UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 3, 2015
IAC/INTERACTIVECORP
(Exact name of registrant as specified in charter)
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Delaware |
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0-20570 |
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59-2712887 |
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(State or other jurisdiction |
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(Commission |
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(IRS Employer |
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of incorporation) |
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File Number) |
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Identification No.) |
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555 West 18th Street, New York, NY |
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10011 |
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(Address of principal executive offices) |
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(Zip Code) |
Registrant’s telephone number, including area code: (212) 314-7300
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 2.02 Results of Operations and Financial Condition.
Item 7.01 Regulation FD Disclosure.
On February 3, 2015, the Registrant issued a press release announcing its results for the quarter ended December 31, 2014. The full text of the press release, appearing in Exhibit 99.1 hereto, is incorporated herein by reference.
Prepared remarks by the Registrant’s management for the quarter ended December 31, 2014 and forward-looking statements relating to 2015, appearing in Exhibit 99.2 hereto and as posted on the “Investors” section of the Registrant’s website (www.iac.com/Investors) on February 3, 2015, are incorporated herein by reference.
Exhibits 99.1 and 99.2 are being furnished under both Item 2.02 “Results of Operations and Financial Condition” and Item 7.01 “Regulation FD Disclosure.”
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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IAC/INTERACTIVECORP | |
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By: |
/s/ Gregg Winiarski |
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Name: |
Gregg Winiarski |
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Title: |
Executive Vice President, |
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General Counsel and Secretary |
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Date: February 3, 2015 |
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EXHIBIT INDEX
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Exhibit No. |
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Description |
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99.1 |
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Press Release of IAC/InterActiveCorp dated February 3, 2015. |
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99.2 |
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Prepared Remarks by IAC/InterActiveCorp Management, dated February 3, 2015. |
Exhibit 99.1
IAC REPORTS Q4 2014 RESULTS
NEW YORK— February 3, 2015—IAC (Nasdaq: IACI) released fourth quarter 2014 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)
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Q4 2014 |
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Q4 2013 |
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Growth |
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FY 2014 |
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FY 2013 |
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Growth |
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Revenue |
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$ |
830.8 |
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$ |
724.5 |
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15 |
% |
$ |
3,109.5 |
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$ |
3,023.0 |
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3 |
% |
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Adjusted EBITDA |
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160.0 |
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150.1 |
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7 |
% |
544.1 |
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598.3 |
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-9 |
% | ||||
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Adjusted Net Income |
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89.7 |
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91.1 |
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-2 |
% |
226.5 |
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358.1 |
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-37 |
% | ||||
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Adjusted EPS |
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1.00 |
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1.04 |
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-4 |
% |
2.55 |
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4.11 |
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-38 |
% | ||||
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Operating Income |
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110.4 |
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113.0 |
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-2 |
% |
378.7 |
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426.2 |
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-11 |
% | ||||
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Net Income |
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70.2 |
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76.9 |
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-9 |
% |
414.9 |
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285.8 |
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45 |
% | ||||
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GAAP Diluted EPS |
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0.78 |
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0.88 |
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-11 |
% |
4.68 |
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3.29 |
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42 |
% | ||||
See reconciliations of GAAP to non-GAAP measures beginning on page 10.
· Consolidated revenue increased 15% year-over-year in the fourth quarter driven by solid growth across all four segments.
· The Match Group revenue increased 15% driven by the contributions from The Princeton Review and FriendScout24, acquired on August 1, 2014 and August 31, 2014, respectively, and 4% growth in Dating paid subscribers to over 3.5 million globally.
· Search & Applications revenue increased 9% driven by 22% Websites growth due mainly to strong growth at About.com.
· In the Media segment, Vimeo grew revenue nearly 30% and surpassed 560,000 paid subscribers. IAC Films contributed revenue of $11.3 million during the quarter with two productions, Top Five and Inherent Vice, released in theaters in December 2014.
· In the eCommerce segment, HomeAdvisor revenue grew more than 30% with domestic service requests increasing 24%.
· Consolidated Adjusted EBITDA increased 7% year-over-year in the fourth quarter driven by solid growth at Search & Applications and The Match Group, strong growth at eCommerce and lower Corporate expenses, partially offset by increased investment in the Media segment.
· Net Income and Adjusted Net Income in the fourth quarter both reflect a $4.9 million after-tax gain related to the sale of Urbanspoon, positively impacting both GAAP Diluted EPS and Adjusted EPS by $0.05.
· IAC declared a quarterly cash dividend of $0.34 per share, payable on March 1, 2015 to IAC stockholders of record as of the close of business on February 15, 2015.
SEE IMPORTANT NOTES AT END OF THIS DOCUMENT
DISCUSSION OF FINANCIAL AND OPERATING RESULTS
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Q4 2014 |
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Q4 2013 |
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Growth |
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$ in millions |
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Revenue |
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Search & Applications |
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$ |
407.8 |
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$ |
373.0 |
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9 |
% |
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The Match Group |
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241.5 |
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209.3 |
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15 |
% | ||
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Media |
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58.9 |
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38.6 |
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52 |
% | ||
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eCommerce |
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122.7 |
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103.7 |
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18 |
% | ||
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Intercompany Elimination |
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(0.3 |
) |
(0.3 |
) |
10 |
% | ||
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$ |
830.8 |
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$ |
724.5 |
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15 |
% |
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Adjusted EBITDA |
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Search & Applications |
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$ |
95.6 |
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$ |
87.4 |
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9 |
% |
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The Match Group |
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86.6 |
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82.0 |
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6 |
% | ||
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Media |
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(12.2 |
) |
(5.3 |
) |
-133 |
% | ||
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eCommerce |
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6.1 |
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4.1 |
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50 |
% | ||
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Corporate |
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(16.0 |
) |
(18.2 |
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12 |
% | ||
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$ |
160.0 |
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$ |
150.1 |
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7 |
% |
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Operating Income (Loss) |
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Search & Applications |
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$ |
82.8 |
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$ |
76.0 |
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9 |
% |
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The Match Group |
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73.5 |
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77.5 |
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-5 |
% | ||
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Media |
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(13.1 |
) |
(6.1 |
) |
-116 |
% | ||
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eCommerce |
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1.9 |
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(0.3 |
) |
NM |
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Corporate |
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(34.8 |
) |
(34.3 |
) |
-1 |
% | ||
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$ |
110.4 |
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$ |
113.0 |
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-2 |
% |
Search & Applications
Websites revenue increased 22% due primarily to strong growth at About.com and the contribution of the “Owned & Operated” website businesses of ValueClick, Inc. (acquired January 10, 2014). Applications revenue decreased 2% due primarily to lower queries in B2B (our partnership operations), partially offset by strong query growth in B2C (our direct to consumer downloadable applications business) as well as the contribution of SlimWare (acquired April 1, 2014) and Apalon (acquired November 3, 2014). Adjusted EBITDA increased 9% due primarily to the higher revenue, partially offset by the impact of the write-off of $3.0 million of deferred revenue in connection with the acquisition of SlimWare.
