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Table of Contents
As filed with the Securities and Exchange Commission on May 10, 2022
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2022
Or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from__________to__________                            
Commission File No. 001-39356
https://cdn.kscope.io/f93e4d0e70e901bfb28df3f1fdd5a97c-iaci-20220331_g1.jpg
IAC/INTERACTIVECORP
(Exact name of registrant as specified in its charter)
Delaware84-3727412
 (State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
555 West 18th Street, New York, New York 10011
(Address of registrant's principal executive offices)
(212314-7300
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of exchange on which registered
Common stock, par value $0.0001IACThe Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒   No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒    No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes     No ☒
As of May 6, 2022, the following shares of the registrant's common stock were outstanding:
Common Stock84,084,191 
Class B common stock5,789,499 
Total 89,873,690 




TABLE OF CONTENTS
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Table of Contents

PART I
FINANCIAL INFORMATION
Item 1.    Consolidated Financial Statements
IAC/INTERACTIVECORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
March 31, 2022December 31, 2021
(In thousands, except par value amounts)
ASSETS  
Cash and cash equivalents$1,852,598 $2,118,730 
Marketable securities59,012 19,788 
Accounts receivable, net of reserves593,280 693,208 
Other current assets279,408 242,188 
Total current assets2,784,298 3,073,914 
Buildings, capitalized software, leasehold improvements, equipment and land, net576,787 570,525 
Goodwill3,221,041 3,226,610 
Intangible assets, net of accumulated amortization1,357,479 1,414,892 
Investment in MGM Resorts International2,664,612 2,649,442 
Long-term investments322,925 327,838 
Other non-current assets966,394 1,037,067 
TOTAL ASSETS$11,893,536 $12,300,288 
LIABILITIES AND SHAREHOLDERS' EQUITY  
LIABILITIES:  
Current portion of long-term debt$30,000 $30,000 
Accounts payable, trade184,084 203,173 
Deferred revenue178,061 165,451 
Accrued expenses and other current liabilities939,399 980,574 
Total current liabilities1,331,544 1,379,198 
Long-term debt, net2,039,655 2,046,237 
Deferred income taxes308,178 385,890 
Other long-term liabilities685,425 721,262 
Redeemable noncontrolling interests27,817 18,741 
Commitments and contingencies
SHAREHOLDERS' EQUITY: 
Common Stock, $0.0001 par value; authorized 1,600,000 shares; 84,075 and 83,922 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively
8 8 
Class B common stock, $0.0001 par value; authorized 400,000 shares; 5,789 shares issued and outstanding at March 31, 2022 and December 31, 2021
1 1 
Additional paid-in-capital6,249,328 6,265,669 
Retained earnings669,353 905,151 
Accumulated other comprehensive income 765 4,397 
Total IAC shareholders' equity6,919,455 7,175,226 
Noncontrolling interests581,462 573,734 
Total shareholders' equity7,500,917 7,748,960 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY$11,893,536 $12,300,288 
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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IAC/INTERACTIVECORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
 20222021
 (In thousands, except per share data)
Revenue$1,325,345 $786,570 
Operating costs and expenses:
Cost of revenue (exclusive of depreciation shown separately below)537,103 228,994 
Selling and marketing expense490,488 312,538 
General and administrative expense238,355 163,160 
Product development expense80,787 53,083 
Depreciation30,236 19,186 
Amortization of intangibles57,190 16,839 
Total operating costs and expenses1,434,159 793,800 
Operating loss(108,814)(7,230)
Interest expense(21,912)(6,617)
Unrealized (loss) gain on investment in MGM Resorts International(187,330)382,540 
Other income, net6,699 3,563 
(Loss) earnings from continuing operations before income taxes(311,357)372,256 
Income tax benefit (provision)70,464 (53,311)
Net (loss) earnings from continuing operations(240,893)318,945 
Earnings from discontinued operations, net of tax 9,956 
Net (loss) earnings (240,893)328,901 
Net loss attributable to noncontrolling interests5,095 227 
Net (loss) earnings attributable to IAC shareholders$(235,798)$329,128 
Per share information from continuing operations:
Basic (loss) earnings per share$(2.72)$3.60 
Diluted (loss) earnings per share$(2.72)$3.36 
Per share information attributable to IAC Common Stock and Class B common stock shareholders:
Basic (loss) earnings per share$(2.72)$3.70 
Diluted (loss) earnings per share$(2.72)$3.46 
Stock-based compensation expense by function:
