NEW YORK, Nov. 5 /PRNewswire-FirstCall/ -- IAC (Nasdaq: IACI) released
third quarter 2008 results today.
SUMMARY RESULTS
$ in millions (except per share amounts)
Q3 2008 Q3 2007 Growth
Revenue $369.3 $335.4 10%
Operating Income Before Amortization 30.5 37.7 -19%
Adjusted Net Income (20.2) 25.2 NM
Adjusted EPS (0.14) 0.17 NM
Operating (Loss) Income (22.6) 1.7 NM
Net (Loss) Income (14.8) 70.5 NM
GAAP Diluted EPS (0.11) 0.47 NM
The results of the spincos are treated as discontinued operations.
See reconciliation of GAAP to non-GAAP measures beginning on page 9.
'This is the last quarter when the costs of our spin-offs will distort the
operating performance of the Company,' said IAC's Chairman and CEO, Barry
Diller. 'For the future, our streamlined focus, virtually no debt and large
cash balances should provide both long-term growth in our current businesses
and allow us to pursue opportunities across the internet.'
Information Regarding the Results:
-- Q3 Operating Income Before Amortization grew 36%, excluding $20.8
million in spin-off expenses.
-- Q3 operating loss was driven by the spin-off expenses and a $16.2
million non-cash charge related to the modification of certain IAC
equity awards in connection with the spin-offs.
-- Adjusted Net Income and Adjusted EPS reflect the $15.7 million after-
tax effect of the spin-off expenses and a $38.3 million after-tax loss
arising from the extinguishment of a significant portion of the 7%
Senior Notes due 2013 ($0.39 per share, combined). (See Pages 3 and 4
for further details)
-- Net loss and GAAP Diluted EPS were impacted by the items discussed
above, a benefit related to deferred tax adjustments in connection with
the spin-offs of $65.1 million ($0.46 per share) and a $14.7 million
loss ($0.11 per share) principally related to an income tax provision
recorded in discontinued operations. (See Page 4 for further details)
-- Free Cash Flow for the first nine months of 2008 was $97.2 million, up
$128.2 million over the prior year, with $147.4 million in net cash
provided by operating activities.
Principal Areas of Focus:
-- Search: IAC improved and extended its search footprint, acquiring
Dictionary.com on July 3, 2008 which now sends over 800,000 incremental
queries to Ask.com each day, re-launching Ask.com on October 1 to
positive early results, and continuing to expand search distribution
through toolbars and partnerships.
-- Local: IAC grew revenue from thousands of paying local merchants,
benefitting from increases in the number and spend of merchants;
announced distribution partnerships with AOL, Marchex, Superpages and
Local.com and joined Facebook Connect in 2008; and recently announced
the expansion of ServiceMagic into Europe.
-- Personals: Match.com worldwide subscribers and revenue per subscriber
both grew 3% in Q3, driven by Chemistry.com domestically and in Latin
America, the UK, Scandinavia and Australia internationally.
Distribution deals signed with Australia's NineMSN and Latin America's
Terra. Match mobile, launched late in 2007, continues to grow
subscriptions strongly.
DISCUSSION OF FINANCIAL AND OPERATING RESULTS
Q3 2008 Q3 2007 Growth
$ in millions
Revenue
Media & Advertising $193.3 $189.8 2%
Match 93.5 89.1 5%
ServiceMagic 33.8 24.6 37%
Emerging Businesses 49.6 36.3 37%
Intercompany Elimination (1.0) (4.5) 78%
$369.3 $335.4 10%
Operating Income Before Amortization
Media & Advertising $38.8 $27.9 39%
Match 30.3 29.5 3%
ServiceMagic 8.7 5.4 60%
Emerging Businesses (6.1) (3.5) -76%
Corporate (41.2) (21.7) -90%
$30.5 $37.7 -19%
Operating (Loss) Income
Media & Advertising $32.1 $15.7 105%
Match 24.0 29.3 -18%
ServiceMagic 8.1 4.6 75%
Emerging Businesses (7.4) (9.9) 25%
Corporate (79.4) (38.0) -109%
$(22.6) $1.7 NM
Media & Advertising
Media & Advertising consists of proprietary search properties such as
Ask.com, Fun Web Products, Dictionary.com and iWon, and our proprietary local
site, Citysearch, and network properties which include distributed search,
sponsored listings and toolbars. Proprietary revenue growth continued to
outpace that of network revenue and now represents 71.5% of total Media &
Advertising revenue.