The Match Group
Dating revenue grew 4% due primarily to 6% growth in North America. The growth in Dating revenue was driven by increased paid subscribers. Non-dating(1) revenue, which benefited from the acquisition of The Princeton Review, grew 440%. Adjusted EBITDA increased 6% due to the higher revenue and lower marketing spend at Dating, partially offset by the impact of the write-off of $2.5 million of deferred revenue in connection with The Princeton Review and FriendScout24 acquisitions. Operating income decreased 5% as the prior year was positively impacted by a $6.0 million contingent consideration fair value adjustment.
Note 1: Includes DailyBurn, Tutor.com and The Princeton Review.
SEE IMPORTANT NOTES AT END OF THIS DOCUMENT
Media
Revenue increased 52% due principally to the contribution from IAC Films and strong growth at Electus and Vimeo. The Adjusted EBITDA loss was larger than the prior year due to increased investment in Vimeo in the current year and losses at IAC Films.
eCommerce
Revenue increased 18% due mainly to 32% growth at HomeAdvisor. Adjusted EBITDA increased 50% due primarily to the higher revenue.
Corporate
Corporate Adjusted EBITDA loss decreased due primarily to a favorable legal settlement. Corporate operating loss reflects an increase of $2.6 million in non-cash compensation expense due primarily to the issuance of equity awards since the prior year.
OTHER ITEMS
Interest expense increased due to the issuance of the 4.875% Senior Notes due 2018 in November 2013. Other income, net in Q4 2014 includes a $19.4 million pre-tax gain related to the sale of Urbanspoon.
Other income, net in Q4 2013 included a $17.7 million pre-tax gain related to the sale of certain investments, partially offset by a $5.0 million write-down of a cost method investment.
The effective tax rates for continuing operations in Q4 2014 and Q4 2013 were 39% and 30%, respectively, and the effective tax rates for Adjusted Net Income in Q4 2014 and Q4 2013 were 39% and 31%, respectively. The Q4 2014 effective rates for continuing operations and Adjusted Net Income were higher in Q4 2014 due primarily to non-deductible goodwill associated with the sale of Urbanspoon.
SEE IMPORTANT NOTES AT END OF THIS DOCUMENT
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2014, IAC had 84.1 million common and class B common shares outstanding. As of January 30, 2015, the Company had 8.6 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 December 31, 2014, IAC had $1.2 billion in cash and cash equivalents and marketable securities as well as $1.1 billion in long-term debt. The Company has $300 million in unused borrowing capacity under its revolving credit facility.
SEE IMPORTANT NOTES AT END OF THIS DOCUMENT
OPERATING METRICS
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Q4 2014 |
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Q4 2013 |
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Growth |
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SEARCH & APPLICATIONS (in millions) |
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Revenue |
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Websites (a) |
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$ |
217.8 |
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$ |
178.5 |
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22 |
% |
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Applications (b) |
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190.1 |
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194.5 |
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-2 |
% | ||
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Total Revenue |
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$ |
407.8 |
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$ |
373.0 |
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9 |
% |
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Websites Page Views (c) |
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7,520 |
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8,554 |
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-12 |
% | ||
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Applications Queries (d) |
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4,631 |
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5,581 |
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-17 |
% | ||
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THE MATCH GROUP |
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Dating Revenue (in millions) |
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North America (e) |
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$ |
142.1 |
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$ |
133.7 |
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6 |
% |
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International (f) |
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70.4 |
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70.2 |
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0 |
% | ||
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Total Dating Revenue |
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$ |
212.5 |
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$ |
203.9 |
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4 |
% |
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Dating Paid Subscribers (in thousands) |
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North America (e) |
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2,398 |
|
2,286 |
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5 |
% | ||
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International (f) |
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1,108 |
|
1,071 |
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4 |
% | ||
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Total Dating Paid Subscribers |
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3,507 |
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3,357 |
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4 |
% | ||
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HOMEADVISOR (in thousands) |
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Domestic Service Requests (g) |
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1,491 |
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1,200 |
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24 |
% | ||
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Domestic Accepts (h) |
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1,871 |
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1,538 |
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22 |
% | ||
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International Service Requests (g) |
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285 |
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295 |
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-3 |
% | ||
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International Accepts (h) |
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365 |
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365 |
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0 |
% | ||
(a) Websites revenue is principally composed of Ask.com, About.com, CityGrid Media, Dictionary.com, Investopedia.com, PriceRunner.com and Ask.fm.
(b) Applications revenue includes B2C, B2B, SlimWare and Apalon.
(c) Websites page views include Ask.com, About.com, CityGrid Media, Dictionary.com, Investopedia.com and PriceRunner.com.
(d) Applications queries include B2C and B2B.
(e) North America includes Match.com, Chemistry, People Media, OkCupid and other dating businesses operating within the United States and Canada.
(f) International includes all dating businesses operating outside of the United States and Canada.
(g) Fully completed and submitted customer service requests on HomeAdvisor.
(h) 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
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).
