tax rates were higher than the statutory rate due to state taxes, partially offset by foreign income taxed at lower rates.

 

The Q3 2014 income tax benefit of $59.8 million from continuing operations was primarily due to an $88.2 million reduction in tax reserves related to the expiration of the statutes of limitations for federal income taxes for the years 2001 through 2009 during Q3 2014.

 

The effective tax rate for Adjusted Net Income in Q3 2014 was 26%.  The Q3 2014 effective tax rate was lower than the statutory rate due primarily to the $12.8 million reduction in tax reserves related to the expiration of the statutes of limitations for federal income taxes for the years 2001 through 2009 during Q3 2014.  The Q3 2014 income tax benefit of $175.7 million to discontinued operations was due to the reduction in tax reserves related to the expiration of the statutes of limitations for federal income taxes for the years 2001 through 2009.  The total impact to Net Income in Q3 2014 was $263.9 million.

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

 

4


 

LIQUIDITY AND CAPITAL RESOURCES

 

As of September 30, 2015, IAC had 83.0 million common and class B common shares outstanding.  As of October 23, 2015, the Company had 5.6 million shares remaining in its stock repurchase authorization.  IAC may purchase shares over an indefinite period on the open market and in privately negotiated transactions, depending on those factors IAC management deems relevant at any particular time, including, without limitation, market conditions, share price and future outlook.

 

As of September 30, 2015, IAC had $820.4 million in cash and cash equivalents and marketable securities as well as $1.0 billion in long-term debt.  The Company has $300 million in unused borrowing capacity under its revolving credit facility.  On October 7, 2015, the Company amended and extended its revolving credit facility, which will now expire on the five-year anniversary of the amendment and, concurrently, Match Group, Inc. executed a $500 million five-year revolving credit facility.  The Match Group, Inc. credit facility is also currently undrawn.

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

 

5


 

OPERATING METRICS

 

 

 

Q3 2015

 

Q3 2014

 

Growth

 

 

 

 

 

 

 

 

 

SEARCH & APPLICATIONS (in millions)

 

 

 

 

 

 

 

Revenue

 

 

 

 

 

 

 

Websites (a)

 

$

188.1

 

$

209.1

 

-10

%

Applications (b)

 

189.0

 

185.6

 

2

%

Total Revenue

 

$

377.1

 

$

394.7

 

-4

%

 

 

 

 

 

 

 

 

Websites Page Views (c) 

 

5,437

 

7,103

 

-23

%

Applications Queries (b)

 

5,706

 

4,456

 

28

%

 

 

 

 

 

 

 

 

THE MATCH GROUP

 

 

 

 

 

 

 

Dating Revenue (in millions)

 

 

 

 

 

 

 

North America (d)

 

$

158.6

 

$

142.5

 

11

%

International (e)

 

76.6

 

68.9

 

11

%

Total Dating Revenue

 

$

235.1

 

$

211.4

 

11

%

 

 

 

 

 

 

 

 

Dating Paid Subscribers(f) (in thousands)

 

 

 

 

 

 

 

North America (d)

 

2,641

 

2,462

 

7

%

International (e)

 

1,534

 

1,149

 

34

%

Total Dating Paid Subscribers

 

4,175

 

3,611

 

16

%

 

 

 

 

 

 

 

 

Dating Average PMC (f) (g) (in thousands)

 

 

 

 

 

 

 

North America (d)

 

2,676

 

2,457

 

9

%

International (e)

 

1,491

 

1,101

 

35

%

Total Dating Average PMC

 

4,167

 

3,558

 

17

%

 

 

 

 

 

 

 

 

HOMEADVISOR (in thousands)

 

 

 

 

 

 

 

Domestic Service Requests (h)

 

2,908

 

1,903

 

53

%

Domestic Accepts (i)

 

3,034

 

2,164

 

40

%

 

 

 

 

 

 

 

 

International Service Requests (h) 

 

273

 

237

 

16

%

International Accepts (i) 

 

406

 

423

 

-4

%

 

(a)

Websites revenue is principally composed of Ask.com, About.com, CityGrid, Dictionary.com, Investopedia, PriceRunner and Ask.fm.

(b)

Applications includes B2C, including SlimWare and Apalon, and B2B.

