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):  November 2, 2016

 

IAC/INTERACTIVECORP

(Exact name of registrant as specified in charter)

 

Delaware

 

0-20570

 

59-2712887

(State or other jurisdiction

 

(Commission

 

(IRS Employer

of incorporation)

 

File Number)

 

Identification No.)

 

555 West 18th Street, New York, NY

 

10011

(Address of principal executive offices)

 

(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 November 2, 2016, the Registrant announced that it had released its results for the quarter ended September 30, 2016.  The full text of the related press release, which is posted on the “Investor Relations” section of the Registrant’s website at http://www.iac.com/Investors and appears in Exhibit 99.1 hereto, is incorporated herein by reference.

 

Exhibit 99.1 is being furnished under both Item 2.02 “Results of Operations and Financial Condition” and Item 7.01 “Regulation FD Disclosure.”

 

Item 9.01                                           Financial Statements and Exhibits.

 

Exhibit No.

 

Description

99.1

 

Press Release of IAC/InterActiveCorp, dated November 2, 2016.

 

2



 

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.

 

 

IAC/INTERACTIVECORP

 

 

 

By:

/s/ GREGG WINIARSKI

 

Name:

Gregg Winiarski

 

Title:

Executive Vice President, General Counsel and Secretary

 

 

 

Date: November 2, 2016

 

 

 

3


Exhibit 99.1

 

 

IAC REPORTS Q3 2016

 

NEW YORK— November 2, 2016—IAC (NASDAQ: IAC) released third quarter 2016 results today.  It also separately released a letter to shareholders from CEO Joey Levin on the Investor Relations section of its website at www.iac.com/Investors.

 

SUMMARY RESULTS

($ in millions except per share amounts)

 

 

 

Q3 2016

 

Q3 2015

 

Growth

 

Revenue

 

$

764.1

 

$

838.6

 

-9

%

 

 

 

 

 

 

 

 

Operating income

 

85.6

 

87.1

 

-2

%

Net earnings

 

43.2

 

65.6

 

-34

%

GAAP Diluted EPS

 

0.49

 

0.74

 

-34

%

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

139.0

 

141.1

 

-2

%

Adjusted Net Income

 

60.3

 

90.3

 

-33

%

Adjusted EPS

 

0.73

 

1.01

 

-27

%

 

See reconciliations of GAAP to non-GAAP measures beginning on page 12.

 

Q3 2016 HIGHLIGHTS

 

·                  Match Group revenue increased 18% to $316.4 million driven by a 22% increase in Dating revenue due to 33% growth in Average PMC to over 5.5 million globally.  Tinder ended Q3 2016 with over 1.5 million PMC.

 

·                  Operating income increased 57% to $91.8 million and Adjusted EBITDA increased 34% to $110.7 million.

 

·                  HomeAdvisor revenue increased 34% to $133.6 million driven primarily by a 39% increase in HomeAdvisor domestic revenue due to 48% growth in paying service professionals to over 137,000 and 27% growth in service requests.

 

·                  Operating income increased 110% to $12.8 million and Adjusted EBITDA increased 79% to $16.0 million.

·                  On October 10, 2016, HomeAdvisor announced that it had agreed to acquire a controlling interest in MyHammer Holding AG, the leading home services marketplace in Germany.  The acquisition is expected to close in Q4 2016.  HomeAdvisor also announced that it intends to commence a tender offer to acquire the remaining publicly-held stake.

 

·                  In the Video segment, Vimeo paid subscribers increased 13% to over 741,000.

 

·                  In Q3 2016, IAC repurchased 550,000 shares of common stock at an average price of $59.19 per share, or $32.6 million in aggregate.  Year-to-date through October 28, 2016, IAC repurchased 5.3 million shares of common stock, nearly 6.5% of the outstanding capital stock of the Company, at an average price of $46.79 per share, or $247.3 million in aggregate.