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Avg. |
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Exercise |
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As of |
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Shares |
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Price |
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1/30/15 |
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Dilution at: |
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Share Price |
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$ |
60.95 |
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$ |
65.00 |
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$ |
70.00 |
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$ |
75.00 |
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$ |
80.00 |
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Absolute Shares as of 1/30/15 |
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84.2 |
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84.2 |
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84.2 |
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84.2 |
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84.2 |
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84.2 |
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RSUs and Other |
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6.6 |
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6.6 |
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6.2 |
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5.8 |
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5.5 |
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5.2 |
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Options |
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6.5 |
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$ |
41.16 |
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2.2 |
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2.4 |
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2.7 |
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2.9 |
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3.2 |
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Total Dilution |
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8.8 |
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8.6 |
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8.5 |
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8.4 |
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8.4 |
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% Dilution |
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9.4 |
% |
9.3 |
% |
9.2 |
% |
9.1 |
% |
9.0 |
% | ||||||
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Total Diluted Shares Outstanding |
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92.9 |
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92.8 |
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92.7 |
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92.6 |
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92.5 |
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CONFERENCE CALL
IAC will audiocast a conference call to answer questions regarding the Company’s Q4 financial results and management’s published remarks on Wednesday, February 4, 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
GAAP FINANCIAL STATEMENTS
IAC CONSOLIDATED STATEMENT OF OPERATIONS
($ in thousands except per share amounts)
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Three Months Ended December 31, |
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Twelve Months Ended December 31, |
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2014 |
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2013 |
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2014 |
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2013 |
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Revenue |
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$ |
830,754 |
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$ |
724,455 |
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$ |
3,109,547 |
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$ |
3,022,987 |
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Operating costs and expenses: |
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|
|
|
|
|
|
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Cost of revenue (exclusive of depreciation shown separately below) |
|
238,517 |
|
222,421 |
|
883,176 |
|
1,003,721 |
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Selling and marketing expense |
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275,027 |
|
224,974 |
|
1,124,437 |
|
956,410 |
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General and administrative expense |
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131,637 |
|
97,855 |
|
443,610 |
|
378,142 |
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Product development expense |
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42,163 |
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37,289 |
|
160,515 |
|
139,759 |
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Depreciation |
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16,948 |
|
14,368 |
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61,156 |
|
58,909 |
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Amortization of intangibles |
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16,090 |
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14,596 |
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57,926 |
|
59,843 |
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Total operating costs and expenses |
|
720,382 |
|
611,503 |
|
2,730,820 |
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2,596,784 |
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|
|
|
|
|
|
|
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Operating income |
|
110,372 |
|
112,952 |
|
378,727 |
|
426,203 |
| ||||
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|
|
|
|
|
|
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Equity in losses of unconsolidated affiliates |
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(300 |
) |
(2,193 |
) |
(9,697 |
) |
(6,615 |
) | ||||
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Interest expense |
|
(14,195 |
) |
(10,652 |
) |
(56,314 |
) |
(33,596 |
) | ||||
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Other income (expense), net |
|
16,023 |
|
11,936 |
|
(42,787 |
) |
30,309 |
| ||||
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Earnings from continuing operations before income taxes |
|
111,900 |
|
112,043 |
|
269,929 |
|
416,301 |
| ||||
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Income tax provision |
|
(43,914 |
) |
(33,214 |
) |
(35,372 |
) |
(134,502 |
) | ||||
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Earnings from continuing operations |
|
67,986 |
|
78,829 |
|
234,557 |
|
281,799 |
| ||||
|
Earnings from discontinued operations, net of tax |
|
625 |
|
24 |
|
174,673 |
|
1,926 |
| ||||
|
Net earnings |
|
68,611 |
|
78,853 |
|
409,230 |
|
283,725 |
| ||||
|
Net loss (earnings) attributable to noncontrolling interests |
|
1,561 |
|
(1,936 |
) |
5,643 |
|
2,059 |
| ||||
|
Net earnings attributable to IAC shareholders |
|
$ |
70,172 |
|
$ |
76,917 |
|
$ |
414,873 |
|
$ |
285,784 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Per share information attributable to IAC shareholders: |
|
|
|
|
|
|
|
|
| ||||
|
Basic earnings per share from continuing operations |
|
$ |
0.83 |
|
$ |
0.93 |
|
$ |
2.88 |
|
$ |
3.40 |
|
|
Diluted earnings per share from continuing operations |
|
$ |
0.78 |
|
$ |
0.88 |
|
$ |
2.71 |
|
$ |
3.27 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Basic earnings per share |
