As filed with the Securities and Exchange Commission on March 1, 20182019
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 20172018
Commission File No. 000-20570
IAC/INTERACTIVECORP
(Exact name of registrant as specified in its charter)
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Delaware (State or other jurisdiction of incorporation or organization) | | 59-2712887 (I.R.S. Employer Identification No.) |
555 West 18th Street, New York, New York (Address of Registrant's principal executive offices) | | 10011 (Zip Code) |
(212) 314-7300
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | | Name of exchange on which registered |
| Common Stock, par value $0.001 | | The Nasdaq Stock Market LLC (Nasdaq Global Select Market) |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No o
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No x
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes x No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ox
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ý | | Accelerated filer o | | Non-accelerated filer o(Do not check if a smaller reporting company)
| | Smaller reporting company o | | Emerging growth company o |
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of February 2, 2018,1, 2019, the following shares of the Registrant's Common Stock were outstanding: |
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| Common Stock | | 76,869,35077,986,305 |
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| Class B Common Stock | | 5,789,499 |
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| Total | | 82,658,84983,775,804 |
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The aggregate market value of the voting common stock held by non-affiliates of the Registrant as of June 30, 20172018 was $7,528,899,120.$11,833,394,558. For the purpose of the foregoing calculation only, all directors and executive officers of the Registrant are assumed to be affiliates of the Registrant.
Documents Incorporated By Reference:
Portions of the Registrant's proxy statement for its 20182019 Annual Meeting of Stockholders are incorporated by reference into Part III herein.
TABLE OF CONTENTS
PART I
Item 1. Business
OVERVIEW
Who We Are
IAC is a leading media and Internet company composedhas majority ownership of widely known consumer brands, such asboth Match Group, which includes Tinder, Match, PlentyOfFish and OkCupid, and ANGI Homeservices, which are part of Match Group’s online dating portfolio, andincludes HomeAdvisor, and Angie’s List which are operated by ANGI Homeservices, as well asand Handy, and also operates Vimeo, Dotdash Dictionary.com,and The Daily Beast, among many other online businesses.
As used herein, "IAC," the "Company," "we," "our," "us" and Investopedia.
For information regarding the results of operations of IAC’s segments, as well as their respective contributions to IAC’s consolidated results of operations, see “Item 7-Management's Discussion and Analysis of Financial Condition and Results of Operations” and “Item 8-Consolidated Financial Statements and Supplementary Data.”
All references to “IAC,” the “Company,” “we,” “our” or “us” in this report aresimilar terms refer to IAC/InterActiveCorp.InterActiveCorp and its subsidiaries (unless the context requires otherwise).
Our History
IAC, initially a hybrid media/electronic retailing company, was incorporated in 1986 in Delaware under the name Silver King Broadcasting Company, Inc. After several name changes (first to HSN, Inc., then to USA Networks, Inc., USA Interactive and InterActiveCorp, and finally, to IAC/InterActiveCorp) and the completion of a number of significant corporate transactions over the years, the Company transformed itself into a leading media and Internet company.
From 1997 through 2002, the Companyto 2005, we acquired a controlling interest innumber of e-commerce companies, including Ticketmaster Group, Hotel Reservations Network (later renamed Hotels.com), Expedia.com, Match.com, LendingTree, Hotwire, TripAdvisor and Expedia, as well as acquired Match.com and other smaller e-commerce companies. In 2002, the Company contributed its entertainment assets to Vivendi Universal Entertainment LLLP, a joint venture, and sold its interests in that venture to NBC Universal in 2005.
In 2003, the Company continued to grow its portfolio of e-commerce companies by acquiring all of the shares of Expedia, Hotels.com and Ticketmaster that it did not previously own, together with a number of other e-commerce companies (including LendingTree and Hotwire).AskJeeves.
