Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
IACI > SEC Filings for IACI > Form 10-Q on 8-May-2013All Recent SEC Filings

Show all filings for IAC/INTERACTIVECORP | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for IAC/INTERACTIVECORP


8-May-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

GENERAL
Management Overview

IAC is a leading media and internet company comprised of more than 150 brands and products, including Ask.com, About.com, Match.com, HomeAdvisor.com and Vimeo.com. Focused in the areas of search, applications, online dating, local and media, IAC's family of websites is one of the largest in the world, with more than a billion monthly visits across more than 30 countries.

For a more detailed description of the Company's operating businesses, see the Company's annual report on Form 10-K for the year ended December 31, 2012.

Results of Operations for the three months ended March 31, 2013 compared to the three months ended March 31, 2012

Revenue
                                     Three Months Ended March 31,
                             2013        $ Change     % Change      2012
                                        (Dollars in thousands)
Search & Applications     $ 397,192     $  53,994       16%      $ 343,198
Match                       188,862        14,587        8%        174,275
Local                        74,945        (2,174 )     (3)%        77,119
Media                        45,315        29,404       185%        15,911
Other                        36,045         5,839       19%         30,206
Inter-segment elimination      (110 )          (1 )     (1)%          (109 )
Total                     $ 742,249     $ 101,649       16%      $ 640,600

Search & Applications revenue increased 16% to $397.2 million, reflecting strong growth from both Websites (which includes Ask.com, About.com and Dictionary.com) and Applications (which includes our direct to consumer downloadable applications business (B2C) and our partnership operations (B2B), as well as our Ask.com and Dictionary.com downloadable applications). Websites revenue grew 19% to $189.6 million, reflecting the contribution from The About Group, acquired September 24, 2012, which had revenue of $31.3 million. Applications revenue grew 13% to $207.5 million, driven by increased contributions from existing B2B partners and new B2C products.

Match revenue increased 8% to $188.9 million driven by increases in subscribers. Core revenue (which consists of Match.com in the U.S., Chemistry and People Media), Meetic revenue and Developing revenue (which includes OkCupid, DateHookup, Twoo and Match's international operations, excluding Meetic) increased 5% to $113.8 million; 13% to $55.0 million; and 20% to $20.1 million, respectively. Developing revenue was further impacted by the contribution of Twoo, acquired January 4, 2013. Meetic revenue in 2012 of $48.6 million was negatively impacted by the write-off of $5.2 million of deferred revenue in connection with its acquisition.

Local revenue decreased 3% to $74.9 million, primarily reflecting a decline from HomeAdvisor's operations, partially offset by an increase from CityGrid Media due to the contribution of Felix, a pay-per-call advertising service acquired August 20, 2012. HomeAdvisor domestic revenue was negatively impacted by a 20% decrease in accepted service requests due primarily to the domain name change.

Media revenue increased 185% to $45.3 million primarily due to the contribution from News_Beast (formerly The Newsweek/DailyBeast Company), consolidated beginning June 1, 2012 following the Company's acquisition of a controlling interest, as well as strong growth from Electus and Vimeo.

Other revenue increased 19% to $36.0 million primarily due to the contribution from Tutor.com, an online tutoring solution acquired December 14, 2012.


A substantial portion of the Company's revenue is derived from online advertising. Most of the Company's online advertising revenue is attributable to our services agreement with Google Inc. ("Google"), which expires on March 31, 2016. For the three months ended Match 31, 2013 and 2012, revenue earned from Google was $376.1 million and $328.9 million, respectively. This revenue was earned by the businesses comprising the Search & Applications segment.

Cost of revenue
                                 Three Months Ended March 31,
                             2013     $ Change   % Change     2012
                                    (Dollars in thousands)
Cost of revenue            $255,082   $31,511      14%      $223,571
As a percentage of revenue   34%                              35%

Cost of revenue consists primarily of traffic acquisition costs. Traffic acquisition costs consist of payments made to partners who distribute our B2B customized browser-based applications, integrate our paid listings into their websites or direct traffic to our websites. These payments include amounts based on revenue share and other arrangements. Cost of revenue also includes Shoebuy's cost of products sold and shipping and handling costs, production costs related to digital media produced by Electus and other businesses within our Media segment, content acquisition costs, expenses associated with the operation of the Company's data centers, including compensation and other employee-related costs (including stock-based compensation) for personnel engaged in data center functions, rent, energy and bandwidth costs.