Media & Advertising revenue growth was driven by strong growth from
proprietary search properties, where queries grew at Ask.com internationally
and Fun Web Products, and reflect the inclusion of Dictionary.com (acquired on
July 3, 2008). Query growth was partially offset by declines in queries
generated on Ask.com in the U.S. due to significantly lower marketing spend in
the period. Ask.com's core user base, where frequency and monetization are the
highest, grew queries strongly. Revenue per query on proprietary web search
properties grew, primarily from improved economics associated with the renewed
partnership with Google and, even excluding the renewed partnership, revenue
per query grew due to continued optimization of how and when we display
sponsored listings within a quality user experience. Mitigating revenue growth
was a sharp decline in network revenue, resulting from the planned de-emphasis
of relationships with certain partners that took place during 2008 in
conjunction with the renewed partnership. In local, Citysearch continued to
grow users and revenue during the quarter.
Media & Advertising profit grew faster than revenue as a result of reduced
marketing spend at Ask.com and a shift in revenues from network to higher
margin proprietary properties. Operating income for the prior year period
reflects amortization of non-cash marketing of $6.1 million.
Match
Revenue growth was driven by a 6% increase in both international
subscribers and revenue per subscriber, and 1% and 2% growth in North American
subscribers and revenue per subscriber, respectively. Chemistry.com continued
to grow subscribers during the quarter. Operating Income Before Amortization
growth reflects lower customer acquisition costs as a percentage of revenue,
due to more favorable economic terms associated with distribution partners.
Operating income for the current year period reflects amortization of non-cash
marketing of $6.1 million.
ServiceMagic
ServiceMagic revenue benefited from a more active service provider network
and a 41% increase in service requests driven by increased marketing efforts.
Operating Income Before Amortization, benefitting from scale, grew faster than
revenue, partially offset by increased consumer acquisition costs and
increased operating expenses primarily associated with the expansion of the
sales force. Operating income growth reflects lower amortization of
intangibles.
Emerging Businesses
Emerging Businesses include Shoebuy, ReserveAmerica, Pronto.com,
Gifts.com, InstantAction.com, Connected Ventures, 23/6, VSL,
RushmoreDrive.com, Life123.com and The Daily Beast. Revenue for the period
primarily reflects strong growth at Pronto.com and Shoebuy. Operating Income
Before Amortization declines are due primarily to increased losses associated
with early stage businesses not in the year ago figures as well as
InstantAction.com and RushmoreDrive.com. Operating Income Before Amortization
declines were partially offset by the first full quarter of profitability at
Pronto.com, which has captured 16% of the shopping comparison category in just
two years. Operating loss was favorably impacted in 2008 due to $3.0 million
of amortization of non-cash marketing in the prior year period and a decrease
of $2.2 million in amortization of intangibles.
Corporate
Corporate expense for the period included $20.8 million ($15.7 million
after-tax) in expenses related to the spin-offs. Operating loss was further
impacted by a $16.2 million charge related to the modification of certain IAC
equity awards in connection with the spin-offs.