Cost of revenue$25 $12 
Selling and marketing expense1,508 1,216 
General and administrative expense25,371 15,744 
Product development expense2,783 1,343 
Total stock-based compensation expense$29,687 $18,315 
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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IAC/INTERACTIVECORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE OPERATIONS
(Unaudited)
Three Months Ended March 31,
 20222021
 (In thousands)
Net (loss) earnings $(240,893)$328,901 
Other comprehensive (loss) income, net of income taxes:
Change in foreign currency translation adjustment (3,701)11,017 
Change in unrealized gains and losses on available-for-sale marketable debt securities (2)
Total other comprehensive (loss) income, net of income taxes(3,701)11,015 
Comprehensive (loss) income, net of income taxes(244,594)339,916 
Components of comprehensive loss (income) attributable to noncontrolling interests:
Net loss attributable to noncontrolling interests5,095 227 
Change in foreign currency translation adjustment attributable to noncontrolling interests67 (691)
Comprehensive loss (income) attributable to noncontrolling interests5,162 (464)
Comprehensive (loss) income attributable to IAC shareholders$(239,432)$339,452 
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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IAC/INTERACTIVECORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Three Months Ended March 31, 2022 and 2021
(Unaudited)
 Redeemable Noncontrolling Interests
Common Stock,
$0.0001 par value
Class B common stock,
$0.0001 par value
Common Stock,
$0.001 par value
Class B common stock,
$0.001 par value
Additional Paid-in-CapitalRetained EarningsAccumulated
Other
Comprehensive
Income (Loss)
Total IAC
Shareholders' Equity
Noncontrolling
Interests
Total Shareholders' Equity
 $Shares$Shares$Shares$Shares
 (In thousands)
Balance at December 31, 2021$18,741 $8 83,922 $1 5,789 $ $ $  $6,265,669 $905,151 $4,397 $7,175,226 $573,734 $7,748,960 
Net loss (34)— — — — — — — (235,798)— (235,798)(5,061)(240,859)
Other comprehensive loss, net of income taxes— — — — — — — — — (3,634)(3,634)(67)(3,701)
Stock-based compensation expense— — — — — — — 16,702 — — 16,702 13,556 30,258 
Issuance of common stock pursuant to stock-based awards, net of withholding taxes— — 153 — — — — (14,012)— — (14,012)— (14,012)
Issuance of Angi Inc. common stock pursuant to stock-based awards, net of withholding taxes— — — — — — — (1,775)— 2 (1,773)(700)(2,473)
Purchase of Angi Inc. treasury stock— — — — — — — (8,144)— — (8,144)— (8,144)
Adjustment of noncontrolling interests to fair value9,136 — — — — — — — — (9,136)— — (9,136)— (9,136)
Other(26)— — — — — — — — 24 — — 24 — 24 
Balance at March 31, 2022$27,817 $8 84,075 $1 5,789 $  $  $6,249,328 $669,353 $765 $6,919,455 $581,462 $7,500,917 
Balance at December 31, 2020$231,992 $  $  $83 82,976 $6 5,789 $5,909,614 $694,042 $(6,170)$6,597,575 $553,353 $7,150,928 
Net (loss) earnings(673)— — — — — — — 329,128 — 329,128 446 329,574 
Other comprehensive income, net of income taxes580 — — — — — — — — 10,324 10,324 111 10,435 
Stock-based compensation expense— — — — — — — 20,668 — — 20,668 2,542 23,210 
Issuance of common stock pursuant to stock-based awards, net of withholding taxes— — — — — — 366— (21,135)— — (21,135)— (21,135)
Issuance of Angi Inc. common stock pursuant to stock-based awards, net of withholding taxes— — — — — — — (49,476)— (5)(49,481)1,430 (48,051)
Purchase of Angi Inc. treasury stock— — — — — — — (4,916)— — (4,916)— (4,916)
Issuance of Vimeo common stock and creation of noncontrolling interests, net of fees40,785 — — — — — — 258,965 — — 258,965 — 258,965 
Distribution to and purchase of noncontrolling interests(22,938)— — — — — — — — — — — — 
Adjustment of noncontrolling interests to fair value453,099 — — — — — — — — (453,099)— — (453,099)— (453,099)
Other(4)— — — — — — — — 109 — — 109 — 109 
Balance at March 31, 2021$702,841 $  $  $83 83,342 $6 5,789 $5,660,730 $1,023,170 $4,149 $6,688,138 $557,882 $7,246,020 



The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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IAC/INTERACTIVECORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
 20222021
 (In thousands)
Cash flows from operating activities attributable to continuing operations:  
Net (loss) earnings$(240,893)$328,901 
Less: Earnings from discontinued operations, net of tax 9,956 
Net (loss) earnings from continuing operations(240,893)318,945 
Adjustments to reconcile net (loss) earnings to net cash provided by operating activities attributable to continuing operations: 
Stock-based compensation expense29,687 18,315 
Amortization of intangibles57,190 16,839 
Depreciation30,236 19,186 
Provision for credit losses23,287 19,308 