Cost of revenue in 2013 increased from 2012 primarily due to increases of $19.4 million from Media, $8.2 million from Search & Applications and $4.5 million from Other. The increase in cost of revenue from Media was primarily due to increased production costs at Electus related to the increase in its revenue and News_Beast, consolidated beginning June 1, 2012. Cost of revenue from Search & Applications increased primarily due to an increase of $6.1 million in traffic acquisition costs driven by increased revenue from our B2B operations. As a percentage of revenue, traffic acquisition costs at Search & Applications decreased compared to the prior year due to an increase in the proportion of revenue from Websites which resulted from the acquisition of The About Group. The increase in cost of revenue from Other is due to Tutor.com, acquired December 14, 2012, and an increase in the cost of products sold at Shoebuy resulting from increased sales.

Selling and marketing expense
                                    Three Months Ended March 31,
                                2013     $ Change   % Change     2012
                                       (Dollars in thousands)
Selling and marketing expense $242,914   $23,076      10%      $219,838
As a percentage of revenue      33%                              34%

Selling and marketing expense consists primarily of advertising and promotional expenditures and compensation and other employee-related costs (including stock-based compensation) for personnel engaged in sales, sales support and customer service functions. Advertising and promotional expenditures include online marketing, including fees paid to search engines and third parties that distribute our B2C downloadable applications, and offline marketing, which is primarily television advertising.

Selling and marketing expense in 2013 increased from 2012 primarily due to increases of $14.0 million from Search & Applications, $3.7 million from Media and $3.1 million from Match. The increase from Search & Applications is primarily due to increases of $9.0 million and $4.4 million in online marketing and compensation and other employee-related costs, respectively. The increase in online marketing from Search & Applications is primarily related to Ask.com and About.com. Selling and marketing expense at Media increased primarily due to an increase of $2.0 million in online marketing spend at Vimeo. The increase from Match is due to an increase of $3.1 million in offline marketing spend.


General and administrative expense
                                        Three Months Ended March 31,
                                    2013     $ Change   % Change    2012
                                           (Dollars in thousands)
General and administrative expense $98,026    $6,238       7%      $91,788
As a percentage of revenue           13%                             14%

General and administrative expense consists primarily of compensation and other employee-related costs (including stock-based compensation) for personnel engaged in executive management, finance, legal, tax and human resources, facilities costs and fees for professional services.

General and administrative expense in 2013 increased from 2012 primarily due to increases of $5.6 million from Media, $4.3 million from Search & Applications and $2.3 million from Other, partially offset by a decrease of $6.7 million from corporate. The increase in general and administrative expense from Media resulted primarily from the inclusion of News_Beast, consolidated beginning June 1, 2012. General and administrative expense from Search & Applications increased primarily due to the inclusion of The About Group, acquired on September 24, 2012, and an increase in compensation and other employee-related costs. The increase in general and administrative expense from Other is primarily due to the inclusion of Tutor.com, acquired on December 14, 2012. General and administrative expense from corporate decreased primarily due to a decrease of $6.1 million in non-cash compensation expense as certain awards fully vested during the fourth quarter of 2012.

Product development expense
                                 Three Months Ended March 31,
                             2013     $ Change   % Change    2012
                                    (Dollars in thousands)
Product development expense $33,582   $10,100      43%      $23,482
As a percentage of revenue    5%                              4%

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 product offerings and related technology.

Product development expense in 2013 increased from 2012 primarily due to increases of $6.8 million from Search & Applications and $2.3 million from Media. The increase in product development expense from Search & Applications is primarily due to a decrease in costs being capitalized in the current year period as well as an increase in compensation and other employee-related costs associated with the inclusion of The About Group, acquired on September 24, 2012. The increase from Media is primarily due to News_Beast, consolidated beginning June 1, 2012.