OTHER ITEMS
During Q3 2008, the Company purchased for cash all validly tendered 7%
Senior Notes due 2013 (the 'Senior Notes') pursuant to its tender offer to
purchase the outstanding Senior Notes. Concurrent with the tender offer and in
connection with the spin-offs, the Company entered into an exchange agreement
to exchange a portion of the Senior Notes for the debt of Interval Leisure
Group. In connection with the tender offer and exchange agreement, the
Company recorded a net loss of $63.2 million on the extinguishment of a
portion of the Senior Notes, which is recorded in other (expense) income in Q3
2008. The remaining outstanding principal amount of the Senior Notes at
September 30, 2008 is $15.8 million. In addition, Q3 other (expense) income
included a $5.1 million loss in Q3 2008 as compared to a $5.9 million gain in
Q3 2007, reflecting a decrease in the fair value of the derivative asset
received by the Company in connection with the sale of HSE24.
The effective tax rates for continuing operations and Adjusted Net Income
in Q3 2008 were 99% and 28%, respectively, on pre-tax losses of $86.6 million
and $28.4 million, respectively. The effective tax rate for continuing
operations was higher than the statutory rate of 35% due principally to
benefits from a net reduction in deferred tax liabilities caused by the spin-
offs and state income tax benefits, partially offset by an increase in the
valuation allowance on deferred tax assets related to the Arcandor investment,
changes in tax reserves, and non-deductible costs related to the spin-offs.
The effective tax rate for Adjusted Net Income was lower than the statutory
rate of 35% due principally to non-deductible costs related to the spin-offs
and changes in tax reserves, partially offset by foreign income taxed at lower
rates. The effective tax rates for continuing operations and Adjusted Net
Income in Q3 2007 were 76% and 40%, respectively. These effective tax rates
were higher than the statutory rate of 35% due principally to an increase in
tax reserves and related interest, net adjustments related to the
reconciliation of tax returns to provision accruals, and state taxes,
partially offset by foreign tax credits and tax exempt income. In addition,
continuing operations was favorably impacted by a non-taxable gain on the fair
value of derivatives that were created in connection with the sale of HSE24
and the Expedia spin-off.
OPERATING METRICS
Q3 2008 Q3 2007 Growth
MEDIA & ADVERTISING
Revenue by traffic source
Proprietary 71.5% 54.1%
Network 28.5% 45.9%
MATCH
Paid Subscribers (000s) 1,342.1 1,308.8 3%
SERVICEMAGIC
Service Requests (000s) (a) 1,201.3 854.1 41%
Accepts (000s) (b) 1,411.1 1,051.7 34%
(a) Fully completed and submitted customer requests for service on
ServiceMagic.
(b) The number of times 'Service Requests' are accepted by Service
Professionals. A 'Service Request' can be accepted by more than one
Service Professional.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2008, IAC had approximately $1.5 billion in cash and
marketable securities and $95.8 million in long-term debt.
DILUTIVE SECURITIES
On August 20, 2008, IAC spun-off HSNi, Interval Leisure Group,
Ticketmaster and Tree.com to shareholders and effected a 1-for-2 reverse stock
split. IAC has various tranches of dilutive securities. The table below
details these securities as well as potential dilution at various stock prices
(shares in millions, rounding differences may occur).
Avg.
Strike/
Conver As of
Shares -sion 10/31/08 Dilution at:
Share Price $16.76 $20.00 $25.00 $30.00 $35.00
Absolute Shares as
of 10/31/08 140.4 140.4 140.4 140.4 140.4 140.4
RSUs and Other 6.3 6.3 6.0 5.7 5.5 5.3
Options 11.0 $23.30 0.0 0.0 0.5 1.6 2.3
Warrants 39.3 $24.55 2.7 4.3 6.0 8.5 11.7
Total Treasury
Method Dilution 9.0 10.3 12.2 15.6 19.3
% Dilution 6.0% 6.8% 8.0% 10.0% 12.1%
Total Treasury
Method Diluted
Shares Outstanding 149.4 150.7 152.6 156.0 159.7
CONFERENCE CALL
IAC will audiocast its conference call with investors and analysts
discussing the Company's Q3 financial results on Wednesday, November 5, 2008,
at 11:00 a.m. Eastern Time (ET). This call will include the disclosure of
certain information, including forward-looking information, which may be
material to an investor's understanding of IAC's business.
