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| IACI > SEC Filings for IACI > Form 10-Q on 29-Oct-2009 | All Recent SEC Filings |
29-Oct-2009
Quarterly Report
Management Overview
IAC is a leading internet company with more than 50 fast-growing, highly-related brands serving loyal consumer audiences across more than 30 countries... our mission is to harness the power of interactivity to make daily life easier and more productive for people all over the world. IAC includes the businesses comprising its Media & Advertising segment; its Match and ServiceMagic segments; the businesses comprising its Emerging Businesses segment; and certain investments in unconsolidated affiliates.
All references to "IAC," the "Company," "we," "our" or "us" in this report are to IAC/InterActiveCorp.
For a more detailed presentation of the Company's operating businesses, see the Company's annual report on Form 10-K, as amended, for the year ended December 31, 2008.
Results of Operations for the three and nine months ended September 30, 2009 compared to the three and nine months ended September 30, 2008
Set forth below are the contributions made by our various segments and corporate operations to consolidated revenue, operating income (loss) and Operating Income Before Amortization (as defined in IAC's Principles of Financial Reporting) for the three and nine months ended September 30, 2009 and 2008 (dollars in thousands).
Three Months Ended September 30, Nine Months Ended September 30,
2009 Growth 2008 2009 Growth 2008
Revenue:
Media &
Advertising $ 172,277 (11 )% $ 193,273 $ 508,484 (15 )% $ 595,136
Match 80,992 (13 )% 93,540 259,343 (6 )% 277,358
ServiceMagic 43,902 30 % 33,799 117,655 19 % 98,618
Emerging
Businesses 40,452 (19 )% 49,644 125,968 (11 )% 141,945
Inter-segment
elimination (1,046 ) (7 )% (976 ) (2,818 ) 85 % (18,957 )
Total $ 336,577 (9 )% $ 369,280 $ 1,008,632 (8 )% $ 1,094,100
Three Months Ended September 30, Nine Months Ended September 30,
2009 Growth 2008 2009 Growth 2008
Operating Income
(Loss):
Media &
Advertising $ 20,785 (35 )% $ 32,106 $ 31,018 (67 )% $ 93,166
Match 23,873 0 % 23,978 62,012 22 % 50,740
ServiceMagic 4,318 (47 )% 8,111 12,001 (47 )% 22,627
Emerging
Businesses (8,917 ) (21 )% (7,390 ) (31,866 ) (23 )% (25,829 )
Corporate (32,938 ) 59 % (79,443 ) (95,261 ) 47 % (180,884 )
Total $ 7,121 NM $ (22,638 ) $ (22,096 ) 45 % $ (40,180 )
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Three Months Ended September 30, Nine Months Ended September 30,
2009 Growth 2008 2009 Growth 2008
Operating Income Before
Amortization:
Media &
Advertising $ 27,190 (30 )% $ 38,810 $ 53,232 (53 )% $ 112,189
Match 26,793 (12 )% 30,274 65,280 3 % 63,278
ServiceMagic 9,940 15 % 8,651 19,450 (20 )% 24,245
Emerging
Businesses (8,346 ) (37 )% (6,070 ) (28,665 ) (32 )% (21,705 )
Corporate (16,692 ) 59 % (41,201 ) (47,835 ) 55 % (105,980 )
Total $ 38,885 28 % $ 30,464 $ 61,462 (15 )% $ 72,027
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Refer to Note 7 to the consolidated financial statements for reconciliations by segment of Operating Income Before Amortization to Operating Income (Loss).
Consolidated Results
Revenue
For the three months ended September 30, 2009 compared to the three months ended September 30, 2008
Revenue in 2009 decreased $32.7 million from 2008 primarily as a result of decreases of $21.0 million from Media & Advertising, $12.5 million from Match and $9.2 million from Emerging Businesses, partially offset by an increase of $10.1 million from ServiceMagic. The decrease from Media & Advertising reflects a decline in revenue per query across proprietary properties, partially offset by continued growth in partners and queries at the Ask toolbar business and growth at Lexico, which includes Dictionary.com and Thesaurus.com. The decrease in revenue at Match was driven by the sale of Match Europe to Meetic, an online dating company based in France, on June 5, 2009, partially offset by solid growth in the U.S. business and the favorable impact from the acquisition of PeopleMedia on July 13, 2009. The decrease in revenue from the Emerging Businesses was primarily due to the absence of revenue from ReserveAmerica in the current year period following its sale on January 31, 2009. Partially offsetting the overall decrease in revenue was an increase from ServiceMagic, primarily driven by 22% growth in service requests to a growing and more active service provider network and a shift in the mix of requests to higher value service requests.