Depreciation
                                Three Months Ended March 31,
                            2013     $ Change   % Change    2012
                                   (Dollars in thousands)
Depreciation               $14,016    $1,901      16%      $12,115
As a percentage of revenue   2%                              2%

Depreciation in 2013 increased from 2012 resulting primarily from the incremental depreciation associated with capital expenditures made throughout 2012 and various acquisitions, partially offset by certain fixed assets becoming fully depreciated in 2012.


Operating Income Before Amortization

                                Three Months Ended March 31,
                         2013        $ Change    % Change      2012
                                   (Dollars in thousands)
Search & Applications $  93,649     $ 20,149       27%      $ 73,500
Match                    46,303        8,975       24%        37,328
Local                    (1,001 )     (4,951 )      NM         3,950
Media                    (8,374 )     (1,973 )    (31)%       (6,401 )
Other                    (2,499 )     (1,101 )    (79)%       (1,398 )
Corporate               (15,328 )        379        2%       (15,707 )
Total                 $ 112,750     $ 21,478       24%      $ 91,272

Search & Applications Operating Income Before Amortization increased 27% to $93.6 million, benefiting from the higher revenue noted above, partially offset by increases of $14.0 million in selling and marketing expense, $6.8 million in product development expense, $6.1 million in traffic acquisition costs and $4.3 million in general and administrative expense. The increase in selling and marketing expense is driven primarily by increased online marketing expenditures related to Ask.com and About.com and an increase in compensation and other employee-related costs. The increase in both product development expense and general and administrative expense is primarily due to an increase in compensation and other employee-related costs related to the inclusion of The About Group, acquired on September 24, 2012. Product development expense was further impacted by a decrease in costs being capitalized in the current year period. The increase in traffic acquisition costs is primarily due to increased revenue from our B2B operations.

Match Operating Income Before Amortization increased 24% to $46.3 million, primarily due to the higher revenue noted above and operating expense leverage, partially offset by an increase of $3.1 million in selling and marketing expense related to an increase in offline marketing spend.

Local Operating Income Before Amortization decreased by $5.0 million to a loss of $1.0 million reflecting the decrease in revenue noted above.

Operating income (loss)

                               Three Months Ended March 31,
                         2013       $ Change    % Change      2012
                                  (Dollars in thousands)
Search & Applications $ 86,983     $ 13,493       18%      $ 73,490
Match                   40,959       11,053       37%        29,906
Local                   (3,403 )     (7,192 )      NM         3,789
Media                   (8,828 )     (2,159 )    (32)%       (6,669 )
Other                   (3,222 )     (1,508 )    (88)%       (1,714 )
Corporate              (27,938 )      8,099       22%       (36,037 )
Total                 $ 84,551     $ 21,786       35%      $ 62,765

Refer to Note 10 to the consolidated financial statements for reconciliations of Operating Income Before Amortization to operating income (loss) by reportable segment.

Operating income in 2013 increased from 2012 primarily due to the increase of $21.5 million in Operating Income Before Amortization described above and a decrease of $8.8 million in non-cash compensation expense, partially offset by an increase of $7.0 million in amortization of intangibles. The decrease in non-cash compensation expense is primarily a result of certain awards fully vesting during the fourth quarter of 2012. The increase in amortization of intangibles is primarily related to The About Group.


At March 31, 2013, there was $82.3 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 2.3 years.

Equity in losses of unconsolidated affiliates
                                                   Three Months Ended March 31,
                                              2013    $ Change   % Change     2012
                                                      (Dollars in thousands)
Equity in losses of unconsolidated affiliates $(91)    $5,810      98%      $(5,901)

Equity in losses of unconsolidated affiliates in 2013 decreased from 2012 primarily due to the inclusion in 2012 of losses related to News_Beast prior to our acquisition of a controlling interest in May 2012.

Interest expense
Three Months Ended March 31, 2013 $ Change % Change 2012

(Dollars in thousands)

Interest expense $(7,663) $(6,316) 469% $(1,347)

Interest expense in 2013 increased from 2012 primarily due to the issuance of $500.0 million aggregate principal amount of 4.75% Senior Notes due December 15, 2022.