In 2005, IAC acquired Ask Jeeves, Inc. andwe completed the separation of itsour travel and travel‑related businesses and investments into an independent public company called Expedia, Inc. (now known as Expedia Group, Inc.). In 2008, IACwe separated into five independent, publicly traded companies: IAC, HSN, Inc. (now part of Qurate Retail, Inc.), Interval Leisure Group, Inc. (now part of Marriott Vacations Worldwide Corporation), Ticketmaster (now part of Live Nation, Inc.) and Tree.com, Inc.
In 2009,From 2008 to 2014, we sold the European operations of Match.comcontinued to Meetic, a leading European online dating company basedinvest in France, in exchange for a 27% interest inand acquire e-commerce companies, including Meetic, and a €5 million note. In 2010, we exchanged the stock of a wholly-owned subsidiary that held our Evite, Gifts.com and IAC Advertising Solutions businesses and approximately $218 million in cash for substantially all of Liberty Media Corporation’s equity stake in IAC.
In 2011, we increased our ownership stake in Meetic to 81%. In 2012, we acquired About.com (now known as Dotdash).
In 2014, we acquired the remaining publicly traded shares of Meetic, ValueClick’s “owned, Dictionary.com and operated” website businesses, including Investopedia and PriceRunner, and The Princeton Review.
Investopedia. In 2015, we acquired Plentyoffish Media Inc., a leading provider of subscription-based and ad-supported online personals servicing North America, Europe, Latin America and Australia, for $575 million in cash, and completed the initial public offering of Match Group, Inc.
In 2016 we acquired VHX, a platform for premium over-the-top (OTT) subscription video channels, as well as a controlling interest in MyHammer Holding AG, the leading home services marketplace in Germany, and sold PriceRunner, ASKfm and ShoeBuy.
In 2017, we acquired controlling interests in HomeStars Inc. and MyBuilder Limited, leading home services platforms in the United Kingdom and Canada, respectively, as well as sold The Princeton Review. We also completed the combination of the businesses in our former HomeAdvisor segment with those of Angie’s List, Inc. under a new publicly traded holding company that we control, ANGI Homeservices Inc. Lastly, through our("ANGI Homeservices"), as well as acquired controlling interests in MyHammer Holding AG, HomeStars Inc. and MyBuilder Limited, leading home services platforms in Germany, the United Kingdom and Canada, respectively. Through Vimeo, subsidiary, we acquired VHX, a platform for premium over-the-top (OTT) subscription video channels, and Livestream Inc., a leading live video solution.
In 2018, through ANGI Homeservices, we acquired Handy Technologies, Inc., a leading platform in the United States for connecting consumers looking for household services (primarily cleaning and handyman services) with top-quality, pre-screened independent service professionals. We also acquired a controlling interest in BlueCrew, an on-demand staffing platform that connects temporary workers with traditional blue-collar jobs in areas like warehouse, delivery and moving, data entry and customer service. Lastly, we sold our Dictionary.com business, the television business of Electus (including Notional) and our Felix and CityGrid businesses.
EQUITY OWNERSHIP AND VOTE
IAC has outstanding shares of common stock, with one vote per share, and shares of Class B common stock, with ten votes per share and which are convertible into common stock on a share for share basis. As of the date of this report, Mr.Barry Diller, IAC’s Chairman and Senior Executive, his spouse Diane(Diane von Furstenberg,Furstenberg) and his stepson Alexander(Alexander von Furstenberg,Furstenberg), collectively beneficially own 5,789,499 shares of IAC Class B common stock by virtuerepresenting 100% of their respective voting and/or investment power(s) over these securities, 4,530,075the outstanding shares of which are held in trusts for the benefit of Mr. Diller and certain members of his family and the remainder of which are held by Mr. Diller personally. Shares of IAC Class B common stock beneficially owned by Mr. Diller, his spouse and his stepson collectively represent 100% of IAC’s outstanding Class B common stock and, togetherstock. Together with shares of IAC common stock held as of the date of this report by Mr. von Furstenberg (58,542)(61,685), a trust for the benefit of certain members of Mr. Diller'sDiller’s family (136,711) and a family foundation (1,711), these holdings represent approximately 43.1%42.8% of the total outstanding voting power of IAC (based on the number of shares of IACcommon and Class B common stock outstanding on February 2, 2018)1, 2019). As of the date of this report, Mr. Diller also holds 800,0001,050,000 vested options and 500,000250,000 unvested options to purchase IACshares of common stock.