For the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008
Revenue in 2009 decreased $85.5 million from 2008 primarily as a result of decreases of $86.7 million from Media & Advertising and $18.0 million from Match, partially offset by an increase of $19.0 million from ServiceMagic. The decrease from Media & Advertising was driven by a sharp decline in network revenue, resulting from the discontinuation of relationships with certain partners that took place during 2008 in conjunction with the renewed Google agreement. Partially offsetting this decline is the continued growth in partners and queries at the Ask toolbar business and the favorable impact in 2009 from the acquisition of Lexico on July 3, 2008. The decrease and increase in revenue from Match and ServiceMagic, respectively, were driven primarily by the factors described above in the three month discussion.
For the three months ended September 30, 2009 compared to the three months
ended September 30, 2008
Three Months Ended September 30,
2009 % Change 2008
(Dollars in thousands)
Cost of revenue $ 107,298 (10)% $ 119,764
As a percentage of total revenue 32% (55) bp 32%
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bp = basis points
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Cost of revenue consists primarily of traffic acquisition costs, compensation and other employee-related costs (including stock-based compensation) for personnel engaged in data center functions, the cost of products sold and shipping and handling costs. Traffic acquisition costs consist of revenue share payments to partners that have distributed toolbars and/or integrated paid listings into their websites and similar arrangements with third parties who direct traffic to our websites.
Cost of revenue in 2009 decreased $12.5 million from 2008 primarily due to decreases of $5.7 million from Match, $4.8 million from Media & Advertising and $1.6 million from Emerging Businesses. The decrease in cost of revenue from Match was primarily due to the sale of Match Europe to Meetic. Cost of revenue from Media & Advertising decreased due in part to a decrease in traffic acquisition costs resulting from a decrease in IAC Search & Media revenue. The decrease in cost of revenue from Emerging Businesses was primarily due to the absence of ReserveAmerica in the current year period following its sale on January 31, 2009, partially offset by a write-off of capitalized software, including game development costs, at InstantAction.com.
For the nine months ended September 30, 2009 compared to the nine months
ended September 30, 2008
Nine Months Ended September 30,
2009 % Change 2008
(Dollars in thousands)
Cost of revenue $ 326,941 (8)% $ 357,199
As a percentage of total revenue 32% (23) bp 33%
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Cost of revenue in 2009 decreased $30.3 million from 2008 primarily due to decreases of $14.9 million from Match and $12.2 million from Media & Advertising. The decrease in cost of revenue from Match was primarily due to a decrease of $15.0 million in traffic acquisition costs resulting principally from the sale of Match Europe to Meetic and the impact of more favorable economic terms under agreements with certain domestic distribution partners. Cost of revenue from Media & Advertising decreased primarily due to lower traffic acquisition costs, which is a direct result of a sharp decline in network revenue at IAC Search & Media.
Selling and marketing expense
For the three months ended September 30, 2009 compared to the three months
ended September 30, 2008
Three Months Ended September 30,
2009 % Change 2008
(Dollars in thousands)
Selling and marketing expense $ 106,735 (2)% $ 109,407
As a percentage of total revenue 32% 208 bp 30%
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Selling and marketing expense in 2009 decreased $2.7 million from 2008 primarily due to decreases of $4.2 million from Match, $1.7 million from Media & Advertising and $1.0 million from Emerging Businesses, partially offset by an increase of $5.8 million from ServiceMagic. The decrease in selling and marketing expense from Match is primarily due to the sale of Match Europe to Meetic, partially offset by an increase in advertising and promotional expenditures associated with online marketing. Selling and marketing expense from Media & Advertising decreased due to a decrease in compensation and other employee-related costs, due in part, to an approximate 8% decrease in average headcount at IAC Search & Media. Also contributing to the decrease in selling and marketing expense is Emerging Businesses and the cost savings related to the shutdown or sale of certain businesses and the absence of ReserveAmerica in the current year period following its sale on January 31, 2009. Partially offsetting these decreases in selling and marketing expense is an increase of $3.8 million in advertising and promotional expenditures associated with online marketing from ServiceMagic. The growth in service requests from paid channels outpaced the growth in free requests as a result of the increase in online marketing. Also contributing to the increase in selling and marketing expense from ServiceMagic is an increase in compensation and other employee-related costs, due in part, to the continued expansion of its sales force.
For the nine months ended September 30, 2009 compared to the nine months
ended September 30, 2008
Nine Months Ended September 30,
2009 % Change 2008
(Dollars in thousands)
Selling and marketing expense $ 358,537 3% $ 347,520
As a percentage of total revenue 36% 378 bp 32%
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Selling and marketing expense in 2009 increased $11.0 million from 2008 primarily due to increases of $15.9 million from ServiceMagic and $6.8 million from Media & Advertising, partially offset by a decrease of $8.8 million from Match. The increase in selling and marketing expense from ServiceMagic is primarily due to the factors described above in the three month discussion. Selling and marketing expense from Media & Advertising increased primarily due to an increase of $8.5 million in advertising and promotional expenditures, partially offset by a decrease in compensation and other-employee-related costs. Included in the increase in advertising and promotional expenditures from Media & Advertising are costs associated with the NASCAR partnership as well as marketing costs related to an ad campaign to rebrand the Ask.co.UK website. Partially offsetting the increase in selling and marketing expense is lower advertising and promotional expenditures from Match primarily due to the factors described above in the three month discussion.