 

1



 

DISCUSSION OF FINANCIAL AND OPERATING RESULTS

 

 

 

Q3 2016

 

Q3 2015

 

Growth

 

 

 

$ in millions

 

 

 

Revenue

 

 

 

 

 

 

 

Match Group

 

$

316.4

 

$

269.0

 

18

%

HomeAdvisor

 

133.6

 

99.4

 

34

%

Video

 

60.0

 

60.1

 

0

%

Applications

 

142.8

 

193.3

 

-26

%

Publishing

 

74.9

 

178.7

 

-58

%

Other

 

36.6

 

38.2

 

-4

%

Intercompany Elimination

 

(0.1

)

(0.1

)

-18

%

 

 

$

764.1

 

$

838.6

 

-9

%

Operating Income (Loss)

 

 

 

 

 

 

 

Match Group

 

$

91.8

 

$

58.4

 

57

%

HomeAdvisor

 

12.8

 

6.1

 

110

%

Video

 

(2.7

)

(5.7

)

53

%

Applications

 

29.2

 

46.5

 

-37

%

Publishing

 

(14.6

)

14.1

 

NM

 

Other

 

(1.5

)

0.2

 

NM

 

Corporate

 

(29.5

)

(32.5

)

9

%

 

 

$

85.6

 

$

87.1

 

-2

%

Adjusted EBITDA

 

 

 

 

 

 

 

Match Group

 

$

110.7

 

$

82.7

 

34

%

HomeAdvisor

 

16.0

 

8.9

 

79

%

Video

 

(0.9

)

(5.1

)

83

%

Applications

 

34.6

 

47.9

 

-28

%

Publishing

 

(6.2

)

21.1

 

NM

 

Other

 

(0.8

)

1.6

 

NM

 

Corporate

 

(14.3

)

(15.9

)

10

%

 

 

$

139.0

 

$

141.1

 

-2

%

 

Match Group

 

Dating revenue increased 22% driven by higher Average PMC at both North America and International, up 26% and 46%, respectively, due mainly to Tinder, the contribution from PlentyOfFish, acquired on October 28, 2015, and Pairs.

 

Operating income increased 57% to $91.8 million and Adjusted EBITDA increased 34% to $110.7 million due primarily to the higher revenue, reduced selling and marketing expenses as a percentage of revenue and $1.8 million in lower costs related to the consolidation and streamlining of our technology systems and European operations at our Dating businesses.  Operating income also benefitted from income of $5.1 million in the current year versus $0.8 million expense in the prior year resulting from changes in the amount of contingent consideration expected to be paid in connection with an acquisition.

 

Please refer to the Match Group Q3 2016 earnings release and the related presentation referenced therein for further detail.

 

2



 

HomeAdvisor

 

Revenue increased 34% to $133.6 million due primarily to 39% growth at the HomeAdvisor domestic business and 17% growth at the HomeAdvisor international business.  HomeAdvisor domestic revenue growth was driven by a 48% increase in paying service professionals to over 137,000 and a 27% increase in service requests.  Operating income increased 110% to $12.8 million and Adjusted EBITDA increased 79% to $16.0 million due to the higher revenue, notwithstanding a 36% increase in selling and marketing expenses, including 48% growth in TV marketing, and $1.1 million in transaction-related costs.

 

Video

 

Revenue was flat versus the prior year at $60.0 million, due primarily to growth at Vimeo, offset by lower revenue from IAC Films and declines at Electus due to the timing of certain projects.  Operating loss decreased 53% to $2.7 million and the Adjusted EBITDA loss decreased 83% to $0.9 million due primarily to reduced losses at Vimeo.

 

Applications

 

Revenue was $142.8 million in Q3 2016, flat sequentially from Q2 2016, driven by a 1% increase in Consumer, partially offset by a 6% decline in Partnerships.  Revenue decreased 26% versus the prior year due to a 45% decline in Partnerships and an 18% decline in Consumer.  The Consumer decline was driven by lower search revenue from desktop applications primarily due to lower revenue per query and, consequently, lower marketing spend, partially offset by strong growth at Apalon and SlimWare.

 

Operating income and Adjusted EBITDA were $29.2 million and $34.6 million, respectively, in Q3 2016, 55% and 19% higher sequentially from Q2 2016.  Operating income decreased 37% and Adjusted EBITDA decreased 28% versus the prior year due primarily to the lower revenue.  Operating income was further impacted by expense of $2.7 million in Q3 2016 versus income of $1.5 million in the prior year resulting from changes in the amount of contingent consideration expected to be paid in connection with an acquisition.

 

Publishing

 

Revenue decreased 58% to $74.9 million due to 74% lower Ask & Other revenue and 35% lower Premium Brands revenue.  Ask & Other revenue decreased due to a decline in revenue at Ask.com, primarily as a result of the new Google contract, which became effective April 1, 2016, as well as declines from certain other legacy businesses.  Premium Brands revenue decreased due primarily to declines in paid search traffic at About.com, mainly attributable to the new Google contract, partially offset by strong growth at Investopedia.