In addition, pursuant to an amended and restated governance agreement between IAC and Mr. Diller, for so long as Mr. Diller serves as IAC’s Chairman and Senior Executive and he beneficially owns (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended) at least 5,000,000 shares of IAC Class B common stock and/or common stock in which he has a pecuniary interest (including IAC securities beneficially owned by him directly and indirectly through trusts for the benefit of him and certain members of his family), he generally has the right to consent to limited matters in the event that IAC’s ratio of total debt to EBITDA (as defined in the governance agreement) equals or exceeds four to one over a continuous twelve-month period.
As a result of IAC securities beneficially owned by Mr. Diller and certain members of his family, Mr. Diller and these family members are, collectively, currently in a position to influence, subject to our organizational documents and Delaware law, the composition of IAC’s Board of Directors and the outcome of corporate actions requiring shareholder approval, such as mergers, business combinations and dispositions of assets, among other corporate transactions.
DESCRIPTION OF IAC BUSINESSES
Match Group
Overview
Our Match Group segment consists of the businesses and operations of Match Group, Inc. (“("Match Group”Group"). Through Match Group, we operate a dating business that consists of a portfolio of dating brands, available in 42 languages across more than 190 countries.including Tinder, Match, PlentyOfFish, Meetic, OkCupid, OurTime, Pairs and Hinge, as well as a number of other brands, each designed to increase user likelihood of finding a meaningful connection. As of December 31, 2017,2018, IAC’s ownership and voting interests in Match Group were 81.2%81.1% and 97.6%, respectively.
Services
Through the brands within our dating business,Match Group, we are a leading provider of subscription dating products servicing North America, Western Europe, Asia and many other regions aroundall over the world through websitesapplications and applicationswebsites that we own and operate. As of December 31, 2018, there were approximately 7.9 million Average Subscribers to our dating products (calculated by summing the total number of users who purchased one of our subscription-based dating products at the end of each day in the year ended December 31, 2018, divided by the number of calendar days in such year).
Dating is a highly personal endeavor and consumers have a wide variety of preferences that determine what type of dating product they choose. As a result, our strategy focuses on a portfolio approach of various brands in order to reach a broad range of users. Our brands are collectively available in 40 languages to users all over the world. The following is a list of our key brands:
Tinder. Tinder was launched in 2012, and has since risen to scale and popularity faster than any other product in the online dating category with limited marketing spend, growing to over 4.3 million subscribers today. Tinder’s distinctive "right swipe" feature has led to significant adoption among the millennial generation, previously underserved by the online dating category. Tinder employs a freemium model, through which users can enjoy many of the core features of Tinder for free, including limited use of the "swipe right" feature with unlimited communication with other users. However, to enjoy premium features, such as unlimited use of the "swipe right" feature, a Tinder user must subscribe to either Tinder Plus, launched in early 2015, or Tinder Gold, which was launched in late summer 2017. Tinder users and subscribers may also pay for certain premium features, such as Super Likes and Boosts, on a pay-per-use basis.
Match. Match was launched in 1995 and helped create the online dating category. Among its distinguishing features are the ability to search profiles, receive algorithmic matches and attend live events (promoted by Match) with other subscribers. Additionally, new features, such as Missed Connections, which uses location-based technology to enable users to connect with other users with whom they have crossed paths in the past, engage users into more meaningful connections. Match is a brand that focuses on users with a high level of intent to enter into a relationship and its product and marketing are designed to reinforce that approach. Match relies heavily on word-of-mouth traffic, repeat usage and paid marketing.
