On October 9, 2018, the defendants filed a motion to dismiss the complaint on various grounds, including that the 2017 valuation of Tinder by the investment banks was an expert determination any challenge to which is both time-barred under applicable law and available only on narrow substantive grounds that the plaintiffs have not pleaded in their complaint; the plaintiffs opposed the motion. On June 13, 2019, the court issued a decision and order (i) granting the motion to dismiss the claims for breach of the implied covenant of good faith and fair dealing and for unjust enrichment, (ii) granting the motion to dismiss the merger-related claim for breach of contract as to 2 of the remaining 6 plaintiffs, and (iii) otherwise denying the motion to dismiss. On June 21, 2019, the defendants filed a notice of appeal from the trial court’s partial denial of their motion to dismiss, and the parties thereafter briefed the appeal. On October 29, 2019, the Appellate Division, First Department, issued an order affirming the lower court’s decision. On November 22, 2019, the defendants filed a motion for reargument or, in the alternative, leave to appeal the Appellate Division'sDivision’s order to the New York Court of Appeals; the plaintiffs opposed the motion. On May 21, 2020, the Appellate Division, First Department, granted the motion for reargument, and upon reargument, substituted a new order which remains pending.
Document discovery in the case is substantially complete; deposition discovery has begun but is currently in hiatus in light ofresumed after a temporary pause due to the COVID-19 pandemic. On January 30, 2020, the parties participated in a mediation that did not result in resolution of the matter. IAC and Match GroupWe believe that the allegations against Former Match Group and Match Group in this lawsuit are without merit and will continue to defend vigorously against it. On September 20, 2020, Justice Joel M. Cohen was appointed to the New York case to fill the vacancy created when Justice Saliann Scarpula was appointed to the Appellate Division, First Department.
IAC/INTERACTIVECORPMATCH GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
(Unaudited)
On September 26, 2019, the Company received a grand-jury subpoena from the DOJ for documents relating to certain of the marketing-related claims in the FTC’s complaint. The Company has cooperated with the DOJ in responding to its subpoena. On September 2, 2020, the DOJ informed the Company that it was releasing it from the subpoena and that it was no longer conducting an investigation into any areas or practices covered by the subpoena.
We believe that the FTC’s claims regarding Match.com’s practices, policies, and procedures are without merit and will defend vigorously against them.
NOTE 11—SUBSEQUENT EVENT10—RELATED PARTY TRANSACTIONS
On May 6,Relationship with IAC following the Separation
In connection with the Separation, the Company entered into certain agreements with IAC to govern the relationship between the Company and IAC following the Separation. These agreements, in certain cases, supersede the agreements entered into between Former Match Group and Former IAC in connection with Former Match Group’s IPO in November 2015 (the “IPO Agreements”) and include: a tax matters agreement; a transition services agreement; and an employee matters agreement. The IPO Agreements that were not superseded were terminated at closing of the Separation.
In addition to the agreements entered into at the time of the Separation, Match Group leases office space to IAC in a building owned by the Company in Los Angeles. Match Group also leases office space from IAC in New York City on a month-to-month basis, which the Company expects to terminate in the first half of 2021. For the three and nine months ended September 30, 2020, the Company received less than $0.1 million from IAC filedpursuant to the Los Angeles lease and the Company paid $0.5 million to IAC pursuant to the New York City lease.
Match Group has a registration statement on Form S-3 for an offeringpayable to sell from time to time up to $1.5 billion worthIAC of less than $0.1 million as of September 30, 2020.
In July 2020, in connection with the Separation, the sale of 17.3 million newly issued shares of Match Group common stock was completed by IAC. The proceeds of $1.4 billion, net of associated fees, were transferred directly to IAC pursuant to the terms of the Transaction Agreement.
Tax Matters Agreement
Pursuant to the tax matters agreement, each of Match Group and IAC is responsible for certain tax liabilities and obligations following the transfer by Former IAC (i) to Match Group of certain assets and liabilities of, or related to, the businesses of Former IAC (other than Former Match Group) and (ii) to holders of Former IAC common stock and Former IAC Class MB common stock, (or Newas a result of the reclassification and mandatory exchange of certain series of Former IAC exchangeable preferred stock (collectively, the “IAC Distribution”). Under the tax matters agreement, IAC generally is responsible for, and has agreed to indemnify Match common stock)Group against, any liabilities incurred as a result of the failure of the IAC Distribution to qualify for the intended tax-free treatment unless, subject to certain exceptions, the failure to so qualify is attributable to Match Group's or Former Match Group’s actions or failure to act, Match Group's or Former Match Group’s breach of certain representations or covenants or certain acquisitions of equity securities of Match Group, in each case, described in the tax matters agreement (a "Match Group fault-based action"). The net proceeds NewIf the failure to so qualify is attributable to a Match receivesGroup fault-based action, Match Group is responsible for liabilities incurred as a result of such failure and will indemnify IAC against such liabilities so incurred by IAC or its affiliates.
Under the tax matters agreement, as of September 30, 2020, Match Group is obligated to remit to IAC $1.9 million of expected state tax refunds relating to tax years prior to the Separation. This obligation is included in “Accrued expenses and other current liabilities” in the accompanying consolidated balance sheet. Additionally, IAC is obligated to indemnify Match Group for IAC’s share of tax liabilities related to various periods prior to the Separation. At September 30, 2020, a receivable of $2.0 million is included in “Other current assets” in the accompanying consolidated balance sheet representing an estimate of the amount that Match Group is
MATCH GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
expected to be indemnified under this arrangement. At September 30, 2020, Match Group has an indemnification asset of $0.6 million included in “Other non-current assets” in the accompanying consolidated balance sheet for uncertain tax positions that related to Former IAC prior to the Separation.
For the three and nine months ended September 30, 2020, the Company paid IAC $20.9 million pursuant to the tax matters agreement related to income tax refunds received by the Company. Additionally, the Company received $0.5 million from IAC under the tax matters agreement.
Transition Services Agreement
Pursuant to the transition services agreement, IAC continues to provides certain services to Match Group that Former IAC had historically provided to Former Match Group. Match Group also provides certain services to IAC that Former Match Group previously provided to Former IAC. The transition services agreement also provides that Match Group and IAC will make efforts to replace, amend, or divide certain joint contracts with third-parties relating to services or products used by both Match Group and IAC. Match Group and IAC also agreed to continue sharing certain services provided pursuant to certain third-party vendor contracts that were not replaced, amended, or divided prior to closing of the Separation.
For the three and nine months ended September 30, 2020, the Company paid IAC $0.2 million related to services provided by IAC under the transitions services agreement. Additionally, the Company received $2.4 million from IAC for services provided under the transitions services agreement.
Employee Matters Agreement
Pursuant to the amended and restated employee matters agreement Match Group will reimburse IAC for the cost of any IAC equity awards held by the Company’s employees and former employees upon exercise or vesting. In addition, Match Group employees will continue to participate in IAC’s U.S. health and welfare plans, 401(k) plan and flexible benefits plan until December 31, 2020 (or such sales, ifearlier date as requested by Match Group upon 120 days’ notice), following which time, Match Group will have established its own employee benefit plans. Match Group will reimburse IAC for the costs of such participation pursuant to the amended and restated employee matters agreement.
For the three and nine months ended September 30, 2020, the Company paid IAC $1.3 million for the cost of IAC equity awards held by the Company’s employees upon vesting. Additionally, the Company paid IAC $8.7 million for health and welfare plans and 401(k) plan, inclusive of employee contributions to both.
Other Agreements
The Transaction Agreement provides that each of Match Group and IAC has agreed to indemnify, defend and hold harmless the other party from and against any will be transferredliabilities arising out of: (i) any asset or liability allocated to New IAC followingsuch party or the other members of such party's group under the Transaction Agreement or the businesses of such party's group after the closing of the offering (whichSeparation; (ii) any breach of, or failure to perform or comply with, any covenant, undertaking or obligation of a member of such party's group contained in the Transaction Agreement that survives the closing would occur contemporaneouslyof the Separation or is contained in any ancillary agreement; and (iii) any untrue or misleading statement or alleged untrue or misleading statement of a material fact or omission, with respect to information contained in or incorporated into the Form S-4 Registration Statement (the “Form S-4”) filed with the consummation of the Separation)Securities and the number of shares of New Match to be receivedExchange Commission (the “SEC”) by IAC stockholders will be reducedand Former IAC in connection with the Separation or the joint proxy statement/prospectus filed by Former IAC and Former Match Group with the SEC pursuant to reflect the number of New Match shares sold in this offering.
Item 2. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations
GENERAL
Management Overview
IAC operates Vimeo, Dotdash and Care.com, among many other online businesses, and has majority ownership of both Match Group, which includes Tinder, Match, PlentyOfFish, OkCupid and Hinge, and ANGI Homeservices, which includes HomeAdvisor, Angie’s List and Handy.
On December 19, 2019, IAC entered into a Transaction Agreement (as amended as of April 28,June 30, 2020, the "Transaction Agreement") withcompanies formerly known as Match Group, Inc. ("MTCH"(referred to as “Former Match Group”), IAC Holdings, Inc., a direct wholly owned subsidiary and IAC/InterActiveCorp (referred to as “Former IAC”) completed the separation of IAC ("New IAC"), and Valentine Merger Sub LLC, an indirect wholly owned subsidiary of IAC. Subject to the terms and conditions set forth in the Transaction Agreement, the businesses of MTCH will be separatedCompany from the remaining businesses of IAC through a series of transactions that will result in the pre-transaction stockholders of IAC owning sharesresulted in two, separate public companies—companies—(1) IAC, which will be renamed Match Group, Inc. ("New Match") and which will ownconsists of the businesses of MTCHFormer Match Group and certain IAC financing subsidiaries previously owned by Former IAC, and (2) New IAC, which will be renamed IAC/InterActiveCorp and which will own IAC'sconsisting of Former IAC’s businesses other businesses-and the pre-transaction stockholders of MTCH (other than IAC) owning shares in New Match. CompletionMatch Group (the “Separation”). As a result of the separation,Separation, the operations of Former IAC businesses other than Match Group are presented as discontinued operations.
Other 2020 Developments
On February 11, 2020, MG Holdings II completed a private offering of $500 million aggregate principal amount of the 4.125% Senior Notes. The proceeds from these notes were used to pay expenses associated with the offering and to fund a portion of the cash consideration of $3.00 per Former Match Group common share in connection with the Separation.
On February 13, 2020, the Credit Facility was amended to, among other things, increase the available borrowing capacity to $750 million, reduce interest rate margins by 0.125%, and extend its maturity to February 13, 2025. Additionally, on February 13, 2020, the Term Loan was amended to reprice the outstanding balance to LIBOR plus 1.75% and extend its maturity to February 13, 2027.
On May 19, 2020, MG Holdings II completed a private offering of $500 million aggregate principal amount of the 4.625% Senior Notes. The proceeds from these notes were used to redeem the outstanding 6.375% Senior Notes, for general corporate purposes, and to pay expenses associated with the offering.
In July 2020, in connection with the Separation, the sale of 17.3 million newly issued shares of Match Group common stock was completed by IAC. The proceeds of $1.4 billion, net of associated fees, were transferred directly to IAC pursuant to the terms of the Transaction Agreement.
Key Terms:
Operating metrics:
•North America - consists of the financial results and metrics associated with users located in the United States and Canada.
•International - consists of the financial results and metrics associated with users located outside of the United States and Canada.
•Direct Revenue - is revenue that is received directly from end users of our products and includes both subscription and à la carte revenue.
•Indirect Revenue - is revenue that is not received directly from an end user of our products, substantially all of which is expectedadvertising revenue.
•Subscribers - are users who purchase a subscription to occurone of our products. Users who purchase only à la carte features are not included in Subscribers.
•Average Subscribers - is the number of Subscribers at the end of each day in the relevant measurement period divided by the number of calendar days in that period.
•Average Revenue per Subscriber (“ARPU”) - is Direct Revenue from Subscribers in the relevant measurement period (whether in the form of subscription or à la carte revenue) divided by the Average Subscribers in such period and further divided by the number of calendar days in such period. Direct Revenue from users who are not Subscribers and have purchased only à la carte features is not included in ARPU.
Operating costs and expenses:
•Cost of revenue - consists primarily of the amortization of in-app purchase fees, compensation expense (including stock-based compensation expense) and other employee-related costs for
personnel engaged in data center and customer care functions, credit card processing fees, hosting fees, and data center rent, energy and bandwidth costs. In-app purchase fees are monies paid to Apple and Google in connection with the processing of in-app purchases of subscriptions and product features through the in-app payment systems provided by Apple and Google.
•Selling and marketing expense - consists primarily of advertising expenditures and compensation expense (including stock-based compensation expense) and other employee-related costs for personnel engaged in selling and marketing, and sales support functions. Advertising expenditures include online marketing (such as fees paid to search engines and social media sites), offline marketing (which is primarily television advertising), and payments to partners that direct traffic to our brands.
•General and administrative expense - consists primarily of compensation expense (including stock-based compensation expense) and other employee-related costs for personnel engaged in executive management, finance, legal, tax, and human resources, acquisition-related contingent consideration fair value adjustments (if any), fees for professional services (including transaction-related costs for acquisitions) and facilities costs.
•Product development expense - consists primarily of compensation expense (including stock-based compensation expense) and other employee-related costs that are not capitalized for personnel engaged in the design, development, testing and enhancement of product offerings and related technology.
Long-term debt:
•Credit Facility - The revolving credit facility of Match Group Holdings II, LLC (“MG Holdings II”), an indirect wholly-owned subsidiary of the Company. As of December 31, 2019, $500 million was available under the Credit Facility. On February 13, 2020, the Credit Facility was amended to, among other things, increase the available borrowing capacity from $500 million to $750 million, reduce interest rate margins by 0.125%, and extend its maturity from December 7, 2023 to February 13, 2025. As of September 30, 2020, the Company had letters of credit of $0.2 million outstanding and therefore $749.8 million was available under the Credit Facility.
•Term Loan - MG Holdings II’s term loan. At December 31, 2019, the Term Loan bore interest at LIBOR plus 2.50% and the then applicable rate was 4.44%. On February 13, 2020, the Term Loan was amended to reprice the outstanding balance to LIBOR plus 1.75% and extend its maturity from November 16, 2022 to February 13, 2027. As of September 30, 2020, the current rate was 2.00% and $425 million was outstanding.
•6.375% Senior Notes - MG Holdings II’s 6.375% Senior Notes, which were redeemed on June 11, 2020 with the proceeds from the 4.625% Senior Notes.
•5.00% Senior Notes - MG Holdings II’s 5.00% Senior Notes due December 15, 2027, with interest payable each June 15 and December 15, which were issued on December 4, 2017. As of September 30, 2020, $450 million aggregate principal amount was outstanding.
•5.625% Senior Notes - MG Holdings II’s 5.625% Senior Notes due February 15, 2029, with interest payable each February 15 and August 15, which were issued on February 15, 2019. As of September 30, 2020, $350 million aggregate principal amount was outstanding.
•4.125% Senior Notes - MG Holdings II’s 4.125% Senior Notes due August 1, 2030, with interest payable each February 1 and August 1, which were issued on February 11, 2020. The proceeds were used to pay expenses associated with the offering and fund a portion of the $3.00 per common share of Former Match Group that was payable in connection with the Separation. As of September 30, 2020, $500 million aggregate principal amount was outstanding.
•4.625% Senior Notes - MG Holdings II’s 4.625% Senior Notes due June 1, 2028, with interest payable each June 1 and December 1, commencing on December 1, 2020, which were issued on May 19, 2020. The proceeds were used to redeem the outstanding 6.375% Senior Notes, for general corporate purposes, and to pay expenses associated with the offering. As of September 30, 2020, $500 million aggregate principal amount was outstanding.
•2022 Exchangeable Notes - During the third quarter of 2017, Match Group FinanceCo, Inc., a subsidiary of the Company, issued $517.5 million aggregate principal amount of 0.875% Exchangeable Senior Notes due October 1, 2022, which are exchangeable into shares of the Company's common stock. Interest is payable each April 1 and October 1. The outstanding balance of the 2022 Exchangeable Notes as of September 30, 2020 was $517.5 million.
•2026 Exchangeable Notes - During the second quarter of 2020, is subject to2019, Match Group FinanceCo 2, Inc., a number of conditions, including approval by a majoritysubsidiary of the disinterested shareholdersCompany, issued $575.0 million aggregate principal amount of MTCH, approval of IAC’s shareholders and other customary conditions and approvals. We refer to this transaction as the "Separation."
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).
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, 2019.
Key Terms:
When the following terms appear in this report, they have the meanings indicated below:
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• | Match Group ("MTCH") - is a leading provider of subscription dating products, with a portfolio of dating brands, including Tinder, Match, PlentyOfFish and OkCupid. At March 31, 2020, IAC’s economic interest and voting interest in MTCH were 80.4% and 97.4%, respectively.
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• | ANGI Homeservices ("ANGI") - connects quality home service professionals across 500 different categories, from repairing and remodeling to cleaning and landscaping, with consumers through category-transforming products under brands such as HomeAdvisor, Angie’s List, Handy and Fixd Repair. At March 31, 2020, IAC’s economic interest and voting interest in ANGI were 84.9% and 98.3%, respectively.
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• | Vimeo - operates a global video platform for creative professionals, small and medium businesses ("SMBs"), organizations and enterprises to connect with their audiences, customers and employees.
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• | Dotdash - is a portfolio of digital brands providing expert information and inspiration in select vertical content categories.
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• | Applications - consists of Desktop, which includes our direct-to-consumer downloadable desktop applications and the business-to-business partnership operations, and Mosaic Group, which is a leading provider of global subscription mobile applications of Apalon, iTranslate and TelTech.
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• | Emerging & Other - consists of Ask Media Group, Care.com, a leading global platform for finding and managing family care, which was acquired on February 11, 2020, Bluecrew, NurseFly, a temporary healthcare staffing platform
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acquired on0.875% Exchangeable Senior Notes due June 26, 2019, The Daily Beast, College Humor Media, for periods prior to its sale on March 16, 2020, and IAC Films.
Defined Terms and Operating Metrics:
Unless otherwise indicated or as the context otherwise requires certain terms, which include the principal operating metrics we use in managing our business, used in this quarterly report are defined below:
Match Group
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• | North America - consists of the financial results and metrics associated with users located in the United States and Canada.
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• | International - consists of the financial results and metrics associated with users located outside of the United States and Canada.
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• | Direct Revenue - is revenue that is received directly from end users of its products and includes both subscription and à la carte revenue.
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• | Subscribers - are users who purchase a subscription to one of MTCH's products. Users who purchase only à la carte features are not included in Subscribers.
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• | Average Subscribers - is the number of Subscribers at the end of each day in the relevant measurement period divided by the number of calendar days in that period.