 

Operating income declined $28.7 million to a loss of $14.6 million and Adjusted EBITDA declined $27.3 million to a loss of $6.2 million due to the lower revenue and $1.1 million in restructuring costs.

 

3



 

Other

 

Revenue decreased 4% due to the sale of PriceRunner on March 18, 2016, partially offset by growth at ShoeBuy.  Operating income and Adjusted EBITDA decreased $1.7 million and $2.4 million, respectively, to losses in the current year due to the lower revenue.

 

Corporate

 

Operating loss decreased due primarily to a lower Adjusted EBITDA loss due to certain transaction-related costs in the prior year and lower stock-based compensation expense in the current year.

 

OTHER ITEMS

 

Q3 2015 Other income, net included a $33.6 million gain from a real estate transaction.

 

Interest expense increased due to the borrowings under the Match Group term loan facility, of which $400 million was refinanced on June 1, 2016 with Match Group 6.375% Senior Notes, and the higher interest rate associated with the exchange of $445 million of Match Group 6.75% Senior Notes for a substantially like amount of IAC 4.75% Senior Notes.  The note exchange and term loan borrowings closed on November 16, 2015.

 

The effective tax rates for continuing operations in Q3 2016 and Q3 2015 were 25% and 38%, respectively, and the effective tax rates for Adjusted Net Income in Q3 2016 and Q3 2015 were 30% and 37%, respectively.  The Q3 2016 effective rates were lower than the prior year primarily due to an increase in foreign income taxed at lower rates.

 

4



 

LIQUIDITY AND CAPITAL RESOURCES

 

As of September 30, 2016, IAC had 79.2 million common and class B common shares outstanding.  As of October 28, 2016, the Company had 10.3 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, 2016:

 

·                  The Company had $1.4 billion in cash and cash equivalents and marketable securities, of which IAC held $1.1 billion and Match Group held $231.2 million.

 

·                  The Company had $1.7 billion in long-term debt, of which IAC owed $428.5 million and Match Group owed $1.2 billion.

 

·                  IAC has a $300 million revolving credit facility and Match Group has a $500 million revolving credit facility.  Both credit facilities were undrawn as of September 30, 2016 and currently remain undrawn.

 

·                  During Q3 2016, the Company redeemed and repurchased a total of $54.8 million of its 4.875% Senior Notes and repurchased $10.4 million of its 4.75% Senior Notes.

 

As of September 30, 2016, IAC’s ownership interest and voting interest in Match Group were 82.8% and 98.0%, respectively.

 

5



 

OPERATING METRICS

 

 

 

Q3 2016

 

Q3 2015

 

Growth

 

Match Group

 

 

 

 

 

 

 

Direct Revenue (in millions)(a)

 

 

 

 

 

 

 

North America (b)

 

$

172.4

 

$

148.7

 

16

%

International (c)

 

101.3

 

75.8

 

34

%

Total Direct Revenue(a)

 

$

273.7

 

$

224.5

 

22

%

Indirect Revenue

 

13.8

 

10.6

 

30

%

Total Dating Revenue

 

$

287.5

 

$

235.1

 

22

%

Non-dating Revenue

 

28.9

 

33.8

 

-15

%

Total Revenue

 

$

316.4

 

$

269.0

 

18

%

 

 

 

 

 

 

 

 

Dating Average PMC (d)  (in thousands)

 

 

 

 

 

 

 

North America (b)

 

3,371

 

2,676

 

26

%

International (c)

 

2,175

 

1,491

 

46

%

Total Dating Average PMC

 

5,546

 

4,167

 

33

%

 

 

 

 

 

 

 

 

Dating ARPPU(e)

 

 

 

 

 

 

 

North America (b)

 

$

0.56

 

$

0.60

 

-8

%

International (c)

 

$

0.51

 

$

0.55

 

-8

%

Total Dating ARPPU

 

$

0.54

 

$

0.59

 

-8

%

 

 

 

 

 

 

 

 

HomeAdvisor

 

 

 

 

 

 

 

Domestic Revenue (in millions)

 

$

116.4

 

$

83.7

 

39

%

Domestic Service Requests (000s) (f)

 

3,684

 

2,908

 

27

%

Domestic Paying Service Professionals (000s) (g)

 

137

 

93

 

48

%

 

 

 

 

 

 

 

 

Video (in thousands)

 

 

 

 

 

 

 

Vimeo Ending Subscribers

 

741

 

654

 

13

%

 