PlentyOfFish. PlentyOfFish was launched in 2003 and acquired in October 2015. Similar to Match, among its distinguishing features is the ability to both search profiles and receive algorithmic matches. Similar to Tinder, PlentyOfFish has grown to popularity over the years with very limited marketing spend and also relies on a freemium model. PlentyOfFish has broad appeal in the central United States, Canada, the United Kingdom and a number of other international markets.
Meetic. Meetic, a leading European online dating brand based in France, was launched in 2001. Similar to Match, among its distinguishing features are the ability to search profiles, receive algorithmic matches and attend live events (promoted by Meetic) with other subscribers and non-subscribers from time to time. Also, similar to Match, Meetic is a brand that focuses on users with a high level of intent to enter into a relationship and its product and marketing are designed to reinforce that approach. Meetic relies heavily on word-of-mouth traffic, repeat usage and paid marketing.
OkCupid. OkCupid was launched in 2004, and has attracted users through a mathematical and Q&A approach to the online dating category. Similar to Tinder and PlentyOfFish, OkCupid has grown in popularity over the years without significant marketing spend and also relies on a freemium model. OkCupid has a loyal and highly educated user base predominately located in major cities in the United States and the United Kingdom.
OurTime. OurTime is the largest brand within our affinity-oriented brands. OurTime is the largest community of singles over age 50 of any dating product.
Pairs. Pairs was launched in 2012 and acquired in May 2015. Pairs is a leading provider of dating products in Japan, with a strong presence in Taiwan and a growing presence in certain other Asian countries. Pairs is a dating app that was specifically designed to address social barriers generally associated with the use of dating products in Asian countries, particularly Japan.
Hinge. Hinge was launched in 2012 and, following a series of investments, Match took a controlling stake in Hinge in June 2018 and purchased all of the remaining outstanding equity in December 2018. Hinge is a mobile-only experience and employs a freemium model. Hinge focuses on users with a high level of intent to enter into a relationship and its product is designed to reinforce that approach.
All of our dating products enable users to establish a profile and review the profiles of other users without charge. Each product also offers additional features, some of which are free and some of which are paid, depending on the particular product. In general, access to premium features requires a subscription, which is typically offered in packages (primarily ranging from one month to six months), depending on the product and circumstance. Prices differ meaningfully within a given brand by the duration of subscription purchased, the bundle of paid features that a user chooses to access and whether or not a subscriber is taking advantage of any special offers. In addition to subscriptions, many of our dating products offer users certain features, such as the ability to promote themselves for a given period of time or to review certain profiles without any signaling to other users, and these features are offered on a pay‑per‑use (or à la carte) basis. The precise mix of paid and premium features is established over time on a brand‑by‑brand basis and is constantly subject to iteration and evolution.
Revenue
Match Group revenue is primarily derived directly from users in the form of recurring subscriptions. Revenue is also earned from online advertising, the purchase of à la carte features (where users pay a non-recurring fee for a specific action or event) and offline events.
Marketing
WeCertain of our brands attract the majority of their users of our dating products through word-of-mouth and other free channels. In addition, many of ourOur other brands rely on paid user acquisition efforts for a significant percentage of their users. Our online marketing activities generally consist of purchasing social media advertising, banner and other display advertising, search engine marketing, e-mail campaigns, video advertising, business development or partnership deals and hiring influencers to promote our dating products. Our offline marketing activities generally consist of television advertising and related public relations efforts, as well as events.
Competition
The dating industry is competitive and has no single, dominant brand globally. We compete with a number of other companies that provide similar dating and matchmaking products.
In addition to other online dating brands, we compete with social media platforms and offline dating services, such as in‑person matchmakers. Arguably, our biggest competition in the case of our dating business comes from the traditional ways that people meet each other and the choices some people make to not utilize dating products or services.