(c)

Websites page views include Ask.com, About.com, CityGrid, Dictionary.com, Investopedia and PriceRunner.

(d)

North America includes Match, Chemistry, People Media, OkCupid, Tinder and other dating businesses operating within the United States and Canada.

(e)

International includes Meetic, Tinder and all dating businesses operating outside of the United States and Canada.

(f)

In the registration statement on Form S-1 filed by Match Group, Inc. on October 16, 2015, Match Group, Inc. refers to “paid subscribers” as “paid members.” Beginning in Q4 2015, we will no longer disclose “paid subscribers” and will continue to disclose Average PMC.

(g)

Average PMC is calculated by summing the number of paid subscribers, or paid member count (PMC), at the end of each day in the relevant measurement period and dividing it by the number of calendar days in that period.

(h)

Fully completed and submitted customer service requests on HomeAdvisor.

(i)

The number of times service requests are accepted by service professionals.  A service request can be transmitted to and accepted by more than one service professional.

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

 

6


 

DILUTIVE SECURITIES

 

IAC has various tranches of dilutive securities.  The table below details these securities as well as potential dilution at various stock prices (shares in millions; rounding differences may occur).

 

 

 

 

 

Avg.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise

 

As of

 

 

 

 

 

 

 

 

 

 

 

Shares

 

Price

 

10/23/15

 

Dilution at:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share Price

 

 

 

 

 

$

68.70

 

$

70.00

 

$

75.00

 

$

80.00

 

$

85.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Absolute Shares as of 10/23/15

 

83.0

 

 

 

83.0

 

83.0

 

83.0

 

83.0

 

83.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RSUs and Other

 

7.6

 

 

 

7.6

 

7.5

 

7.1

 

6.7

 

6.3

 

Options

 

7.2

 

$

51.50

 

2.0

 

2.0

 

2.3

 

2.6

 

2.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Dilution

 

 

 

 

 

9.6

 

9.6

 

9.4

 

9.3

 

9.2

 

% Dilution

 

 

 

 

 

10.4

%

10.3

%

10.2

%

10.0

%

9.9

%

Total Diluted Shares Outstanding

 

 

 

 

 

92.6

 

92.5

 

92.4

 

92.2

 

92.2

 

 

CONFERENCE CALL

 

IAC will audiocast a conference call to answer questions regarding the Company’s third quarter 2015 results and management’s published remarks on Tuesday, October 27, 2015, at 8:30 a.m. Eastern Time.  This call will include the disclosure of certain information, including forward-looking information, which may be material to an investor’s understanding of IAC’s business.  The live audiocast will be open to the public at, and management’s remarks have been posted on, www.iac.com/Investors.

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

 

7


 

GAAP FINANCIAL STATEMENTS

 

IAC CONSOLIDATED STATEMENT OF OPERATIONS

($ in thousands except per share amounts)

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

838,561

 

$

782,231

 

$

2,382,205

 

$

2,278,793

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

Cost of revenue (exclusive of depreciation shown separately below)

 

205,261

 

224,695

 

580,090

 

644,659

 

Selling and marketing expense

 

337,226

 

278,321

 

1,014,289

 

849,410

 

General and administrative expense

 

134,122

 

106,987

 

378,265

 

311,973

 

Product development expense

 

46,859

 

40,691

 

138,546

 

118,352

 

Depreciation

 

15,625

 

14,133

 

46,693

 

44,208

 

Amortization of intangibles

 

12,338

 

16,451

 

39,304

 

41,836

 

Total operating costs and expenses

 

751,431

 

681,278

 

2,197,187

 

2,010,438

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

87,130

 

100,953

 

185,018

 

268,355

 

 

 

 

 

 

 

 

 

 

 

Equity in earnings (losses) of unconsolidated affiliates

 

398

 

(612

)

(78

)

(9,397

)

Interest expense

 

(15,992

)

(14,009

)

(45,270

)

(42,119

)

Other income (expense), net

 

34,000

 

4,113

 

39,826

 

(58,810

)

Earnings from continuing operations before income taxes

 

105,536

 

90,445

 

179,496

 

158,029

 

Income tax (provision) benefit

 

(40,510

)

59,816

 

(34,722

)

8,542

 