 

 

 

 

 

 

 

Applications (in millions)

 

 

 

 

 

 

 

Revenue

 

 

 

 

 

 

 

Consumer (h)

 

$

110.9

 

$

135.6

 

-18

%

Partnerships (i)

 

31.9

 

57.7

 

-45

%

Total Revenue

 

$

142.8

 

$

193.3

 

-26

%

 

 

 

 

 

 

 

 

Publishing (in millions)

 

 

 

 

 

 

 

Revenue

 

 

 

 

 

 

 

Premium Brands (j)

 

$

48.2

 

$

74.7

 

-35

%

Ask & Other (k)

 

26.7

 

104.0

 

-74

%

Total Revenue

 

$

74.9

 

$

178.7

 

-58

%

 

See notes on following page

 

6



 


OPERATING METRICS NOTES

 

(a) Direct Revenue is revenue that is directly received from an end user of our products.

(b)   North America consists of our Dating businesses for customers located in the United States and Canada.

(c)    International consists of our Dating businesses for customers located outside of the United States and Canada.

(d) 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.

(e) ARPPU, or Average Revenue per Paying User, is Direct Revenue in the relevant measurement period divided by the Average PMC in such period divided by the number of calendar days in such period.

(f)      Fully completed and submitted customer service requests on HomeAdvisor.

(g)   The number of service professionals that had an active membership or paid for leads in the last month of the period.

(h)   Consumer revenue is composed of the direct-to-consumer downloadable desktop applications, including SlimWare, and Apalon, which houses our mobile operations.

(i)      Partnerships revenue is composed of our business-to-business partnership operations.

(j)      Premium Brands revenue is composed of About.com, Dictionary.com, Investopedia and The Daily Beast.

(k)    Ask & Other revenue is principally composed of Ask.com and CityGrid.

 

7



 

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

 

10/28/16

 

Dilution at:

 

Share Price

 

 

 

 

 

$

65.17

 

$

70.00

 

$

75.00

 

$

80.00

 

$

85.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Absolute Shares as of 10/28/16

 

79.3

 

 

 

79.3

 

79.3

 

79.3

 

79.3

 

79.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RSUs and Other *

 

1.9

 

 

 

1.1

 

1.1

 

1.0

 

0.9

 

0.9

 

Options

 

7.9

 

$

51.95

 

1.2

 

1.4

 

1.6

 

1.7

 

1.9

 

Total Dilution

 

 

 

 

 

2.3

 

2.4

 

2.6

 

2.7

 

2.8

 

% Dilution

 

 

 

 

 

2.9

%

3.0

%

3.1

%

3.3

%

3.4

%

Total Diluted Shares Outstanding

 

 

 

 

 

81.6

 

81.7

 

81.9

 

82.0

 

82.1

 

 

The dilution calculation above assumes that all exercise proceeds from IAC options (from both vested and unvested awards) and all expected tax benefits associated with the vesting and exercise of all awards, are used to purchase IAC shares at the time of such vesting or exercise (as the case may be), whether or not such repurchases actually occur.  This presentation differs from the treasury stock method used for GAAP because (i) it excludes from the assumed proceeds the future non-cash compensation of all unvested stock-based awards, (ii) includes in the assumed proceeds the entire estimated tax benefit received rather than only the excess tax benefit, and (iii) includes the dilution related to performance and market-based awards that are considered probable of vesting.  We believe this method of presentation better reflects the determination of fully diluted shares of the Company.

 


* Assumes Match Group subsidiary denominated stock-based awards are settled with shares of Match Group common stock; therefore, no dilution from these awards is included in the table above.

 

CONFERENCE CALL

 

IAC will audiocast a conference call to answer questions regarding the Company’s third quarter 2016 results on Thursday, November 3, 2016, 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 www.iac.com/Investors.