We believe that our ability to compete successfully in the case of our dating business will depend primarily upon the following factors:
our ability to continue to increase consumer acceptance and adoption of online dating products, includingparticularly in emerging markets and other parts of the world where the stigma is only beginning to erode;
continued growth in Internet access and smart phone adoption in certain regions of the world, particularly emerging markets;
the continued strength of Match Group’sGroup brands;
the breadth and depth of Match Group’sGroup active user communities relative to those of its competitors;
our ability to evolve our dating products in response to competitor offerings, user requirements, social trends, the ever-evolving technological landscape and the technological landscape;ever-changing regulatory landscape (in particular, as it relates to the regulation of online platforms);
our ability to efficiently acquire new users for our dating products;
our ability to continue to optimize our monetization strategies; and
the design and functionality of our dating products.
Lastly, we believe our broad portfolio of dating brands is a competitive advantage, given thatsince a large portion of online dating customers use multiple dating products over a given period of time, either concurrently or sequentially.sequentially, we believe our broad portfolio of dating brands is a competitive advantage.
ANGI Homeservices
Overview
Through the ANGI Homeservices portfolio of digital home services brands, including HomeAdvisor®, Angie’s List® and Handy, we connect millions of homeowners to home service professionals, collect reviews and allow homeowners to research, match and connect on-demand to the largest network of service professionals online, through our mobile apps or by voice assistants.
In addition to its market-leading U.S. operations, ANGI owns leading home services online marketplaces in France (Travaux), Germany (MyHammer), Netherlands (Werkspot), United Kingdom (MyBuilder), Canada (HomeStars) and Italy (Instapro), as well as operations in Austria (MyHammer). As of December 31, 2018, IAC’s economic and voting interests in ANGI Homeservices were 83.9% and 98.1%, respectively.
Our ANGI Homeservices segment consists of the North AmericaAmerican (United States and Canada) and European businesses and operations of ANGI Homeservices, Inc. (“ANGI Homeservices”). ANGI Homeservices is a new publicly traded holding company that was formed to facilitate the combination of the businesses within our former HomeAdvisor segment with Angie’s List, Inc. ("Angie's List"), which transaction was completed on September 29, 2017 (the “Combination”"Combination").
Following the completion of the Combination, we own and operate the HomeAdvisor business, which includes the Marketplace (described below) ANGI Homeservices acquired Handy Technologies, Inc. ("Handy"), a leading platform in the United States for connecting individuals looking for household services (primarily cleaning and the various entities operating its international businesses, plus Angie's List, mHelpDesk, CraftJack and Felix.handyman services) with top-quality, pre-screened independent service professionals, in October 2018.
ANGI Homeservices is the world’s largest digital marketplace for home services, connecting millions of homeowners across the globe with home service professionals. ANGI Homeservices operates leading brands in eight countries, including HomeAdvisor® and Angie's List® (United States), HomeStars (Canada), Travaux.com (France), MyHammer (Germany and Austria), MyBuilder (UK), Werkspot (Netherlands) and Instapro (Italy).
As of December 31, 2017, IAC’s economic and voting interests in ANGI Homeservices were 86.9% and 98.5%, respectively.
Services
Overview. We own and operate theThe HomeAdvisor digital marketplace service in the United States (formerly known as our HomeAdvisor domestic business the “Marketplace”("HomeAdvisor"), which matches) connects consumers with service professionals nationwide for home repair, maintenance and improvement projects. The MarketplaceHomeAdvisor provides consumers with tools and resources to help them find local, pre-screened and customer-rated service professionals, as well as instantly book appointments with those professionals online. The MarketplaceHomeAdvisor also matchesconnects consumers with service professionals instantly by telephone, as well as offers several home services-related resources, such as cost guides for different types of home services projects. Handy connects consumers looking for household services (primarily cleaning and handyman services) with top-quality, pre-screened independent service professionals.