|
$ |
0.84 |
|
$ |
0.93 |
|
$ |
4.98 |
|
$ |
3.42 |
|
|
Diluted earnings per share |
|
$ |
0.78 |
|
$ |
0.88 |
|
$ |
4.68 |
|
$ |
3.29 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Dividends declared per common share |
|
$ |
0.34 |
|
$ |
0.24 |
|
$ |
1.16 |
|
$ |
0.96 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Non-cash compensation expense by function: |
|
|
|
|
|
|
|
|
| ||||
|
Cost of revenue |
|
$ |
45 |
|
$ |
862 |
|
$ |
949 |
|
$ |
2,863 |
|
|
Selling and marketing expense |
|
516 |
|
813 |
|
2,144 |
|
2,813 |
| ||||
|
General and administrative expense |
|
14,109 |
|
10,802 |
|
49,862 |
|
42,487 |
| ||||
|
Product development expense |
|
1,467 |
|
1,680 |
|
6,679 |
|
4,842 |
| ||||
|
Total non-cash compensation expense |
|
$ |
16,137 |
|
$ |
14,157 |
|
$ |
59,634 |
|
$ |
53,005 |
|
SEE IMPORTANT NOTES AT END OF THIS DOCUMENT
IAC CONSOLIDATED BALANCE SHEET
($ in thousands)
|
|
|
December 31, |
|
December 31, |
| ||
|
|
|
2014 |
|
2013 |
| ||
|
ASSETS |
|
|
|
|
| ||
|
|
|
|
|
|
| ||
|
Cash and cash equivalents |
|
$ |
990,405 |
|
$ |
1,100,444 |
|
|
Marketable securities |
|
160,648 |
|
6,004 |
| ||
|
Accounts receivable, net |
|
236,086 |
|
207,408 |
| ||
|
Other current assets |
|
166,742 |
|
161,530 |
| ||
|
Total current assets |
|
1,553,881 |
|
1,475,386 |
| ||
|
|
|
|
|
|
| ||
|
Property and equipment, net |
|
302,459 |
|
293,964 |
| ||
|
Goodwill |
|
1,754,926 |
|
1,675,323 |
| ||
|
Intangible assets, net |
|
491,936 |
|
445,336 |
| ||
|
Long-term investments |
|
114,983 |
|
179,990 |
| ||
|
Other non-current assets |
|
56,693 |
|
164,685 |
| ||
|
TOTAL ASSETS |
|
$ |
4,274,878 |
|
$ |
4,234,684 |
|
|
|
|
|
|
|
| ||
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
| ||
|
LIABILITIES |
|
|
|
|
| ||
|
Accounts payable, trade |
|
$ |
81,163 |
|
$ |
77,653 |
|
|
Deferred revenue |
|
194,988 |
|
158,206 |
| ||
|
Accrued expenses and other current liabilities |
|
397,803 |
|
351,038 |
| ||
|
Total current liabilities |
|
673,954 |
|
586,897 |
| ||
|
|
|
|
|
|
| ||
|
Long-term debt |
|
1,080,000 |
|
1,080,000 |
| ||
|
Income taxes payable |
|
32,635 |
|
416,384 |
| ||
|
Deferred income taxes |
|
409,529 |
|
320,748 |
| ||
|
Other long-term liabilities |
|
45,191 |
|
58,393 |
| ||
|
|
|
|
|
|
| ||
|
Redeemable noncontrolling interests |
|
40,427 |
|
42,861 |
| ||
|
|
|
|
|
|
| ||
|
Commitments and contingencies |
|
|
|
|
| ||
|
|
|
|
|
|
| ||
|
SHAREHOLDERS’ EQUITY |
|
|
|
|
| ||
|
Common stock |
|
252 |
|
251 |
| ||
|
Class B convertible common stock |
|
16 |
|
16 |
| ||
|
Additional paid-in capital |
|
11,415,617 |
|
11,562,567 |
| ||
|
Retained earnings (accumulated deficit) |
|
325,118 |
|
(32,735 |
) | ||
|
Accumulated other comprehensive loss |
|
(87,700 |
) |
(13,046 |
) | ||
|
Treasury stock |
|
(9,661,350 |
) |
(9,830,317 |
) | ||
|
Total IAC shareholders’ equity |
|
1,991,953 |
|
1,686,736 |
| ||
|
Noncontrolling interests |
|
1,189 |
|
42,665 |
| ||
|
Total shareholders’ equity |
|
1,993,142 |
|
1,729,401 |
| ||
|
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
$ |
4,274,878 |
|
$ |
4,234,684 |
|
SEE IMPORTANT NOTES AT END OF THIS DOCUMENT
IAC CONSOLIDATED STATEMENT OF CASH FLOWS
($ in thousands)
|
|
|
Twelve Months Ended December 31, |
| ||||
|
|
|
2014 |
|
2013 |
| ||
|
|
|
|
|
|
| ||
|
Cash flows from operating activities attributable to continuing operations: |
|
|
|
|
| ||
|
Net earnings |
|
$ |
409,230 |
|
$ |
283,725 |
|
|
Less: earnings from discontinued operations, net of tax |
|
174,673 |
|
1,926 |
| ||
|
Earnings from continuing operations |
|
234,557 |
|
281,799 |
| ||
|
Adjustments to reconcile earnings from continuing operations to net cash provided by operating activities attributable to continuing operations: |
|
|
|
|
| ||
|
Non-cash compensation expense |
|
59,634 |
|
53,005 |
| ||
|
Depreciation |
|
61,156 |
|
58,909 |
| ||
|
Amortization of intangibles |
|
57,926 |
|
59,843 |
| ||
|
Impairment of long-term investments |
|
66,601 |
|
5,268 |
| ||
|
Excess tax benefits from stock-based awards |
|
(44,957 |
) |
(32,891 |
) | ||
|
Deferred income taxes |
|
76,869 |
|
(9,096 |
) | ||
|
Equity in losses of unconsolidated affiliates |
|
9,697 |
|
6,615 |
| ||
|
Acquisition-related contingent consideration fair value adjustments |
|
(13,367 |
) |
343 |
| ||
|
Gains on sales of long-term investments, assets and a business |
|
(21,946 |
) |
(50,608 |
) | ||
|
Changes in assets and liabilities, net of effects of acquisitions: |
|
|
|
|
| ||
|
Accounts receivable |
|
(19,918 |
) |
10,421 |
| ||
|
Other assets |
|
(3,606 |
) |
(34,632 |
) | ||
|
Accounts payable and other current liabilities |
|
5,206 |
|
(766 |
) | ||
|
Income taxes payable |
|
(94,492 |
) |
49,191 |
| ||
|
Deferred revenue |
|
30,142 |
|
(5,841 |
) | ||
|
Other, net |
|
20,546 |
|
19,401 |
| ||
|
Net cash provided by operating activities attributable to continuing operations |
|
424,048 |
|
410,961 |
| ||
|
Cash flows from investing activities attributable to continuing operations: |
|
|
|
|
| ||
|
Acquisitions, net of cash acquired |
|
(259,391 |
) |
(40,434 |
) | ||
|
Capital expenditures |
|
(57,233 |
) |
(80,311 |
) | ||
|
Proceeds from maturities and sales of marketable debt securities |
|
21,644 |
|
12,502 |
| ||
|
Purchases of marketable debt securities |
|
(175,826 |
) |
— |
| ||
|
Proceeds from the sales of long-term investments, assets and a business |
|
58,388 |
|
83,091 |
| ||
|
Purchases of long-term investments |
|
(24,334 |
) |
(51,080 |
) | ||
|
Other, net |
|
(3,042 |
) |
(3,529 |
) | ||
|
Net cash used in investing activities attributable to continuing operations |
|
(439,794 |
) |
(79,761 |
) | ||
|
Cash flows from financing activities attributable to continuing operations: |
|
|
|
|
| ||
|
Proceeds from issuance of long-term debt |
|
— |
|
500,000 |
| ||
|
Principal payment on long-term debt |
|
— |
|
(15,844 |
) | ||
|
Purchase of treasury stock |
|
— |
|
(264,214 |
) | ||
|
Dividends |
|
(97,338 |
) |
(79,189 |
) | ||
|
Issuance of common stock, net of withholding taxes |
|
1,609 |
|
(5,077 |
) | ||
|
Excess tax benefits from stock-based awards |
|
44,957 |
|
32,891 |
| ||
|
Purchase of noncontrolling interests |
|
(33,165 |
) |
(67,947 |
) | ||
|
Funds returned from (transferred to) escrow for Meetic tender offer |
|
12,354 |
|
(71,512 |
) | ||
|
Acquisition-related contingent consideration payments |
|
(8,109 |
) |
(256 |
) | ||
|
Debt issuance costs |
|
(383 |
) |
(7,399 |
) | ||
|
Other, net |
|
(905 |
) |
(3,787 |
) | ||
|
Net cash (used in) provided by financing activities attributable to continuing operations |
|
(80,980 |
) |
17,666 |
| ||
|
Total cash (used in) provided by continuing operations |
|
(96,726 |
) |
348,866 |
| ||
|
Total cash used in discontinued operations |
|
(145 |
) |
(1,877 |
) | ||
|
Effect of exchange rate changes on cash and cash equivalents |
|
(13,168 |
) |
3,478 |
| ||
|
Net (decrease) increase in cash and cash equivalents |
|
(110,039 |
) |
350,467 |
| ||
|
Cash and cash equivalents at beginning of period |
|
1,100,444 |
|
749,977 |
| ||
|
Cash and cash equivalents at end of period |
|
$ |
990,405 |
|
$ |
1,100,444 |
|
SEE IMPORTANT NOTES AT END OF THIS DOCUMENT
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)
|
|
|
Twelve Months Ended December 31, |
| ||||
|
|
|
2014 |
|
2013 |
| ||
|
Net cash provided by operating activities attributable to continuing operations |
|
$ |
424.0 |
|
$ |
411.0 |
|
|
Capital expenditures |
|
(57.2 |
) |
(80.3 |
) | ||
|
Tax refunds related to sales of a business and an investment |
|
(0.8 |
) |
(5.2 |
) | ||
|
Free Cash Flow |
|
$ |
366.0 |
|
$ |
325.4 |
|
For the twelve months ended December 31, 2014, consolidated Free Cash Flow increased $40.6 million due primarily to lower income tax payments and lower capital expenditures, partially offset by lower Adjusted EBITDA and higher interest payments.