Deferred income taxes(76,933)51,748 
Unrealized loss (gain) on investment in MGM Resorts International187,330 (382,540)
Gains on investments in equity securities, net(34,820)(1,457)
Unrealized increase in the estimated fair value of a warrant(7,985)(12,775)
Non-cash lease expense (including right-of-use asset impairments)13,727 6,550 
Pension and postretirement benefit expense36,343  
Other adjustments, net(717)16,088 
Changes in assets and liabilities, net of effects of acquisitions and dispositions:
Accounts receivable75,272 (40,511)
Other assets5,341 8,006 
Operating lease liabilities(17,224)(6,907)
Accounts payable and other liabilities(84,049)5,159 
Income taxes payable and receivable5,786 (799)
Deferred revenue11,324 17,061 
Net cash provided by operating activities attributable to continuing operations12,902 52,216 
Cash flows from investing activities attributable to continuing operations:
Capital expenditures(30,493)(20,217)
Proceeds from maturities of marketable debt securities 225,000 
Net proceeds from the sale of businesses and investments1,317 1,089 
Purchases of investment in MGM Resorts International(202,500) 
Purchases of investments (7,180)
Other, net87 (1,306)
Net cash (used in) provided by investing activities attributable to continuing operations(231,589)197,386 
Cash flows from financing activities attributable to continuing operations:
Principal payments on Dotdash Meredith Term Loans(7,500) 
Principal payments on ANGI Group Term Loan (6,875)
Debt issuance costs(785) 
Purchase of Angi Inc. treasury stock(8,144)(4,916)
Proceeds from the exercise of IAC stock options 1,471 
Withholding taxes paid on behalf of IAC employees on net settled stock-based awards(14,890)(18,264)
Withholding taxes paid on behalf of Angi Inc. employees on net settled stock-based awards(1,322)(48,168)
Purchase of noncontrolling interests (22,938)
Other, net5,159 526 
Net cash used in financing activities attributable to continuing operations(27,482)(99,164)
Total cash (used in) provided by continuing operations(246,169)150,438 
Net cash provided by operating activities attributable to discontinued operations 1,656 
Net cash provided by investing activities attributable to discontinued operations 7,633 
Net cash provided by financing activities attributable to discontinued operations 293,577 
Total cash provided by discontinued operations 302,866 
Effect of exchange rate changes on cash and cash equivalents and restricted cash(1,029)(93)
Net (decrease) increase in cash and cash equivalents and restricted cash(247,198)453,211 
Cash and cash equivalents and restricted cash at beginning of period2,121,864 3,477,110 
Cash and cash equivalents and restricted cash at end of period$1,874,666 $3,930,321 
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1—THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Acquisition of Meredith
On December 1, 2021, Dotdash Media Inc. (formerly known as About Inc., and referred to herein as "Dotdash"), a wholly-owned subsidiary of IAC/InterActiveCorp ("IAC"), completed the acquisition of Meredith Holdings Corporation ("Meredith"), which holds Meredith Corporation's national media business, consisting of its digital and magazine businesses, and its corporate operations. The parent of the combined entity is Dotdash Meredith, Inc. ("Dotdash Meredith"). See “Note 4—Business Combinations” for a description of the acquisition of Meredith.
Vimeo Spin-off
On May 25, 2021, IAC completed the spin-off of its full stake in Vimeo, Inc. (formerly Vimeo Holdings, Inc. ("Vimeo")) to IAC shareholders (which we refer to as the “Spin-off”). Following the Spin-off, Vimeo became an independent, separately traded public company. Therefore, Vimeo is presented as a discontinued operation within IAC's financial statements for all periods prior to May 25, 2021. See “Note 3—Discontinued Operations” for additional details.
Nature of Operations
IAC today is comprised of Dotdash Meredith, Angi Inc. and Care.com, as well as a number of other businesses ranging from early stage to established.
As used herein, "IAC," the "Company," "we," "our" or "us" and similar terms refer to IAC/InterActiveCorp and its subsidiaries (unless the context requires otherwise).
Basis of Presentation
The Company prepares its consolidated financial statements (collectively referred to herein as "financial statements") in accordance with United States ("U.S.") generally accepted accounting principles ("GAAP"). The consolidated financial statements include the accounts of the Company, all entities that are wholly-owned by the Company and all entities in which the Company has a controlling financial interest. All intercompany transactions and balances between and amongst the Company and its subsidiaries have been eliminated.
