IAC the owner of Ask.com,. Match.com and Chemistry.com just to name a few properties, just reported earnings today before the market opened and here are some of the highlights:
|$ in millions (except per share amounts)|
|Q1 2011||Q1 2010||Growth|
|Revenue||$ 460.2||$ 378.2||22%|
|Operating Income Before Amortization||60.0||33.6||78%|
|Adjusted Net Income||35.5||2.5||NM|
|Net Income (Loss)||18.1||(18.7)||NM|
|GAAP Diluted EPS||0.19||(0.16)||NM|
|See reconciliation of GAAP to non-GAAP measures beginning on page 9.|
Information Regarding the Results:
- Q1 revenue increased 22% reflecting double digit growth across each segment. Operating Income Before Amortization grew 78% driven by strong profit growth at Search, Match and ServiceMagic.
- Q1 net income and Adjusted Net Income grew $36.8 million and $33.0 million, respectively, reflecting strong operating performance. The prior year period included an impairment charge related to an investment, partially offset by a gain associated with the sale of certain securities which collectively impacted net loss and Adjusted Net Income by $15.8 million and GAAP EPS and Adjusted EPS by $0.14 and $0.13, respectively.
- Q1 Free Cash Flow and cash flows from operating activities attributable to continuing operations were $45.6 million and $53.9 million, respectively.
Principal Areas of Focus:
- Search: IAC extended its contract with Google through March 31, 2016; Mindspark announced distribution deals with Booyah, Lolapps and Social Point in the social gaming space; The Daily Burn launched its new Meal Snap app for the iPhone, which hit the top 25 list of apps on iTunes in the first week; and Dictionary.com reached more than 30 million mobile app downloads.
- Local: CityGrid Media announced a distribution partnership with CBS Local Digital Media, bringing new local businesses into the CityGrid advertising network; and ServiceMagic grew domestic service professionals 11% to 81,400 and international service professionals 44% to 24,000.
- Personals: Subscribers logging in through mobile devices grew 135% year over year to almost 30% of total on Match.com U.S., Core subscribers grew 22%.
- Media: Electus and NBC announced a fashion reality competition to be hosted by Elle Macpherson; Vimeo launched its iPhone app that allows users to shoot and edit video and has reached over half a million downloads since its release in early April; IAC launched Hatch Labs, a business focused on building mobile products; and IAC and Harman Newsweek formed The Newsweek Daily Beast Company joint venture.
|DISCUSSION OF FINANCIAL AND OPERATING RESULTS|
|Q1 2011||Q1 2010||Growth|
|Revenue||$ in millions|
|Search||$ 248.6||$ 199.0||25%|
|Media & Other||54.3||48.1||13%|
|$ 460.2||$ 378.2||22%|
|Operating Income Before Amortization|
|Search||$ 49.4||$ 31.5||57%|
|Media & Other||(3.4)||(2.4)||-40%|
|$ 60.0||$ 33.6||78%|
|Operating Income (Loss)|
|Search||$ 49.1||$ 31.1||58%|
|Media & Other||(3.7)||(3.8)||2%|
|$ 37.3||$ 8.9||318%|
Search includes Mindspark, our digital consumer products business consisting of our proprietary operations through which we develop, market and distribute downloadable applications, and our B2B operations, which provide customized browser-based applications for software and media companies; destination websites, including Ask.com and Dictionary.com, through which we provide search and additional services; and CityGrid Media, an online media company that aggregates and integrates local ads and content and distributes them to publishers across web and mobile platforms.
Search revenue reflects strong growth from Mindspark’s B2B and proprietary operations as well as continued improvements from destination websites and CityGrid Media. The revenue growth in B2B was driven by increased engagement from existing partners as well as the contribution from new partners while the growth in the proprietary business was driven primarily by the nearly 30 new products launched since the prior year period. The revenue growth in destination websites reflects increased marketing efforts while the growth in CityGrid Media primarily reflects the contribution from new resellers. Profits were favorably impacted by higher revenue and lower depreciation expense, partially offset by higher traffic acquisition costs and increased marketing expense.
Match revenue benefited from strong growth within its Core(1) and Developing(2) operations. Core revenue increased 18% to $93.3 million driven by a 22% increase in subscribers. Developing revenue increased 82% to $18.3 million driven by the full quarter contribution of Singlesnet, as well as from our venture with Meetic in Latin America and the acquisition of OkCupid, neither of which were reflected in the year ago results. Profits were favorably impacted by higher revenue and lower selling and marketing expense as a percentage of revenue.