IAC RECONCILIATION OF GAAP EPS TO ADJUSTED EPS
(in thousands except per share amounts)
|
|
|
Three Months Ended December 31, |
|
Twelve Months Ended December 31, |
| ||||||||
|
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
| ||||
|
Net earnings attributable to IAC shareholders |
|
$ |
70,172 |
|
$ |
76,917 |
|
$ |
414,873 |
|
$ |
285,784 |
|
|
Non-cash compensation expense |
|
16,137 |
|
14,157 |
|
59,634 |
|
53,005 |
| ||||
|
Amortization of intangibles |
|
16,090 |
|
14,596 |
|
57,926 |
|
59,843 |
| ||||
|
Acquisition-related contingent consideration fair value adjustments |
|
414 |
|
(5,996 |
) |
(13,367 |
) |
343 |
| ||||
|
Gain on sale of VUE interests and related effects |
|
— |
|
1,002 |
|
(48,588 |
) |
4,034 |
| ||||
|
Discontinued operations, net of tax |
|
(625 |
) |
(24 |
) |
(174,673 |
) |
(1,926 |
) | ||||
|
Impact of income taxes and noncontrolling interests |
|
(12,500 |
) |
(9,580 |
) |
(69,336 |
) |
(42,957 |
) | ||||
|
Adjusted Net Income |
|
$ |
89,688 |
|
$ |
91,072 |
|
$ |
226,469 |
|
$ |
358,126 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
GAAP Basic weighted average shares outstanding |
|
83,898 |
|
83,016 |
|
83,292 |
|
83,480 |
| ||||
|
Options and RSUs, treasury method |
|
5,564 |
|
3,955 |
|
5,266 |
|
3,262 |
| ||||
|
GAAP Diluted weighted average shares outstanding |
|
89,462 |
|
86,971 |
|
88,558 |
|
86,742 |
| ||||
|
Impact of RSUs |
|
426 |
|
354 |
|
351 |
|
420 |
| ||||
|
Adjusted EPS weighted average shares outstanding |
|
89,888 |
|
87,325 |
|
88,909 |
|
87,162 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
GAAP Diluted earnings per share |
|
$ |
0.78 |
|
$ |
0.88 |
|
$ |
4.68 |
|
$ |
3.29 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Adjusted EPS |
|
$ |
1.00 |
|
$ |
1.04 |
|
$ |
2.55 |
|
$ |
4.11 |
|
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
IAC RECONCILIATION OF SEGMENT NON-GAAP MEASURE TO GAAP MEASURE
($ in millions; rounding differences may occur)
|
|
|
For the three months ended December 31, 2014 |
| ||||||||||||||||
|
|
|
Adjusted |
|
Non-cash |
|
Depreciation |
|
Amortization of |
|
Acquisition-related |
|
Operating |
| ||||||
|
Search & Applications |
|
$ |
95.6 |
|
$ |
— |
|
$ |
(3.3 |
) |
$ |
(9.1 |
) |
$ |
(0.3 |
) |
$ |
82.8 |
|
|
The Match Group |
|
86.6 |
|
0.6 |
|
(8.4 |
) |
(4.6 |
) |
(0.7 |
) |
73.5 |
| ||||||
|
Media |
|
(12.2 |
) |
(0.2 |
) |
(0.2 |
) |
(0.5 |
) |
— |
|
(13.1 |
) | ||||||
|
eCommerce |
|
6.1 |
|
(0.4 |
) |
(2.4 |
) |
(1.9 |
) |
0.6 |
|
1.9 |
| ||||||
|
Corporate |
|
(16.0 |
) |
(16.2 |
) |
(2.6 |
) |
— |
|
— |
|
(34.8 |
) | ||||||
|
Total |
|
$ |
160.0 |
|
$ |
(16.1 |
) |
$ |
(16.9 |
) |
$ |
(16.1 |
) |
$ |
(0.4 |
) |
$ |
110.4 |
|
|
|
|
For the three months ended December 31, 2013 |
| ||||||||||||||||
|
|
|
Adjusted |
|
Non-cash |
|
Depreciation |
|
Amortization of |
|
Acquisition-related |
|
Operating |
| ||||||
|
Search & Applications |
|
$ |
87.4 |
|
$ |
— |
|
$ |
(4.0 |
) |
$ |
(7.3 |
) |
$ |
— |
|
$ |
76.0 |
|
|
The Match Group |
|
82.0 |
|
(0.6 |
) |
(5.6 |
) |
(4.3 |
) |
6.0 |
|
77.5 |
| ||||||
|
Media |
|
(5.3 |
) |
— |
|
(0.6 |
) |
(0.3 |
) |
— |
|
(6.1 |
) | ||||||
|
eCommerce |
|
4.1 |
|
— |
|
(1.6 |
) |
(2.7 |
) |
— |
|
(0.3 |
) | ||||||
|
Corporate |
|
(18.2 |
) |
(13.6 |
) |
(2.5 |
) |
— |
|
— |
|
(34.3 |
) | ||||||
|
Total |
|
$ |
150.1 |
|
$ |
(14.2 |
) |
$ |
(14.4 |
) |
$ |
(14.6 |
) |
$ |
6.0 |
|
$ |
113.0 |
|
SEE IMPORTANT NOTES AT END OF THIS DOCUMENT
IAC RECONCILIATION OF SEGMENT NON-GAAP MEASURE TO GAAP MEASURE
($ in millions; rounding differences may occur)
|
|
|
For the twelve months ended December 31, 2014 |
| ||||||||||||||||
|
|
|
Adjusted |
|
Non-cash |
|
Depreciation |
|
Amortization of |
|
Acquisition-related |
|
Operating |
| ||||||
|
Search & Applications |
|
$ |
362.0 |
|
$ |
— |
|
$ |
(16.5 |
) |
$ |
(33.9 |
) |
$ |
(0.3 |
) |
$ |
311.3 |
|
|
The Match Group |
|
264.7 |
|
0.3 |
|
(25.6 |
) |
(11.4 |
) |
12.9 |
|
240.9 |
| ||||||
|
Media |
|
(36.7 |
) |
(0.6 |
) |
(0.9 |
) |
(2.1 |
) |
0.2 |
|
(40.2 |
) | ||||||
|
eCommerce |
|
17.3 |
|
(0.6 |
) |
(8.0 |
) |
(10.5 |
) |
0.6 |
|
(1.3 |
) | ||||||
|
Corporate |
|
(63.3 |
) |
(58.7 |
) |
(10.1 |
) |
— |
|
— |
|
(132.1 |
) | ||||||
|
Total |
|
$ |
544.1 |
|
$ |
(59.6 |
) |
$ |
(61.2 |
) |
$ |
(57.9 |
) |
$ |
13.4 |
|
$ |
378.7 |
|
|
|
|
For the twelve months ended December 31, 2013 |
| ||||||||||||||||
|
|
|
Adjusted |
|
Non-cash |
|
Depreciation |
|
Amortization of |
|
Acquisition-related |
|
Operating |
| ||||||
|
Search & Applications |
|
$ |
385.9 |
|
$ |
— |
|
$ |
(18.2 |
) |
$ |
(27.6 |
) |
$ |
— |
|
$ |
340.1 |
|
|
The Match Group |
|
266.9 |
|
(1.1 |
) |
(20.2 |
) |
(17.1 |
) |
(0.3 |
) |
228.2 |
| ||||||
|
Media |
|
(17.0 |
) |
(0.6 |
) |
(2.1 |
) |
(1.1 |
) |
— |
|
(20.8 |
) | ||||||
|
eCommerce |
|
22.9 |
|
— |
|
(8.9 |
) |
(14.1 |
) |
— |
|
(0.1 |
) | ||||||
|
Corporate |
|
(60.4 |
) |
(51.3 |
) |
(9.5 |
) |
— |
|
— |
|
(121.2 |
) | ||||||
|
Total |
|
$ |
598.3 |
|
$ |
(53.0 |
) |
$ |
(58.9 |
) |
$ |
(59.8 |
) |
$ |
(0.3 |
) |
$ |
426.2 |
|
SEE IMPORTANT NOTES AT END OF THIS DOCUMENT
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) non-cash 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) non-cash 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 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.
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IAC’S PRINCIPLES OF FINANCIAL REPORTING - continued
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
Non-cash 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 goodwill and intangible asset impairments 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.