The unaudited financial statements have been prepared in accordance with GAAP for interim financial information and with the rules and regulations of the Securities and Exchange Commission ("SEC"). Accordingly, they do not include all of the information and notes required by GAAP for complete annual financial statements. In the opinion of management, the unaudited financial statements include all normal recurring adjustments considered necessary for a fair presentation. Interim results are not necessarily indicative of the results that may be expected for the full year. The unaudited interim financial statements should be read in conjunction with the annual audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021.
COVID-19 Update
The impact on the Company from the COVID-19 pandemic and the measures designed to contain its spread has been varied and volatile.
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IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
As previously disclosed, the impact of COVID-19 on the businesses in IAC's Angi Inc. segment initially resulted in a decline in demand for service requests, driven primarily by decreases in demand in certain categories of jobs (particularly discretionary indoor projects). While these businesses experienced a rebound in service requests from mid-2020 through early 2021, service requests started to decline in May 2021 and continued to decline into the first quarter of 2022 because of Angi Inc.'s brand integration that began in March 2021 and, in late 2021 and early 2022, the Omicron variant surge. Moreover, many service professionals’ businesses have been and continue to be adversely impacted by labor and material constraints and many service professionals have limited capacity to take on new business, which continues to negatively impact the ability of Angi Inc.'s businesses to monetize service requests. Although Angi Inc.'s ability to monetize service requests rebounded modestly in the second half of 2021 and first quarter of 2022, it still has not returned to levels experienced pre-COVID-19. No assurances can be provided that Angi Inc. will continue to be able to improve monetization, or that service professionals’ businesses and, as a consequence, our revenue and profitability will not continue to be adversely impacted in the future. In addition, in the first quarter of 2022, revenue at Dotdash, excluding Meredith, declined compared to the first quarter of 2021 due to lower traffic to its sites compared to prior year COVID-19 traffic highs, impacting both display advertising and performance marketing revenue.
The extent to which developments related to the COVID-19 pandemic and measures designed to curb its spread continue to impact the Company’s business, financial condition and results of operations will depend on future developments, all of which are highly uncertain and many of which are beyond the Company’s control, including the continuing spread of COVID-19, the severity of resurgences of COVID-19 caused by variant strains of the virus, the effectiveness of vaccines and attitudes toward receiving them, materials and supply chain constraints, labor shortages, the scope of governmental and other restrictions on travel, discretionary services and other activity, and public reactions to these developments.
Accounting Estimates
Management of the Company is required to make certain estimates, judgments and assumptions during the preparation of its financial statements in accordance with GAAP. These estimates, judgments and assumptions impact the reported amounts of assets, liabilities, revenue and expenses and the related disclosure of assets and liabilities. Actual results could differ from these estimates.
On an ongoing basis, the Company evaluates its estimates, judgments and assumptions, including those related to: the fair values of cash equivalents and marketable equity securities; the carrying value of accounts receivable, including the determination of the allowance for credit losses and the determination of revenue reserves; the determination of the customer relationship period for certain costs to obtain a contract with a customer; the carrying value of right-of-use assets ("ROU assets"); the useful lives and recoverability of buildings, capitalized software, leasehold improvements and equipment and definite-lived intangible assets; the fair value of assets acquired and liabilities assumed as a result of an acquisition and the allocation of purchase price to the identifiable intangible assets acquired during the measurement period; the recoverability of goodwill and indefinite-lived intangible assets; the fair value of equity securities without readily determinable fair values; contingencies; the fair value of acquisition-related contingent consideration arrangements; unrecognized tax benefits; the valuation allowance for deferred income tax assets; pension and postretirement benefit expenses, including actuarial assumptions regarding discount rates, expected returns on plan assets and healthcare costs; and the fair value of and forfeiture rates for stock-based awards, among others. The Company bases its estimates, judgments and assumptions on historical experience, its forecasts and budgets and other factors that the Company considers relevant.
Accounting for Investments in Equity Securities
Investments in equity securities, other than those of the Company's consolidated subsidiaries and those accounted for under the equity method, if applicable, are accounted for at fair value or under the measurement alternative of Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") No. 2016-01, Recognition and Measurement of Financial Assets and Liabilities, with any changes to fair value recognized in "Other income, net" in the statement of operations each reporting period. Under the measurement alternative, equity investments without readily determinable fair values are carried at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar securities of the same issuer; fair value is generally determined based on a market approach as of the transaction date. A security will be considered identical or similar if it has identical or similar rights to the equity securities held by the Company.
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IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

The Company accounts for investments in the common stock or in-substance common stock of entities in which the Company has the ability to exercise significant influence over the operating and financial matters of the investee, but does not have a controlling financial interest, using the equity method. At March 31, 2022 and December 31, 2021, the Company has one investment accounted for using the equity method, which is included in "Long-term investments" in the balance sheet.
See "Note 5—Financial Instruments and Fair Value Measurements" for additional information on investments in equity securities.