Other income, net
Three Months Ended March 31, 2013 $ Change % Change 2012

(Dollars in thousands)

Other income, net $1,658 $(1,098) (40)% $2,756

Other income, net in 2013 decreased from 2012 primarily due to a decrease in gains related to the sale of certain securities.

Income tax provision
                            Three Months Ended March 31,
                       2013      $ Change   % Change     2012
                               (Dollars in thousands)
Income tax provision $(25,746)      NM         NM      $(27,120)

In 2013, the Company recorded an income tax provision for continuing operations of $25.7 million, which represents an effective income tax rate of 33%. The 2013 effective rate is lower than the statutory rate of 35% due primarily to foreign income taxed at lower rates and research credits, partially offset by state taxes. In 2012, the Company recorded an income tax provision for continuing operations of $27.1 million, which represents an effective income tax rate of 47%. The 2012 effective rate is higher than the statutory rate of 35% due principally to an increase in reserves for and interest on reserves for income tax contingencies and state taxes, partially offset by foreign income taxed at lower rates.

At March 31, 2013 and December 31, 2012, the Company has unrecognized tax benefits of $376.9 million and $379.3 million, respectively. Unrecognized tax benefits at March 31, 2013 decreased $2.4 million from December 31, 2012 due principally to a net decrease in deductible timing differences. The Company recognizes interest and, if applicable, penalties related to unrecognized tax benefits in income tax provision. Included in income tax provision for continuing operations and discontinued operations for the three months ended March 31, 2013 is a $1.3 million and a $1.0 million expense, respectively, net of related deferred taxes, for interest on unrecognized tax benefits. At March 31, 2013 and December 31, 2012, the


Company has accrued $120.9 million and $117.5 million, respectively, for the payment of interest. At March 31, 2013 and December 31, 2012, the Company has accrued $5.0 million for penalties.

The Company is routinely under audit by federal, state, local and foreign authorities in the area of income tax. 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 the Company's tax returns for the years ended December 31, 2001 through 2009. The settlement of these tax years has not yet been submitted to the Joint Committee of Taxation for approval. The statute of limitations for the years 2001 through 2009 has been extended to June 30, 2014. Various state and local jurisdictions are currently under examination, the most significant of which are California, New York and New York City for various tax years beginning with 2006. Income taxes payable include reserves considered sufficient to pay assessments that may result from examination of prior year tax returns. Changes to reserves from period to period and differences between amounts paid, if any, upon resolution of issues raised in audits and amounts previously provided may be material. Differences between the reserves for income tax contingencies and the amounts owed by the Company are recorded in the period they become known. The Company believes that it is reasonably possible that its unrecognized tax benefits could decrease by $132.8 million within twelve months of the current reporting date, of which approximately $14.4 million could decrease income tax provision, primarily due to settlements, expirations of statutes of limitations, and the reversal of deductible temporary differences that will primarily result in a corresponding decrease in net deferred tax assets. An estimate of other changes in unrecognized tax benefits, while potentially significant, cannot be made.


FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2013, the Company had $673.8 million of cash and cash equivalents, $5.8 million of marketable securities, and $580.0 million of long-term debt. Domestically, cash equivalents primarily consist of AAA rated money market funds. Internationally, cash equivalents primarily consist of time deposits and AAA rated money market funds. Marketable securities consist of an equity security and a short-to-intermediate-term debt security issued by an investment grade corporate issuer. The Company only invests in marketable securities with active secondary or resale markets to ensure portfolio liquidity and the ability to readily convert investments into cash to fund current operations or satisfy other cash requirements as needed. From time to time, the Company may invest in marketable equity securities as part of its investment strategy. Long-term debt is comprised of $500.0 million in 2012 Senior Notes due December 15, 2022 and $80.0 million in Liberty Bonds due September 1, 2035.

At March 31, 2013, $232.4 million of the $673.8 million of cash and cash equivalents and none of the $5.8 million of marketable securities were held by the Company's foreign subsidiaries. No U.S. federal or state income taxes have been provided on the indefinitely reinvested earnings of any of the Company's foreign subsidiaries that hold this cash and cash equivalents. If needed for our operations in the U.S., most of the cash and cash equivalents held by the Company's foreign subsidiaries could be repatriated to the U.S. but, under current law, would be subject to U.S. federal and state income taxes. However, the Company's intent is to indefinitely reinvest these funds outside of the U.S. The Company currently does not anticipate a need to repatriate them to fund our U.S. operations.