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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 February 4, 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: The Match Group, which consists of dating, education and fitness businesses with brands such as Match.com, OkCupid, Tinder, The Princeton Review and DailyBurn; 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. The Company is headquartered in New York City and has offices worldwide. To view a full list of IAC companies, please visit www.iac.com.
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 Fax (212) 314-7309 http://iac.com
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Exhibit 99.2
IAC Q4 2014 Management’s Prepared Remarks
Set forth below are IAC management’s prepared remarks relating to IAC’s earnings announcement for the fourth quarter of 2014. IAC will audiocast a conference call to answer questions regarding the Company’s Q4 financial results and these prepared remarks on Wednesday, February 4, 2015 at 8:30 a.m. Eastern Time. The live audiocast will be open to the public at www.iac.com/Investors. These prepared remarks will not be read on the call.
Non-GAAP Financial Measures
These prepared remarks contain references to certain non-GAAP measures which, as a reminder, include Adjusted EBITDA, to which we’ll refer in these prepared remarks as “EBITDA” for simplicity. These non-GAAP financial measures should be considered in conjunction with, but not as a substitute for, financial information presented in accordance with GAAP. Please refer to our Q4 2014 press release and the investor relations section of our website for all comparable GAAP measures and full reconciliations for all material non-GAAP measures.
Please see the Safe Harbor Statement at the end of these remarks.
The Match Group (Greg Blatt, Chairman, The Match Group)
The Match Group had a solid 4th quarter, with both continued strong user growth and real progress on strategic initiatives. Results were in line with our expectations, though a little light on revenue due to a pullback in marketing spend. Looking ahead, we expect the themes we discussed on the last earnings call to predominate through 2015, so let’s revisit a few of them here.
As discussed at length after Q3, our traditional subscription businesses were feeling an impact from a number of industry-wide trends — shift to mobile, advent of new business models, growth of Tinder, explosion in youth demographic, shifts in paid acquisition dynamics, etc. While that’s still the case, early returns in 2015 indicate a lot of resiliency in these businesses. January tends to be a bellwether month for Dating, and the first metric we look at to determine the health of consumer demand is new registrations. For January, our new registrations for our traditional businesses globally — Match, People Media, Meetic, etc. (but excluding new acquisitions, like FriendScout) - are up about 30% year over year, after being
down about 10% year over year last January. All of this registration growth is coming from increased mobile registrations, with mobile registrations up over 100% year over year, while desktop registrations are actually down slightly. All of this has occurred while the cost of acquiring a registration is down approximately 20%, versus an increase of about 17% in the same period last year. While we don’t expect these favorable comparisons to last year to persist throughout 2015 to this degree, given that many of the drivers began to take effect over the course of last year, this is still better January performance than we expected. We think this demonstrates that, though the landscape is shifting, the same disciplines that have always driven this business continue to do so: good marketing, sound product improvements, new acquisition channels, etc. At the very least, January demonstrates there is no inexorable decay in our traditional businesses as some have speculated. Additionally, both OkCupid and Tinder also had a great January from a new user perspective indicating overall category expansion continues apace.
Turning to Tinder, user growth continues to be great, and to help fuel that growth going forward we’re very focused on improving the product and user experience over the coming months. Despite its unprecedented popularity, the core Tinder experience can still be meaningfully enhanced, and we have a solid roadmap for the next 12 months which we think will pay real dividends on a number of fronts. Additionally, we began to test a new subscription feature in the 4th quarter. The results thus far have been solid, but it’s incredibly early. As I mentioned last call, the ramp to meaningful monetization penetration levels will take a while, and timing will not be entirely predictable. As we’ve done previously, let’s take OkCupid as an example of how we have seen this work. When OkCupid launched its paid features, its penetration rate was negligible. Since then, OkCupid has had 14 significant product initiatives intended to drive increased penetration of its paid features and dozens of smaller initiatives intended to optimize the larger initiatives. Fifty percent of the significant initiatives had a positive effect on penetration, and the rest were basically neutral, with the total contributing to about 50% of today’s penetration rate. The remaining 50% of today’s penetration rate was driven by the dozens of smaller optimization efforts, which also had their own success rates of hits and misses. So while our enthusiasm for Tinder monetization continues to be as great as ever, and our experience with OkCupid should enable us to improve our success ratio, people should still expect the ramp rate to take some time and be somewhat uneven period-to-period.