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• | Average Revenue per Subscriber ("ARPU") - is Direct Revenue from Subscribers in the relevant measurement period (whether in the form of subscription or àla carte revenue from Subscribers) divided by the Average Subscribers in such period and further divided by the number of calendar days in such period. Direct Revenue from users who are not Subscribers and have purchased only à la carte features is not included in ARPU.
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ANGI Homeservices
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• | Marketplace Revenue - includes revenue from the HomeAdvisor, Handy and Fixd Repair domestic marketplace, including consumer connection revenue for consumer matches, revenue from pre-priced jobs sourced through the HomeAdvisor, Handy and Fixd Repair platforms, and service professional membership subscription revenue. It excludes revenue from Angie's List, mHelpDesk and HomeStars. Effective January 1, 2020, Fixd Repair has been moved to Marketplace from Advertising & Other and prior year amounts have been reclassified to conform to the current year presentation.
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• | Advertising & OtherRevenue - includes Angie’s List revenue (revenue from service professionals under contract for advertising and membership subscription fees from consumers) as well as revenue from mHelpDesk and HomeStars.
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• | Marketplace Service Requests - are fully completed and submitted domestic customer service requests to HomeAdvisor and jobs sourced through the HomeAdvisor, Handy and Fixd Repair platforms.
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• | Marketplace Monetized Transactions - are fully completed and submitted domestic customer service requests to HomeAdvisor that were matched to and paid for by a service professional and jobs sourced through the HomeAdvisor, Handy and Fixd Repair platforms during the period.
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• | Marketplace Transacting Service Professionals ("Marketplace Transacting SPs") - are the number of HomeAdvisor, Handy and Fixd Repair domestic service professionals that paid for consumer matches or performed a job sourced through the HomeAdvisor, Handy and Fixd Repair platforms during the quarter.
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Vimeo
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• | Platform Revenue - primarily includes revenue from Software-as-a-Service ("SaaS") subscription fees and other related revenue from Vimeo subscribers.
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• | Hardware Revenue - includes sales of our live streaming accessories. Vimeo sold its hardware business on March 29, 2019.
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• | Vimeo Ending Subscribers - is the number of subscribers to Vimeo's SaaS video tools at the end of the period (including the addition of subscribers from Magisto, a video creation service enabling consumers and businesses to create short-form videos acquired on May 28, 2019).
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Dotdash
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• | Display Advertising Revenue - primarily includes revenue generated from display advertisements sold both directly through our sales team and via programmatic exchanges.
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• | Performance Marketing Revenue - primarily includes affiliate commerce and performance marketing commissions generated when consumers are directed from our properties to third-party service providers. Affiliate commerce commissions are generated when a consumer completes a transaction. Performance marketing commissions are generated on a cost-per-click or cost-per-new account basis.
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Operating Costs and Expenses:
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• | Cost of revenue - consists primarily of traffic acquisition costs, which includes (i) the amortization of in-app purchase fees and (ii) payments made to partners who direct traffic to our Ask Media Group websites, who distribute our business-to-business customized browser-based applications and who integrate our paid listings into their websites. In-app purchase fees are monies paid to Apple and Google in connection with the processing of in-app purchases of subscriptions and product features through the in-app payment systems provided by Apple and Google. Traffic acquisition costs include payment of amounts based on revenue share and other arrangements. Cost of revenue also includes hosting fees, compensation expense (including stock-based compensation expense) and other employee-related costs for MTCH, Vimeo and Care.com customer care and support functions, personnel engaged in data center operations, employees at Fixd Repair for service work performed, payments made to workers staffed by Bluecrew, and payments made to independent service professionals who perform work contracted under pre-priced arrangements through the HomeAdvisor and Handy platforms, credit card processing fees, production costs related to IAC Films and for periods prior to its sale on March 16, 2020, College Humor Media, content costs and expenses associated with the operation of the Company's data centers.
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• | Selling and marketing expense - consists primarily of advertising expenditures, which include online marketing, including fees paid to search engines, social media sites and third parties that distribute our direct-to-consumer downloadable desktop applications, offline marketing, which is primarily television advertising, and partner-related payments to those who direct traffic to the brands within our MTCH and ANGI segments, and compensation expense (including stock-based compensation expense) and other employee-related costs for ANGI's sales force and marketing personnel.
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• | General and administrative expense - consists primarily of compensation expense (including stock-based compensation expense) and other employee-related costs for personnel engaged in executive management, finance, legal, tax, human resources and customer service functions (except for MTCH, Vimeo and Care.com which includes customer service costs within cost of revenue), fees for professional services (including transaction-related costs related to the Separation and acquisitions), rent expense, facilities costs, bad debt expense, software license and maintenance costs and acquisition-related contingent consideration fair value adjustments (described below). The customer service function at ANGI includes personnel who provide support to its service professionals and consumers.
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• | Product development expense -consists primarily of compensation expense (including stock-based compensation expense) and other employee-related costs that are not capitalized for personnel engaged in the design, development, testing and enhancement of product offerings and related technology and software license and maintenance costs.
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• | Acquisition-related contingent consideration fair value adjustments - relate to the portion of the purchase price of certain acquisitions that is contingent upon the financial performance and/or operating metric targets of the acquired company. The fair value of the liability is estimated at the date of acquisition and adjusted each reporting period until the liability is settled. Significant changes in financial performance and/or operating metrics will result in a significantly higher or lower fair value measurement. The changes in the estimated fair value of the contingent consideration arrangements during each reporting period, including the accretion of the discount if the arrangement is longer than one year, are recognized in "General and administrative expense" in the accompanying consolidated statement of operations.
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• | MTCH Term Loan - On February 13, 2020, the MTCH Term Loan was amended to reprice the outstanding balance to LIBOR plus 1.75% and extend its maturity from November 16, 2022 to February 13, 2027. The outstanding balance of the MTCH Term Loan as of March 31, 2020 is $425.0 million. At March 31, 2020, the MTCH Term Loan bore interest at LIBOR plus 1.75% and was 3.46%. At December 31, 2019, the MTCH Term Loan bore interest at LIBOR plus 2.50%, or 4.44%.
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• | MTCH Credit Facility - On February 13, 2020, the MTCH Credit Facility was amended to, among other things, increase the available borrowing capacity from $500 million to $750 million, reduce interest rate margins by 0.125%, and extend its maturity from December 7, 2023 to February 13, 2025. At March 31, 2020 and December 31, 2019, there were no outstanding borrowings under the MTCH Credit Facility.
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• | 6.375% MTCH Senior Notes - MTCH's 6.375% Senior Notes due June 1, 2024, with interest payable each June 1 and December 1. The outstanding balance of the 6.375% MTCH Senior Notes as of March 31, 2020 is $400.0 million.
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• | 5.00% MTCH Senior Notes - MTCH's 5.00% Senior Notes due December 15, 2027, with interest payable each June 15 and December 15. The outstanding balance of the 5.00% MTCH Senior Notes as of March 31, 2020 is $450.0 million.
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• | 5.625% MTCH Senior Notes - On February 15, 2019, MTCH issued $350 million aggregate principal amount of its 5.625% Senior Notes due February 15, 2029, with interest payable each February 15 and August 15. The outstanding balance of the 5.625% MTCH Senior Notes as of March 31, 2020 is $350.0 million.
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• | 4.125% MTCH Senior Notes - On February 11, 2020, MTCH issued $500 million aggregate principal amount of its 4.125% Senior Notes due August 1, 2030, with interest payable each February 1 and August 1, commencing August 1, 2020. The proceeds from the offering will be used to fund a portion of the cash consideration of $3.00 per MTCH common share that will be payable in connection with the Separation. If the Separation is not consummated, the proceeds will be used by MTCH for general corporate purposes.
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• | ANGI Term Loan - due November 5, 2023. The outstanding balance of the ANGI Term Loan as of March 31, 2020 is $244.1 million. At both March 31, 2020 and December 31, 2019, the ANGI Term Loan bears interest at LIBOR plus 1.50% and has quarterly principal payments. The interest rate was 2.28% and 3.25% at March 31, 2020 and December 31, 2019, respectively.
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• | ANGI Credit Facility - The ANGI $250 million revolving credit facility expires on November 5, 2023. At March 31, 2020 and December 31, 2019, there were no outstanding borrowings under the ANGI Credit Facility.
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• | 2022 Exchangeable Notes - On October 2, 2017, IAC FinanceCo, Inc., a subsidiary of the Company, issued $517.5 million aggregate principal amount of 0.875% Exchangeable Senior Notes due October 1, 2022,15, 2026, which are exchangeable into shares of the Company's common stock. Interest is payable each April 1 and October 1. The outstanding balance of the 2022 Exchangeable Notes as of March 31, 2020 is $517.5 million.
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• | 2026 Exchangeable Notes - During the second quarter of 2019, IAC FinanceCo 2, Inc., a subsidiary of the Company, issued $575.0 million aggregate principal amount of 0.875% Exchangeable Senior Notes due June 15, 2026, which are
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exchangeable into shares of the Company's common stock. Interest is payable each June 15 and December 15. The outstanding balance of the 2026 Exchangeable Notes as of March 31,September 30, 2020 was $575 million.
•2030 Exchangeable Notes - During the second quarter of 2019, Match Group FinanceCo 3, Inc., a subsidiary of the Company, issued $575.0 million aggregate principal amount of 2.00% Exchangeable Senior Notes due January 15, 2030, which are exchangeable into shares of the Company's common stock. Interest is $575.0 million.
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• | 2030 Exchangeable Notes - During the second quarter of 2019, IAC FinanceCo 3, Inc., a subsidiary of the Company, issued $575.0 million aggregate principal amount of 2.00% Exchangeable Senior Notes due January 15, 2030, which are exchangeable into shares of the Company's common stock. Interest is payable each January 15 and July 15. The outstanding balance of the 2030 Exchangeable Notes as of March 31, 2020 is $575.0payable each January 15 and July 15. The outstanding balance of the 2030 Exchangeable Notes as of September 30, 2020 was $575 million.
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• | IAC Credit Facility - The IAC $250 million revolving credit facility, under which IAC Group, LLC, a subsidiary of the Company, is the borrower, expires on November 5, 2023. At March 31, 2020 and December 31, 2019, there were no outstanding borrowings under the IAC Credit Facility.
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Non-GAAP financial measure:
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• | •Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") - is a non-GAAP financial measure. See "Principles of Financial Reporting" for the definition of Adjusted EBITDA and a reconciliation of net earnings attributable to IAC shareholders to operating (loss) income to consolidated Adjusted EBITDA for the three months ended March 31, 2020 and 2019. |
Certain Risks and Concentrations—Services Agreement with GoogleAmortization (“Adjusted EBITDA”) - is a Non-GAAP financial measure. See “Principles of Financial Reporting” for the definition of Adjusted EBITDA and a reconciliation of net earnings attributable to Match Group, Inc. shareholders to operating income and Adjusted EBITDA.
AManagement Overview
Match Group, Inc., through its portfolio companies, is a leading provider of dating products available globally. Our portfolio of brands includes Tinder®, Match®, Meetic®, OkCupid®, Hinge®, Pairs™, PlentyOfFish®, and OurTime®, as well as a number of other brands, each designed to increase our users’ likelihood of finding a meaningful portionconnection. Through our portfolio companies and their trusted brands, we provide tailored products to meet the varying preferences of our users. Our products are available in over 40 languages to our users all over the world.
As used herein, “Match Group,” the “Company,” “we,” “our,” “us,” and similar terms refer to Match Group, Inc. and its subsidiaries, unless the context indicates otherwise.
For a more detailed description of the Company's revenueCompany’s operating businesses, see “Item 1. Business—Match Group” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
Additional Information
Investors and others should note that we announce material financial and operational information to our investors using our investor relations website at https://ir.mtch.com, our newsroom website at https://newsroom.mtch.com, Securities and Exchange Commission (“SEC”) filings, press releases, and public conference calls. We use these channels as well as social media to communicate with our users and the public about our company, our services and other issues. It is attributablepossible that the information we post on social media could be deemed to a services agreementbe material information. Accordingly, investors, the media, and others interested in our company should monitor the social media channels listed on our investor relations website in addition to following our newsroom website, SEC filings, press releases and public conference calls. Neither the information on our websites, nor the information on the website of any Match Group business, is incorporated by reference into this report, or into any other filings with, Google (the "Services Agreement"). In addition, the Company earns certainor into any other advertising revenue from Google that is not attributableinformation furnished or submitted to, the Services Agreement. SEC.
Third Quarter and Year-to-Date September 30, 2020 Consolidated Results
For the three months ended March 31,September 30, 2020 and 2019, consolidated revenue earned from Google was $138.9 million and $195.8 million, representing 11% and 18%, respectively, of the Company's consolidated revenue. Accounts receivable relatedcompared to revenue earned from Google totaled $48.7 million and $53.0 million at March 31, 2020 and December 31, 2019, respectively.
Revenue attributable to the Services Agreement is earned by the Desktop business within the Applications segment and Ask Media Group within the Emerging & Other segment. For the three months ended March 31, 2020 andSeptember 30, 2019, revenue, earned from the Services Agreement was $46.1 millionoperating income and $88.1 million,Adjusted EBITDA grew 18%, 14%, and 21%, respectively, within the Applications segmentprimarily due to subscriber growth at Tinder, Hinge, Pairs, and $80.5 million and $94.8 million, respectively, within the Emerging & Other segment.
The Services Agreement was scheduled to expire on March 31, 2020. On February 11, 2019, the Company and Google amended the Services Agreement, effective as of April 1, 2020. The amendment extends the expiration date of the agreement to March 31, 2023; provided that during September 2020 and during each September thereafter, either party may, after discussion with the other party, terminate the Services Agreement, effective on September 30 of the year following the year such notice is given. The Company believes that the amended agreement, taken as a whole, is comparable to the pre-amendment agreement with Google. 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 CompanyPlentyOfFish, as well as other companies. These policythe growth of à la carte features primarily at Tinder and guideline updates could in turn require modifications to, or prohibit and/or render obsolete certain of our products, services and/or business practices, which could be costly to address or otherwise have an adverse effect on our consolidated financial condition and results of operations, particularly our Desktop business and Ask Media Group. 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 and may do so in the future.
On May 31, 2019, Google announced industry-wide policy changes, which became effective on July 1, 2019, related to all extensions distributed through the Chrome Web Store. These industry-wide changes, combined with other changes to polices under the Services Agreement during the second half of 2019, have had a negative impact on the historical and expected future results of operations of the Desktop business.
Overview—Consolidated Results
|
| | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
| | 2020 | | $ Change | | % Change | | 2019 |
| | (Dollars in thousands) |
| Revenue: | | | | | | | |
| Match Group | $ | 544,642 |
| | $ | 80,017 |
| | 17 | % | | $ | 464,625 |
|
| ANGI Homeservices | 343,650 |
| | 40,207 |
| | 13 | % | | 303,443 |
|
| Vimeo | 56,968 |
| | 13,387 |
| | 31 | % | | 43,581 |
|
| Dotdash | 44,120 |
| | 10,159 |
| | 30 | % | | 33,961 |
|
| Applications | 104,148 |
| | (39,401 | ) | | (27 | )% | | 143,549 |
|
| Emerging & Other | 135,305 |
| | 18,557 |
| | 16 | % | | 116,748 |
|
| Inter-segment eliminations | (68 | ) | | (4 | ) | | (6 | )% | | (64 | ) |
| Total | $ | 1,228,765 |
| | $ | 122,922 |
| | 11 | % | | $ | 1,105,843 |
|
| | | | | | | | |
| Operating Income (Loss): | |
| | | | | | |
|
| Match Group | $ | 134,681 |
| | $ | 15,853 |
| | 13 | % | | $ | 118,828 |
|
| ANGI Homeservices | (16,296 | ) | | (12,655 | ) | | (348 | )% | | (3,641 | ) |
| Vimeo | (14,589 | ) | | 3,195 |
| | 18 | % | | (17,784 | ) |
| Dotdash | 2,411 |
| | (636 | ) | | (21 | )% | | 3,047 |
|
| Applications | (218,588 | ) | | (243,944 | ) | | NM |
| | 25,356 |
|
| Emerging & Other | (19,845 | ) | | (17,325 | ) | | (687 | )% | | (2,520 | ) |
| Corporate | (45,554 | ) | | (2,141 | ) | | (5 | )% | | (43,413 | ) |
| Total | $ | (177,780 | ) | | $ | (257,653 | ) | | NM |
| | $ | 79,873 |
|
| | | | | | | | |
| Adjusted EBITDA: | | | | | | | |
| Match Group | $ | 171,502 |
| | $ | 16,435 |
| | 11 | % | | $ | 155,067 |
|
| ANGI Homeservices | 34,397 |
| | (2,782 | ) | | (7 | )% | | 37,179 |
|
| Vimeo | (11,408 | ) | | 4,792 |
| | 30 | % | | (16,200 | ) |
| Dotdash | 7,011 |
| | (139 | ) | | (2 | )% | | 7,150 |
|
| Applications | 10,151 |
| | (19,537 | ) | | (66 | )% | | 29,688 |
|
| Emerging & Other | (16,980 | ) | | (14,885 | ) | | (710 | )% | | (2,095 | ) |
| Corporate | (31,398 | ) | | (11,178 | ) | | (55 | )% | | (20,220 | ) |
| Total | $ | 163,275 |
| | $ | (27,294 | ) | | (14 | )% | | $ | 190,569 |
|
| | | | | | | | |
_____________________NM = Not meaningful.
Revenue increased $122.9 million, or 11%, to $1.2 billion, due to growth from MTCH of $80.0 million and ANGI of $40.2 million, increases of $18.6 million from Emerging & Other, $13.4 million from Vimeo and $10.2 million from Dotdash, partially offset by a decrease of $39.4 million from Applications.
PlentyOfFish. Operating income decreased $257.7 million toand Adjusted EBITDA were impacted by higher cost of revenue expense as a losspercentage of $177.8 millionrevenue due primarily to a goodwill impairmenthigher percentage of $212.0 million and $21.4 million in indefinite-lived intangible asset impairments, which is reflected in amortizationrevenue being sourced from app
stores with in-app purchase fees, partially offset by lower selling and marketing expense as a decreasepercentage of $9.0 million inrevenue. Operating income was further impacted by higher stock-based compensation expense andas a changepercentage of $7.8 millionrevenue primarily due to a modification charge recorded in acquisition-related contingent consideration fair value adjustments (income of $6.3 million in2020.