General and administrative expense
For the three months ended September 30, 2009 compared to the three months
ended September 30, 2008
Three Months Ended September 30,
2009 % Change 2008
(Dollars in thousands)
General and administrative expense $ 70,134 (38)% $ 112,606
As a percentage of total revenue 21% (966) bp 30%
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General and administrative expense in 2009 decreased $42.5 million from 2008 primarily due to a decrease of $41.4 million from corporate. The decrease from corporate is principally due to the inclusion in the prior year period of $20.8 million in expenses related to the spin-off of HSN, Inc. ("HSNi"), Interval Leisure Group, Inc. ("ILG"), Ticketmaster Entertainment, Inc. ("Ticketmaster") and Tree.com, Inc. ("Tree.com") (the "Spin-Off"), as well as a decrease in compensation and other employee-related costs, including stock-based compensation. The decrease in compensation and other employee-related costs is primarily due to a decrease of $17.2 million in non-cash compensation expense as the prior year period included the impact of the acceleration and modification of certain equity awards associated with the Spin-Off.
For the nine months ended September 30, 2009 compared to the nine months
ended September 30, 2008
Nine Months Ended September 30,
2009 % Change 2008
(Dollars in thousands)
General and administrative expense $ 212,738 (25)% $ 284,588
As a percentage of total revenue 21% (492) bp 26%
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General and administrative expense in 2009 decreased $71.9 million from 2008 primarily due to a decrease of $77.1 million from corporate, partially offset by an increase of $6.2 million from ServiceMagic. The decrease from corporate is principally due to the factors described above in the three month discussion. Included in corporate expenses in the prior year period is $42.0 million in expenses related to the Spin-Off. General and administrative expense from ServiceMagic increased primarily due to an increase of $3.2 million in compensation and other employee-related costs, due in part, to recent acquisitions.
Product development expense
For the three months ended September 30, 2009 compared to the three months
ended September 30, 2008
Three Months Ended September 30,
2009 % Change 2008
(Dollars in thousands)
Product development expense $ 14,751 (20)% $ 18,379
As a percentage of total revenue 4% (59) bp 5%
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Product development expense consists primarily of compensation and other employee-related costs (including stock-based compensation) that are not capitalized for personnel engaged in the design, development, testing and enhancement of technology.
Product development expense in 2009 decreased $3.6 million from 2008 primarily due to a decrease of $2.3 million in compensation and other employee-related costs from Media & Advertising which is due in part to a decrease in average headcount at IAC Search & Media. Also contributing to the decrease in product development expense is an increase in costs being capitalized in the current year period related to the development and enhancement of the company's search technology and products.
ended September 30, 2008
Nine Months Ended September 30,
2009 % Change 2008
(Dollars in thousands)
Product development expense $ 49,261 (13)% $ 56,885
As a percentage of total revenue 5% (32) bp 5%
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Product development expense in 2009 decreased $7.6 million from 2008 primarily due to the factors described above in the three month discussion.
Depreciation
For the three and nine months ended September 30, 2009 compared to the
three and nine months ended September 30, 2008
Three Months Ended September 30, Nine Months Ended September 30,
2009 % Change 2008 2009 % Change 2008
(Dollars in thousands)
Depreciation $ 15,289 (12)% $ 17,337 $ 48,380 (7)% $ 52,055
As a
percentage of
total revenue 5% (15) bp 5% 5% 4 bp 5%
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Depreciation for the three and nine months ended September 30, 2009 decreased $2.0 million and $3.7 million, respectively, from 2008 primarily due to certain fixed assets becoming fully depreciated, partially offset by the incremental depreciation associated with capital expenditures made during 2009 and 2008.
Operating Income Before Amortization
For the three months ended September 30, 2009 compared to the three months
ended September 30, 2008
Three Months Ended September 30,
2009 % Change 2008
(Dollars in thousands)
Operating Income Before Amortization $ 38,885 28% $ 30,464
As a percentage of total revenue 12% 330 bp 8%
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Operating Income Before Amortization in 2009 increased $8.4 million from 2008 primarily due to a decrease of $24.5 million in corporate expenses and profit growth at ServiceMagic. Included in the prior year period is $20.8 million in expenses related to the Spin-Off. Partially offsetting these increases in Operating Income Before Amortization is a decrease of $11.6 million from Media & Advertising resulting primarily from lower overall revenue and higher traffic acquisition costs as a percentage of revenue and a decrease of $3.5 million from Match reflecting the absence of Match Europe, which was sold on June 5, 2009.