General Revenue Recognition
Revenue is recognized when control of the promised services or goods is transferred to the Company's customers and in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services or goods.
The Company's disaggregated revenue disclosures are presented in "Note 9—Segment Information."
Deferred Revenue
Deferred revenue consists of payments that are received or are contractually due in advance of the Company's performance obligation. The Company’s deferred revenue is reported on a contract-by-contract basis at the end of each reporting period. The Company classifies deferred revenue as current when the remaining term of the applicable subscription period or expected completion of its performance obligation is one year or less. The current and non-current deferred revenue balances are $165.5 million and $0.4 million, respectively, at December 31, 2021, and $137.7 million and $0.7 million, respectively, at December 31, 2020. During the three months ended March 31, 2022, the Company recognized $90.0 million of revenue that was included in the deferred revenue balance at December 31, 2021. During the three months ended March 31, 2021, the Company recognized $66.1 million of revenue that was included in the deferred revenue balance at December 31, 2020. The current and non-current deferred revenue balances are $178.1 million and $0.5 million, at March 31, 2022, respectively. Non-current deferred revenue is included in "Other long-term liabilities" in the balance sheet.
Practical Expedients and Exemptions
As permitted under the practical expedient available under ASU No. 2014-09, Revenue from Contracts with Customers, the Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less, (ii) contracts with variable consideration that is tied to sales-based or usage-based royalties, allocated entirely to unsatisfied performance obligations, or to a wholly unsatisfied promise accounted for under the series guidance, and (iii) contracts for which the Company recognizes revenue at the amount which it has the right to invoice for services performed.
Costs to Obtain a Contract with a Customer
The Company uses a portfolio approach to assess the accounting treatment of the incremental costs to obtain a contract with a customer. The Company recognizes an asset for these costs if we expect to recover those costs. To the extent that these costs are capitalized, the resultant asset is amortized on a systematic basis consistent with the pattern of the transfer of the services to which the asset relates. The Company has determined that certain costs, primarily commissions paid to employees pursuant to certain sales incentive programs and mobile app store fees, meet the requirements to be capitalized as a cost of obtaining a contract.
Commissions Paid to Third-Party Agent Sales of Magazine Subscriptions
Dotdash Meredith uses third-party agents to obtain certain subscribers. The agents are paid a commission, which can be as much as the subscription price charged to the subscriber. Dotdash Meredith subscriptions do not have substantive termination penalties; therefore, the contract term is determined on an issue-by-issue basis. Accordingly, these costs do not qualify for capitalization because there is no contract with a customer until a copy is served to a customer; therefore these costs are expensed when the publication is sent to the customer. Dotdash Meredith recognizes a liability to the extent the commission is refundable to the third-party agent. Dotdash Meredith expenses additional amounts paid to agents (such as per subscriber bounties) to acquire subscribers as incurred.
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IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Commissions Paid to Employees Pursuant to Sales Incentive Programs
The Company has determined that commissions paid to employees pursuant to certain sales incentive programs meet the requirements to be capitalized as the incremental costs to obtain a contract with a customer. When customer renewals are expected and the renewal commission is not commensurate with the initial commission, the average customer life includes renewal periods. Capitalized commissions paid to employees pursuant to these sales incentive programs are amortized over the estimated customer relationship period. The Company calculates the anticipated customer relationship period as the average customer life, which is based on historical data.
For sales incentive programs where the anticipated customer relationship period is one year or less, the Company has elected the practical expedient to expense the commissions as incurred.
App Store Fees
The Company pays fees to the Apple App Store and the Google Play Store for the distribution of our paid mobile apps. The Company capitalizes and amortizes mobile app store fees related to subscriptions over the term of the applicable subscription.
The following table presents the capitalized costs to obtain a contract with a customer at March 31, 2022 and December 31, 2021, respectively:
March 31, 2022December 31, 2021
Sales CommissionsApp Store FeesTotalSales CommissionsApp Store FeesTotal
(In thousands)
Current$42,794 $8,640 $51,434 $39,669 $9,023 $48,692 
Non-current5,987  5,987 6,086  6,086 
Total
$48,781 $8,640 $57,421 $45,755 $9,023 $54,778 
The current and non-current capitalized costs to obtain a contract with a customer are included in "Other current assets" and "Other non-current assets," respectively, in the balance sheet.
Certain Risks and Concentrations—Services Agreement with Google (the "Services Agreement")
A meaningful portion of the Company's revenue (and a substantial portion of IAC's net cash from operating activities attributable to continuing operations that it can freely access) is attributable to the Services Agreement. In addition, the Company earns certain other advertising revenue from Google that is not attributable to the Services Agreement. For the three months ended March 31, 2022 and 2021, total revenue earned from Google was $193.4 million and $171.8 million, respectively, representing 15% and 22%, respectively, of the Company's revenue. The related accounts receivable totaled $66.8 million and $89.1 million at March 31, 2022 and December 31, 2021, respectively.