I should also mention that while we’re pleased with the early Tinder monetization results, it took us longer to get up to full test mode than we anticipated, so we’re a couple months behind our original goal of being launched globally by January 1. This has no long term impact on the business, but it does represent a one-time push-back of the trajectory from our prior expectations.
We also spoke last time about our technology project, the plans for which continue to evolve. In effect, we’re rebuilding our underlying technology infrastructure that fuels both the mobile and desktop experiences for both Match and Meetic, and we’re allocating more resources to mobile development on both sides of the pond, as well as undertaking some other streamlining that is probably overdue. Once we complete this rebuild, our plan is to migrate People Media and our Latin America products onto the Match platform in early 2016. While we expect our product initiatives to continue unfettered on the mobile platforms through 2015, this increased focus on our backend technology is likely to divert attention from the steady process of improving financial metrics on our desktop business through the conversion and similar optimizations that have typically been our bread and butter. This is likely to have a financial impact, but we believe we’ve factored it into our expectations going forward. When we’re done with this project, our modernized infrastructure should enable new cutting edge product functionalities and much speedier iteration, both within a given product and device, across devices, and even across product lines. As discussed, we expect there to be significant one-time costs associated with this effort. In the 4th quarter, those costs were approximately $1.8 million, made up almost entirely of third party consulting fees, and in the 1st quarter, we expect the number to be roughly $3 million, made up predominantly of severance charges and consulting fees. Over the remainder of the year, we currently expect about $12 million of costs, although both timing and exact figures remain subject to change. (When discussing EBITDA numbers for The Match Group, in both these and future remarks, I will exclude these costs.) While this project presents a significant challenge, we’re confident we’ll come out the other side with dramatically improved ability to drive increased revenue growth across these businesses.
Looking briefly at our Non-Dating businesses, 2015 is a big year for The Princeton Review. We’re in the midst of a significant technology overhaul there as well, as we continue to integrate the tutoring and test prep businesses into a single consumer proposition. We expect the bulk of the integration to have occurred by the end of the 2nd quarter, after which we should begin to see the industrial benefits of the combination starting to come through.
With DailyBurn, even more so than Dating, January is where most of the customer acquisition efforts occur, with over 30% of the planned marketing budget spent in the first month. So far, the results have been ahead of plan, so we’re enthusiastically pushing ahead, both on the customer acquisition and product development fronts, and expect this to be another strong foundational year as we build this business.
We believe this will be a great year for The Match Group and expect to be able to drive solid financial results while at the same time meaningfully advancing long-term strategic initiatives that will set us up for
a phenomenal 2016. It’s a year with more variables than usual, given the unpredictability of the precise Tinder monetization trajectory, the technology projects, and changes in the market, but we think we’ve done a good job factoring them into our expectations. Looking ahead, there are several cross-currents affecting the year since last we spoke: the strengthening of the dollar since the 3rd quarter, all other things being equal, has knocked 400 basis points of revenue growth and 250 basis points of EBITDA growth off our projections for 2015; the two-month delay in the Tinder monetization rollout will have a near-term impact on revenue and EBITDA growth; and, finally, we recently made a decision to increase our investment in our Non-Dating businesses, also negatively impacting 2015 EBITDA growth. On the other side, we’re seeing in January better than expected strength across our businesses. So of course, it’s early, but for the full year we’re generally expecting solid double digit revenue growth in Dating and strong double digit revenue and EBITDA growth in The Match Group overall. Looking at the 1st quarter, we expect mid double digit revenue increases but a significant EBITDA decline for the group, driven by the following factors:
· over 100% of the total losses for the year in our Non-Dating business are expected in the quarter, due in large part to heavy concentration of DailyBurn marketing expense;
· the impact on Dating in Q1 of both Q4’s marketing slowdown and Q1’s marketing increase; and
· the unexpected delay in getting the Tinder revenue launch off the ground.
In the 2nd quarter, we expect revenue growth to accelerate further and EBITDA growth to reverse to a healthy year over year rate. In all, we have a lot going on this year on multiple fronts, but I’m confident in our plans and in our ability to execute them.
Search & Applications (Joey Levin, CEO, Search & Applications)
We finished 2014 with a great quarter, growing sequentially and year over year in both revenue and profits. Notwithstanding the turmoil over a year where we saw big shifts in behavior from our largest business partner, we grew EBITDA sequentially every quarter since the beginning of the year. We also ended the year with a Q4 that ranked as our second highest revenue quarter ever, thanks to continued execution at B2C in our Applications business, solid growth at About.com, and a modest contribution from the smaller, targeted acquisitions we’ve made to diversify our revenues.
On the Websites side of the business, About.com had another strong quarter, with revenue nearly doubling since the acquisition. Q4 was About.com’s first full quarter on our new platform and site, and we have continued to improve user engagement and monetization with better design and technology. Leveraging our huge volume of contextual data, we’ve built a proprietary content recommendation
algorithm to help users dig deeper into the topics they care about and to explore new topics they may not have known we cover. Our vast library of content had been an underutilized asset until we started to showcase it smartly to the 80 million users who already show up on our site every month. We saw a 2.5%+ lift in user engagement across About.com from these efforts, and we have much more work to do.
Our investments in the About.com Expert network are also bearing fruit. In raw numbers, we added 314 new Experts in 2014 and we are now successfully attracting Expert writers with their own online audiences, such as Lisa Lillien (aka Hungry Girl), About.com’s new Diet Advice Expert and author of nine New York Times bestselling books with hundreds of thousands of social followers, and Michael Wurm, our new Entertaining Expert, a popular lifestyle blogger with over 3 million Pinterest followers. We are also growing our social audiences with our Social Publishing initiative, which combines our data and insights with a new team of social editors to highlight and promote articles and content with strong social appeal. This feature is integrated into our content management system and early returns are encouraging. We have nothing but upside in social traffic today. We are also now about 50% migrated to our new email platform and seeing great early results, with the percentage of page views coming from email almost doubling every quarter.