 

8



 

GAAP FINANCIAL STATEMENTS

 

IAC CONSOLIDATED STATEMENT OF OPERATIONS

($ in thousands except per share amounts)

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2016

 

2015

 

2016

 

2015

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

764,102

 

$

838,561

 

$

2,328,720

 

$

2,382,205

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

Cost of revenue (exclusive of depreciation shown separately below)

 

179,131

 

199,377

 

543,262

 

564,077

 

Selling and marketing expense

 

292,393

 

343,110

 

970,259

 

1,030,302

 

General and administrative expense

 

128,829

 

134,122

 

417,206

 

378,265

 

Product development expense

 

45,947

 

46,859

 

151,688

 

138,546

 

Depreciation

 

17,951

 

15,625

 

51,321

 

46,693

 

Amortization of intangibles

 

14,267

 

12,338

 

65,062

 

39,304

 

Goodwill impairment

 

 

 

275,367

 

 

Total operating costs and expenses

 

678,518

 

751,431

 

2,474,165

 

2,197,187

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

85,584

 

87,130

 

(145,445

)

185,018

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(27,118

)

(15,992

)

(82,622

)

(45,270

)

Other income, net

 

11,700

 

34,398

 

20,405

 

39,748

 

Earnings (loss) from continuing operations before income taxes

 

70,166

 

105,536

 

(207,662

)

179,496

 

Income tax (provision) benefit

 

(17,826

)

(40,510

)

77,394

 

(34,722

)

Earnings (loss) from continuing operations

 

52,340

 

65,026

 

(130,268

)

144,774

 

Earnings (loss) from discontinued operations, net of tax

 

 

17

 

 

(11

)

Net earnings (loss)

 

52,340

 

65,043

 

(130,268

)

144,763

 

Net (earnings) loss attributable to noncontrolling interests

 

(9,178

)

568

 

(13,063

)

6,558

 

Net earnings (loss) attributable to IAC shareholders

 

$

43,162

 

$

65,611

 

$

(143,331

)

$

151,321

 

 

 

 

 

 

 

 

 

 

 

Per share information attributable to IAC shareholders:

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per share from continuing operations

 

$

0.54

 

$

0.79

 

$

(1.78

)

$

1.82

 

Diluted earnings (loss) per share from continuing operations

 

$

0.49

 

$

0.74

 

$

(1.78

)

$

1.71

 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per share

 

$

0.54

 

$

0.79

 

$

(1.78

)

$

1.82

 

Diluted earnings (loss) per share

 

$

0.49

 

$

0.74

 

$

(1.78

)

$

1.71

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per share

 

$

 

$

0.34

 

$

 

$

1.02

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense by function:

 

 

 

 

 

 

 

 

 

Cost of revenue

 

$

597

 

$

307

 

$

1,904

 

$

846

 

Selling and marketing expense

 

1,465

 

2,442

 

5,026

 

7,284

 

General and administrative expense

 

18,248

 

21,683

 

59,957

 

56,320

 

Product development expense

 

3,351

 

2,577

 

15,723

 

7,419

 

Total stock-based compensation expense

 

$

23,661

 

$

27,009

 

$

82,610

 

$

71,869

 

 

9



 

IAC CONSOLIDATED BALANCE SHEET

($ in thousands)

 

 

 

September 30,

 

December 31,

 

 

 

2016

 

2015

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,189,784

 

$

1,481,447

 

Marketable securities

 

177,862

 

39,200

 

Accounts receivable, net

 

199,328

 

250,077

 

Other current assets

 

232,556

 

174,286

 

Total current assets

 

1,799,530

 

1,945,010

 

 

 

 

 

 

 

Property and equipment, net

 

317,277

 

302,817

 

Goodwill

 

1,942,556

 

2,245,364

 

Intangible assets, net

 

382,296

 

440,828

 

Long-term investments

 

126,855

 

137,386

 

Other non-current assets

 

102,646

 

117,286

 

TOTAL ASSETS

 

$

4,671,160

 

$

5,188,691

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

LIABILITIES

 

 

 

 

 

Current portion of long-term debt

 

$

 

$

40,000

 

Accounts payable, trade

 

72,268

 

86,883

 

Deferred revenue

 

284,227

 

258,412

 

Accrued expenses and other current liabilities

 

346,094

 

383,251

 

Total current liabilities

 

702,589

 

768,546

 

 

 

 

 

 

 

Long-term debt, net of current portion

 

1,641,285

 

1,726,954

 

Income taxes payable

 

35,800

 

33,692

 

Deferred income taxes

 

250,883

 

348,773

 

Other long-term liabilities

 

39,244

 

64,510

 

 

 

 

 

 

 

Redeemable noncontrolling interests

 

31,160

 

30,391

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY

 

 

 

 

 

Common stock

 

255

 

254

 

Class B convertible common stock

 

16

 

16

 

Additional paid-in capital

 

11,906,822

 

11,486,315

 

Retained earnings

 

188,063

 

331,394

 

Accumulated other comprehensive loss

 

(122,684

)

(152,103

)

Treasury stock

 

(10,108,606

)