Earnings from continuing operations

 

65,026

 

150,261

 

144,774

 

166,571

 

Earnings (loss) from discontinued operations, net of tax

 

17

 

175,730

 

(11

)

174,048

 

Net earnings

 

65,043

 

325,991

 

144,763

 

340,619

 

Net loss attributable to noncontrolling interests

 

568

 

821

 

6,558

 

4,082

 

Net earnings attributable to IAC shareholders

 

$

65,611

 

$

326,812

 

$

151,321

 

$

344,701

 

 

 

 

 

 

 

 

 

 

 

Per share information attributable to IAC shareholders:

 

 

 

 

 

 

 

 

 

Basic earnings per share from continuing operations

 

$

0.79

 

$

1.81

 

$

1.82

 

$

2.05

 

Diluted earnings per share from continuing operations

 

$

0.74

 

$

1.70

 

$

1.71

 

$

1.93

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.79

 

$

3.91

 

$

1.82

 

$

4.15

 

Diluted earnings per share

 

$

0.74

 

$

3.68

 

$

1.71

 

$

3.91

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

0.34

 

$

0.34

 

$

1.02

 

$

0.82

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense by function:

 

 

 

 

 

 

 

 

 

Cost of revenue

 

$

307

 

$

453

 

$

846

 

$

904

 

Selling and marketing expense

 

2,442

 

775

 

7,284

 

1,628

 

General and administrative expense

 

21,683

 

14,094

 

56,320

 

35,753

 

Product development expense

 

2,577

 

2,010

 

7,419

 

5,212

 

Total stock-based compensation expense

 

$

27,009

 

$

17,332

 

$

71,869

 

$

43,497

 

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

 

8


 

IAC CONSOLIDATED BALANCE SHEET

($ in thousands)

 

 

 

September 30,

 

December 31,

 

 

 

2015

 

2014

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

766,448

 

$

990,405

 

Marketable securities

 

53,937

 

160,648

 

Accounts receivable, net

 

246,978

 

236,086

 

Other current assets

 

178,883

 

166,742

 

Total current assets

 

1,246,246

 

1,553,881

 

 

 

 

 

 

 

Property and equipment, net

 

299,078

 

302,459

 

Goodwill

 

1,769,141

 

1,754,926

 

Intangible assets, net

 

459,921

 

491,936

 

Long-term investments

 

138,825

 

114,983

 

Other non-current assets

 

114,107

 

56,693

 

TOTAL ASSETS

 

$

4,027,318

 

$

4,274,878

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

LIABILITIES

 

 

 

 

 

Accounts payable, trade

 

$

68,448

 

$

81,163

 

Deferred revenue

 

237,947

 

194,988

 

Accrued expenses and other current liabilities

 

347,062

 

397,803

 

Total current liabilities

 

653,457

 

673,954

 

 

 

 

 

 

 

Long-term debt

 

1,000,000

 

1,080,000

 

Income taxes payable

 

23,641

 

32,635

 

Deferred income taxes

 

417,326

 

409,529

 

Other long-term liabilities

 

62,476

 

45,191

 

 

 

 

 

 

 

Redeemable noncontrolling interests

 

25,227

 

40,427

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY

 

 

 

 

 

Common stock

 

254

 

252

 

Class B convertible common stock

 

16

 

16

 

Additional paid-in capital

 

11,459,267

 

11,415,617

 

Retained earnings

 

391,492

 

325,118

 

Accumulated other comprehensive loss

 

(144,488

)

(87,700

)

Treasury stock

 

(9,861,350

)

(9,661,350

)

Total IAC shareholders’ equity

 

1,845,191

 

1,991,953

 

Noncontrolling interests

 

—

 

1,189

 

Total shareholders’ equity

 

1,845,191

 

1,993,142

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

4,027,318

 

$

4,274,878

 

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

 

9


 

IAC CONSOLIDATED STATEMENT OF CASH FLOWS

($ in thousands)

 

 

 

Nine Months Ended September 30,

 

 

 

2015

 

2014

 

 

 

 

 

 

 

Cash flows from operating activities attributable to continuing operations:

 

 

 

 

 

Net earnings

 

$

144,763

 

$

340,619

 

Less: (loss) earnings from discontinued operations, net of tax

 