For the nine months ended September 30, 2020 compared to expense of $1.5 million in 2019). The overall increase in amortization of intangibles of $29.4 million wasthe nine months ended September 30, 2019, revenue, operating income, and Adjusted EBITDA grew 16%, 15%, and 16%, respectively, primarily due primarily to the inclusionfactors described above in 2020 of indefinite-lived intangible asset impairments of $21.4 million related to the Desktop business noted above, and $4.6 million at MTCH. The goodwill and the indefinite-lived
intangible asset impairments were driven by the impact of COVID-19. The increase in depreciation was due primarily to the development of capitalized software to support ANGI's products and services, as well as leasehold improvements related to additional office space at ANGI. The decrease in stock-based compensation expense was due primarily to the vesting of awards, including expense of $9.4 million in 2019 related to the vesting of certain awards for which the market condition was met, partially offset by the issuance of new equity awards since the prior year period and a net increase in modification charges.
Adjusted EBITDA decreased $27.3 million, or 14%, to $163.3 million due primarily to decreases of $19.5 million from Applications and $2.8 million from ANGI, and increased losses of $14.9 million and $11.2 million from Corporate and Emerging & Other, respectively, partially offset by growth of $16.4 million from MTCH and $4.8 million from Vimeo.
Acquisitions and dispositions affecting year-over-year comparability include:
|
| | | | |
Acquisitions: | | Reportable Segment: | | Acquisition Date: |
Fixd | | ANGI | | January 25, 2019 |
Magisto | | Vimeo | | May 28, 2019 |
NurseFly - controlling interest | | Emerging & Other | | June 26, 2019 |
Care.com | | Emerging & Other | | February 11, 2020 |
|
| | | | |
Dispositions: | | Reportable Segment: | | Sale Date: |
Vimeo's hardware business | | Vimeo | | March 29, 2019 |
College Humor Media | | Emerging & Other | | March 16, 2020 |
COVID-19 Update
The Company's business could be materially and adversely affected by the outbreak of COVID-19, which has been declared a "pandemic" by the World Health Organization.
To date, the Company's ANGI Homeservices business has experienced a decline in demand for home services requests, driven primarily by decreases in demand in certain categories of jobs (particularly non-essential projects) and decreases in demand in regions most affected by the COVID-19 outbreak, which the Company attributes both to the unwillingness of consumers to interact with service professionals face-to-face or have service professionals in their homes, and to lower levels of consumer confidence and discretionary income generally. In addition, with respect to our ad-supported businesses, the Company has experienced a meaningful decrease in advertising rates across our various properties (as much as 30% year over year). And while the Company's Match Group business has experienced improved user and engagement metrics, it has also experienced a decline in new users and paying subscribers during the pandemic.
In connection with the first quarter close of its books, the Company determined that the effects of COVID-19 were an indicator of possible impairment for certain of its assets. The Company determined, as of March 31, 2020, the fair value for those assets for which COVID-19 was deemed to be an indicator of possible impairment and identified the following impairments:
a $212.0 million impairment related to the goodwill of the Desktop reporting unit;
a $21.4 million impairment related to certain indefinite-lived intangible assets of the Desktop reporting unit;
a $4.6 million impairment related to certain indefinite-lived intangible assets of the Match Group reporting unit;
a $51.5 million impairment of certain equity securities without readily determinable fair values; and
a $7.5 million impairment of a note receivable and a warrant related to certain investees.
The extent to which developments related to the COVID-19 outbreak 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 speed of contagion, the development and implementation of effective preventative measures and possible treatments, the scope of governmental and other restrictions on travel, non-essential services and other activity, and public reactions to these developments. For example, these developments and measures have resulted in rapid and adverse changes to the operating environment in which we do business, as well as significant uncertainty concerning the near and long term economic ramifications of the COVID-19 outbreak, which
have adversely impacted our ability to forecast our results and respond in a timely and effective manner to trends related to the COVID-19 outbreak. The longer the global outbreak and measures designed to curb the spread of the virus continue to adversely affect levels of consumer confidence, discretionary spending and the willingness of consumers to interact with other consumers, vendors and service providers face-to-face (and in turn, adversely affect demand for the Company’s various products and services), the greater the adverse impact is likely to be on the Company’s business, financial condition and results of operations and the more limited will be the Company’s ability to try and make up for delayed or lost revenues.
Results of Operations for the three and nine months ended March 31,September 30, 2020 compared to the three and nine months ended September 30, 2019
Revenue
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | $ Change | | % Change | | 2019 | | 2020 | | $ Change | | % Change | | 2019 |
| | | | | | | | | | | | | | | |
| (In thousands, except ARPU) |
| Direct Revenue: | | | | | | | | | | | | | | | |
| North America | $ | 321,806 | | | $ | 52,943 | | | 20% | | $ | 268,863 | | | $ | 869,471 | | | $ | 111,336 | | | 15% | | $ | 758,135 | |
| International | 306,460 | | | 44,374 | | | 17% | | 262,086 | | | 840,360 | | | 126,284 | | | 18% | | 714,076 | |
| Total Direct Revenue | 628,266 | | | 97,317 | | | 18% | | 530,949 | | | 1,709,831 | | | 237,620 | | | 16% | | 1,472,211 | |
| Indirect Revenue | 11,504 | | | 960 | | | 9% | | 10,544 | | | 30,031 | | | (1,849) | | | (6)% | | 31,880 | |
| Total Revenue | $ | 639,770 | | | $ | 98,277 | | | 18% | | $ | 541,493 | | | $ | 1,739,862 | | | $ | 235,771 | | | 16% | | $ | 1,504,091 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Percentage of Total Revenue: | | | | | | | | | | | | | | |
| Direct Revenue: | | | | | | | | | | | | | | | |
| North America | 50% | | | | | | 50% | | 50% | | | | | | 50% |
| International | 48% | | | | | | 48% | | 48% | | | | | | 48% |
| Total Direct Revenue | 98% | | | | | | 98% | | 98% | | | | | | 98% |
| Indirect Revenue | 2% | | | | | | 2% | | 2% | | | | | | 2% |
| Total Revenue | 100% | | | | | | 100% | | 100% | | | | | | 100% |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Average Subscribers: | | | | | | |
| North America | 5,112 | | | 417 | | | 9% | | 4,695 | | | 4,796 | | | 270 | | | 6% | | 4,526 | |
| International | 5,684 | | | 767 | | | 16% | | 4,917 | | | 5,463 | | | 884 | | | 19% | | 4,579 | |
| Total | 10,796 | | | 1,184 | | | 12% | | 9,612 | | | 10,259 | | | 1,154 | | | 13% | | 9,105 | |
| | | | | | | | | | | | | | | |
| (Change calculated using non-rounded numbers) |
| ARPU: | | | | | | | | | | | | | | | |
| North America | $ | 0.66 | | | | | 8% | | $ | 0.62 | | | $ | 0.65 | | | | | 7% | | $ | 0.61 | |
| International | $ | 0.58 | | | | | 1% | | $ | 0.57 | | | $ | 0.55 | | | | | (1)% | | $ | 0.56 | |
| Total | $ | 0.62 | | | $ | 0.03 | | | 4% | | $ | 0.59 | | | $ | 0.60 | | | $ | 0.02 | | | 2% | | $ | 0.58 | |
For the three months ended September 30, 2020 compared to the three months ended March 31,September 30, 2019
Revenue
|
| | | | | | | | | | | | | |
| | Three Months Ended March 31, |
| | 2020 | | $ Change | | % Change | | 2019 |
| | (Dollars in thousands) |
| Match Group | $ | 544,642 |
| | $ | 80,017 |
| | 17% | | $ | 464,625 |
|
| ANGI Homeservices | 343,650 |
| | 40,207 |
| | 13% | | 303,443 |
|
| Vimeo | 56,968 |
| | 13,387 |
| | 31% | | 43,581 |
|
| Dotdash | 44,120 |
| | 10,159 |
| | 30% | | 33,961 |
|
| Applications | 104,148 |
| | (39,401 | ) | | (27)% | | 143,549 |
|
| Emerging & Other | 135,305 |
| | 18,557 |
| | 16% | | 116,748 |
|
| Inter-segment eliminations | (68 | ) | | (4 | ) | | (6)% | | (64 | ) |
| Total | $ | 1,228,765 |
| | $ | 122,922 |
| | 11% | | $ | 1,105,843 |
|
MTCH revenue increased 17% to $544.6 million driven by International Direct Revenue growth of $55.3 million, or 26%, and North America Direct Revenue growth of $25.6grew $52.9 million, or 11%. Both20%, in 2020 versus 2019, driven by 9% growth in Average Subscribers, 8% growth in ARPU, and growth in non-subscriber revenue from one-to-many video revenue at PlentyOfFish. International and North America Direct Revenue growth weregrew $44.4 million, or 17%, in 2020 versus 2019, driven by higher Average Subscribers, up 26% to 5.3 million and 5% to 4.6 million, respectively, due primarily to continued16% growth in Subscribers at Tinder and Hinge, with Pairs contributing to international growth. Total ARPU increased 1% driven by an increase of 5%Average Subscribers.
Growth in North America Average Subscribers was primarily driven by Tinder, Hinge, BLK, and Chispa. Growth in International Average Subscribers was primarily driven by Tinder, with several other brands also contributing, including Pairs, Meetic, and Hinge. North America ARPU increased primarily due to Tinder, driven primarily bypricing optimization at Hinge and increased purchases of à la carte features at Tinder, Hinge, and PlentyOfFish. International ARPU increased primarily due to a higher percentage of subscribers from Pairs, which has higher ARPU than other brands, and impacts of foreign exchange rates, partially offset by a 1% decrease in International ARPUmix-shift to lower subscription tiers at Tinder.
Indirect Revenue increased primarily due primarilyto higher ad impressions at Tinder.
For the nine months ended September 30, 2020 compared to the unfavorable impact from the strengthening of the U.S. dollar relative to the Euro and certain other currencies.nine months ended September 30, 2019
ANGI revenue increased 13% to $343.6International Direct Revenue grew $126.3 million, or 18%, in 2020 versus 2019, driven by Marketplace Revenue19% growth of $38.3 million, or 17%, and an increase of $3.9 million, or 6%, in Advertising & Other Revenue,Average Subscribers, partially offset by a decline of $1.9in ARPU. North America Direct Revenue grew $111.3 million, or 9%15%, in 2020 versus 2019, driven by 6% growth in Average Subscribers, 7% growth in ARPU, and growth in non-subscriber revenue from one-to-many video revenue at the European businesses. PlentyOfFish.
The increasechanges in Marketplace Revenue was dueAverage Subscribers and ARPU are primarily to increases of 2% in Marketplace Service Requests to 5.9 million and 5% in Marketplace Transacting SPs to 191,000, and, to a lesser extent, an increase in revenue of $15.2 million due to the changefactors described above in the three-month discussion.
Indirect revenue decreased primarily due to grosslower ad impressions.
Cost of revenue reporting for Handy and HomeAdvisor’s pre-priced product offering, effective January 1, 2020. Advertising & Other Revenue(exclusive of depreciation)
For the three months ended September 30, 2020 compared to the three months ended September 30, 2019
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| 2020 | | $ Change | | % Change | | 2019 |
| | | | | | | |
| (Dollars in thousands) |
| Cost of revenue | $ | 169,823 | | | $ | 31,598 | | | 23% | | $ | 138,225 | |
| Percentage of revenue | 27% | | | | | | 26% |
Cost of revenue increased primarily due primarily to an increase in Angie's List revenue. The revenue decline at the European businesses was due primarily to the impact of COVID-19, lower monetization from transitioning the Travaux.com business to Werkspot's technology platform in early February 2020 and the unfavorable impact of the strengthening of the U.S. dollar relative to the Euro and British Pound.
Vimeo revenue grew 31% to $57.0 million due to Platform Revenue growth of $15.7 million, or 38%. Platform Revenue growth was driven by a 6% increase in average revenue per subscriber and a 31% increase in Vimeo Ending Subscribers to 1.3 million (including the contribution from Magisto, acquired May 28, 2019) as enterprises and organizations move to deliver their products and communicate with their customers more digitally due to the effects of COVID-19. Revenue in 2019 included $2.3 million from the hardware business, which was sold in the first quarter of 2019.
Dotdash revenue increased 30% to $44.1 million due to growth of 79% in Performance Marketing Revenue and 15% higher Display Advertising Revenue. The growth in Performance Marketing Revenue was due primarily to growth in both affiliate commerce commission revenue and performance marketing commission revenue.
Applications revenue decreased 27% to $104.1 million due to a decrease of $42.5 million, or 44%, at Desktop, partially offset by an increase of $3.1 million, or 7%, at Mosaic Group. The decrease in Desktop revenue was driven by lower queries and monetization challenges following prior year browser policy changes and a decrease in advertising rates due to the impact of COVID-19 as well as continued business-to-business partnership declines.
Emerging & Other revenue increased 16% to $135.3 million due primarily to the contributions from Care.com, acquired February 11, 2020, and Nursefly, acquired June 26, 2019, as well as growth at Ask Media Group and The Daily Beast, partially offset by lower revenue at IAC Films.
Cost of revenue(exclusive of depreciation shown separately below)
|
| | | | | | | |
| | Three Months Ended March 31, |
| | 2020 | | $ Change | | % Change | | 2019 |
| | (Dollars in thousands) |
| Cost of revenue (exclusive of depreciation shown separately below) | $323,221 | | $63,150 | | 24% | | $260,071 |
| As a percentage of revenue | 26% | | | | | | 24% |
Cost of revenue in 2020 increased from 2019 due to increases of $23.7 million from MTCH, $23.2 million from ANGI and $17.7 million from Emerging & Other, partially offset by a decrease of $5.0 million from Applications.
The MTCH increase was due primarily to increases of $9.6 million in in-app purchase fees paidof $17.5 million, as revenue continues to Apple and Google as MTCH's revenues arebe increasingly sourced through mobile app stores, $7.9stores; an increase of $6.2 million in partner related costs associated with our one-to-many video streaming; an increase in web operations includingof $6.0 million, primarily representing SMS authentication and hosting fees,fees; and $3.2 millionan increase in compensation expense of $1.3 million related to increased customer care personnel.costs at various brands.
For the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2020 | | $ Change | | % Change | | 2019 |
| | | | | | | |
| (Dollars in thousands) |
| | | | | | | |
| | | | | | | |
| Cost of revenue | $ | 462,570 | | | $ | 77,456 | | | 20% | | $ | 385,114 | |
| Percentage of revenue | 27% | | | | | | 26% |
The ANGI increase waschanges are primarily due primarily to the change from net to gross revenue reporting for Handy and HomeAdvisor pre-priced product offering, effective January 1, 2020.
The Emerging & Other increase was due primarily to an increase of $10.9 millionfactors described above in traffic acquisition costs, principally due to an increase at Ask Media Group driven by higher revenue sourced through partners, and $9.4 million of expense from the inclusion of Care.com.
The Applications decrease was due primarily to a decrease of $4.5 million in traffic acquisition costs related to business-to-business partnership revenue declines at Desktop.three-month discussion.
Selling and marketing expense
For the three months ended September 30, 2020 compared to the three months ended September 30, 2019 | | | | | | | | | | Three Months Ended September 30, |
| | Three Months Ended March 31, | | 2020 | | $ Change | | % Change | | 2019 |
| | 2020 | | $ Change | | % Change | | 2019 | | | | | | | | |
| | (Dollars in thousands) | | (Dollars in thousands) |
| Selling and marketing expense | $432,697 | | $10,837 | | 3% | | $421,860 | Selling and marketing expense | $ | 129,859 | | | $ | 16,278 | | | 14% | | $ | 113,581 | |
| As a percentage of revenue | 35% | | | | 38% | |
| Percentage of revenue | | Percentage of revenue | 20% | | 21% |
Selling and marketing expense in 2020 increased from 2019primarily due to increaseshigher marketing spend at multiple brands prompted by the availability of $14.7 million from ANGI, $5.8 million from MTCH, $3.1 million from Emerging & Other, $2.3 million from Vimeolower marketing rates during the current year period, and $1.8 million from Dotdash, partially offset by a decrease of $16.9 million from Applications.
The ANGIan increase was due primarily to increases in compensation expense of $7.7 million and advertising expense$2.2 million.
For the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2020 | | $ Change | | % Change | | 2019 |
| | | | | | | |
| (Dollars in thousands) |
| Selling and marketing expense | $ | 345,150 | | | $ | 18,018 | | | 6% | | $ | 327,132 | |
| Percentage of revenue | 20% | | | | | | 22% |
The increase in compensation expense waschanges are primarily due primarily to growththe factors described above in the sales force. The increase in advertisingthree-month discussion.
General and administrative expense was
For the three months ended September 30, 2020 compared to the three months ended September 30, 2019
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| 2020 | | $ Change | | % Change | | 2019 |
| | | | | | | |
| (Dollars in thousands) |
| General and administrative expense | $ | 88,961 | | | $ | 20,293 | | | 30% | | $ | 68,668 | |
| Percentage of revenue | 14% | | | | | | 13% |
General and administrative expense increased primarily due primarily to an increase in online marketing,compensation of $21.8 million primarily related to a modification charge to stock-based compensation expense and an increase in headcount, partially offset by a decrease in television spend. Beginning mid-way throughtravel expenditures.
For the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 the proportion of service requests through Google free traffic declined while service requests through Google paid traffic increased. In addition, paid service requests became considerably more expensive on average than in the first half of 2019. In response
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2020 | | $ Change | | % Change | | 2019 |
| | | | | | | |
| (Dollars in thousands) |
| General and administrative expense | $ | 236,484 | | | $ | 49,349 | | | 26% | | $ | 187,135 | |
| Percentage of revenue | 14% | | | | | | 12% |
General and administrative expense increased primarily due to this continuing trend, we implemented new processes in the second half of 2019 that are increasingly more focused on profitability targets of our paid customer acquisition than the cost of each service request. We expect the year-over-yearan increase in paid trafficcompensation of $33.9 million primarily related to be more modestan increase in the back halfheadcount and an increase in stock-based compensation expense resulting from a modification charge, an increase in legal fees of 2020.
The MTCH$5.3 million, and an increase was due primarilyof $4.8 million related to increases in spending at Tinder, Pairs, OkCupid and Hinge,non-income taxes, partially offset by decreasesa decrease in spending at Match. Selling and marketingtravel expenditures.
Product development expense declined as a percentage of revenue as MTCH continues
For the three months ended September 30, 2020 compared to generate revenue growth from brands with relatively lower marketing expense.the three months ended September 30, 2019
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| 2020 | | $ Change | | % Change | | 2019 |
| | | | | | | |
| (Dollars in thousands) |
| Product development expense | $ | 39,280 | | | $ | 2,671 | | | 7% | | $ | 36,609 | |
| Percentage of revenue | 6% | | | | | | 7% |
The Emerging & Other increase wasProduct development expense increased primarily due primarily to $9.9 million of expense from the inclusion of Care.com, partially offset by decreases in marketing of $6.2 million at Ask Media Group, driven by a shift in revenue resulting in the payment of traffic acquisition costs, and $0.9 million in compensation at College Humor Media due to its sale during the first quarter of 2020.