For the nine months ended September 30, 2009 compared to the nine months
ended September 30, 2008
Nine Months Ended September 30,
2009 % Change 2008
(Dollars in thousands)
Operating Income Before Amortization $ 61,462 (15)% $ 72,027
As a percentage of total revenue 6% (49) bp 7%
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Operating Income Before Amortization in 2009 decreased $10.6 million from 2008 primarily due to decreases of $59.0 million, $7.0 million and $4.8 million from Media & Advertising, Emerging
Businesses and ServiceMagic, respectively. These decreases in Operating Income Before Amortization were partially offset by a decrease of $58.1 million in corporate expenses due in part to the inclusion in the prior year period of $42.0 million in expenses related to the Spin-Off.
The overall decrease in Operating Income Before Amortization reflects lower overall revenue and higher traffic acquisition costs as a percentage of revenue from Media & Advertising, a shift in mix to lower revenue generating service requests and increased marketing costs from ServiceMagic, and increased operating expenses from Emerging Businesses primarily related to The Daily Beast and InstantAction.com, as well as the absence of profits from ReserveAmerica in the current year period following its sale on January 31, 2009.
Operating income (loss)
For the three months ended September 30, 2009 compared to the three months
ended September 30, 2008
Three Months Ended September 30,
2009 % Change 2008
(Dollars in thousands)
Operating income (loss) $ 7,121 NM $ (22,638 )
As a percentage of total revenue 2% NM (6)%
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Operating income in 2009 increased $29.8 million from 2008 primarily due to the $8.4 million increase in Operating Income Before Amortization described above and decreases of $22.2 million in non-cash compensation expense and $1.1 million in amortization of non-cash marketing, partially offset by an increase of $2.0 million in amortization of intangibles resulting primarily from the acquisition of PeopleMedia on July 13, 2009. The decrease in non-cash compensation is primarily due to the acceleration and modification of certain equity awards associated with the Spin-Off in the prior year period. The amortization of non-cash marketing referred to in this report consists of non-cash advertising secured from Universal Television as part of the transaction pursuant to which Vivendi Universal Entertainment, LLLP ("VUE") was created, and the subsequent transaction by which IAC sold its partnership interests in VUE.
For the nine months ended September 30, 2009 compared to the nine months
ended September 30, 2008
Nine Months Ended September 30,
2009 % Change 2008
(Dollars in thousands)
Operating loss $ (22,096 ) 45% $ (40,180 )
As a percentage of total revenue (2)% 148 bp (4)%
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Operating loss in 2009 decreased $18.1 million from 2008 despite the $10.6 million decrease in Operating Income Before Amortization described above, primarily due to decreases of $27.5 million in non-cash compensation expense and $4.5 million in amortization of non-cash marketing, partially offset by an increase of $2.3 million in amortization of intangibles and a goodwill impairment charge of $1.1 million related to our gift card business. The decrease in non-cash compensation expense is primarily due to the acceleration and modification of certain equity awards associated with the Spin-Off in the prior year period as well as an increase in the current year period in forfeited awards.
At September 30, 2009, there was $111.6 million of unrecognized compensation cost, net of estimated forfeitures, related to all equity-based awards, which is expected to be recognized over a weighted average period of approximately 2.4 years.
For the three months ended September 30, 2009 compared to the three months
ended September 30, 2008
Three Months Ended September 30,
2009 % Change 2008
(Dollars in thousands)
Other income (expense):
Interest income $ 2,374 (64)% $ 6,549
Interest expense (1,345 ) (73)% (5,002 )
Equity in (losses) income of unconsolidated
affiliates (3,961 ) NM 3,146
Gain on sale of long-term investments 37,875 NM -
Other income (expense) 16,017 NM (68,657 )
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Interest income in 2009 decreased $4.2 million from 2008 primarily due to the impact of lower average interest rates resulting, in part, from a reallocation of investments during the second half of 2008 into lower yielding treasury and government agency funds, partially offset by higher average investment balances throughout the period. Interest expense in 2009 decreased $3.7 million from 2008 as the amount of outstanding debt decreased year over year due to the extinguishment of $734.2 million of the Company's 7% Senior Notes due 2013 (the "Senior Notes") as described below. The remaining outstanding principal of the Senior Notes at September 30, 2009 is $15.8 million.
Equity in (losses) income of unconsolidated affiliates in 2009 decreased $7.1 million from 2008 primarily due to the inclusion in the prior year period of $5.7 million related to the equity in earnings of our former investment in Jupiter Shop Channel Co., Ltd., a Japanese TV shopping company, and a loss from the Company's investment in Meetic, which is not in the year ago period. The . . .
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