(11

)

174,048

 

Earnings from continuing operations

 

144,774

 

166,571

 

Adjustments to reconcile earnings from continuing operations to net cash provided by operating activities attributable to continuing operations:

 

 

 

 

 

Stock-based compensation expense

 

71,869

 

43,497

 

Depreciation

 

46,693

 

44,208

 

Amortization of intangibles

 

39,304

 

41,836

 

Impairment of long-term investments

 

1,304

 

64,281

 

Excess tax benefits from stock-based awards

 

(49,147

)

(41,320

)

Deferred income taxes

 

(7,851

)

88,739

 

Equity in losses of unconsolidated affiliates

 

78

 

9,397

 

Acquisition-related contingent consideration fair value adjustments

 

(17,906

)

(13,781

)

Gain on real estate transaction

 

(33,586

)

—

 

Other adjustments, net

 

13,852

 

10,080

 

Changes in assets and liabilities, net of effects of acquisitions:

 

 

 

 

 

Accounts receivable

 

(25,822

)

(12,779

)

Other assets

 

(13,746

)

(8,735

)

Accounts payable and other current liabilities

 

(17,453

)

(24,183

)

Income taxes payable

 

(13,748

)

(114,584

)

Deferred revenue

 

45,674

 

41,667

 

Other changes in assets and liabilities, net

 

(182

)

(233

)

Net cash provided by operating activities attributable to continuing operations

 

184,107

 

294,661

 

Cash flows from investing activities attributable to continuing operations:

 

 

 

 

 

Acquisitions, net of cash acquired

 

(43,286

)

(244,196

)

Capital expenditures

 

(44,558

)

(39,033

)

Proceeds from maturities and sales of marketable debt securities

 

192,928

 

998

 

Purchases of marketable debt securities

 

(93,134

)

(110,886

)

Purchases of long-term investments

 

(25,073

)

(17,703

)

Other, net

 

4,456

 

11,924

 

Net cash used in investing activities attributable to continuing operations

 

(8,667

)

(398,896

)

Cash flows from financing activities attributable to continuing operations:

 

 

 

 

 

Principal payment on long-term debt

 

(80,000

)

—

 

Purchase of treasury stock

 

(200,000

)

—

 

Dividends

 

(84,947

)

(68,505

)

Issuance of common stock, net of withholding taxes

 

(40,197

)

(4,823

)

Excess tax benefits from stock-based awards

 

49,147

 

41,320

 

Purchase of noncontrolling interests

 

(29,899

)

(30,328

)

Funds returned from escrow for Meetic tender offer

 

—

 

12,354

 

Acquisition-related contingent consideration payments

 

(5,712

)

(7,659

)

Other, net

 

512

 

(1,397

)

Net cash used in financing activities attributable to continuing operations

 

(391,096

)

(59,038

)

Total cash used in continuing operations

 

(215,656

)

(163,273

)

Total cash used in discontinued operations

 

(190

)

(171

)

Effect of exchange rate changes on cash and cash equivalents

 

(8,111

)

(5,288

)

Net decrease in cash and cash equivalents

 

(223,957

)

(168,732

)

Cash and cash equivalents at beginning of period

 

990,405

 

1,100,444

 

Cash and cash equivalents at end of period

 

$

766,448

 

$

931,712

 

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

 

10


 

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

 

IAC RECONCILIATION OF OPERATING CASH FLOW FROM CONTINUING OPERATIONS TO FREE CASH FLOW

($ in millions; rounding differences may occur)

 

 

 

Nine Months Ended September 30,

 

 

 

2015

 

2014

 

Net cash provided by operating activities attributable to continuing operations

 

$

184.1

 

$

294.7

 

Capital expenditures

 

(44.6

)

(39.0

)

Tax refunds related to sales of a business and an investment

 

(2.1

)

(0.8

)

Free Cash Flow

 

$

137.5

 

$

254.8

 

 

For the nine months ended September 30, 2015, consolidated Free Cash Flow decreased $117.4 million due primarily to lower Adjusted EBITDA and higher income tax payments.