The Vimeo increase was due primarily to increases in compensation expense of $3.5 million, due, in part, to growth in the sales force and software license and maintenance costs of $0.6 million, partially offset by lower marketing of $2.3 million due to a brand campaign in 2019.
The Dotdash increase was due primarily to an increase in compensation expense of $1.6$4.0 million, due, in part, to growth in the sales force.
The Applications decrease was due primarily to lower online marketing of $15.4 million principally at Desktop as we continue to mitigate the negative impact on revenue from prior year browser policy changes, and a decrease of $0.8 million in compensation expense.
General and administrative expense
|
| | | | | | | |
| | Three Months Ended March 31, |
| | 2020 | | $ Change | | % Change | | 2019 |
| | (Dollars in thousands) |
| General and administrative expense | $256,021 | | $42,405 | | 20% | | $213,616 |
| As a percentage of revenue | 21% | | | | | | 19% |
General and administrative expense in 2020 increased from 2019 due to increases of $27.8 million from MTCH, $10.1 million from ANGI, $7.0 million from Emerging & Other and $3.3 million from Corporate, partially offset by a decrease of $7.5 million from Applications.
The MTCH increase was due primarily to increases of $10.7 million in legal fees, $9.5 million in compensation expense related to an increase in headcount $3.5 million in costs related to the Separation and an increase of $2.3 million in non-income taxes.
The ANGI increase was due primarily to an increase of $6.2 million in compensation expense and $3.5 million in bad debt expense due to higher Marketplace Revenue and the impact from COVID-19 on expected credit losses. The increase in compensation expense was due primarily to an increase of $4.4 million in stock-based compensation expense due primarily to the issuance of new equity awards since 2019 and an increase of $2.5 million in expense due to the modification charge related to the combination of the HomeAdvisor business and Angie's List ($10.4 million in 2020 compared to $7.9 million in 2019).
The Emerging & Other increase was due primarily to $6.7 million of expense from the inclusion of Care.com.
The Corporate increase was due primarily to higher professional fees,at several brands, including $7.6 million in costs related to the Separation,Tinder, partially offset by a decrease in travel expenditures.
For the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2020 | | $ Change | | % Change | | 2019 |
| | | | | | | |
| (Dollars in thousands) |
| Product development expense | $ | 124,979 | | | $ | 11,416 | | | 10% | | $ | 113,563 | |
| Percentage of revenue | 7% | | | | | | 8% |
The changes are primarily due to the factors described above in the three-month discussion.
Depreciation
For the three months ended September 30, 2020 compared to the three months ended September 30, 2019
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| 2020 | | $ Change | | % Change | | 2019 |
| | | | | | | |
| (Dollars in thousands) |
| Depreciation | $ | 11,221 | | | $ | 2,688 | | | 32% | | $ | 8,533 | |
| Percentage of revenue | 2% | | | | | | 2% |
Depreciation increased primarily due to an increase in internally developed software placed in service.
For the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2020 | | $ Change | | % Change | | 2019 |
| | | | | | | |
| (Dollars in thousands) |
| Depreciation | $ | 30,284 | | | $ | 4,706 | | | 18% | | $ | 25,578 | |
| Percentage of revenue | 2% | | | | | | 2% |
Depreciation increased primarily due to the factors described above in the three-month discussion.
Operating income and Adjusted EBITDA
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | $ Change | | % Change | | 2019 | | 2020 | | $ Change | | % Change | | 2019 |
| | | | | | | | | | | | | | | |
| (Dollars in thousands) |
| Operating income | $ | 200,167 | | | $ | 24,931 | | | 14% | | $ | 175,236 | | | $ | 533,133 | | | $ | 69,028 | | | 15% | | $ | 464,105 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Percentage of revenue | 31% | | | | | | 32% | | 31% | | | | | | 31% |
| | | | | | | | | | | | | | | |
| Adjusted EBITDA | $ | 249,182 | | | $ | 43,967 | | | 21% | | $ | 205,215 | | | $ | 651,326 | | | $ | 89,362 | | | 16% | | $ | 561,964 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Percentage of revenue | 39% | | | | | | 38% | | 37% | | | | | | 37% |
For a reconciliation of net earnings attributable to Match Group, Inc. shareholders to Adjusted EBITDA, see “Principles of Financial Reporting.”
For the three months ended September 30, 2020 compared to the three months ended September 30, 2019
Operating income and Adjusted EBITDA increased 14% and 21%, respectively, primarily driven by revenue growth at multiple brands and lower selling and marketing expense as a percentage of revenue, partially offset by higher cost of revenue, due to higher in-app purchase fees, as revenue is increasingly sourced through mobile app stores, and increased web operation costs. Operating income was further impacted by higher stock-based compensation expense due primarilyto a modification charge recorded in 2020.
For the nine months ended September 30, 2020 compared to the vesting of awards, partially offset by a net increase in modification charges.
Product development expense
|
| | | | | | | |
| | Three Months Ended March 31, |
| | 2020 | | $ Change | | % Change | | 2019 |
| | (Dollars in thousands) |
| Product development expense | $105,733 | | $17,033 | | 19% | | $88,700 |
| As a percentage of revenue | 9% | | | | | | 8% |
Product development expense in 2020 increased fromnine months ended September 30, 2019 due to increases of $5.6 million from Emerging & Other, $5.6 million from Vimeo, $3.8 million from Dotdash and $1.7 million from Applications.
The Emerging & Other increase was due primarily to $4.9 million of expense from the inclusion of Care.com.
The Vimeo increase was due primarily to an increase of $4.5 million in compensation expense due primarily from the inclusion of Magisto and higher headcount.
The Dotdash increase was due primarily to an increase of $3.6 million in compensation expense due primarily to higher headcount and an increase in expense for contractors engaged in improving the user's experience.
The Applications increase was due primarily to an increase of $2.1 million in compensation expense due primarily to higher headcount at Mosaic.
|
| | | | | | | |
| | Three Months Ended March 31, |
| | 2020 | | $ Change | | % Change | | 2019 |
| | (Dollars in thousands) |
| Depreciation | $24,738 | | $5,767 | | 30% | | $18,971 |
| As a percentage of revenue | 2% | | | | | | 2% |
Depreciation in 2020 increased from 2019 due primarily to the development of capitalized software to support ANGI's products and services, as well as leasehold improvements related to additional office space at ANGI.
|
| | | | | | | | | | | | | |
| | Three Months Ended March 31, |
| | 2020 | | $ Change | | % Change | | 2019 |
| | (Dollars in thousands) |
| Match Group | $ | 134,681 |
| | $ | 15,853 |
| | 13% | | $ | 118,828 |
|
| ANGI Homeservices | (16,296 | ) | | (12,655 | ) | | (348)% | | (3,641 | ) |
| Vimeo | (14,589 | ) | | 3,195 |
| | 18% | | (17,784 | ) |
| Dotdash | 2,411 |
| | (636 | ) | | (21)% | | 3,047 |
|
| Applications | (218,588 | ) | | (243,944 | ) | | NM | | 25,356 |
|
| Emerging & Other | (19,845 | ) | | (17,325 | ) | | (687)% | | (2,520 | ) |
| Corporate | (45,554 | ) | | (2,141 | ) | | (5)% | | (43,413 | ) |
| Total | $ | (177,780 | ) | | $ | (257,653 | ) | | NM | | $ | 79,873 |
|
| | | | | | | | |
| As a percentage of revenue | (14)% | | | | | | 7% |
Operating income decreased $257.7 million to a loss of $177.8 millionand Adjusted EBITDA increased 15% and 16%, respectively, primarily due primarily to the goodwill impairment of $212.0 million and $21.4 millionfactors described above in indefinite-lived intangible asset impairments, which is reflected in amortization of intangibles, at Applications related to the Desktop business, a decrease in Adjusted EBITDA of $27.3 million, described below, and an increase of $5.8 million in depreciation, partially offset by a decrease of $9.0 million in stock-based compensation expense and a change of $7.8 million in acquisition-related contingent consideration fair value adjustments (income of $6.3 million in 2020 compared to expense of $1.5 million in 2019). The overall increase in amortization of intangibles of $29.4 million was due primarily to the inclusion in 2020 of indefinite-lived intangible asset impairments of $21.4 million related to the Desktop business noted above and $4.6 million at MTCH. The goodwill and the indefinite-lived intangible asset impairments were driven by the impact of COVID-19. The increase in depreciation was due primarily to the development of capitalized software to support ANGI's products and services, as well as leasehold improvements related to additional office space at ANGI. The decrease in stock-based compensation expense was due primarily to the vesting of awards, including expense of $9.4 million in 2019 related to the vesting of certain awards for which the market condition was met, partially offset by the issuance of new equity awards since the prior year period and a net increase in modification charges.
The aggregate carrying value of goodwill for which the most recent estimate of the excess of fair value over carrying value is less than 20% is approximately $709.4 million. The aggregate carrying value of indefinite-lived intangible assets for which the most recent estimate of the excess of fair value over carrying value is less than 20% is approximately $162.5 million.three-month discussion.
At March 31,September 30, 2020, there was $333.9$160.1 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 2.5 years.
Adjusted EBITDAInterest expense |
| | | | | | | | | | | | | |
| | Three Months Ended March 31, |
| | 2020 | | $ Change | | % Change | | 2019 |
| | (Dollars in thousands) |
| Match Group | $ | 171,502 |
| | $ | 16,435 |
| | 11% | | $ | 155,067 |
|
| ANGI Homeservices | 34,397 |
| | (2,782 | ) | | (7)% | | 37,179 |
|
| Vimeo | (11,408 | ) | | 4,792 |
| | 30% | | (16,200 | ) |
| Dotdash | 7,011 |
| | (139 | ) | | (2)% | | 7,150 |
|
| Applications | 10,151 |
| | (19,537 | ) | | (66)% | | 29,688 |
|
| Emerging & Other | (16,980 | ) | | (14,885 | ) | | (710)% | | (2,095 | ) |
| Corporate | (31,398 | ) | | (11,178 | ) | | (55)% | | (20,220 | ) |
| Total | $ | 163,275 |
| | $ | (27,294 | ) | | (14)% | | $ | 190,569 |
|
| | | | | | | | |
| As a percentage of revenue | 13% | | | | | | 17% |
For a reconciliation of net (loss) earnings attributable to IAC shareholders to operating (loss) income to consolidated Adjusted EBITDA, see "Principles of Financial Reporting." For a reconciliation of operating (loss) income to Adjusted EBITDA for the Company's reportable segments, see "Note 8—Segment Information"three months ended September 30, 2020 compared to the consolidated financial statements included in "Item 1—Consolidated Financial Statements."three months ended September 30, 2019 •MTCH Adjusted EBITDA increased 11% to $171.5 million due primarily to the increase of $80.0 million in revenue due to growth at Tinder and lower selling and marketing expense as a percentage of revenue, partially offset by higher legal fees and higher in-app purchase fees as revenue continues to be increasingly sourced through mobile app stores.
•ANGI Adjusted EBITDA decreased 7% to $34.4 million, despite higher revenue, due primarily to increased European losses and an increase of $3.5 million in bad debt expense due to higher Marketplace Revenue and the impact from COVID-19 on expected credit losses.
•Vimeo Adjusted EBITDA loss decreased 30% to $11.4 million due primarily to higher revenue and lower marketing expense, partially offset by higher compensation expense due primarily to an increase in headcount, including its sales force, and a charge of $0.7 million related to the termination of a lease.
•Dotdash Adjusted EBITDA decreased 2% to $7.0 million, despite higher revenue, due primarily to higher compensation expense, an increase in expense for contractors engaged in improving the user's experience and an increase in bad debt expense due, in part, to the impact of COVID-19 on expected credit losses.
•Applications Adjusted EBITDA decreased 66% to $10.2 million due primarily to a decrease in revenue.
•Emerging & Other Adjusted EBITDA loss increased $14.9 million to $17.0 million due primarily to $13.5 million in transaction-related items from the Care.com acquisition (including $8.7 million in deferred revenue write-offs and $4.8 million in transaction-related costs), reduced profits at Ask Media Group, reflecting an increase in traffic acquisition costs, increased losses at Bluecrew and losses at Nursefly, partially offset by lower losses at College Humor Media.
•Corporate Adjusted EBITDA loss increased 55% to $31.4 million due primarily to higher professional fees, including $7.6 million in costs related to the Separation.
|
| | | | | | | |
| | Three Months Ended March 31, |
| | 2020 | | $ Change | | % Change | | 2019 |
| | (Dollars in thousands) |
| Interest expense | $44,866 | | $13,723 | | 44% | | $31,143 |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| 2020 | | $ Change | | % Change | | 2019 |
| | | | | | | |
| (Dollars in thousands) |
| Interest expense | $ | 43,189 | | | $ | 4,196 | | | 11% | | $ | 38,993 | |
Interest expense in 2020 increased from 2019primarily due primarily to the increaseissuance of the 4.125% Senior Notes on February 11, 2020 and the issuance of the 4.625% Senior Notes on May 19, 2020. Partially offsetting these increases were decreases due to the redemption of the 6.375% Senior Notes during the 2020 period and a lower LIBOR rate on the Term Loan in the average outstanding long-term debt balance, partially offset by lower interest rates on variable rate debtcurrent year period.
For the nine months ended September 30, 2020 compared to the prior yearnine months ended September 30, 2019
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2020 | | $ Change | | % Change | | 2019 |
| | | | | | | |
| (Dollars in thousands) |
| Interest expense | $ | 131,485 | | | $ | 31,495 | | | 31% | | $ | 99,990 | |
Interest expense increased primarily due to the factors described above in the three-month discussion. Additionally, the 2026 and 2030 Senior Exchangeable Notes were outstanding for the entire 2020 period.
Other (expense) income, net |
| | | | | | | |
| | Three Months Ended March 31, |
| | 2020 | | $ Change | | % Change | | 2019 |
| | (Dollars in thousands) |
| Other (expense) income, net | $(49,893) | | $(50,544) | | NM | | $651 |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| 2020 | | $ Change | | % Change | | 2019 |
| | | | | | | |
| (Dollars in thousands) |
| Other (expense) income, net | $ | (1,923) | | | $ | (4,711) | | | NM | | $ | 2,788 | |
________________________
NM = not meaningful
Other expense, net, in 2020 includes: $51.5 million in impairments (downward adjustments) related to investments in equity securities without readily determinable fair values and $7.5 million in impairmentsincludes foreign currency losses of a note receivable and a warrant related to certain investees due to the impact of COVID-19; and $10.1 million of interest income.$1.3 million.
Other income, net, in 2019 includes: $12.4 millionincludes income of interest income; $8.1$1.8 million in net foreign currency exchange gains due primarily to a realized loss relatedstrengthening of the Euro relative to GBP during the three months ended September 30, 2019 and interest income of $1.3 million.
For the nine months ended September 30, 2020 compared to the salenine months ended September 30, 2019
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2020 | | $ Change | | % Change | | 2019 |
| | | | | | | |
| (Dollars in thousands) |
| Other income, net | $ | 19,341 | | | $ | 15,503 | | | 404% | | $ | 3,838 | |
Other income, net, in 2020 includes a legal settlement of $35.0 million, foreign currency gains of $1.4 million, and interest income of $2.5 million, partially offset by a business; andloss on redemption of bonds of $16.5 million.
Other income, net, in 2019 includes income of $1.9 million in net foreign currency exchange lossesgains due primarily to the weakeninga strengthening of the U.S. dollar and the Euro relative to GBP in the British Pound duringperiod, and interest income of $3.0 million, partially offset by expense of $1.3 million related to a mark-to-market adjustment pertaining to a subsidiary denominated equity instrument.
Income tax (provision) benefit
For the three months ended March 31, 2019.September 30, 2020 compared to the three months ended September 30, 2019
Income | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| 2020 | | $ Change | | % Change | | 2019 |
| | | | | | | |
| (Dollars in thousands) |
| Income tax provision | $ | (23,568) | | | $ | (22,328) | | | NM | | $ | (1,240) | |
| Effective income tax rate | 15% | | | | | | 1% |
The income tax provisions in 2020 and 2019 are reduced by (i) excess tax benefits generated from the exercise and vesting of stock-based awards and (ii) research tax credits.
For the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2020 | | $ Change | | % Change | | 2019 |
| | | | | | | |
| (Dollars in thousands) |
| Income tax (provision) benefit | $ | (7,257) | | | $ | (14,003) | | | NM | | $ | 6,746 | |
| Effective income tax rate | 2% | | | | | | NM |
The income tax provision in 2020 and the income tax benefit, despite pre-tax income, in 2019, are primarily due to excess tax benefits generated from the exercise and vesting of stock-based awards. In 2020, this benefit was partially offset by an increase in the valuation allowance for foreign tax credits.
|
| | | | | | | |
| | Three Months Ended March 31, |
| | 2020 | | $ Change | | % Change | | 2019 |
| | (Dollars in thousands) |
| Income tax benefit | $89,896 | | $26,292 | | 41% | | $63,604 |
| Effective income tax rate | 33% | | | | | | NM |
In 2020, the Company recorded an income tax benefitRelated party transactions
For discussions of $89.9 million, which represented an effective tax rate of 33%. The effective income tax rate was higher than the statutory rate of 21% due primarily to excess tax benefits generated by the exercise and vesting of stock-based awards and a revaluation of net operating loss deferred taxes duerelated party transactions see “Note 10—Related Party Transactions” to the CARES Act, partially offset by the non-deductible portion of the Desktop goodwill impairment charge and unbenefited losses related to other investment impairments.
The income tax benefits in 2019, despite pre-tax income, were due primarily to excess tax benefits generated by the exercise and vesting of stock-based awards.
Net earnings attributable to noncontrolling interests
Noncontrolling interests represent the noncontrolling holders’ percentage share of earnings or losses from the subsidiaries in which the Company holds a majority, but less than 100%, ownership interest and the results of which areconsolidated financial statements included in our consolidated financial statements.
|
| | | | | | | |
| | Three Months Ended March 31, |
| | 2020 | | $ Change | | % Change | | 2019 |
| | (Dollars in thousands) |
| Net earnings attributable to noncontrolling interests | $28,397 | | $4,107 | | 17% | | $24,290 |
Net earnings attributable to noncontrolling interests in 2020 and 2019 primarily represents the publicly-held interest in MTCH's and ANGI's earnings.
PRINCIPLES OF FINANCIAL REPORTING
IACMatch Group reports Adjusted EBITDA as aand Revenue excluding foreign exchange effects, both of which are supplemental measuremeasures to U.S. generally accepted accounting principles ("GAAP"(“GAAP”). This measureAdjusted EBITDA is one ofamong the primary metrics by which we evaluate the performance of our businesses,business, on which our internal budgets arebudget is based and by which management is compensated. Revenue excluding foreign exchange effects provides a comparable framework for assessing the performance of our business without the effect of exchange rate differences when compared to prior periods. We believe that investors should have access to, and we are obligated to provide, the same set of tools that we use in analyzing our results. ThisThese non-GAAP measuremeasures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results. IACMatch Group endeavors to compensate for the limitations of the non-GAAP measuremeasures presented by providing the comparable GAAP measuremeasures with equal or greater prominence and descriptions of the reconciling items, including quantifying such items, to derive the non-GAAP measure.measures. We encourage investors to examine the reconciling adjustments between the GAAP and non-GAAP measure,measures, which we discuss below.