(9,861,350

)

Total IAC shareholders’ equity

 

1,863,866

 

1,804,526

 

Noncontrolling interests

 

106,333

 

411,299

 

Total shareholders’ equity

 

1,970,199

 

2,215,825

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

4,671,160

 

$

5,188,691

 

 

10



 

IAC CONSOLIDATED STATEMENT OF CASH FLOWS

($ in thousands)

 

 

 

Nine Months Ended September 30,

 

 

 

2016

 

2015

 

Cash flows from operating activities attributable to continuing operations:

 

 

 

 

 

(Loss) earnings from continuing operations

 

$

(130,268

)

$

144,774

 

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

 

 

 

 

 

Stock-based compensation expense

 

82,610

 

71,869

 

Depreciation

 

51,321

 

46,693

 

Amortization of intangibles

 

65,062

 

39,304

 

Goodwill impairment

 

275,367

 

 

Excess tax benefits from stock-based awards

 

(43,131

)

(49,147

)

Deferred income taxes

 

(99,955

)

(7,851

)

Equity in losses of unconsolidated affiliates

 

340

 

78

 

Acquisition-related contingent consideration fair value adjustments

 

7,993

 

(17,906

)

Gains on sale of businesses and investments, net

 

(13,416

)

(523

)

Gain on real estate transaction

 

 

(33,586

)

Other adjustments, net

 

21,882

 

15,679

 

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

 

 

 

 

 

Accounts receivable

 

32,950

 

(25,822

)

Other assets

 

(19,775

)

(13,746

)

Accounts payable and other current liabilities

 

(63,669

)

(17,635

)

Income taxes payable

 

(37,081

)

(13,748

)

Deferred revenue

 

31,352

 

45,674

 

Net cash provided by operating activities attributable to continuing operations

 

161,582

 

184,107

 

Cash flows from investing activities attributable to continuing operations:

 

 

 

 

 

Acquisitions, net of cash acquired

 

(2,524

)

(43,286

)

Capital expenditures

 

(62,739

)

(44,558

)

Investments in time deposits

 

(87,500

)

 

Proceeds from maturities of time deposits

 

87,500

 

 

Proceeds from maturities and sales of marketable debt securities

 

79,210

 

192,928

 

Purchases of marketable debt securities

 

(229,246

)

(93,134

)

Purchases of investments

 

(7,211

)

(25,073

)

Net proceeds from the sale of businesses and investments

 

110,536

 

8,551

 

Other, net

 

5,562

 

(4,095

)

Net cash used in investing activities attributable to continuing operations

 

(106,412

)

(8,667

)

Cash flows from financing activities attributable to continuing operations:

 

 

 

 

 

Purchase of treasury stock

 

(247,256

)

(200,000

)

Proceeds from Match Group 2016 Senior Notes offering

 

400,000

 

 

Principal payments on long-term debt

 

(410,000

)

(80,000

)

Debt issuance costs

 

(5,048

)

 

Redemption and repurchase of Senior Notes

 

(126,271

)

 

Dividends

 

 

(84,947

)

Issuance of IAC common stock pursuant to stock-based awards, net of withholding taxes

 

(7,148

)

(40,197

)

Issuance of Match Group common stock pursuant to stock-based awards, net of withholding taxes

 

467

 

 

Excess tax benefits from stock-based awards

 

43,131

 

49,147

 

Purchase of noncontrolling interests

 

(2,529

)

(29,899

)

Acquisition-related contingent consideration payments

 

(2,180

)

(5,712

)

Decrease in restricted cash related to bond redemptions

 

20,000

 

 

Other, net

 

(766

)

512

 

Net cash used in financing activities attributable to continuing operations

 

(337,600

)

(391,096

)

Total cash used in continuing operations

 

(282,430

)

(215,656

)

Total cash used in discontinued operations

 

 

(190

)

Effect of exchange rate changes on cash and cash equivalents

 

(9,233

)

(8,111

)

Net decrease in cash and cash equivalents

 

(291,663

)

(223,957

)

Cash and cash equivalents at beginning of period

 

1,481,447

 

990,405

 

Cash and cash equivalents at end of period

 

$

1,189,784

 

$

766,448

 

 

11



 

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,

 

 

 

2016

 

2015

 

Net cash provided by operating activities attributable to continuing operations

 

$

161.6

 

$

184.1

 

Capital expenditures

 

(62.7

)

(44.6

)

Tax payments related to sales of a business and an investment

 

 