 

IAC RECONCILIATION OF GAAP EPS TO ADJUSTED EPS

(in thousands except per share amounts)

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

Net earnings attributable to IAC shareholders

 

$

65,611

 

$

326,812

 

$

151,321

 

$

344,701

 

Stock-based compensation expense

 

27,009

 

17,332

 

71,869

 

43,497

 

Amortization of intangibles

 

12,338

 

16,451

 

39,304

 

41,836

 

Acquisition-related contingent consideration fair value adjustments

 

(960

)

(14,281

)

(17,906

)

(13,781

)

Gain on sale of VUE interests and related effects

 

—

 

(50,542

)

—

 

(48,588

)

Discontinued operations, net of tax

 

(17

)

(175,730

)

11

 

(174,048

)

Impact of income taxes and noncontrolling interests

 

(13,646

)

(38,068

)

(41,262

)

(56,836

)

Adjusted Net Income

 

$

90,335

 

$

81,974

 

$

203,337

 

$

136,781

 

 

 

 

 

 

 

 

 

 

 

GAAP Basic weighted average shares outstanding

 

82,910

 

83,591

 

82,924

 

83,088

 

Options and RSUs, treasury method

 

5,990

 

5,199

 

5,323

 

5,167

 

GAAP Diluted weighted average shares outstanding

 

88,900

 

88,790

 

88,247

 

88,255

 

Impact of RSUs

 

470

 

385

 

410

 

325

 

Adjusted EPS weighted average shares outstanding

 

89,370

 

89,175

 

88,657

 

88,580

 

 

 

 

 

 

 

 

 

 

 

GAAP Diluted earnings per share

 

$

0.74

 

$

3.68

 

$

1.71

 

$

3.91

 

 

 

 

 

 

 

 

 

 

 

Adjusted EPS

 

$

1.01

 

$

0.92

 

$

2.29

 

$

1.54

 

 

For Adjusted EPS purposes, the impact of RSUs on shares outstanding is based on the weighted average number of RSUs outstanding, including performance-based RSUs outstanding that the Company believes are probable of vesting.  For GAAP diluted EPS purposes, RSUs, including performance-based RSUs for which the performance criteria have been met, are included on a treasury method basis.

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

 

11


 

IAC RECONCILIATION OF SEGMENT NON-GAAP MEASURE TO GAAP MEASURE

($ in millions; rounding differences may occur)

 

 

 

For the three months ended September 30, 2015

 

 

 

Adjusted 
EBITDA

 

Stock-based 
compensation 
expense

 

Depreciation

 

Amortization of
intangibles

 

Acquisition-related
contingent 
consideration fair 
value adjustments

 

Operating 
income (loss)

 

Search & Applications

 

$

74.4

 

$

—

 

$

(3.8

)

$

(6.7

)

$

1.5

 

$

65.4

 

The Match Group

 

84.3

 

(1.1

)

(6.2

)

(4.4

)

(0.8

)

71.9

 

Media

 

(7.7

)

—

 

(0.3

)

(0.4

)

0.2

 

(8.3

)

eCommerce

 

7.7

 

(0.4

)

(2.2

)

(0.9

)

—

 

4.2

 

Corporate

 

(17.6

)

(25.4

)

(3.2

)

—

 

—

 

(46.2

)

Total

 

$

141.1

 

$

(27.0

)

$

(15.6

)

$

(12.3

)

$

1.0

 

$

87.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Match Group, Inc.

 

$

82.7

 

$

(13.1

)

$

(6.1

)

$

(4.4

)

$

(0.8

)

$

58.4

 

 

 

 

For the three months ended September 30, 2014

 

 

 

Adjusted
EBITDA

 

Stock-based 
compensation 
expense

 

Depreciation

 

Amortization of 
intangibles

 

Acquisition-related 
contingent 
consideration fair 
value adjustments

 

Operating 
income (loss)

 

Search & Applications

 

$

93.1

 

$

—

 

$

(3.6

)

$

(9.1

)

$

—

 

$

80.4

 

The Match Group

 

61.4

 

(0.1

)

(5.8

)

(3.3

)

14.3

 

66.4

 

Media

 

(7.7

)

(0.2

)

(0.2

)

(0.6

)

—

 

(8.7

)

eCommerce

 

3.9

 

(0.1

)

(2.0

)

(3.3

)

—

 

(1.6

)

Corporate

 

(16.1

)

(16.9

)

(2.6

)

—

 

—

 

(35.5

)

Total

 

$

134.6

 

$

(17.3

)

$

(14.1

)

$

(16.5

)

$

14.3

 

$

101.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Match Group, Inc.