Together, we refer to the HomeAdvisor and Handy businesses in the United States as the "Marketplace." We provide all Marketplace matching services, related tools and toolsdirectories to consumers free of charge.
As of December 31, 2017,2018, the Marketplace had a network of approximately 181,000214,000 service professionals, each of whom had an active network membership and/or paid for consumer matches (in the case of HomeAdvisor service professionals) or completed a job sourced through the Handy platform (in the case of Handy service professionals) in December 2017. These2018. Collectively, these service professionals provided services in more than 500 categories and 400 discrete markets in the United States, ranging from cleaning and installation services to simple home repairs toand larger home remodeling projects. The Marketplace generated approximately 18.123.5 million fully completed and submitted customer service requests from over 13 million households during the year ended December 31, 2017.2018. Service requests consisted of fully completed customer service requests submitted to HomeAdvisor and completed jobs sourced through the Handy platform.
We also own and operate Angie’s List which connects consumers with service professionals for local services through a nationwide online directory of service professionals in over 700 service categories, nationwide. Angie’s List alsoas well as provides consumers with valuable tools, services and content including more than ten million(including verified reviews of local service professionals,reviews), to help them research, shop and hire for local services. We provide consumers with access to the Angie's List nationwide directory and related basic tools and services free of charge.
Marketplace Consumer Services. Consumers can submit a service request for a service professional directly through HomeAdvisor platforms, (website and mobile application), as well as indirectly through certain paths on the Angie’s List websitesome of our other branded platforms and various third-party affiliate platforms. Whena consumer submits a request for aIn the case of service professional, werequests submitted through HomeAdvisor and third-party affiliate platforms, consumers are generally match that consumermatched (through our proprietary algorithms) with up to four service professionals from ourthe HomeAdvisor network of service professionals based on several factors, including the type of services desired, location and the number of service professionals available to fulfill the request. When a consumer submits aIn the case of service requestrequests submitted through an Angie’s List platform, weour other branded platforms, consumers are generally match that consumermatched (through our proprietary algorithms) with a combination of MarketplaceHomeAdvisor service professionals and selected certified service professionals (described below) from the Angie’s List nationwide online directoryrelevant branded platform (as and if available for the given service request).
Service professionals may contact consumers with whom they have been matched through the Marketplace directly and consumers can review profiles, ratings and reviews of presented service professionals and select the service professional whom they believe best meets their specific needs. In all cases, consumersConsumers are under no obligation to work with any service professional(s) referred by or found through the Marketplace (including any from the Angie’s List nationwide online directory).of our branded platforms or third-party affiliate platforms.
WeHomeAdvisor also provideprovides several on-demand services, including Instant Booking and Instant Connect (patent-pending). Through our Instant Booking, offering, consumers can schedule appointments for select home services with a MarketplaceHomeAdvisor service professional instantly across certain HomeAdvisor platforms (website or mobile application).platforms. Through our Instant Connect, offering, consumers can connect with a MarketplaceHomeAdvisor service professional instantly by phone, as well as access the service through digital voice assistant platforms. In certain markets, weHomeAdvisor also provideprovides Same SayDay Service and Next Day Service for certain home services.
In addition to matching and on-demand services, consumers can access the online HomeAdvisor True Cost Guide, which provides project cost information for more than 400 project types nationwide, as well as an onlinea library of home services-related resources, which consists primarily of articles about home improvement, repaircontent.
Through the Handy platform, consumers can select the service they need and maintenance, toolsspecify when (date and time) they want the service to assistbe provided; this information is then used to match consumers with the research, planning and management of their projects and general advice for working withHandy service professionals. In certain markets, consumers can also submit a request to book a specific Handy service professional for a given job. In both cases, the service is then scheduled and paid for directly through the Handy platform. In addition, consumers who purchase furniture, electronics, appliances and other home-related items from select third-party retail partners online (and in certain markets, in store) can simultaneously purchase assembly, installation and other related services to be fulfilled by Handy service professionals. The service is then paid for directly through the applicable third-party retail partner platform and scheduled through the Handy platform. Consumers can also search for service professionals by zip code on the Handy platform and contact them through the Handy platform.