(2.1

)

Free Cash Flow

 

$

98.8

 

$

137.5

 

 

For the nine months ended September 30, 2016, consolidated Free Cash Flow decreased $38.6 million due to higher interest payments and higher capital expenditures, partially offset by higher Adjusted EBITDA and lower 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,

 

 

 

2016

 

2015

 

2016

 

2015

 

Net earnings (loss) attributable to IAC shareholders

 

$

43,162

 

$

65,611

 

$

(143,331

)

$

151,321

 

Stock-based compensation expense

 

23,661

 

27,009

 

82,610

 

71,869

 

Amortization of intangibles

 

14,267

 

12,338

 

65,062

 

39,304

 

Acquisition-related contingent consideration fair value adjustments

 

(2,477

)

(960

)

7,993

 

(17,906

)

Goodwill impairment

 

 

 

275,367

 

 

Discontinued operations, net of tax

 

 

(17

)

 

11

 

Impact of income taxes and noncontrolling interests

 

(18,362

)

(13,646

)

(156,919

)

(41,262

)

Adjusted Net Income

 

$

60,251

 

$

90,335

 

$

130,782

 

$

203,337

 

 

 

 

 

 

 

 

 

 

 

GAAP Basic weighted average shares outstanding

 

79,532

 

82,910

 

80,357

 

82,924

 

Options, RSUs and subsidiary denominated equity, treasury method

 

2,087

 

5,990

 

 

5,323

 

GAAP Diluted weighted average shares outstanding

 

81,619

 

88,900

 

80,357

 

88,247

 

Options, RSUs and subsidiary denominated equity, treasury method not included in diluted shares above

 

 

 

2,306

 

 

Impact of RSUs and other

 

444

 

470

 

492

 

410

 

Adjusted EPS weighted average shares outstanding

 

82,063

 

89,370

 

83,155

 

88,657

 

 

 

 

 

 

 

 

 

 

 

GAAP Diluted earnings (loss) per share

 

$

0.49

 

$

0.74

 

$

(1.78

)

$

1.71

 

 

 

 

 

 

 

 

 

 

 

Adjusted EPS

 

$

0.73

 

$

1.01

 

$

1.57

 

$

2.29

 

 

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.  If Match Group subsidiary denominated equity is included in GAAP diluted weighted average shares outstanding, they are backed out of Adjusted EPS as they are assumed to be settled with shares of Match Group common stock.

 

12



 

IAC RECONCILIATION OF SEGMENT GAAP MEASURE TO NON-GAAP MEASURE

($ in millions; rounding differences may occur)

 

 

 

For the three months ended September 30, 2016

 

 

 

Operating
income (loss)

 

Stock-based
compensation
expense

 

Depreciation

 

Amortization of
intangibles

 

Acquisition-related
contingent
consideration fair
value adjustments

 

Adjusted
EBITDA

 

Match Group

 

$

91.8

 

$

11.1

 

$

8.0

 

$

4.9

 

$

(5.1

)

$

110.7

 

HomeAdvisor

 

12.8

 

0.4

 

2.0

 

0.7

 

 

16.0

 

Video

 

(2.7

)

0.6

 

0.4

 

0.7

 

 

(0.9

)

Applications

 

29.2

 

 

1.1

 

1.5

 

2.7

 

34.6

 

Publishing

 

(14.6

)

 

2.0

 

6.3

 

 

(6.2

)

Other

 

(1.5

)

 

0.7

 

0.1

 

(0.1

)

(0.8

)

Corporate

 

(29.5

)

11.5

 

3.7

 

 

 

(14.3

)

Total

 

$

85.6

 

$

23.7

 

$

18.0

 

$

14.3

 

$

(2.5

)

$

139.0

 

 

 

 

For the three months ended September 30, 2015

 

 

 

Operating
income (loss)

 

Stock-based
compensation
expense

 

Depreciation

 

Amortization of
intangibles

 

Acquisition-related
contingent
consideration fair
value adjustments

 

Adjusted
EBITDA

 

Match Group

 

$

58.4

 

$

13.1

 

$

6.1

 

$

4.4

 

$

0.8

 

$

82.7

 

HomeAdvisor

 

6.1

 

0.4

 

1.6

 

0.8

 

 

8.9

 

Video

 

(5.7

)

 

0.3

 

0.4

 

(0.2

)

(5.1

)

Applications

 

46.5

 

 

1.3

 

1.6

 

(1.5

)

47.9

 

Publishing

 