Definition of Non-GAAP MeasureAdjusted EBITDA
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("(“Adjusted EBITDA"EBITDA”) is defined as operating income excluding: (1) stock-based compensation expense; (2) depreciation; and (3) acquisition-related items consisting of (i) amortization of intangible assets and impairments of goodwill and intangible assets, if applicable, and (ii) gains and losses recognized on changes in the fair value of contingent consideration arrangements.arrangements, as applicable. We believe this measure is useful for analysts and investors as this measure allows a more meaningful comparison between our performance and that of our competitors. The above items are excluded from our Adjusted EBITDA measure because these itemsthey are non-cash in nature. Adjusted EBITDA has certain limitations because it excludes the impact of these expenses.
The following table reconciles net (loss) earnings attributable to IAC shareholders to operating (loss) income to consolidated Adjusted EBITDA:
|
| | | | | | | |
| | Three Months Ended March 31, |
| | 2020 | | 2019 |
| | (In thousands) |
| Net (loss) earnings attributable to IAC shareholders | $ | (211,040 | ) | | $ | 88,695 |
|
| Add back: | | | |
| Net earnings attributable to noncontrolling interests | 28,397 |
| | 24,290 |
|
| Income tax benefit | (89,896 | ) | | (63,604 | ) |
| Other expense (income), net | 49,893 |
| | (651 | ) |
| Interest expense | 44,866 |
| | 31,143 |
|
| Operating (loss) income | (177,780 | ) | | 79,873 |
|
| Stock-based compensation expense | 58,464 |
| | 67,444 |
|
| Depreciation | 24,738 |
| | 18,971 |
|
| Amortization of intangibles | 52,162 |
| | 22,752 |
|
| Acquisition-related contingent consideration fair value adjustments | (6,282 | ) | | 1,529 |
|
| Goodwill impairment | 211,973 |
| | — |
|
| Adjusted EBITDA | $ | 163,275 |
| | $ | 190,569 |
|
Non-Cash Expenses That Are Excluded From Our Non-GAAP MeasureAdjusted EBITDA
Stock-based compensationexpense consists principally of expense associated with the grants including unvested grants assumed in acquisitions, of stock options, restricted stock units ("RSUs"(“RSUs”), performance-based RSUs and market-based awards. These expenses are not paid in cash, and we include the related shares in our fully diluted shares outstanding using the treasury stock method. Performance-basedmethod; however, performance-based RSUs and market-based awards are included only to the extent the applicable performance or market condition(s) have been met (assuming the end of the reporting period is the end of the contingency period). To the extent that stock-based awards are settled on a net basis, the Company remits the required tax-withholding amounts from its current funds.
Depreciation is a non-cash expense relating to our property capitalized software and equipment and is computed using the straight-line method to allocate the cost of depreciable assets to operations over their estimated useful lives or, in the case of leasehold improvements, the lease term, if shorter.
Amortization of intangible assets and impairments of goodwill and intangible assets are non-cash expenses related primarily to acquisitions. At the time of an acquisition, the identifiable definite-lived intangible assets of the acquired company, such as technology, service professional relationships, customer lists, and user base, memberships, trade names, and content,technology, are valued and amortized over their estimated lives. Value is also assigned to acquired indefinite-lived intangible assets, which comprise trade names and trademarks, and goodwill that are not subject to amortization. An impairment is recorded when the carrying value of an intangible asset or goodwill exceeds its fair value. We believe that intangible assets represent costs incurred by the acquired company to build value prior to acquisition and the related amortization and impairmentsimpairment charges of intangible assets or goodwill, if applicable, are not ongoing costs of doing business.
Gains and losses recognized on changes in the fair value of contingent consideration arrangementsare accounting adjustments to report contingent consideration liabilities at fair value. These adjustments can be highly variable and are excluded from our assessment of performance because they are considered non-operational in nature and, therefore, are not indicative of current or future performance or the ongoing cost of doing business.
The following table reconciles net earnings attributable to Match Group, Inc. shareholders to Adjusted EBITDA:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
| | | | | | | |
| (In thousands) |
| Net earnings (loss) attributable to Match Group, Inc. shareholders | $ | 132,581 | | | $ | 128,544 | | | $ | (12,018) | | | $ | 330,706 | |
| Add back: | | | | | | | |
| Net (loss) earnings attributable to noncontrolling interests | (586) | | | 31,228 | | | 59,680 | | | 88,842 | |
| (Earnings) loss from discontinued operations, net of tax | (508) | | | (21,981) | | | 366,070 | | | (44,849) | |
| Income tax provision (benefit) | 23,568 | | | 1,240 | | | 7,257 | | | (6,746) | |
| Other expense (income), net | 1,923 | | | (2,788) | | | (19,341) | | | (3,838) | |
| Interest expense | 43,189 | | | 38,993 | | | 131,485 | | | 99,990 | |
| Operating Income | 200,167 | | | 175,236 | | | 533,133 | | | 464,105 | |
| Stock-based compensation expense | 37,335 | | | 20,805 | | | 80,647 | | | 70,817 | |
| Depreciation | 11,221 | | | 8,533 | | | 30,284 | | | 25,578 | |
| Amortization of intangibles | 459 | | | 641 | | | 7,262 | | | 1,464 | |
| | | | | | | |
| Adjusted EBITDA | $ | 249,182 | | | $ | 205,215 | | | $ | 651,326 | | | $ | 561,964 | |
Effects of Changes in Foreign Exchange Rates on Revenue
The impact of foreign exchange rates on the Company, due to its global reach, may be an important factor in understanding period over period comparisons if movement in exchange rates is significant. Since our results are reported in U.S. dollars, international revenue is favorably impacted as the U.S. dollar weakens relative to other foreign currencies, and unfavorably impacted as the U.S. dollar strengthens relative to other foreign currencies. We believe the presentation of revenue excluding the effects from foreign exchange, in addition to reported revenue, helps improve investors’ ability to understand the Company’s performance because it excludes the impact of foreign currency volatility that is not indicative of Match Group’s core operating results.
Revenue excluding foreign exchange effects compares results between periods as if exchange rates had remained constant period over period. Revenue excluding foreign exchange effects is calculated by translating current period revenue using prior period exchange rates. The percentage change in revenue excluding foreign exchange effects is calculated by determining the change in current period revenue over prior period revenue where current period revenue is translated using prior period exchange rates.
The following table presents the impact of foreign exchange on total revenue, ARPU, and International ARPU for the three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019, respectively:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, |
| | 2020 | | $ Change | | % Change | | 2019 |
| | | | | | | |
| | (Dollars in thousands, except ARPU) |
| Revenue, as reported | $ | 639,770 | | | $ | 98,277 | | | 18% | | $ | 541,493 | |
| Foreign exchange effects | (3,085) | | | | | | | |
| Revenue excluding foreign exchange effects | $ | 636,685 | | | $ | 95,192 | | | 18% | | $ | 541,493 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| (Percentage change calculated using non-rounded numbers, rounding differences may occur) |
| ARPU, as reported | $ | 0.62 | | | | | 4% | | $ | 0.59 | |
| Foreign exchange effects | — | | | | | | | |
| ARPU, excluding foreign exchange effects | $ | 0.62 | | | | | 4% | | $ | 0.59 | |
| | | | | | | |
| International ARPU, as reported | $ | 0.58 | | | | | 1% | | $ | 0.57 | |
| Foreign exchange effects | (0.01) | | | | | | | |
| International ARPU, excluding foreign exchange effects | $ | 0.57 | | | | | —% | | $ | 0.57 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2020 | | $ Change | | % Change | | 2019 |
| | | | | | | |
| | (Dollars in thousands, except ARPU) |
| Revenue, as reported | $ | 1,739,862 | | | $ | 235,771 | | | 16% | | $ | 1,504,091 | |
| Foreign exchange effects | 16,370 | | | | | | | |
| Revenue excluding foreign exchange effects | $ | 1,756,232 | | | $ | 252,141 | | | 17% | | $ | 1,504,091 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| (Percentage change calculated using non-rounded numbers, rounding differences may occur) |
| ARPU, as reported | $ | 0.60 | | | | | 2% | | $ | 0.58 | |
| Foreign exchange effects | — | | | | | | | |
| ARPU, excluding foreign exchange effects | $ | 0.60 | | | | | 3% | | $ | 0.58 | |
| | | | | | | |
| International ARPU, as reported | $ | 0.55 | | | | | (1)% | | $ | 0.56 | |
| Foreign exchange effects | 0.01 | | | | | | | |
| International ARPU, excluding foreign exchange effects | $ | 0.56 | | | | | —% | | $ | 0.56 | |
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
Financial Position
|
| | | | | | | |
| | March 31, 2020 | | December 31, 2019 |
| | (In thousands) |
| MTCH cash and cash equivalents: | | | |
| United States | $ | 695,552 |
| | $ | 322,267 |
|
| All other countries | 95,769 |
| | 143,409 |
|
| Total MTCH cash and cash equivalents | 791,321 |
| | 465,676 |
|
| | | | |
| ANGI cash and cash equivalents: | | | |
| United States | 370,711 |
| | 377,648 |
|
| All other countries | 13,519 |
| | 12,917 |
|
| Total ANGI cash and cash equivalents | 384,230 |
| | 390,565 |
|
| | | | |
| IAC (excluding MTCH and ANGI) cash and cash equivalents, short-term investments and marketable securities: | | | |
| United States | 1,590,438 |
| | 2,226,344 |
|
| All other countries | 56,740 |
| | 56,710 |
|
| Total cash and cash equivalents | 1,647,178 |
| | 2,283,054 |
|
| Short-term investments (United States) | 20,000 |
| | — |
|
| Marketable securities (United States) | 49,912 |
| | 19,993 |
|
| Total IAC (excluding MTCH and ANGI) cash and cash equivalents, short-term investments and marketable securities | 1,717,090 |
| | 2,303,047 |
|
| | | | |
| Total cash and cash equivalents, short-term investments and marketable securities | $ | 2,892,641 |
| | $ | 3,159,288 |
|
| | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
| | | |
| (In thousands) |
| Cash and cash equivalents: | | | |
| United States | $ | 251,742 | | | $ | 322,267 | |
| All other countries | 147,142 | | | 143,409 | |
| Total cash and cash equivalents | $ | 398,884 | | | $ | 465,676 | |
| | | |
| | | |
| | | |
| Long-term debt: | | | |
| Credit Facility due February 13, 2025 | $ | — | | | $ | — | |
| Term Loan due February 13, 2027 | 425,000 | | | 425,000 | |
| 6.375% Senior Notes | — | | | 400,000 | |
| 5.00% Senior Notes | 450,000 | | | 450,000 | |
| 4.625% Senior Notes | 500,000 | | | — | |
| 5.625% Senior Notes | 350,000 | | | 350,000 | |
| 4.125% Senior Notes | 500,000 | | | — | |
| 2022 Exchangeable Notes | 517,500 | | | 517,500 | |
| 2026 Exchangeable Notes | 575,000 | | | 575,000 | |
| 2030 Exchangeable Notes | 575,000 | | | 575,000 | |
| Total long-term debt | 3,892,500 | | | 3,292,500 | |
| | | |
| Less: Unamortized original issue discount | 324,551 | | | 357,887 | |
| Less: Unamortized debt issuance costs | 46,857 | | | 44,987 | |
| Total long-term debt, net | $ | 3,521,092 | | | $ | 2,889,626 | |
|
| | | | | | | |
| MTCH debt: | | | |
| MTCH Term Loan | $ | 425,000 |
| | $ | 425,000 |
|
| 6.375% MTCH Senior Notes | 400,000 |
| | 400,000 |
|
| 5.00% MTCH Senior Notes | 450,000 |
| | 450,000 |
|
| 5.625% MTCH Senior Notes | 350,000 |
| | 350,000 |
|
| 4.125% MTCH Senior Notes | 500,000 |
| | — |
|
| Total MTCH long-term debt | 2,125,000 |
| | 1,625,000 |
|
| Less: unamortized original issue discount | 6,618 |
| | 6,282 |
|
| Less: unamortized debt issuance costs | 20,428 |
| | 15,235 |
|
| Total MTCH debt, net | 2,097,954 |
| | 1,603,483 |
|
| | | | |
| ANGI debt: | | | |
| ANGI Term Loan | 244,063 |
| | 247,500 |
|
| Less: current portion of ANGI Term Loan | 13,750 |
| | 13,750 |
|
| Less: unamortized debt issuance costs | 1,670 |
| | 1,804 |
|
| Total ANGI debt, net | 228,643 |
| | 231,946 |
|
| | | | |
| IAC debt: | | | |
| 2022 Exchangeable Notes | 517,500 |
| | 517,500 |
|
| 2026 Exchangeable Notes | 575,000 |
| | 575,000 |
|
| 2030 Exchangeable Notes | 575,000 |
| | 575,000 |
|
| Total IAC long-term debt | 1,667,500 |
| | 1,667,500 |
|
| Less: unamortized original issue discount | 340,688 |
| | 351,605 |
|
| Less: unamortized debt issuance costs | 28,401 |
| | 29,752 |
|
| Total IAC debt, net | 1,298,411 |
| | 1,286,143 |
|
| | | | |
| Total long-term debt, net | $ | 3,625,008 |
| | $ | 3,121,572 |
|
IAC, MTCH and ANGI Long-term Debt
Cash Flow Information
In summary, the Company'sCompany’s cash flows are as follows:
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2020 | | 2019 |
| | | |
| (In thousands) |
| Net cash provided by operating activities attributable to continuing operations | $ | 518,845 | | | $ | 468,255 | |
| Net cash used in investing activities attributable to continuing operations | (3,912,134) | | | (32,961) | |
| Net cash provided by financing activities attributable to continuing operations | 1,711,971 | | | 732,333 | |
|
| | | | | | | |
| | Three Months Ended March 31, |
| | 2020 | | 2019 |
| | (In thousands) |
| Net cash provided by (used in) | | | |
| Operating activities | $ | 80,975 |
| | $ | 102,941 |
|
| Investing activities | (586,006 | ) | | 55,607 |
|
| Financing activities | 194,663 |
| | (73,660 | ) |
Net cash provided by operating activities consists of earnings adjusted for non-cash items, the effect of changesattributable to continuing operations in working capital and acquisition-related contingent consideration payments (to the extent greater than the liability initially recognized at the time of acquisition). Non-cash2020 includes adjustments include goodwill impairments, stock-based compensation expense, deferred income taxes, amortization of intangibles, net losses on equity securities, depreciation, and bad debt expense.
2020
Adjustments to earnings consist primarily of a $212.0 million goodwill impairment, $58.5$80.6 million of stock-based compensation expense, $52.2$57.0 million of amortization of intangibles, including impairments of $26.0 million, $51.5 million of impairments of certain equity securities without readily determinable fair values, $24.7other adjustments, $30.3 million of depreciation, and $19.9$7.3 million for amortization of bad debt expense, partially offset by $59.2 million of deferred income taxes. Theintangibles. Partially offsetting these adjustments was deferred income tax benefitof $6.6 million primarily relatesrelated to the net operating loss created by the exercise and vestingsettlement of stock-based awards. Other adjustments include $33.3 million of amortization of original issuance discount related to the Exchangeable Senior Notes and $16.5 million of losses on the redemption of the Senior Notes. The decrease in cash from changes in working capital primarily consists of an increase in accounts
receivable of $79.8$87.9 million a $47.8 million net change in income taxes payable and receivable, and a decrease in accounts payable and other liabilities of $24.7 million, partially offset by an increase in deferred revenue of $25.5 million. The increase in accounts receivable is primarily duerelated to the timing of cash receipts, at MTCH, including cash received in the fourth quarter of 2019 rather than in the first quarter of 2020, as well as revenue growth at ANGI. Theand an increase in income taxes receivablerevenue; and decrease in income taxes payable isan increase from other assets of $26.1 million primarily due to receivables createda legal settlement. These changes were partially offset by carrying back net operating losses pursuantan increase in deferred revenue of $26.9 million, due mainly to the Coronavirus Aid, Relief, and Economic Security Act and income tax paymentsgrowth in excess of tax accruals in foreign jurisdictions. The decreasesubscription sales; an increase in accounts payable and other liabilities isof $18.3 million due in part, to a decrease in accrued employee compensation mainly related to the paymenttiming of 2019 cash bonuses in 2020,payments, including interest payments; and an increase from income taxes payable and receivable of $5.3 million primarily due to the receipt of an income tax refund, partially offset by increases in (i) accrued advertising and related payables at ANGI and (ii) accrued interest primarily related topayments of taxes during the MTCH Senior Notes due to timing of interest payments and the 4.125% MTCH Senior Notes, which were issued in the first quarter of 2020. The increase in deferred revenue is due primarily to growth in subscription sales at Vimeo and Care.com.year.
Net cash used in investing activities includesattributable to continuing operations in 2020 consists primarily of the net cash used for acquisitions and investments of $532.9 million, principallydistributed to IAC related to the Care.com acquisition, purchases (netSeparation of maturities)$3.9 billion, which includes $1.4 billion of marketable debt securities of $29.8 millionnet proceeds from the stock issuance in connection with the Separation, and capital expenditures of $24.6$32.4 million that are primarily related to investments in theinternal development of capitalized software at ANGI and MTCHcomputer hardware to support theirour products and services, and leasehold improvements at ANGI.services.
Net cash provided by financing activities includes $500.0 millionattributable to continuing operations in 2020 is primarily due to proceeds of $1.4 billion from the stock offering in connection with the Separation, which were subsequently transferred to IAC as noted above, proceeds of $1.0 billion from the issuance of the 4.125% MTCHand 4.625% Senior Notes and borrowings under the Credit Facility of $20.0 million, partially offset by $145.4the redemption of $400.0 million and $3.2of the 6.375% Senior Notes, payments of $212.0 million for withholding taxes paid on behalf of MTCH and ANGI employees respectively, for stock-based awards that were net settled $81.7 million for the repurchaseequity awards of 1.3 million sharesboth Former Match Group and Match Group, and purchases of MTCH commontreasury stock on a settlement date basis, at an average price of $64.57 per share, $38.5 million for the repurchaseFormer Match Group of 5.2 million shares of ANGI common stock, on a settlement date basis, at an average price of $7.43 per share, $20.9 million for withholding taxes paid on behalf of IAC employees for stock-based awards that were net settled and $9.0 million of debt issuance costs.