The total revenue earned from the Services Agreement for the three months ended March 31, 2022 and 2021 was $147.1 million and $152.5 million, respectively, representing 11% and 19%, respectively, of the Company's total revenue.
The revenue attributable to the Services Agreement is earned by Ask Media Group and the Desktop business, both within the Search segment. For the three months ended March 31, 2022 and 2021, revenue earned from the Services Agreement was $120.5 million and $121.4 million, respectively, within Ask Media Group and $26.6 million and $31.0 million, respectively, within the Desktop business.
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IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The Company and Google are parties to an amended Services Agreement, which expires on March 31, 2024 and provides for an automatic renewal for an additional one year period absent a notice of non-renewal from either party on or before March 31, 2023. The Services Agreement requires that the Company comply with certain guidelines promulgated by Google. Google may generally unilaterally update its policies and guidelines without advance notice. These updates may be specific to the Services Agreement or could be more general and thereby impact the Company as well as other companies. These policy and guideline updates have in the past and could in the future require modifications to, or prohibit and/or render obsolete certain of our products, services and/or business practices, which have been and could be costly to address or negatively impact revenue and have had and in the future could have an adverse effect on our financial condition and results of operations. As described below, Google has made changes to the policies under the Services Agreement and has also made industry-wide changes that have negatively impacted the Desktop business-to-consumer ("B2C") business. Google may make changes in the future that could impact the revenue earned from Google, including under the Services Agreement.
Certain industry-wide policy changes became effective on August 27, 2020. These industry-wide changes, combined with increased enforcement of policies under the Services Agreement, have had a negative impact on the results of operations of the B2C business. During the fourth quarter of 2020, Google suspended services with respect to some B2C's products and may do so with respect to other products in the future. As a result, the B2C business elected to modify certain marketing strategies in early January 2021. Subsequently, Google informed us of another policy change in the first quarter of 2021 that became effective on May 10, 2021. We anticipated that this Google policy change would eliminate our ability to successfully introduce and market new B2C products that would be profitable. Therefore, we undertook cost reduction measures and effectively eliminated all marketing of B2C products beginning in March 2021. This elimination of marketing has positively impacted profitability starting in the second quarter of 2021 because revenue from B2C products is earned over multiple periods beyond just the period in which the initial marketing is incurred. Following the cessation of the introduction of new products in March 2021, the B2C revenue stream relates solely to the then existing installed base of products. In 2022 and beyond, we expect the revenue and profits of the B2C business to decline significantly.
Recent Accounting Pronouncements
Accounting Pronouncements Not Yet Adopted by IAC
There are no recently issued accounting pronouncements that have not yet been adopted that are expected to have a material effect on the results of operations, financial condition or cash flows of the Company.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
NOTE 2—INCOME TAXES
At the end of each interim period, the Company estimates the annual expected effective income tax rate and applies that rate to its ordinary year-to-date earnings or loss. The income tax provision or benefit related to significant, unusual, or extraordinary items, if applicable, that will be separately reported or reported net of their related tax effects are individually computed and recognized in the interim period in which they occur. In addition, the effect of changes in enacted tax laws or rates, tax status, judgment on the realizability of a beginning-of-the-year deferred tax asset in future years or unrecognized tax benefits is recognized in the interim period in which the change occurs.
The computation of the annual expected effective income tax rate at each interim period requires certain estimates and assumptions including, but not limited to, the expected pre-tax income (or loss) for the year, projections of the proportion of income (and/or loss) earned and taxed in foreign jurisdictions, permanent and temporary differences, and the likelihood of the realization of deferred tax assets generated in the current year. The accounting estimates used to compute the provision or benefit for income taxes may change as new events occur, more experience is acquired, additional information is obtained or the Company's tax environment changes. To the extent that the expected annual effective income tax rate changes during a quarter, the effect of the change on prior quarters is included in income tax provision or benefit in the quarter in which the change occurs.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
For the three months ended March 31, 2022, the Company recorded an income tax benefit of $70.5 million, which represents an effective income tax rate of 23%, which is higher than the statutory rate of 21% due primarily to state taxes and excess tax benefits generated by the exercise and vesting of stock-based awards, partially offset by nondeductible stock-based compensation expense. For the three months ended March 31, 2021, the Company recorded an income tax provision of $53.3 million, which represents an effective income tax rate of 14% which is lower than the statutory rate of 21% due primarily to excess tax benefits generated by the exercise and vesting of stock-based awards, partially offset by state taxes.