14.1

 

 

2.4

 

4.6

 

 

21.1

 

Other

 

0.2

 

 

0.7

 

0.7

 

 

1.6

 

Corporate

 

(32.5

)

13.5

 

3.2

 

 

 

(15.9

)

Total

 

$

87.1

 

$

27.0

 

$

15.6

 

$

12.3

 

$

(1.0

)

$

141.1

 

 

13



 

IAC RECONCILIATION OF SEGMENT GAAP MEASURE TO NON-GAAP MEASURE

($ in millions; rounding differences may occur)

 

 

 

For the nine months ended September 30, 2016

 

 

 

Operating
income (loss)

 

Stock-based
compensation
expense

 

Depreciation

 

Amortization of
intangibles

 

Acquisition-related
contingent
consideration fair
value adjustments

 

Goodwill
impairment

 

Adjusted
EBITDA

 

Match Group

 

$

194.6

 

$

41.3

 

$

22.6

 

$

19.6

 

$

(2.7

)

$

 

$

275.4

 

HomeAdvisor

 

26.6

 

1.2

 

5.8

 

2.3

 

 

 

35.9

 

Video

 

(25.2

)

0.6

 

1.3

 

1.7

 

(0.2

)

 

(21.8

)

Applications

 

75.8

 

 

3.3

 

4.6

 

11.0

 

 

94.7

 

Publishing

 

(324.7

)

 

6.4

 

36.3

 

 

275.4

 

(6.6

)

Other

 

(3.3

)

 

2.0

 

0.6

 

(0.1

)

 

(0.7

)

Corporate

 

(89.3

)

39.4

 

9.9

 

 

 

 

(40.1

)

Total

 

$

(145.4

)

$

82.6

 

$

51.3

 

$

65.1

 

$

8.0

 

$

275.4

 

$

336.9

 

 

 

 

For the nine months ended September 30, 2015

 

 

 

Operating
income (loss)

 

Stock-based
compensation
expense

 

Depreciation

 

Amortization of
intangibles

 

Acquisition-related
contingent
consideration fair value
adjustments

 

Adjusted
EBITDA

 

Match Group

 

$

125.9

 

$

31.0

 

$

19.8

 

$

14.1

 

$

(11.5

)

$

179.4

 

HomeAdvisor

 

3.7

 

1.2

 

4.8

 

3.1

 

 

12.8

 

Video

 

(36.6

)

0.3

 

0.7

 

1.2

 

(2.6

)

(37.0

)

Applications

 

138.1

 

 

3.5

 

4.7

 

(3.8

)

142.5

 

Publishing

 

43.7

 

 

7.3

 

14.1

 

 

65.1

 

Other

 

(0.7

)

 

1.8

 

2.1

 

 

3.2

 

Corporate

 

(89.0

)

39.3

 

8.8

 

 

 

(41.0

)

Total

 

$

185.0

 

$

71.9

 

$

46.7

 

$

39.3

 

$

(17.9

)

$

325.0

 

 

14



 

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 impairments of goodwill and intangible assets 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 impairments of goodwill and intangible assets and (ii) gains and losses recognized on changes in the fair value of contingent consideration arrangements, and (3) 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 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.  Therefore, we think it is important to evaluate these measures along with our consolidated statement of operations.

 

15



 

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, 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, RSUs 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, RSUs 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 RSUs 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 related 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.  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.

 

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.

 

16



 

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 November 3, 2016, 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,” “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, strategy and anticipated trends 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 any of the industries in which IAC’s businesses operate (primarily the online advertising, general advertising and dating industries), our dependence on third parties to drive traffic to our various websites and distribute our products and services in a cost-effective manner, our ability to attract and 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, our ability to build, maintain and/or enhance our various brands, our ability to develop and monetize mobile versions of our various products and services, foreign currency exchange rate fluctuations, changes in industry standards and technology, the integrity and scalability of our systems and infrastructure (and those of third parties), our ability to protect our systems from cyberattacks, operational and financial risks relating to acquisitions, 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 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: IAC) is a leading media and Internet company comprised of widely known consumer brands such as HomeAdvisor, Vimeo, About.com, Dictionary.com, The Daily Beast, Investopedia, and Match Group’s online dating portfolio, which includes Match, OkCupid, Tinder and PlentyOfFish.  The company is headquartered in New York City and has offices worldwide.

 

Contact Us

 

IAC Investor Relations

Mark Schneider

(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

 

*    *    *

 

17