At Ask.com, we finished the year much stronger than where we started, having spent 2014 building to recover ground lost from the Google pricing update at the end of 2013. Unfortunately, 2015 may be a similar story for Ask.com. A few weeks ago, Google released a change to its AdSense platform which reduced the presence of Ask.com marketing on Google, while simultaneously having some positive impact on About.com. This had a negative overall impact on our performance and, as a result, the Websites business will be down sequentially in Q1; we will, however, address this change with the same resilience and resourcefulness that we have in the past. Having already made a number of adjustments, we expect to resume growth as we move through the year.
Overall on Websites, in 2014 we delivered on our goal of generating over $100 million of EBITDA from properties other than Ask.com, and expect to be comfortably above that figure in 2015. The distribution platforms we use may continue to make changes, but the silver lining in the context of our overall business is that we can withstand a hit to any single source of traffic, in this case paid traffic to Ask.com from Google, without fundamentally undermining our performance or our goals. The diversification efforts we’ve made, both through operating execution to expand our sources of traffic and monetization, and M&A to bring in new business models, have begun to pay off. We still have plenty of work to do here, but our ability to forge ahead after a change such as this is a meaningful step forward from where we might have been a couple years ago.
In the quarter we also sold Urbanspoon. While we valued many aspects of the business and its mobile-centric approach to design and product, we found that user-generated content in the local category couldn’t monetize well enough for us to warrant further investment in the ad-supported publisher format that has worked well for our other properties. We viewed a sale as an attractive outcome given the market price, which allows us to focus on high quality content in areas where we know we can monetize effectively.
On the Applications side, we had a great quarter. The Chrome transition has mostly run its course through our financial results, and the new Chrome products resonate well with our users. Revenue per visit has been holding at historically high levels, thanks to healthy click prices from Google and optimizations on our side. We’ve also continued to find attractive marketing opportunities and expect the benefits from that spending to flow through into 2015.
In the non-search-related Applications businesses, we expect SlimWare to grow its desktop subscription base throughout the year, and its losses have continued to narrow. We also acquired a mobile app publisher called Apalon in the quarter. Apalon’s apps have been downloaded more than 100 million times in the last year, mostly on iOS, earning the company a Top 10 global ranking among developers of non-game iOS applications as measured by downloads, according to the App Annie Index. With 20 million monthly active users in categories such as lifestyle and weather, Apalon’s mobile apps align nicely with Mindspark’s desktop portfolio and we see opportunities to leverage data and cross-selling across those platforms. Apalon’s 100+ person team will also help to accelerate our momentum in mobile. Obviously, these businesses have a ways to go, but we’re starting the year with a nice size team and a real revenue base from which to build out subscription and mobile products which don’t depend on revenue from search. In aggregate, we now have nearly a third of Applications employees working on non-search solutions.
So, as we look forward to 2015, we’ll take a bit of a knock at Ask.com from adjustments by Google to its ad platform, but otherwise we’re off to a good start with About and our Applications businesses and our portfolio of earlier-stage bets which are focused and building. In the 1st quarter of 2015, we expect revenue year over year at Websites to decrease in the mid-single digits from the changes at Ask.com, and we expect Applications also down a bit (though not as much as Websites) as the remainder of the tail winds down on the previous Chrome implementation. As of now, I expect Q1 EBITDA overall to be down slightly year over year, although if we continue to see marketing opportunities we’ll spend into those aggressively, which could take EBITDA down more for the quarter but would benefit the remainder
of the year. For the full year, I expect some decline in revenue overall, primarily due to Ask.com in Websites, but still expect to deliver over $300 million of EBITDA.
Media and eCommerce (Jeff Kip, CFO, IAC)
We finished 2014 with significant momentum in our primary eCommerce and Media businesses.
In the eCommerce segment, HomeAdvisor’s metrics continue to accelerate with more than 30% revenue growth in the 4th quarter, finishing 2014 with all-time highs in customer satisfaction scores from both consumers and service professionals and total revenues approaching $300 million. HomeAdvisor has long been one of the leading two-sided home services marketplaces, where both consumers and high-quality service professionals come to be matched to one another. In a vertical where by far the single most critical factor in consumer satisfaction is being matched to an appropriate professional, we have, by a wide margin, the largest network of active, qualified, rated and reviewed service professionals in the industry, with well over 80,000 members, and we believe that through both product innovation and our years of sales expertise we will continue to grow that network and drive our significant competitive advantage on that side of the marketplace. We further believe that we can emerge as the clear leader in the home services market, first, by continuing to increase consumer satisfaction through both our network advantage and new product innovation, and, additionally, by driving increased consumer traffic and adoption through strong brand advertising. We have been able to accomplish both goals successfully over the last several periods despite brand unaided awareness scores in the low single digits. In 2015, we plan to again increase our investment in product, sales and marketing, and we will be launching significant new initiatives over the course of the year, including online booking for consumers and management software for professionals. We are extremely bullish on HomeAdvisor’s prospects.
In our Media segment, Vimeo has continued its rapid growth with total revenue up 40% and gross VOD revenue up nearly 5x in 2014 over 2013. We believe that online video monetization is pivoting from a purely advertising-based model towards paid content distribution, and that Vimeo is positioned to be a leader in the emerging paid video distribution ecosystem, having reached 170 million monthly unique viewers in 2014. Vimeo has developed the leading open platform for consumers to discover and view and for creators to distribute premium video content on any device, anywhere in the world. As with HomeAdvisor, we plan to increase investment in product, marketing, and content in 2015 to continue to drive Vimeo’s leadership position.
We have also seen exceptional growth in audience at CollegeHumor and The Daily Beast during 2014. Unique visitors grew 38% at both properties in the 4th quarter, and mobile growth has been particularly
strong. Electus also had a great 4th quarter and earned two Golden Globe nominations and one win for Best Actress for Jane the Virgin. Finally, our films business released two movies in December, Inherent Vice, which received a Golden Globe nomination for best actor, and Top Five, which has already earned more than $25 million at the box office.
For fiscal year 2015, we again expect strong growth across the Media and eCommerce businesses, with revenue growth in at least in the high teens percent in aggregate, led by Vimeo and HomeAdvisor, on modestly expanded investment to perhaps the low-to-mid-20s millions in total EBITDA losses across the two segments. The 1st quarter will likely start more slowly, with revenue growth rates in the low teens in total. A significant portion of the full year EBITDA loss will come in the 1st quarter as well, given not only the seasonal and timing factors mentioned above, but also significant marketing increases at Vimeo and HomeAdvisor to start the year.
Safe Harbor Statement
These prepared remarks 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. 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