Marketplace Service Professional Services. We primarily offer and sell MarketplaceHomeAdvisor memberships and related products and services to service professionals through our sales force (described below). OurThe basic HomeAdvisor annual membership package includes membership in ourthe HomeAdvisor network of service professionals, as well as access to consumer connectionsmatches through the MarketplaceHomeAdvisor platforms and a listing in the HomeAdvisor online directory and certain other affiliate directories, among other benefits. In addition to the membership subscription fee, MarketplaceHomeAdvisor service professionals pay fees for consumer matches. In the case of Handy, we provide service professionals who self-register on the Handy platform with access to a pool of consumers seeking service professionals. When a service is scheduled through the Handy platform, the related payment is processed and we charge the service professional a
booking fee. We also offer certain other subscription products, primarily to MarketplaceHomeAdvisor service professionals, through mHelpDesk, a provider of cloud basedcloud-based field service software for small to mid-size service professionals,businesses, as well as custom website development and hosting services.
Angie's List Consumer Services. When consumers visit anThrough most Angie’s List platform (website or mobile application), theyplatforms, consumers can choose tocurrently register in order toand search for a service professional in the Angie’s List nationwide online directory and/or be matched with a service professional through the Marketplace.
We provide consumersprofessional. Consumers who register withcan access to ratings and reviews and the ability to search for service professionals, through the Angie’s List nationwide online directory, as well as the Angie’s List digital magazine and access to certain promotions. For a fee, we offer two premium membership packages, which include varying degrees of online and phone support, access to exclusive promotions and features and the award-winning Angie’s List print magazine. Consumers who choose the Marketplace option will be matched with a combination of Marketplace service professionals and selected certified service professionals (described below) from the Angie’s List nationwide online directory (as and if available for the given service request).
Angie's List Service Professional Services. We provideAngie’s List provides service professionals with a variety of services and tools, through Angie’s List.including certification. Generally, service professionals who do not havewith an overall member grade below a “B”"B" are not eligible for certification. Service professionals must satisfy certain criteria for certification, including retaining the requisite member grade, passing certain criminal background checks and attesting to proper licensure requirements.
Once eligibility criteria are satisfied, service professionals must purchase term-based advertising from us to obtain certification. As of December 31, 2017,2018, we had approximately 45,00036,000 certified service professionals under contract for advertising. If a certified service professional fails to meet any eligibility criteria during the term of his or her contract, refuses to participate in our complaint resolution process or engages in what we determine to be prohibited behavior through any of our service channels, we suspend any existing advertising and exclusive promotions and the related advertising contract is subject to termination.
Certified service professionals rotate among the first service professionals listed in directory search results for an applicable category, (together with their company name, overall rating, number of reviews, certification badge and basic profile information), with non-certified service professionals appearing below certified service professionals in directory search results. Certified service professionals can also provide exclusive promotions to members. When consumers choose the Marketplace option,to be matched with a service professional, our proprietary algorithms will determine where a given service professional appears within searchrelated results.
Revenue
OurANGI Homeservices revenue is primarily derived fromfrom: (i) consumer connection revenue, which areconsists of fees paid by MarketplaceHomeAdvisor service professionals for consumer matches (regardless of whether the service professional ultimately provides the requested service), and booking fees from completed jobs sourced through the Handy platform, and (ii) membership subscription fees paid by HomeAdvisor service professionals. Fees paid by Marketplace service professionals for consumer matches varyConsumer connection revenue varies based upon several factors, including the service requested, type of match (such as Instant Booking, Instant Connect, Same Day Service or Next Day Service)product experience offered and geographic location of service. Our consumer connection revenue is generated and recognized when a consumer match is delivered to a Marketplace service professional. Membership subscription revenue is generated through subscription sales to Marketplace service professionals and is deferred and recognized over the term (primarily one year) of the applicable membership.