 

$

63.5

 

$

(5.8

)

$

(5.8

)

$

(3.3

)

$

14.3

 

$

62.9

 

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

 

12


 

IAC RECONCILIATION OF SEGMENT NON-GAAP MEASURE TO GAAP MEASURE

($ in millions; rounding differences may occur)

 

 

 

For the nine months ended September 30, 2015

 

 

 

Adjusted 
EBITDA

 

Stock-based 
compensation 
expense

 

Depreciation

 

Amortization of 
intangibles

 

Acquisition-related 
contingent 
consideration fair 
value adjustments

 

Operating 
income (loss)

 

Search & Applications

 

$

226.2

 

$

—

 

$

(11.1

)

$

(20.6

)

$

3.8

 

$

198.3

 

The Match Group

 

175.0

 

(3.8

)

(19.9

)

(14.1

)

11.5

 

148.7

 

Media

 

(37.8

)

(0.3

)

(0.7

)

(1.2

)

2.6

 

(37.4

)

eCommerce

 

7.3

 

(1.2

)

(6.3

)

(3.4

)

—

 

(3.6

)

Corporate

 

(45.7

)

(66.5

)

(8.8

)

—

 

—

 

(120.9

)

Total

 

$

325.0

 

$

(71.9

)

$

(46.7

)

$

(39.3

)

$

17.9

 

$

185.0

 

 

 

 

For the nine months ended September 30, 2014

 

 

 

Adjusted 
EBITDA

 

Stock-based 
compensation 
expense

 

Depreciation

 

Amortization of 
intangibles

 

Acquisition-related 
contingent 
consideration fair 
value adjustments

 

Operating 
income (loss)

 

Search & Applications

 

$

266.5

 

$

—

 

$

(13.1

)

$

(24.8

)

$

—

 

$

228.5

 

The Match Group

 

178.2

 

(0.3

)

(17.2

)

(6.8

)

13.6

 

167.4

 

Media

 

(24.5

)

(0.5

)

(0.7

)

(1.6

)

0.2

 

(27.1

)

eCommerce

 

11.2

 

(0.1

)

(5.6

)

(8.6

)

—

 

(3.1

)

Corporate

 

(47.2

)

(42.5

)

(7.5

)

—

 

—

 

(97.3

)

Total

 

$

384.1

 

$

(43.5

)

$

(44.2

)

$

(41.8

)

$

13.8

 

$

268.4

 

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

 

13


 

IAC’S PRINCIPLES OF FINANCIAL REPORTING

 

IAC reports Adjusted EBITDA, Adjusted Net Income, Adjusted EPS and Free Cash Flow, all of which are supplemental measures to GAAP.  These measures are among the primary metrics by which we evaluate the performance of our businesses, on which our internal budgets are based and by which management is compensated.  We believe that investors should have access to, and we are obligated to provide, the same set of tools that we use in analyzing our results.  These non-GAAP measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results.  IAC endeavors to compensate for the limitations of the non-GAAP measures presented by providing the comparable GAAP measures with equal or greater prominence and descriptions of the reconciling items, including quantifying such items, to derive the non-GAAP measures.  We encourage investors to examine the reconciling adjustments between the GAAP and non-GAAP measures, which are included in this release.  Interim results are not necessarily indicative of the results that may be expected for a full year.

 

Definitions of Non-GAAP Measures

 

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA) is defined as operating income excluding: (1) stock-based compensation expense; (2) depreciation; and (3) acquisition-related items consisting of (i) amortization of intangible assets and goodwill and intangible asset impairments and (ii) gains and losses recognized on changes in the fair value of contingent consideration arrangements.  We believe Adjusted EBITDA is a useful measure for analysts and investors as this measure allows a more meaningful comparison between our performance and that of our competitors.  Moreover, our management uses this measure internally to evaluate the performance of our business as a whole and our individual business segments.  The above items are excluded from our Adjusted EBITDA measure because these items are non-cash in nature, and we believe that by excluding these items, Adjusted EBITDA corresponds more closely to the cash operating income generated from our business, from which capital investments are made and debt is serviced.