The Company recognizes interest and, if applicable, penalties related to unrecognized tax benefits in the income tax provision. Accruals for interest and penalties are not material.
On December 19, 2019, IAC/InterActiveCorp ("Old IAC") entered into a Transaction Agreement (as amended, the "Transaction Agreement") with Match Group, Inc. ("Old MTCH"), IAC Holdings, Inc. ("New IAC" or the "Company"), a direct wholly-owned subsidiary of Old IAC, and Valentine Merger Sub LLC, an indirect wholly-owned subsidiary of Old IAC. On June 30, 2020, the businesses of Old MTCH were separated from the remaining businesses of Old IAC through a series of transactions that resulted in the pre-transaction stockholders of Old IAC owning shares in two, separate public companies—(1) Old IAC, which was renamed Match Group, Inc. ("New Match") and which owns the businesses of Old MTCH and certain Old IAC financing subsidiaries, and (2) New IAC, which was renamed IAC/InterActiveCorp, and which owns Old IAC's other businesses—and the pre-transaction stockholders of Old MTCH (other than Old IAC) owning shares in New Match. This transaction is referred to as the "MTCH Separation."
The Company is routinely under audit by federal, state, local and foreign authorities in the area of income tax as a result of previously filed separate company and consolidated tax returns with Old IAC and for its tax returns filed on a standalone basis following the MTCH Separation. These audits include questioning the timing and the amount of income and deductions and the allocation of income and deductions among various tax jurisdictions. The Internal Revenue Service ("IRS") has substantially completed its audit of Old IAC’s federal income tax returns for the years ended December 31, 2013 through 2017, and is currently auditing the years ended December 31, 2018 through 2019, which include the operations of the Company. The statute of limitations for the years 2013 through 2019 has been extended to December 31, 2023. Returns filed in various other jurisdictions are open to examination for tax years beginning with 2012. Income taxes payable include unrecognized tax benefits considered sufficient to pay assessments that may result from the examination of prior year tax returns. The Company considers many factors when evaluating and estimating its tax positions and tax benefits, which may not accurately anticipate actual outcomes and, therefore, may require periodic adjustment. Although management currently believes changes in unrecognized tax benefits from period to period and differences between amounts paid, if any, upon resolution of issues raised in audits and amounts previously provided will not have a material impact on the liquidity, results of operations, or financial condition of the Company, these matters are subject to inherent uncertainties and management’s view of these matters may change in the future.
At March 31, 2022 and December 31, 2021, unrecognized tax benefits, including interest and penalties, are $18.7 million and $18.0 million, respectively. Unrecognized tax benefits, including interest and penalties, at March 31, 2022 increased by $0.7 million due primarily to research credits. If unrecognized tax benefits at March 31, 2022 are subsequently recognized, $17.4 million, net of related deferred tax assets and interest, would reduce income tax expense. The comparable amount at December 31, 2021 was $16.7 million. The Company believes that it is reasonably possible that its unrecognized tax benefits could decrease by $2.9 million by March 31, 2023 due to expected settlements of which $2.6 million would reduce the income tax provision.
NOTE 3—DISCONTINUED OPERATIONS
On May 25, 2021, IAC completed the Spin-off. Following the Spin-off, Vimeo became an independent, separately traded public company. Therefore, Vimeo is presented as a discontinued operation within IAC's financial statements for all periods prior to May 25, 2021.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The components of the earnings from discontinued operations for the three months ended March 31, 2021 in the statement of operations consisted of the following:
Three Months Ended March 31, 2021
(In thousands)
Revenue$89,418 
Operating costs and expenses:
Cost of revenue (exclusive of depreciation shown separately below)24,956 
Selling and marketing expense32,053 
General and administrative expense13,528 
Product development expense21,475 
Depreciation114 
Amortization of intangibles1,887 
Total operating costs and expenses94,013 
Operating loss from discontinued operations(4,595)
Interest expense(64)
Other income, net 10,085 
Earnings from discontinued operations before tax5,426 
Income tax benefit4,530 
Earnings from discontinued operations, net of tax$9,956 
NOTE 4—BUSINESS COMBINATION
On December 1, 2021, Dotdash acquired Meredith under the terms of an agreement (the "Merger Agreement") dated as of October 6, 2021. At the effective time of the merger, each outstanding share of common stock of Meredith (other than certain excluded shares) was converted into the right to receive $42.18 in cash. Pursuant to the Merger Agreement, Meredith equity awards were cancelled, and in exchange each holder received such holder’s portion of the merger consideration as set forth in the Merger Agreement, less the per share exercise price in the case of stock options. The Company accounted for this acquisition as a business combination under the acquisition method of accounting.