2019
AdjustmentsNet cash provided by operating activities attributable to continuing operations in 2019 includes adjustments to earnings consist primarily of $67.4$70.8 million of stock-based compensation expense, $22.8 million of amortization of intangibles, $19.0$25.6 million of depreciation and $15.0$22.9 million of bad debt expense, partially offset by $65.1 million of deferred income taxes. Theother adjustments. Partially offsetting these adjustments was deferred income tax benefitof $26.2 million primarily relatesrelated to the net operating loss created by the exercise and vestingsettlement of stock-based awards. Other adjustments include $22.4 million of Exchangeable Senior Note amortization of the original issuance discount. The decrease in cash from changes in working capital primarily consists of an increase in accounts receivable of $88.4$68.6 million a decrease in accounts payable and other liabilities of $26.8 million and a decrease in income taxes payable and receivable, net of $6.2 million, partially offset by an increase in deferred revenue of $26.8 million. The increase in accounts receivable is primarily due to increases at MTCH, ANGI and Applications duerelated to the timing of cash receipts, including cash received in the fourth quarter of 2018 rather than in the first quarter of 2019 as well as revenue growth at ANGI. Theand an increase in revenue. Partially offsetting this decrease was an increase in accounts payable and other liabilities is primarilyof $45.7 million, due to a decrease in accrued employee compensation mainly related to the payment of 2018 cash bonuses in 2019, partially offset by an increase in accrued interest primarily related to the MTCH Senior Notes due to the timing of payments, including interest payments. The decrease in income taxes payablepayments; and receivable, net is primarily due to income tax payments in excess of tax accruals in foreign jurisdictions. Thean increase in deferred revenue isof $24.6 million, due primarilymainly to growth in subscription sales at MTCH, Vimeo,sales.
Net cash used in investing activities attributable to continuing operations in 2019 consists primarily of capital expenditures of $30.3 million that are primarily related to internal development of software and Applications.computer hardware to support our products and services.
Net cash provided by investingfinancing activities includesattributable to continuing operations in 2019 is primarily due to proceeds from maturities (net of purchases) of marketable debt securities of $83.8 million, net proceeds$1.2 billion from the saleissuance of businessesthe 2026 and investments2030 Exchangeable Notes; proceeds of $20.5$350.0 million principally related tofrom the December 31, 2018 saleissuance of Felix, partially offset by capital expendituresthe 5.625% Senior Notes; and proceeds of $25.9$40.0 million primarily related to investments in the development of capitalized software at ANGI and MTCH to support their products and services and cash used for acquisitions of $21.6 million, principally related to the Fixd Repair acquisition.
Net cash used in financing activities includes $300.0 million to repay the outstandingfrom borrowings under the MTCH Credit Facility, $106.6Facility. Partially offsetting these proceeds were cash payments of $300.0 million and $16.5for the repayment of borrowings under the Credit Facility; purchases of treasury stock of Former Match Group of $175.7 million; $167.2 million for withholding taxes paid on behalf of MTCH and ANGI employees respectively, for stock-based awards that were net settled $24.2equity awards of Former Match Group; and $136.9 million forused to pay the repurchase of $0.4 million shares of MTCH common stock,net premium on a settlement date basis, at an average price of $55.60 per share, $14.1 million for withholding taxes paid on behalf of IAC employees for stock-based awards that were net settled, partially offset by $350.0 million in proceeds from the 5.625% MTCH Senior2026 and 2030 Exchangeable Notes $40.0 million in borrowings under the MTCH Credit Facility,hedge and $9.3 million in proceeds from the exercise of IAC stock options.warrant transactions.
Liquidity and Capital Resources
The Company'sCompany’s principal sources of liquidity are its cash and cash equivalents short-term investments and marketable securities,as well as cash flows generated from operations andoperations. As of September 30, 2020, $749.8 million was available borrowings under the IAC Credit Facility. IAC's consolidated cash and cash equivalents, short-term investments and marketable securities at March 31, 2020 were $2.9 billion, of which $791.3 million was held by MTCH and $384.2 million was held by ANGI. The Company generated $81.0 million of operating cash flows for three months ended March 31, 2020, of which $74.7 million was generated by MTCH and $55.9 million was generated by ANGI. Each of MTCH and ANGI is a separate and distinct legal entity with its own public shareholders and board of directors and has no obligation to provide the Company with funds. As a result, the Company cannot freely access the cash of MTCH and ANGI and their respective subsidiaries. In addition, certain agreements governing MTCH and ANGI indebtedness limit the payment of dividends or distributions and loans or advances to stockholders, including the Company, in the event a default has occurred or in the case of MTCH, its secured net leverage ratio (as defined in the MTCH Term Loan) exceeds 2.0 to 1.0 or its consolidated leverage ratio (as defined in certain MTCH indentures) exceeds 5.0 to 1.0, and in the case of ANGI, its consolidated net leverage ratio (as defined in the ANGI Term Loan) exceeds 4.5 to 1.0. There were no such limitations at March 31, 2020.
There were no outstanding borrowings under the IAC, MTCH and ANGI credit facilities at March 31, 2020.Facility that expires on February 13, 2025.
The Company anticipates that it will need to make capital and other expenditures in connection with the development and expansion of its operations. The Company'sCompany expects that 2020 capital expenditures are expectedwill be between approximately $50 million and $55 million, an increase compared to be lower than 2019 capital expenditures,
primarily related to the purchase of a 50% interest in an aircraft and ANGI related to lower leasehold improvements, partially offset by higher capital expenditures at MTCH due to building improvements related to the expansion ofas Tinder expands office space at MTCH's Tinder business and the development ofadditional capitalized software to support its products and services. The remaining payment of $13.1 million related to the purchase of the 50% interest in an aircraft is expected to be made in 2021.
At March 31, 2020, IAC has 8.0 million shares remaining in its share repurchase authorization.
During the three months ended March 31, 2020, MTCH repurchased 1.3 million shares, on a trade date basis, of its common stock at an average price of $64.57 per share, or $81.7 million in aggregate. At March 31, 2020, MTCH has 8.6 million shares remaining in its share repurchase authorization.
During the three months ended March 31, 2020, ANGI repurchased 5.1 million shares, on a trade date basis, of its common stock at an average price of $7.40 per share, or $37.5 million in aggregate. From April 1, 2020 through May 5, 2020, ANGI repurchased an additional 2.5 million shares at an average price of $6.18 per share, or $15.4 million in aggregate. ANGI has 20.1 million shares remaining in its share repurchase authorization as of May 5, 2020.
IAC, MTCH and ANGI may purchase shares over an indefinite period of time on the open market and in privately negotiated transactions, depending on those factors management deems relevant at any particular time, including, without limitation, market conditions, share price and future outlook.
The Company has granted stock settled stock appreciation rights denominated in the equity of certain non-publicly traded subsidiaries to employees and management of those subsidiaries. These equity awards are settled on a net basis, with the award holder entitled to receive a payment in IAC shares equal to the intrinsic value of the award at exercise less an amount equal to the required cash tax withholding payment, which, for purposes of this paragraph is assumed at a 50% withholding rate. The number of IAC common shares that would be required to net settle these vested and unvested interests, at current estimated fair values, other than for MTCH, ANGI and their subsidiaries, at May 1, 2020 is 0.1 million shares. In addition, withholding taxes, which will be paid by the Company on behalf of the employees upon exercise, would have been $21.1 million at May 1, 2020. The number of IAC common shares ultimately needed to settle these awards may vary significantly as a result of both movements in the Company's stock price and the determination of fair value of the relevant subsidiary that is different than the Company's estimate.
The Company currently settles all stock options on a net basis. Assuming all stock options outstanding on May 1, 2020, were net settled on that date, the Company would have issued 1.6 million common shares (of which 1.5 million is related to vested options and 0.2 million is related to unvested options) and would have remitted $351.2 million (of which $317.0 million is related to vested options and $34.3 million is related to unvested options) in cash for withholding taxes (in each case assuming a 50% withholding rate).
The Company's RSUs are awards in the form of phantom shares or units denominated in a hypothetical equivalent number of shares of IAC common stock. These equity awards are settled on a net basis. The number of IAC common shares that would be required to net settle these awards at May 1, 2020 is 0.1 million shares. In addition, withholding taxes, which will be paid by the Company on behalf of the employees upon vest, would have been $23.9 million at May 1, 2020, assuming a 50% withholding rate.
MTCH currently settles substantially all equity awards on a net basis. Assuming all MTCH awards outstanding on May 1, 2020, were net settled on that date, MTCH would have issued 5.7 million common shares (of which 1.5 million is related to vested shares and 4.2 million is related to unvested shares) and would have remitted $422.6 million (of which $112.2 million is related to vested shares and $310.4 million is related to unvested shares) in cash for withholding taxes (in each case assuming a 50% withholding rate). While certain MTCH stock options ("Tandem Awards") can be settled in MTCH or IAC common stock at the Company's election, the Company is no longer settling the Tandem Awards in IAC stock.
ANGI currently settles all equity awards on a net basis. In connection with the Combination, previously issued stock appreciation rights related to the common stock of HomeAdvisor (US) were converted into ANGI stock appreciation rights that are settleable, at ANGI's option, on a net basis with ANGI remitting withholding taxes on behalf of the employee or on a gross basis with ANGI issuing a sufficient number of Class A shares to cover the withholding taxes. While these awards can be settled in either Class A shares of ANGI or shares of IAC common stock at IAC's option, these awards are currently being settled in shares of ANGI. If settled in IAC common stock, ANGI reimburses IAC in either cash or through the issuance of Class A shares to IAC. Assuming all of the stock appreciation rights outstanding on May 1, 2020 were net settled on that date, ANGI would have issued 5.3 million shares of ANGI Class A stock and ANGI would have remitted $35.7 million in cash for withholding taxes (assuming a 50% withholding rate). Assuming all other ANGI equity awards outstanding on May 1, 2020 were net settled on that date, including stock options, RSUs and subsidiary denominated equity, ANGI would have issued 6.1 million shares and would have remitted $41.3 million in cash for withholding taxes (assuming a 50% withholding rate).cost.
As of March 31, 2020, IAC's economic interest and voting interest in MTCH is 80.4% and 97.4%, respectively, and in ANGI is 84.9% and 98.3%, respectively. IAC intends to take steps if necessary to maintain an economic interest in each of MTCH and ANGI of at least 80%. In addition, the Transaction Agreement requires MTCH to undertake such steps as necessary to ensure that IAC maintains its 80% economic ownership.
At March 31,September 30, 2020, all of the Company’s international cash can be repatriated without significant tax consequences.
The Company believes its existing cash, cash equivalents, short-term investments, marketable securities, available borrowings under the IAC Credit Facility and expected positive cash flows generated from operations will be sufficient to fund its normal operating requirements, including capital expenditures, debt service, the payment of withholding taxes paid on behalf of employees for net-settled stock-based awards, and investing and other commitments for the foreseeable future. The Company's liquidity could be negatively affected by a decrease in demand for its products and services due to COVID-19 or other factors. As described in the "COVID-19 Update" section above, to date, the COVID-19 outbreak and measures designed to curb its spread have adversely impacted certain of the Company businesses. The longer the global outbreak and measures designed to curb the spread of the COVID-19 outbreak have adverse impacts on economic conditions generally, the greater the adverse impact is likely to be on the Company's business, financial condition and results of operations. The Company’sOur indebtedness could limit itsour ability to: (i) obtain additional financing to fund working capital needs, acquisitions, capital expenditures, debt service or other requirements; and (ii) use operating cash flow to makepursue acquisitions or capital expenditures, or invest in other areas, such as developing properties and exploiting business opportunities. The Company's ability to obtain additional financing could also be impacted by any disruptions in the financial markets caused by COVID-19 or otherwise. The Company may need to raise additional capital through future debt or equity financing to make additional acquisitions and investments.investments or to provide for greater financial flexibility. Additional financing may not be available on terms favorable to the Company or at all.
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Payments Due by Period |
Contractual Obligations(a) | Less Than
1 Year | | 1–3
Years | | 3–5
Years | | More Than
5 Years | | Total |
| | | | | | | | | |
| | (In thousands) |
Long-term debt(b) | $ | 114,928 | | | $ | 746,327 | | | $ | 222,058 | | | $ | 3,742,296 | | | $ | 4,825,609 | |
Operating leases(c) | 14,353 | | | 21,415 | | | 14,307 | | | 46,565 | | | 96,640 | |
Purchase obligation(d) | 50,000 | | | 50,000 | | | — | | | — | | | 100,000 | |
| Total contractual obligations | $ | 179,281 | | | $ | 817,742 | | | $ | 236,365 | | | $ | 3,788,861 | | | $ | 5,022,249 | |
(a)The Company has excluded $37.6 million in unrecognized tax benefits and related interest from the first quarter of 2020, IAC contributed $1.1 billiontable above as we are unable to IAC Holdings, Inc., a directly wholly owned subsidiary of IAC ("New IAC"). If the Separation is consummated:
MTCH will make a loan to IACreasonably reliable estimate of the period in an aggregate principal amount equalwhich these liabilities might be paid. For additional information on income taxes, see “Note 2—Income Taxes” to the productconsolidated financial statements included in “Item 1—Consolidated Financial Statements.”
(b)Represents contractual amounts due, including interest on both fixed and variable rate instruments. Long-term debt at September 30, 2020 consisted of (i) $3.00the 5.00%, 5.625%, 4.125%, and (ii)4.625% Senior Notes of $450 million, $350 million, $500 million, and $500 million, respectively, which bear interest at fixed rates; the number2022, 2026, and 2030 Exchangeable Notes of shares$518 million, $550 million, and $550 million, respectively, which bear interest at fixed rates; and the Term Loan balance of MTCH capital stock$425 million which bears interest at a variable rate. The Term Loan bears interest at LIBOR plus 1.75%, or 2.00% at September 30, 2020. The amount of interest ultimately paid on the Term Loan may differ based on changes in the interest rate and outstanding immediately priorbalance. For additional information on long-term debt, see “Note 5—Long-term Debt, net” to the effective time of the Separation (the ‘‘Match loan’’). As part of the Separation, all MTCH stockholders, other than IAC,consolidated financial statements included in respect of each share of MTCH common stock held, may elect to receive either $3.00“Item 1—Consolidated Financial Statements.”
(c)The Company leases office space, data center facilities and equipment used in cash or an additional $3.00 worth of New Match common stock. IAC will contribute the proceeds of the Match loan, less an amount equal to the product of $3.00 multiplied by the aggregate number of shares of MTCH capital stock in respectconnection with its operations under various operating leases, many of which MTCH stockholders have made a valid cash election,contain escalation clauses. The Company is also committed to New IAC. Based on shares outstanding on March 31, 2020, New IAC will receive a contribution of approximately $685 million, assuming all non-IAC MTCH shareholders elect to receive $3.00 in cash and an additional amount of approximately $167 million if all non-IAC MTCH shareholders elect to receive additional MTCH shares. Following the Separation, the Match loan will remain as the obligation of New Match payable to MTCH; New IAC will not have any obligations with regards to the Match loan.
New Match will own certain IAC financing subsidiaries that are the issuers of approximately $1.7 billion aggregate principal amount of currently outstanding Exchangeable Notes.
New IAC’s debt immediately following the consummation of the Separation will relate solely to the ANGI Term Loan, which was $244.1 million as of March 31, 2020.
On May 6, 2020, IAC filed a registration statement on Form S-3 for an offering to sell from time to time up to $1.5 billion worth of shares of IAC Class M common stock (or New Match common stock). The net proceeds New Match receives pursuant to such sales, if any, will be transferred to New IAC following the closing of the offering (which closing would occur contemporaneously with the consummation of the Separation) and the number of shares of New Match to be received by IAC stockholders will be reduced to reflect the number of New Match shares sold in this offering.
CONTRACTUAL OBLIGATIONS
During the three months ended March 31, 2020, there were no material changes to the Company's contractual obligations since the disclosure in our Annual Report on Form 10-K for the year ended December 31, 2019, except as noted below:
On February 11, 2020, MTCH issued $500 million aggregate principal amount of its 4.125% Senior Notes due August 1, 2030. The proceeds from the offering will be used to fundpay a portion of the cash considerationrelated operating expenses under certain lease agreements. These operating expenses are not included in the table above.
(d)The purchase obligations consist primarily of $3.00 per MTCH common sharea web hosting commitment.
We also had $0.2 million of letters of credit and surety bonds outstanding as of September 30, 2020 that will be payablecould potentially require performance by the Company in connection with the Separation. If the Separation is not consummated, the proceeds will be usedevent of demands by MTCH for general corporate purposes.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
During the three months ended March 31, 2020, there were no material changes to the Company's instruments or positions that are sensitiveInterest Rate Risk
The Company’s exposure to market risk sincefor changes in interest rates relates primarily to the disclosureCompany’s long-term debt.
At September 30, 2020, the Company’s outstanding long-term debt was $3.9 billion, of which $3.5 billion bears interest at fixed rates. If market rates decline, the Company runs the risk that the required payments on the fixed rate debt will exceed those based on market rates. A 100-basis point increase or decrease in our Annual Reportthe level of interest rates would, respectively, decrease or increase the fair value of the fixed-rate debt by $192.2 million. Such potential increase or decrease in fair value is based on Form 10-Kcertain simplifying assumptions, including a constant level and rate of fixed-rate debt for all maturities and an immediate across-the-board increase or decrease in the level of interest rates with no other subsequent changes for the year ended December 31, 2019,remainder of the period. The $425 million Term Loan bears interest at a variable rate, of LIBOR plus 1.75%. As of September 30, 2020, the rate in effect was 2.00%. If LIBOR were to increase or decrease by 100 basis points, then the annual interest expense and payments on the Term Loan would increase or decrease by $4.3 million, based upon the outstanding balance at September 30, 2020.
On February 13, 2020, the Credit Facility and the Term Loan were amended, among other things, to provide for a benchmark replacement should the LIBOR rate not be available in the future. The rate used would be agreed to between the administrative agent and Match Group and may be based upon a secured overnight financing rate at the Federal Reserve Bank of New York. Additional information about the benchmark replacement can be found in the latest amendment of the Credit Agreement.
Foreign Currency Exchange Risk
The Company conducts business in certain foreign markets, primarily in the European Union, and is exposed to foreign exchange risk for both the Euro and GBP.
We have exposure to foreign currency exchange risk related to transactions carried out in a currency other than
the U.S. dollar, and investments in foreign subsidiaries with
respecta functional currency other than the U.S. dollar. As foreign currency exchange rates change, translation of the statements of operations of our international businesses into U.S. dollars affects year-over-year comparability of operating results. For the three and nine months ended September 30, 2020, the impact on revenue for all foreign currencies was favorable by $3.1 million and unfavorable by $16.4 million, respectively. The three month period ended September 30, 2020 was favorable compared to
MTCH's outstanding borrowings, as described in "Contractual Obligations"the comparable prior year period due to due to the strength of foreign currencies compared to the U.S. Dollar, while the nine month period ended September 30, 2020 was unfavorably impacted compared to the comparable prior year period due to the strength of the U.S. Dollar compared to the Euro and certain other currencies. For a reconciliation of Revenue excluding foreign exchange effects, see “Principles of Financial Reporting.”