 

Adjusted Net Income generally captures all items on the statement of operations that have been, or ultimately will be, settled in cash and is defined as net earnings attributable to IAC shareholders excluding, net of tax effects and noncontrolling interests, if applicable: (1) stock-based compensation expense, (2) acquisition-related items consisting of (i) amortization of intangibles and goodwill and intangible asset impairments and (ii) gains and losses recognized on changes in the fair value of contingent consideration arrangements, (3) income or loss effects related to IAC’s former passive ownership in VUE, and (4) discontinued operations.  We believe Adjusted Net Income is useful to investors because it represents IAC’s consolidated results taking into account depreciation, which management believes is an ongoing cost of doing business, as well as other charges that are not allocated to the operating businesses such as interest expense, income taxes and noncontrolling interests, but excluding the effects of any other non-cash expenses.

 

Adjusted EPS is defined as Adjusted Net Income divided by fully diluted weighted average shares outstanding for Adjusted EPS purposes.  We include dilution from options and warrants in accordance with the treasury stock method and include all restricted stock units (“RSUs”) in shares outstanding for Adjusted EPS, with performance-based RSUs included based on the number of shares that the Company believes are probable of vesting.  This differs from the GAAP method for including RSUs, which are treated on a treasury method, and performance-based RSUs, which are included for GAAP purposes only to the extent the performance criteria have been met (assuming the end of the reporting period is the end of the contingency period).  Shares outstanding for Adjusted EPS purposes are therefore higher than shares outstanding for GAAP EPS purposes.  We believe Adjusted EPS is useful to investors because it represents, on a per share basis, IAC’s consolidated results, taking into account depreciation, which we believe is an ongoing cost of doing business, as well as other charges, which are not allocated to the operating businesses such as interest expense, income taxes and noncontrolling interests, but excluding the effects of any other non-cash expenses.  Adjusted Net Income and Adjusted EPS have the same limitations as Adjusted EBITDA, and in addition, Adjusted Net Income and Adjusted EPS do not account for IAC’s former passive ownership in VUE.  Therefore, we think it is important to evaluate these measures along with our consolidated statement of operations.

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

 

14


 

Free Cash Flow is defined as net cash provided by operating activities, less capital expenditures.  In addition, Free Cash Flow excludes, if applicable, tax payments and refunds related to the sales of certain businesses and investments, including IAC’s interests in VUE, an internal restructuring and dividends received that represent a return of capital due to the exclusion of the proceeds from these sales and dividends from cash provided by operating activities.  We believe Free Cash Flow is useful to investors because it represents the cash that our operating businesses generate, before taking into account non-operational cash movements.  Free Cash Flow has certain limitations in that it does not represent the total increase or decrease in the cash balance for the period, nor does it represent the residual cash flow for discretionary expenditures.  For example, it does not take into account stock repurchases.  Therefore, we think it is important to evaluate Free Cash Flow along with our consolidated statement of cash flows.

 

Non-Cash Expenses That Are Excluded From Our Non-GAAP Measures

 

Stock-based compensation expense consists principally of expense associated with the grants, including unvested grants assumed in acquisitions, of stock options, restricted stock units and performance-based RSUs.  These expenses are not paid in cash, and we include the related shares in our fully diluted shares outstanding using the treasury stock method; however, performance-based RSUs are included only to the extent the performance criteria have been met (assuming the end of the reporting period is the end of the contingency period).  We view the true cost of stock options, restricted stock units and performance-based RSUs as the dilution to our share base, and such awards are included in our shares outstanding for Adjusted EPS purposes as described above under the definition of Adjusted EPS.  Upon the exercise of certain stock options and vesting of restricted stock units and performance-based RSUs, the awards are settled, at the Company’s discretion, on a net basis, with the Company remitting the required tax-withholding amount from its current funds.

 

Depreciation is a non-cash expense relating to our property and equipment and is computed using the straight-line method to allocate the cost of depreciable assets to operations over their estimated useful lives.