The total preliminary purchase price was calculated and allocated as follows:
(In thousands)
Common stock of Meredith$1,931,376 
Cash payment used to settle a portion of Meredith debt625,000 
Cash settlement of all outstanding vested equity awards and deferred compensation130,089 
Total preliminary purchase price$2,686,465 
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The table below summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:
(In thousands)
Cash and cash equivalents$12,436 
Accounts receivable373,091 
Other current assets90,371 
Property and equipment283,319 
Goodwill1,564,929 
Intangible assets1,095,500 
Other non-current assets682,214 
Total assets4,101,860 
Customer deposit liability(140,690)
Other current liabilities(457,549)
Deferred income taxes(230,880)
Other non-current liabilities(586,276)
Net assets acquired$2,686,465 
The Company acquired Meredith because it is complementary to Dotdash. The purchase was based on the expected future financial performance of Meredith under Dotdash leadership, not on the value of the net identifiable assets at the time of acquisition. This resulted in a significant portion of the preliminary purchase price being attributed to goodwill. The purchase price attributed to goodwill is not tax deductible.
The preliminary fair values of the identifiable intangible assets acquired at the date of acquisition are as follows:
(In thousands)Useful Life
(Years)
Indefinite-lived trade names and trademarks$432,800 Indefinite-lived
Advertiser relationships334,000 
5-7
Licensee relationships150,000 
3-6
Trade name and trademarks105,000 
2-5
Subscriber relationships73,700 
1-2
Total identifiable intangible assets acquired$1,095,500 
The allocation of the preliminary purchase price to certain assets acquired and liabilities assumed is provisional and is subject to review and revision during the measurement period, which the Company expects to extend through the fourth quarter of 2022. In addition, the Company is still in the process of identifying acquired assets and assumed liabilities, which may also result in an adjustment of the provisional amounts recorded. The subsequent adjustment of the provisional amounts may be material.
The provisional amounts for assets acquired and liabilities assumed include the fair value of:
1.accounts receivable and other receivables, which has been adjusted for an estimated $10.1 million of gross contractual amounts not expected to be collected, may be subject to adjustment for reassessment of collectability as of the date of acquisition, collections and other adjustment subsequent to the acquisition;
2.prepaid expenses and other current and noncurrent assets, which will be subject to adjustment based upon a review of recoverability and consideration of other factors;
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
3.inventory;
4.property, plant and equipment, for which the preliminary estimates are subject to revision for:
a.identification of assets acquired;
b.finalization of preliminary appraisals; and
c.determination of useful lives;
5.right of use assets and lease liabilities, which will be subject to adjustment upon completion of the review of the inputs, including sublease assumptions, for the calculations;
6.accounts payable and accrued expenses, which will be subject to adjustment based upon subsequent payment and assessment of other factors;
7.indemnification liabilities, which include pre-acquisition income tax and non-income tax liabilities, will be subject to adjustment for:
a.    the reconciliation of the income tax return to the income tax provision for Meredith Corporation's fiscal year ended June 30, 2021 and the short period return from July 1, 2021 through the date of acquisition;
b.    the assessment of the amounts of liabilities that existed at the date of acquisition based upon ongoing audits;
c.    the assessment of applicable tax rates and other factors; and
d.     the identification of other liabilities;
8.contingencies, the initial estimated recorded liability for which is approximately $100 million, including indemnification liabilities, will be subject to adjustment for additional items that are identified and for additional information obtained that will assist in the determination of liabilities as of the date of acquisition;
9.definite and indefinite-lived intangible assets acquired will be subject to adjustment as additional assets are identified, estimates and forecasts are refined and disaggregated, useful lives are finalized, and other factors deemed relevant are considered;
10. deferred income taxes will be subject to adjustment based upon the completion of the review of the book and tax bases of assets acquired and liabilities assumed, applicable tax rates and the impact of the revisions of estimates for the items described above;
11. goodwill will be subject to adjustment for the impact of the revisions of estimates for the items described above; and
12. the allocation of goodwill to reporting units, which is still in process of being assessed, will be subject to revision based upon the items described above and the finalization of the determination of fair value of the reporting units, which has not yet been completed.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Unaudited pro forma financial information
The unaudited pro forma financial information in the table below presents the results of the Company and Meredith as if the Meredith acquisition had occurred on January 1, 2020. The unaudited pro forma financial information includes adjustments required under the acquisition method of accounting and is presented for informational purposes only and is not necessarily indicative of the results that would have been achieved had this acquisition occurred on January 1, 2020. For the three months ended March 31, 2021, pro forma adjustments include an increase in amortization expense of $23.9 million related to intangible asset adjustments in purchase accounting.
Three Months Ended March 31, 2021
(In thousands, except per share data)
Revenue$