."
Item 4. Controls and Procedures
The Company monitors and evaluates on an ongoing basis its disclosure controls and procedures and internal control over financial reporting in order to improve their overall effectiveness. In the course of these evaluations, the Company modifies and refines its internal processes as conditions warrant.
As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"“Exchange Act”), IACMatch Group management, including our principal executive and principal financial officers, or persons performing similar functions, evaluated the effectiveness of the Company'sCompany’s disclosure controls and procedures, as defined by Rule 13a-15(e) under the Exchange Act. Based on this evaluation, management has concluded that the Company'sCompany’s disclosure controls and procedures were effective as of the end of the period covered by this report in providing reasonable assurance that information we are required to disclose in our filings with the Securities and Exchange Commission under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms, and includeincludes controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
There were no changes to the Company'sCompany’s internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Overview
InWe are, and from time to time may become, involved in various legal proceedings arising in the ordinarynormal course of our business the Companyactivities, such as patent infringement claims, trademark oppositions, and its subsidiaries are (or may become) parties to litigation involving property, personal injury, contract, intellectual property and other claims,consumer or advertising complaints, as well as stockholder derivative actions, class action lawsuits, and other matters. The amounts that may be recovered in such matters may be subject to insurance coverage. The litigation matters described below involve issues or claims that may be of particular interest to our stockholders, regardless of whether any of these matters may be material to our financial position or operations based upon the standard set forth in the rulesSEC’s rules.
Pursuant to the Transaction Agreement, we have agreed to indemnify IAC for matters relating to any business of Former Match Group, including indemnifying IAC for costs related to the matter described below other than the matter described under the heading “Newman Derivative and Stockholder Class Action Regarding Separation Transaction”.
Note that the official names of legal proceedings in the descriptions below (shown in italics) reflect the original names of the Securitiesparties when the proceedings were filed as opposed to the current names of the parties post the separation of Match Group and Exchange Commission.IAC.
Consumer Class Action Litigation Challenging Tinder’s Age‑TieredAge-Tiered Pricing
ThisOn May 28, 2015, a putative state-wide class action was filed against Tinder and pending in state court in California is described in detail on pages 33-34 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.California. SeeAllan Candelore v. Tinder, Inc., No. BC583162 (Superior Court of California, County of Los Angeles). The lawsuitcomplaint principally allegesalleged that Tinder violated California’s Unruh Civil Rights Act (the “Unruh Act”) by offering and charging users age 30 and over a higher price than younger users for subscriptions to its premium Tinder Plus serviceservice. The complaint sought certification of a class of California Tinder Plus subscribers age 30 and seeksover and damages in an unspecified amount. There have been noOn September 21, 2015, Tinder filed a demurrer seeking dismissal of the complaint. On October 26, 2015, the court issued an opinion sustaining Tinder’s demurrer to the complaint without leave to amend, ruling that the age-based pricing differential for Tinder Plus subscriptions did not violate California law in essence because offering a discount to users under age 30 was neither invidious nor unreasonable in light of that age group’s generally more limited financial means. On December 29, 2015, in accordance with its ruling, the court entered judgment dismissing the action. On February 1, 2016, the plaintiff filed a notice of appeal from the judgment, and the parties thereafter briefed the appeal. On January 29, 2018, the California Court of Appeal (Second Appellate District, Division Three) issued an opinion reversing the judgment of dismissal, ruling that the lower court had erred in sustaining Tinder’s demurrer because the complaint, as pleaded, stated a cognizable claim for violation of the Unruh Act. Because we believe that the appellate court’s reasoning was flawed as a matter of law and runs afoul of binding California precedent, on March 12, 2018, Tinder filed a petition with the California Supreme Court seeking interlocutory review of the Court of Appeal’s decision. On May 9, 2018, the California Supreme Court denied the petition. The case was then returned to the trial court for further proceedings.
In a related development, on June 19, 2019, in a substantially similar putative class action asserting the same substantive claims and pending in federal district court in California, the court issued an order granting final approval of a class-wide settlement, the terms of which are not material or otherwise noteworthy developmentsto the Company. See Lisa Kim v. Tinder, Inc., No. 18-cv-3093 (U.S. District Court, Central District of California). On June 21, 2019, the Kim court entered judgment in this case sinceaccordance with its prior order. Because the filingapproved settlement class in Kim subsumes the proposed settlement class in Candelore, the judgment in Kim would effectively render Candelore a single-plaintiff lawsuit. Accordingly, on July 11, 2019, two objectors to the Kim settlement, represented by the plaintiff’s counsel in Candelore, filed a notice of our Annual Report on Form 10-Kappeal from the Kim judgment to the U.S. Court of Appeals for the fiscal year ended December 31, 2019. IACNinth Circuit, which is fully briefed and Match Groupawaiting a hearing for oral argument.
On September 13, 2019, Tinder filed a motion to stay the Candelore case pending the Ninth Circuit’s decision on the appeal of the court-approved settlement in the Kim case. On November 13, 2019, the court issued an order staying the class claims in the Candelore case pending the Ninth Circuit’s decision on the Kim
appeal. We believe that the allegations in thisthe Candelore lawsuit are without merit and will continue to defend vigorously against it should it proceed.it.
Tinder Optionholder Litigation against IACAgainst Former Match Group and Match Group
The lawsuit filed against IAC and Match Group in New York state court by certainOn August 14, 2018, ten then-current and former employees of Match Group, LLC or Tinder, Inc. (“Tinder”) is described, an operating business of Former Match Group, filed a lawsuit in detail on page 34 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.New York state court against Former Match Group and Match Group. See Sean Rad et al. v. IAC/InterActiveCorp and Match Group, Inc., No. 654038/2018 (Supreme Court, New York County). The complaint alleges that in 2017, the defendants: (i) wrongfully interfered with a contractually established process for the independent valuation of Tinder by certain investment banks, resulting in a substantial undervaluation of Tinder and a consequent underpayment to the plaintiffs upon exercise of their Tinder stock options, and (ii) then wrongfully merged Tinder into Former Match Group, thereby depriving certain of the plaintiffs of their contractual right to later valuations of Tinder on a stand‑alonestand-alone basis. The complaint asserts claims for breach of contract, breach of the implied covenant of good faith and fair dealing, unjust enrichment, interference with contractual relations (as against Former Match Group only), and interference with prospective economic advantage, and seeks compensatory damages in the amount of at least $2 billion, as well as punitive damages. ExceptOn August 31, 2018, four plaintiffs who were still employed by Former Match Group filed a notice of discontinuance of their claims without prejudice, leaving the six former employees as set forththe remaining plaintiffs. On July 13, 2020, the four former plaintiffs filed arbitration demands asserting the same valuation claims and on September 3, 2020, the four arbitrations were consolidated. On August 14, 2020, the defendants filed a motion to stay the trial in the paragraph immediately below, thereNew York case until the related arbitrations have been nodecided, which motion has been fully briefed.
On October 9, 2018, the defendants filed a motion to dismiss the complaint on various grounds, including that the 2017 valuation of Tinder by the investment banks was an expert determination any challenge to which is both time-barred under applicable law and available only on narrow substantive grounds that the plaintiffs have not pleaded in their complaint; the plaintiffs opposed the motion. On June 13, 2019, the court issued a decision and order (i) granting the motion to dismiss the claims for breach of the implied covenant of good faith and fair dealing and for unjust enrichment, (ii) granting the motion to dismiss the merger-related claim for breach of contract as to two of the remaining six plaintiffs, and (iii) otherwise denying the motion to dismiss. On June 21, 2019, the defendants filed a notice of appeal from the trial court’s partial denial of their motion to dismiss, and the parties thereafter briefed the appeal. On October 29, 2019, the Appellate Division, First Department, issued an order affirming the lower court’s decision. On November 22, 2019, the defendants filed a motion for reargument or, in the alternative, leave to appeal the Appellate Division’s order to the New York Court of Appeals; the plaintiffs opposed the motion. On May 21, 2020, the Appellate Division, First Department, granted the motion for reargument, and upon reargument, substituted a new order which also affirmed the lower court’s decision. On June 5, 2020, the defendants filed a motion for leave to appeal to the Court of Appeals. On July 24, 2020, the Appellate Division, First Department, denied the motion for leave to appeal to the Court of Appeals.
On June 3, 2019, the defendants filed a second motion to dismiss based upon certain provisions of the plaintiffs’ agreement with a litigation funding firm; the plaintiffs opposed the motion, which remains pending. On July 15, 2019, the defendants filed an answer denying the material or otherwise noteworthy developmentsallegations of the complaint, as well as counterclaims against Sean Rad for breach of contract and unjust enrichment based upon his alleged misappropriation of confidential company information. On September 13, 2019, the defendants filed an amended answer and counterclaims, adding claims based on Rad’s alleged unauthorized recording of conversations with company employees. On November 21, 2019, the defendants filed a second amended answer and counterclaims, adding claims based on Rad’s alleged unauthorized destruction of company information and breach of his non-solicitation obligations. On the same day, Rad filed a revised consolidated motion to dismiss. On June 1, 2020, the court issued its decision, dismissing the request for damages, a claim for breach of contract occurring after Rad’s termination, and an unjust enrichment claim, but denying dismissal as to all other claims.
Document discovery in thisthe case sinceis substantially complete; deposition discovery resumed after a temporary pause due to the filingCOVID-19 pandemic. On January 30, 2020, the parties participated in a mediation that did not result in resolution of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. IAC and Match Groupmatter. We believe that the allegations against themFormer Match Group and Match Group in this lawsuit are without merit and will continue to defend vigorously against it. On September 20, 2020,
Justice Joel M. Cohen was appointed to the New York case is substantially complete; deposition discovery has begun but is currently in hiatus in light ofto fill the COVID-19 pandemic. IAC and Match Group believe thatvacancy created when Justice Saliann Scarpula was appointed to the allegations against them in this lawsuit are without merit and will continue to defend vigorously against it.Appellate Division, First Department.
FTC Investigation of Certain Match.com Business PracticesLawsuit Against Former Match Group
TheIn March 2017, the Federal Trade Commission (“FTC”) requested information and documents in connection with a civil investigation regarding certain business practices of Match.com byMatch.com. The FTC raised potential claims relating to Match.com’s marketing, chargeback, and online cancellation practices. In November 2018, the Federal Trade Commission (“FTC”)FTC proposed to resolve its potential claims via a consent judgment requiring certain changes in those practices, as well as a $60 million payment. Ensuing discussions between the Company and related lawsuit filed by the FTC ended without resolution.
On August 7, 2019, the FTC voted to assert claims against the Company and referred the matter to the U.S. Department of Justice (“DOJ”). The DOJ subsequently declined to pursue a civil case against the Company and referred the matter back to the FTC.
On September 25, 2019, the FTC filed a lawsuit in the Northern District of Texas against Former Match Group. See FTC v. Match Group, Inc., No. 3:19:cv-02281-K (N.D. Tex.) are described. The complaint alleges that, prior to mid-2018, for marketing purposes Match.com told non-paying users that other users were trying to communicate with them, even though Match.com had identified those subscriber accounts as potentially fraudulent, thereby inducing non-paying users to subscribe and exposing them to the risk of fraud should they subscribe. The complaint also challenges the adequacy of Match.com’s disclosure of the terms of its six-month guarantee, the efficacy of its cancellation process, and its handling of chargeback disputes. The complaint seeks among other things permanent injunctive relief, civil penalties, restitution, disgorgement, and costs of suit. On October 17, 2019, the Company filed a motion to dismiss the complaint. The FTC opposed the motion. On April 22, 2020, the court stayed the case pending a ruling on the motion to dismiss, which remains pending. On July 17, 2020, the Company filed a motion for leave to request a stay until the United States Supreme Court issues a decision in detailFed. Trade Comm’n v. Credit Bureau Ctr., in which it granted certiorari on page 35July 9, 2020. The Company filed a motion to stay, which was fully briefed on September 29, 2020. The court granted the motion on October 9, 2020.
On September 26, 2019, the Company received a grand-jury subpoena from the DOJ for documents relating to certain of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
There have been no material or otherwise noteworthy developmentsmarketing-related claims in the FTC’s complaint. The Company has cooperated with the DOJ in responding to its subpoena. On September 2, 2020, the DOJ informed the Company that it was releasing it from the subpoena and that it was no longer conducting an investigation and lawsuit sinceinto any areas or practices covered by the filing of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. IAC and Match Groupsubpoena.
We believe that the FTC’s claims regarding Match.com’s practices, policies, and procedures are without merit and will defend vigorously against them.
Securities Class Action Lawsuit Against Former Match Group
On October 3, 2019, a Former Match Group shareholder filed a securities class action lawsuit in federal court in Texas against Former Match Group, its CEO, and its CFO, on behalf of a class of acquirers of Former Match Group securities between August 6, 2019 and September 25, 2019. SeePhillip R. Crutchfield v. Match Group, Inc., Amanda W. Ginsberg, and Gary Swidler, No. 3:19-cv-02356-C (Northern District of Texas, Dallas Division). Invoking the allegations in the FTC lawsuit described above, the complaint alleges (i) that Defendants failed to disclose to investors that Former Match Group induced customers to buy and upgrade subscriptions using misleading advertisements, that Former Match Group made it difficult for customers to cancel their subscriptions, and that, as a result, Former Match Group was likely to be subject to regulatory scrutiny; (ii) that Former Match Group lacked adequate disclosure controls and procedures; and (iii) that, as a result of the foregoing, Defendants’ positive statements about Former Match Group’s business, operations, and prospects, were materially misleading and/or lacked a reasonable basis. On January 6, 2020, the court approved a stipulation appointing two lead plaintiffs as well as co-lead counsel. On April 14, 2020, Plaintiffs filed their amended complaint. Former Match Group filed a motion to dismiss on June 12, 2020. Plaintiff’s response was filed on August 26, 2020, and Former Match Group filed its reply on September 25, 2020. We believe that the allegations in this lawsuit are without merit and will defend vigorously against them.
Derivative Complaint against Former Match Group
On February 28, 2020, a Former Match Group shareholder filed a shareholder derivative complaint in federal court in Delaware against Former Match Group and its board of directors seeking to recover unspecified monetary damages on behalf of the Company, as well seeking to require the Company to implement and maintain unspecified internal controls and corporate governance practices and procedures. See Michael Rubin et al. v. Match Group, Inc. et al., Case No. 1:20-cv-00299 (District of Delaware). Invoking the allegations of the FTC lawsuit and Crutchfield securities class action lawsuit described above, the complaint alleges that the defendants caused or failed to prevent the alleged issues giving rise to the FTC complaint, received or approved compensation tied to the alleged wrongful conduct and sold Former Match Group stock with inside knowledge of the purported conduct. The parties filed a proposed stipulation and order staying the case until the motion to dismiss is decided in the Crutchfield litigation. The court granted the stay on April 9, 2020.
House Oversight Committee Investigation of Online Dating
On January 30, 2020, Former Match Group received a letter from the House of Representatives’ Subcommittee on Economic and Consumer Policy (the “Oversight Committee”) regarding its inquiry into underage use of online dating services and efforts by those services to remove registered sex offenders from their platforms. The Oversight Committee is also inquiring under what circumstances online dating services share or sell sensitive user information with third parties. The Oversight Committee has requested documents and information related to its inquiry. The Company is cooperating with the investigation.
Irish Data Protection Commission Inquiry Regarding Tinder’s Practices
On February 3, 2020, we received a letter from the Irish Data Protection Commission (the “DPC”) notifying us that the DPC has commenced an inquiry examining Tinder’s compliance with the EU’s General Data Protection Regulation, focusing on Tinder’s processes for handling access and deletion requests and Tinder’s user data retention policies. We are fully cooperating with the DPC in connection with this inquiry.
Newman Derivative and Stockholder Class Action Regarding Separation Transaction
On June 24, 2020, a Former Match Group shareholder filed a complaint in Delaware Court of Chancery against Former Match Group and its board of directors, as well as Match Group, IAC Holdings, Inc., and Barry Diller seeking to recover unspecified monetary damages on behalf of the Company and directly as a result of his ownership of Former Match Group stock in relation to the separation of Former Match Group from its former majority shareholder, Match Group. See David Newman et al. v. IAC/Interactive Corp. et al., C.A. No. 2020-0505-MTZ (Delaware Court of Chancery). The complaint alleges that that the special committee established by Former Match Group’s board of directors to negotiate with Match Group regarding the separation transaction was not sufficiently independent of control from Match Group and Mr. Diller and that Former Match Group board members failed to adequately protect Former Match Group’s interest in negotiating the separation transaction, which resulted in a transaction that was unfair to Former Match Group and its shareholders. The Defendants’ filed their motions to dismiss on September 24, 2020. Plaintiff’s answering brief is due on November 17, 2020. We believe that the allegations in this lawsuit are without merit and will defend vigorously against it.
Item 1A. Risk Factors
Cautionary Statement Regarding Forward-Looking Information
This quarterly report on Form 10-Q contains “forward‑looking“forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements that are not historical facts are “forward-looking statements.” The use of words such as “anticipates,” “estimates,” “expects,” “plans”“plans,” and “believes,” among others, generally identify forward-looking statements. These forward-looking statements include, among others, statements relating to: IAC’sMatch Group’s future financial performance, IAC’sMatch Group’s business prospects and strategy, includinganticipated trends, the effects of the separation of Match Group from IAC, anticipated trends and prospects in the industries in which IAC’s businesses operate and other similar matters. These forward-looking statements are based on IACMatch Group management’s current expectations and assumptions about future events as of the date of this annualquarterly report, which are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict.