 

Amortization of intangible assets and impairments of goodwill and intangible assets are non-cash expenses relating primarily to acquisitions.  At the time of an acquisition, the identifiable definite-lived intangible assets of the acquired company, such as content, technology, customer lists, advertiser and supplier relationships, are valued and amortized over their estimated lives.  Value is also assigned to acquired indefinite-lived intangible assets, which comprise trade names and trademarks, and goodwill that are not subject to amortization.  An impairment is recorded when the carrying value of an intangible asset or goodwill exceeds its fair value.  While it is likely that we will have significant intangible amortization expense as we continue to acquire companies, we believe that intangible assets represent costs incurred by the acquired company to build value prior to acquisition and the related amortization and impairment charges of intangible assets or goodwill, if applicable, are not ongoing costs of doing business.

 

Gains and losses recognized on changes in the fair value of contingent consideration arrangements are accounting adjustments to report contingent consideration liabilities at fair value.  These adjustments can be highly variable and are excluded from our assessment of performance because they are considered non-operational in nature and, therefore, are not indicative of current or future performance or ongoing costs of doing business.

 

Income or loss effects related to IAC’s former passive ownership in VUE are excluded from Adjusted Net Income and Adjusted EPS because IAC had no operating control over VUE, which was sold for a gain in 2005, had no way to forecast this business, and did not consider the results of VUE in evaluating the performance of IAC’s businesses.

 

Free Cash Flow

 

We look at Free Cash Flow as a measure of the strength and performance of our businesses, not for valuation purposes.  In our view, applying “multiples” to Free Cash Flow is inappropriate because it is subject to timing, seasonality and one-time events.  We manage our business for cash and we think it is of utmost importance to maximize cash — but our primary valuation metrics are Adjusted EBITDA and Adjusted EPS.

 

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

 

15


 

OTHER INFORMATION

 

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995

 

This press release and our conference call, which will be held at 8:30 a.m. Eastern Time on October 27, 2015, may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  The use of words such as “anticipates,” “estimates,” “expects,” “intends,” “plans” and “believes,” among others, generally identify forward-looking statements.  These forward-looking statements include, among others, statements relating to: IAC’s future financial performance, IAC’s business prospects and strategy, anticipated trends and prospects in the industries in which IAC’s businesses operate and other similar matters.  These forward-looking statements are based on management’s current expectations and assumptions about future events, which are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict.  Actual results could differ materially from those contained in these forward-looking statements for a variety of reasons, including, among others: changes in senior management at IAC and/or its businesses, changes in our relationship with, or policies implemented by, Google, adverse changes in economic conditions, either generally or in any of the markets in which IAC’s businesses operate, adverse trends in the online advertising industry or the advertising industry generally, our ability to convert visitors to our various websites into users and customers, our ability to offer new or alternative products and services in a cost-effective manner and consumer acceptance of these products and services, operational and financial risks relating to acquisitions, changes in industry standards and technology, our ability to expand successfully into international markets and regulatory changes. Certain of these and other risks and uncertainties are discussed in IAC’s filings with the Securities and Exchange Commission (“SEC”).  Other unknown or unpredictable factors that could also adversely affect IAC’s business, financial condition and results of operations may arise from time to time.  In light of these risks and uncertainties, these forward-looking statements may not prove to be accurate.  Accordingly, you should not place undue reliance on these forward-looking statements, which only reflect the views of IAC management as of the date of this press release.  IAC does not undertake to update these forward-looking statements.

 

About IAC

 

IAC (NASDAQ: IACI) is a leading media and Internet company. It is organized into four segments: Match Group, which includes dating and education businesses with brands such as Match, OkCupid, Tinder and The Princeton Review; Search & Applications, which includes brands such as About.com, Ask.com, Dictionary.com and Investopedia; Media, which consists of businesses such as Vimeo, Electus, The Daily Beast and CollegeHumor; and eCommerce, which includes HomeAdvisor and ShoeBuy. IAC’s brands and products are among the most recognized in the world reaching users in over 200 countries. IAC is headquartered in New York City and has offices worldwide.

 

Contact Us

 

IAC Investor Relations

Mark Schneider / Alexandra Caffrey

(212) 314-7400

 

IAC Corporate Communications

Isabelle Weisman

(212) 314-7361

 

IAC

555 West 18th Street, New York, NY 10011 (212) 314-7300 http://iac.com

 

*    *    *

 

16