In summary, the Company's cash flows attributable to continuing operations are as follows:

                                              Three Months Ended March 31,
                                                 2013              2012
                                                     (In thousands)
Net cash provided by operating activities      $92,362           $59,050
Net cash used in investing activities          (52,144)          (12,234)
Net cash used in financing activities         (113,897)         (127,725)

Net cash provided by operating activities attributable to continuing operations consists of earnings or loss from continuing operations adjusted for non-cash items, including non-cash compensation expense, depreciation, amortization of intangibles, deferred income taxes, asset impairment charges, equity in income or losses of unconsolidated affiliates, acquisition-related contingent consideration fair value adjustments, and the effect of changes in working capital activities. Net cash provided by operating activities attributable to continuing operations in 2013 was $92.4 million and consists of earnings from continuing operations of $52.7 million, adjustments for non-cash items of $34.7 million and cash provided by working capital activities of $4.9 million. Adjustments for non-cash items primarily consists of $14.1 million of amortization of intangibles, $14.0 million of depreciation, $12.7 million of non-cash compensation expense, partially offset by $11.0 million of deferred income taxes. The deferred income tax benefit primarily relates to the difference in timing between the accrual and payment of various compensation arrangements. The increase in cash from changes in working capital activities primarily consists of an increase of $22.7 million in income taxes payable and an increase of $7.8 million in deferred revenue, partially offset by a decrease of $12.9 million in accounts payable and other current liabilities, an increase of $8.0 million in other current assets and an increase of $4.6 million in accounts receivable. The increase in income taxes payable is due to current year income tax accruals in excess of current year income tax payments. The increase in deferred revenue is primarily due to growth in subscription revenue at Match, as well as growth at Electus and Vimeo, partially offset by a $9.9 million decrease in deferred revenue at News_Beast due to its transition to a digital only publication. The decrease in accounts payable and other current liabilities is due to a decrease in accrued advertising expense primarily at Search & Applications, News_Beast's transition to a digital only publication, and a decrease in payables to suppliers at Shoebuy, partially offset by an increase in accrued revenue share expense primarily at Search & Applications and an increase in accrued employee compensation and benefits due to the timing of bonus payments. The increase in other current assets is primarily due to an increase in short-term production costs at Electus that are capitalized as the television program, video or film is being produced. The increase in accounts receivable is primarily due to the growth in revenue at Search & Applications earned from our services agreement with Google; the related receivable from Google was $137.0 million and $125.3 million at March 31, 2013 and December 31, 2012, respectively. While Match experienced growth, its accounts receivable is principally credit card receivables and, is not significant in relation to its revenue.


Electus' accounts receivable increased due to higher revenue. These increases were partially offset by a $13.5 million decrease in accounts receivable at News_Beast due to its transition to a digital only publication.

Net cash used in investing activities attributable to continuing operations in 2013 of $52.1 million includes capital expenditures of $33.6 million, which includes $23.1 million related to the purchase of a 50% ownership interest in an aircraft, and cash consideration used in acquisitions and investments of $30.2 million primarily related to the acquisition of Twoo, partially offset by net maturities and sales of marketable debt securities and sales of long-term investments of $12.7 million.

Net cash used in financing activities attributable to continuing operations in 2013 of $113.9 million includes $88.6 million for the repurchase of 1.4 million shares of common stock at an average price of $42.96 per share, $21.4 million related to the payment of cash dividends to IAC shareholders and $15.8 million for the payment of our 2002 Senior Notes, which were due January 15, 2013, partially offset by excess tax benefits from stock-based awards of $12.5 million.

Net cash provided by operating activities attributable to continuing operations in 2012 was $59.1 million and consists of earnings from continuing operations of $31.2 million, adjustments for non-cash items of $51.9 million and cash used in working capital activities of $24.0 million. Adjustments for non-cash items primarily consists of $21.5 million of non-cash compensation expense, $12.1 . . .

  Add IACI to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for IACI - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial      Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.