Actual results could differ materially from those contained in these forward-looking statements for a variety of reasons, including, among others: (i) the risks inherent in separating Match Group from IAC (including uncertainties related to, among other things: the costs and expected benefits of the proposed transaction, the expected timing of the transaction or whether it will be completed, the factors that may impact the calculation of the exchange ratio (which will determine the number of new shares of the post-transaction Match Group to be received by IAC shareholders), the expected tax treatment of the transaction, any litigation arising out of or relating to the transaction and the impact of the transaction on the businesses of IAC and Match Group), (ii) the impact of the COVID-19 outbreak on our businesses, (iii) our continued ability to market, distribute and monetize our products and services through search engines, digital app stores and social media platforms, (iv) the failure or delay of the markets and industries in which our businesses operate to migrate online, (v)competition, our ability to marketmaintain user rates on our higher monetizing dating products, and services in a successful and cost-effective manner, (vi) our ability to compete, (vii) the continued display of linksattract users to websites offering our dating products through cost-effective marketing and services in a prominent manner in search results, (viii)related efforts, foreign currency exchange rate fluctuations, our ability to build, maintain and/or enhancedistribute our various brands, (ix)dating products
through third parties and offset related fees, the integrity and scalability of our systems and infrastructure (and those of third parties) and our ability to develop and monetize versions of our products and services for mobile and other digital devices, (x) adverse economic events or trends (particularly those that adversely impact consumer confidence and spending behavior), either generally and/or in any of the markets in which our businesses operate, (xi) our continued abilityadapt ours to communicate with users and consumers via e-mail (or other sufficient means), (xii) our ability to access, collect and use personal data about our users and subscribers, (xiii) our ability to successfully offset increasing digital app store fees, (xiv) our ability to establish and maintain relationships with quality service professionals and caregivers, (xv) changes in our relationship with (or policies implemented by) Google, (xvi) foreign exchange currency rate fluctuations, (xvii)a timely and cost-effective manner, our ability to protect our systems from cyberattacks and to protect personal and confidential user information, (xviii) the occurrence of data security breaches, fraud and/or additional regulation involving or impacting credit card payments, (xix) the integrity, quality, scalability and redundancy of our systems, technology and infrastructure (and those of third parties with whom we do business), (xx) changes in key personnel, (xxi) our ability to service our outstanding indebtedness and interest rate risk, (xxii) dilution with respect to our investments in Match Group and ANGI Homeservices, (xxiii) operational and financial risks relating to certain of our international operations and acquisitions, certain risks relating to our relationship with IAC, the impact of the outbreak of COVID-19 coronavirus, and our continued abilitythe risks inherent in separating Match Group from IAC, including uncertainties related to, identify suitable acquisition candidates, (xiv) our abilityamong other things, the costs and expected benefits of the proposed transaction, any litigation arising out of or relating to operate in (and expand into) international markets successfully, (xv) regulatory changesthe transaction, the expected tax treatment of the transaction, and (xxvi) our ability to adequately protect our intellectual property rights and not infringe the intellectual property rightsimpact of third parties.the transaction on the businesses of Match Group.
Certain of these and other risks and uncertainties are discussed below (in the case of risks related to the impact of the COVID-19 outbreak on our businesses) and in IAC’sMatch Group’s filings with the SEC,Securities and Exchange Commission, including in Part I-Item 1A-Risk FactorsII “Item 1A. Risk Factors” of our Annual Reportquarterly report on Form 10-Q for the quarter ended June 30, 2020, which, because of the changes to our business resulting from the separation of Match Group from IAC, includes a full restatement of our risk factors and updates and replaces the risk factors disclosed in our annual report on Form 10-K for the fiscal year ended December 31, 2019. Other unknown or unpredictable factors that could also adversely affect IAC'sMatch Group’s business, financial condition, and operating results of operations may arise from time to time. In light of these risks and uncertainties, thethese forward-looking statements discussed in this quarterly report may not prove to be accurate. Accordingly, you should not place undue reliance on these forward-looking statements, which only reflect the views of IACMatch Group management as of the date of this quarterly report. IACMatch Group does not undertake to update these forward-looking statements.
We are including the following revised risk factors, which supersede the corresponding risk factors disclosed in our quarterly report on Form 10-Q for the fiscal quarter ended June 30, 2020 and should be read in conjunction with Part II “Item 1A. Risk FactorsFactors” of such quarterly report on Form 10-Q:
As the distribution of our dating products through app stores increases, in order to maintain our profit margins, we may need to offset increasing app store fees by decreasing traditional marketing expenditures, increasing user volume or monetization per user or by engaging in other efforts to increase revenue or decrease costs generally, or our business, financial condition and results of operations could be adversely affected.
We rely on the Apple App Store and the Google Play Store to distribute our mobile applications and related in-app products. While our mobile applications are generally free to download from these stores, we offer our users the opportunity to purchase subscriptions and certain à la carte features through these applications. We determine the prices at which these subscriptions and features are sold; however, purchases of these subscriptions and features via our mobile applications are required to be processed through the in-app payment systems provided by Apple and Google. Due to these requirements, we pay Apple and Google, as applicable, a meaningful share (generally 30%) of the revenue we receive from these transactions. While we are constantly innovating on and creating our own payment systems and methods, given the ever increasing distribution of our dating products through app stores and the strict requirements to use the in-app payments systems tied into Apple’s and Google’s distribution services, we may need to offset these increased app store fees by decreasing traditional marketing expenditures as a percentage of revenue, increasing user volume or monetization per user, or by engaging in other efforts to increase revenue or decrease costs generally, or our business, financial condition and results of operations could be adversely affected. On September 28, 2020, Google announced that it would require all developers to process purchases of subscriptions and features entirely through their in-app payment system beginning on September 30, 2021. To date, Google has not enforced such a requirement, but if Google were to do so, our business, financial condition and results of operations would be adversely affected.
Our business is subject to complex and evolving U.S. and international laws and regulations. Many of these laws and regulations are subject to change and uncertain interpretation, and could result in claims, changes to our business practices, monetary penalties, increased cost of operations, or declines in user growth or engagement, or otherwise harm our business.
We are subject to a variety of laws and regulations in the United States and abroad that involve matters that are important to or may otherwise impact our business, including, among others, broadband internet access, online commerce, advertising, user privacy, data protection, intermediary liability, protection of minors, consumer protection, general safety, sex-trafficking, taxation and securities law compliance. The global outbreakintroduction of COVID-19new products, expansion of our activities in certain jurisdictions, or other actions that we may take may subject
us to additional laws, regulations or other government scrutiny. In addition, foreign laws and regulations can impose different obligations or be more restrictive than those in the United States.
These U.S. federal, state, and municipal and foreign laws and regulations, which in some cases can be enforced by private parties in addition to government entities, are constantly evolving and can be subject to significant change. As a result, the application, interpretation, and enforcement of these laws and regulations are often uncertain, particularly in the new and rapidly evolving industry in which we operate, and may be interpreted and applied inconsistently from state to state and country to country and inconsistently with our current policies and practices. These laws and regulations, as well as any associated inquiries or investigations or any other similar outbreaksgovernment actions, may be costly to comply with and may delay or impede the development of new products, require that we change or cease certain business practices, result in negative publicity, increase our operating costs, require significant management time and attention, and subject us to remedies that may harm our business, including fines or demands or orders that we modify or cease existing business practices.
Specifically, in the case of tax laws, positions that we have taken or will take are subject to interpretation by the relevant taxing authorities. While we believe that the positions we have taken to date comply with applicable law, there can be no assurances that the relevant taxing authorities will not take a contrary position, and if so, that such positions will not adversely affect us. Any events of this nature could adversely affect our business, financial condition and results of operations.
IAC’s businessProposed or new legislation and regulations could be materiallyalso adversely affect our business. For example, the Organization for Economic Co-Operation and adversely affected byDevelopment (“OECD”) is revising its recommendations on how to tax international businesses, including expanding the outbreakjurisdiction of member countries to tax businesses based on some level of digital presence and subjecting these companies to a widespread health epidemicminimum tax.Also, the European Commission, as well as several countries both inside and outside the EU, have recently adopted or pandemic, including the recent outbreakconsidered proposals that would change various aspects of the coronavirus disease 2019 ("COVID-19"), which has been declared a "pandemic" by the World Health Organization. To date, the outbreak of COVID-19 has caused a widespread global health crisis, and governments in affected regions have implemented measures designed to curb the spread of the novel coronavirus causing the disease, such as social distancing, government imposed quarantines and lockdowns, travel bans and other public health safety measures. These measures have resulted in significant social disruption and have had (and are likely to continue to have) an adverse effect on economic conditions generally, on advertising expenditures across traditional and digital advertising channels, and on consumer confidence and spending, all of which could have an adverse effect on our businesses, financial condition and results of operations.
For example, to date, our ANGI Homeservices business has experienced a decline in demand for home services requests, driven primarily by decreases in demand in certain categories of jobs (particularly non-essential projects) and decreases in demand in regions most affected by the COVID-19 outbreak,current tax framework under which we attribute bothare taxed, including proposals to the unwillingnesschange or impose new types of consumers to interact with service professionals face-to-facenon-income taxes, including taxes based on a percentage of revenue. One or have service professionals in their homes, and to lower levels of consumer confidence and discretionary income generally. In addition, with respect to our ad-supported businesses, we have experienced a meaningful decrease in advertising rates across our various properties (as much as 30% year over year). And while our Match Group business has experienced improved user and engagement metrics, it has also experienced a decline in new users and paying subscribers during the pandemic. Also, in connection with the first quarter close of our books, we considered whether the effects of the COVID-19 outbreak were an indicator of possible impairment for our assets, and as a result of this review, identified certain impairments. See Part I-Item 2-Management’s Discussion and Analysis of Financial Condition and Results of Operations-Management Overview-COVID-19 Update. On the other hand, certain of our businesses have experienced increased demand for their services during the pandemic, which may or may not continue as effects of the COVID-19 outbreak continue to evolve.
In response to the outbreak of COVID-19 and government-imposed measures to control its spread, our ability to conduct ordinary course business activities has been (and may continue to be) impaired for an indefinite period of time. For example, we have taken several precautions that could adversely impact employee productivity, such as requiring employees to work remotely, imposing travel restrictions and temporarily closing office locations. We may also experience increased operating costs as we gradually resume normal operations and enhance preventative measures, including with respect to real estate, compliance and insurance-related expenses. Moreover, we may also experience business disruption if the ordinary course operations of our contractors, vendors or business partners are adversely affected. Anymore of these measures or impairmentssimilar proposals could adversely affect our business, financial condition and results of operations.
The promulgation of new laws or regulations, or the new interpretation of existing laws and regulations, in each case that restrict or otherwise unfavorably impact the ability or manner in which we provide our services could require us to change certain aspects of our business and operations to ensure compliance, which could decrease demand for services, reduce revenues, increase costs and subject us to additional liabilities. For example, the United Kingdom published proposed legislation, which would establish a new regulatory body to establish duties of care for internet companies and to assess compliance with these duties of care. Under the proposed law, failure to comply could result in fines, blocking of services and personal liability for senior management. In the United States, governmental authorities, elected officials, and political candidates have called for amendments to Section 230 of the Communications Decency Act that would purport to limit or remove protections afforded interactive computer service providers. Proposed legislation includes the EARN IT Act, the PACT Act, the BAD ADS Act and others.Similar proposed legislation in the EU, currently known as the Digital Services Act, also intends to limit or remove protections afforded technology platforms under the e-Commerce Directive. To the extent such new or more stringent measures are required to which developments related to the COVID-19 outbreak and measures designed to curb its spread continue to impactbe implemented, or existing protections are limited or removed, our business, financial condition and results of operations will depend on future developments, allcould be adversely affected.
The adoption of which are highly uncertain and many of which are beyond our control, includingany laws or regulations that adversely affect the speed of contagion, the development and implementation of effective preventative measures and possible treatments, the scope of governmental and other restrictions on travel, non-essential services and other activity, and public reactions to these developments. For example, these developments and measures have resultedpopularity or growth in rapid and adverse changes to the operating environment in which we do business, as well as significant uncertainty concerning the near and long term economic ramificationsuse of the COVID-19 outbreak, which have adversely impactedinternet or our ability to forecast our resultsservices, including laws or regulations that undermine open and respond in a timely and effective manner to trends related to the COVID-19 outbreak. The longer the global outbreak and measures designed to curb the spread of the virus continue to adversely affect levels of consumer confidence, discretionary spending and the willingness of consumers to interact with other consumers, vendors and service providers face-to-face (and in turn, adversely affectneutrally administered internet access, could decrease user demand for our various productsservice offerings and services),increase our cost of doing business. For example, in December 2017, the greaterFederal Communications Commission adopted an order reversing net neutrality protections in the adverse effect is likely to be onUnited States, including the repeal of specific rules against blocking, throttling or “paid prioritization” of content or services by internet service providers. To the extent internet service providers engage in such blocking, throttling, “paid prioritization” of content or similar actions as a result of this order and the adoption of similar laws or regulations, our business, financial condition and results of operations could be adversely affected.
Inappropriate actions by certain of our users could be attributed to us and damage our brands’ reputations, which in turn could adversely affect our business.
Users of our products have been, and may in the future be, physically, financially, emotionally or otherwise harmed by other individuals that such users met or may meet through the use of one of our products. When one or more limitedof our ability willusers suffers or alleges to have suffered any such harm, we have in the past, and could in the future, experience negative publicity or legal action that could damage our reputation and our brands. Similar events affecting users of our competitors’ products have in the past, and could in the future, result in negative publicity for the dating industry generally, which could in turn negatively affect our business.
In addition, the reputations of our brands may be adversely affected by the actions of our users that are deemed to trybe hostile, offensive, defamatory, inappropriate, untrue or unlawful. While we have systems and make up for delayed or lost revenues. The COVID-19 pandemic may also haveprocesses in place that aim to monitor and review the effect of heightening manyappropriateness of the other risks describedcontent accessible through our products, which include, in Part I-Item 1A-Risk Factorsparticular, reporting tools through which users can inform us of such behavior on the platform, and have adopted policies regarding illegal, offensive or inappropriate use of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. We will continue to evaluate the nature and extent of the impact of the COVID-19 pandemic onproducts, our business, financial condition and results of operations.
Furthermore, because the COVID-19 pandemic did not impact our results until lateusers have in the first quarter of 2020, such impactpast, and could in the future, nonetheless engage in activities that violate our policies. These safeguards may not be directly comparablesufficient to any historical periodavoid harm to our reputation and brands, especially if such hostile, offensive or inappropriate use is not necessarily indicativewell-publicized.
Concerns about harms and the use of anydating products and social networking platforms for illegal conduct, such as romance scams, promotion of false or inaccurate information, financial fraud, and sex-trafficking, have produced and could continue to produce future impact thatlegislation or other governmental action. For example, in January 2020, the COVID-19 pandemic may haveCommittee on our results for the remainder of 2020 or any subsequent periods. The impact of COVID-19Oversight Subcommittee on our revenuesEconomic and expenses may also fluctuate differently over the durationConsumer Policy of the pandemic.U.S. House of Representatives launched an investigation into the online dating industry’s user safety policies, including certain practices of Match Group’s businesses relating to the identification and removal of registered sex offenders and underage individuals from our platforms. The EU and the United Kingdom are also considering new legislation on this topic, with the United Kingdom having released its Online Harms White Paper and the EU contemplating introducing proposed legislation, currently referred to as the Digital Services Act, which in each case, would expose platforms to similar or more expansive liability. In the United States, government authorities, elected officials, and political candidates have called for amendments to Section 230 of the Communications Decency Act that would purport to limit or remove protections afforded interactive computer service providers. Proposed legislation includes the EARN IT Act, the PACT Act, the BAD ADS Act and others. Similar proposed legislation in the EU, currently known as the Digital Services Act, also intends to limit or remove protections afforded technology platforms under the e-Commerce Directive. If these proposed laws are passed, or if future legislation or governmental action is proposed or taken to address concerns regarding such harms, changes could be required to our products that could restrict or impose additional costs upon the conduct of our business generally or cause users to abandon our products.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
The Company did not issue or sell any shares of its common stock or any other equity securities pursuant to unregistered transactions during the quarter ended March 31,September 30, 2020.
Issuer Purchases of Equity Securities
The Company did not purchase any shares of its common stock during the quarter ended March 31,September 30, 2020. As
Item 6. Exhibits
The documents set forth below, numbered in accordance with Item 601 of Regulation S-K, are filed herewith, incorporated by reference herein by reference to the location indicated or furnished herewith. |
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Exhibit
Number
| Description | Location | | Incorporated by Reference | | Filed (†) or
Furnished (‡)
Herewith
(as indicated) |
3.1Exhibit
No. | Restated Certificate of Incorporation of IAC/InterActiveCorp. | |
3.2 | Certificate of Amendment of the Restated Certificate of Incorporation of IAC/InterActiveCorp (dated as of August 20, 2008). | | | SEC
File No. | | Exhibit 3.1 to the Registrant's Current Report on Form 8-K, filed on August 22, 2008. |
3.3 | Amended and Restated By-Laws of IAC/InterActiveCorp (amended and restated as of December 1, 2010). | |
3.4 | Certificate of Designations of Series C Cumulative Preferred Stock. | |
3.5 | Certificate of Designations of Series D Cumulative Preferred Stock.
| |
4.1 | Indenture for 4.125% Senior Notes due 2030, dated as of February 11, 2020, between Match Group, Inc. and Computershare Trust Company, N.A., as Trustee. |
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10.1 | Amendment No. 6, dated as of February 13, 2020, to the Credit Agreement, dated as of October 7, 2015, as amended and restated as of November 16, 2015, as further amended as of December 16, 2015, as further amended as of August 14, 2017, and as further amended as of December 17, 2018, among Match Group, Inc. as Borrower, the Lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and the other parties thereto. |
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| | |
| Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act. (1) | | | | | † |
| Certification of the Chairman and Senior Executive pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act. (2) | |
| Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act. (2)Act of 2002. | | | | | | | | | | ‡ |
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| 101.INS | | Inline XBRL Instance (1) | TheDocument - the instance document does not appear in the interactive data fileInteractive Data File because its XBRL tags are embedded within the Inline XBRL document. | | | | | | | | | | |
| 101.SCH | | Inline XBRL Taxonomy Extension Schema (1)Document | | | | | | | | | | † |
| 101.CAL | | Inline XBRL Taxonomy Extension Calculation (1)Linkbase Document | | | | | | | | | | † |
| 101.DEF | | Inline XBRL Taxonomy Extension Definition (1)Linkbase Document | | | | | | | | | | † |
| 101.LAB | | Inline XBRL Taxonomy Extension Labels (1)Label Linkbase Document | | | | | | | | | | † |
| 101.PRE | | Inline XBRL Taxonomy Extension Presentation (1)Linkbase Document | | | | | | | | | | † |
| 104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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Dated:November 6, 2020 | May 8, 2020 | | | MATCH GROUP, INC. |
| | IAC/INTERACTIVECORPBy: | | /s/ GARY SWIDLER |
| | | | Gary Swidler |
| | By: | | /s/ GLENN H. SCHIFFMAN |
| | | | Glenn H. Schiffman |
| | | | Executive Vice PresidentChief Operating Officer and
Chief Financial Officer |
| | | | | | | | | | | |
| | | |
| Signature | Title | | Date |
Signature | Title | | Date |
| | | |
/s/ GLENN H. SCHIFFMANGARY SWIDLER | Executive Vice PresidentChief Operating Officer and
Chief Financial Officer
| | May 8,November 6, 2020 |
Glenn H. SchiffmanGary Swidler | | | |