ServiceMagic revenue benefited from growth in its domestic and international operations. Domestically, revenue growth reflects a 9% increase in accepted service requests, which was driven by an 11% increase in service professionals, partially offset by lower average accepted service request fees. Average accepted service request fees were impacted by a shift in mix to lower value service requests. Domestic service requests declined 1% due primarily to reduced marketing efforts in the current year period. Domestic growth also reflects an increase in revenue from website fulfillment and hosting services. ServiceMagic International revenue growth reflects an 85% increase in accepted service requests. Profits were favorably impacted by higher revenue and lower domestic marketing expenses. Profits in 2010 benefited from the reversal of a $1.5 million provision for contingent consideration related to an acquisition, which was not earned.
Media & Other
Media & Other includes Electus, CollegeHumor, Notional, Vimeo, Pronto, Shoebuy, Proust and Hatch Labs. The increase in revenue primarily reflects growth at Shoebuy, Notional, Electus and Vimeo, partially offset by a decline at Pronto. Operating Income Before Amortization loss increased due to the inclusion in the year ago period of $3.1 million in profit related to our former interest in Reveille; lower profits in the current year period from Pronto due to lower revenue; and investments in Hatch Labs, which was not in the year ago period, and Proust. These items more than offset the reduced losses at The Daily Beast, which, following the formation of the joint venture with Harman Newsweek on January 31, 2011, has been accounted for as an equity method investment. The reduced operating loss reflects a decrease of $1.1 million in amortization of intangibles.
Corporate expenses in the current year period reflect increased compensation and other employee-related costs and a non-income tax refund in the year ago results.
Note 1: Match Core consists of Match.com in the United States, Chemistry.com and People Media.
Note 2: Match Developing consists of OkCupid, Singlesnet, mobile-only products and our international operations.
Equity in losses of unconsolidated affiliates in Q1 2011 reflects losses related to our investment in The Newsweek Daily Beast Company partially offset by income related to our investment in Meetic.
Equity in losses of unconsolidated affiliates in Q1 2010 includes a write-down of $18.3 million related to our investment in The HealthCentral Network, Inc. Other income in Q1 2010 includes a $4.0 million pre-tax gain related to the sale of certain securities.
The effective tax rates for continuing operations and Adjusted Net Income in Q1 2011 were 44% and 39%, respectively. The effective tax rate for continuing operations was higher than the statutory rate of 35% due principally to interest for tax contingencies and state taxes, partially offset by foreign income taxed at lower rates. The effective tax rate for Adjusted Net Income was higher than the statutory rate of 35% due principally to state taxes and interest for tax contingencies. The tax provision for continuing operations was $6.1 million in Q1 2010 on a pre-tax loss of $8.5 million. The effective tax rate for Adjusted Net Income was 86% in Q1 2010. The continuing operations tax provision, despite a pre-tax loss, and the Adjusted Net Income effective tax rate, which was higher than the statutory rate of 35%, were due principally to a valuation allowance on the deferred tax asset created by the impairment charge for our investment in The HealthCentral Network, Inc., interest on tax contingencies and state taxes.
|LIQUIDITY AND CAPITAL RESOURCES|
As of March 31, 2011, IAC had approximately $1.3 billion in cash and marketable securities, and $95.8 million in long-term debt.
|Q1 2011||Q1 2010||Growth|
|Revenue by traffic source (a)|
|Core – Paid Subscribers (000s)||1,600||1,315||22%|
|Developing – Paid Subscribers (000s)||324||270||20%|
|Total Paid Subscribers (000s)||1,924||1,585||21%|
|Domestic Service Requests (000s) (b)||1,377||1,391||-1%|
|Domestic Accepts (000s) (c)||1,937||1,783||9%|
|International Service Requests (000s) (b)||185||99||87%|
|International Accepts (000s) (c)||217||118||85%|
|(a) Proprietary includes proprietary consumer product operations, Ask.com and Dictionary.com. Network includes B2B operations, and distributed search and sponsored listings.
(b) Fully completed and submitted customer requests for service on ServiceMagic.
(c) The number of times “Service Requests” are accepted by Service Professionals. A “Service Request” can be transmitted to and accepted by more than one Service Professional.