Revenue is also derived from the salefrom: (i) sales of time-based advertising to certified service professionals listed in the Angie’s List nationwide directory and membership subscription fees from consumers for premium membership packages. Service professionals generally pay for advertisements in advance on a monthly or annual basis, at their option, with the average advertising contract term being approximately one year. Advertising contracts generally include an early termination penalty. Revenue from the sale of website, mobile and call center advertising is recognized ratably over the time period in which the advertisements run. Revenue from the sale of advertising in the Angie’s List Magazine is recognized in the period in which the publication, containing the advertisement is publishedto service professionals and distributed. Angie's List prepaid(ii) membership subscription fees are recognized as revenue ratably over the term of the associated subscription, which is typically one year.
from consumers.
Marketing
We market our variousANGI Homeservices products and services are marketed to consumers primarily through digital marketing (primarily paid search engine marketing, display advertising and third partythird-party affiliate agreements) and traditional offline marketing (national television and radio campaigns), as well as through email.e-mail. Pursuant to third partythird-party affiliate agreements, third parties agree to advertise and promote MarketplaceHomeAdvisor products and services and(and those of MarketplaceHomeAdvisor service professionalsprofessionals) on their platforms. In exchange for these efforts, we agree to pay these third parties are paid a fixed fee when visitors from their platforms click through to one of our platforms and submit a valid service request through the Marketplace,HomeAdvisor, or when visitors submit a valid service request on the affiliate platform and the affiliate transmits the service request to the Marketplace. We also market ourHomeAdvisor. ANGI Homeservices products and services are also marketed to consumers through relationships with select third-party retail partners and, to a lesser extent, through partnerships with other contextually related websites and, to a lesser extent, through relationships with certain retailers and direct mail.
We market subscription packages and related products and services to service professionals primarily through our Golden, Colorado based sales force, as well as through sales forces in Denver and Colorado Springs, Colorado, Lenexa, Kansas, New York, New York, Indianapolis, Indiana and Indianapolis, Indiana.Chicago, Illinois. We also market these products and services, together with our various directories, through paid search engine marketing, digital media advertising and direct relationships with trade associations and manufacturers. We market term-based advertising and related products to service professionals primarily through our Indianapolis based sales force.
Competition
Competition
The home services industry is highly competitive and fragmented, and in many important respects, local in nature. We competeANGI Homeservices competes with, among others: (i) search engines and online directories, (ii) home and/or local services-related lead generation platforms, (iii) providers of consumer ratings, reviews and referrals and (iv) various forms of traditional offline advertising (primarily local in nature), including radio, direct marketing campaigns, yellow pages, newspapers and other offline directories. We also compete with local and national retailers of home improvement products that offer or promote installation services. We believe our biggest competition comes from the traditional methods most people currently use to find service professionals, which is by word-of-mouth and through referrals.
We believe that our ability to compete successfully will depend primarily upon the following factors:
the size, quality, diversity and stability of our network of Marketplace service professionals and the breadth of our online directory listings;
the functionality of our websites and mobile applications and the attractiveness of their features and our products and services generally to consumers and service professionals, as well as our continued ability to introduce new products and services that resonate with consumers and service professionals generally;
our ability to continue to build and maintain awareness of, and trust in and loyalty to, our various brands, particularly our Angie’s List, HomeAdvisor and HomeAdvisorHandy brands;
our ability to consistently generate service requests and jobs through the Marketplace and leads through our online directories that convert into revenue for our service professionals in a cost-effective manner; and
the quality and consistency of our service professional pre-screening processes and ongoing quality control efforts, as well as the reliability, depth and timeliness of customer ratings and reviews.
VideoVimeo
Overview
Our Video segment consists primarily of Vimeo, Electus, IAC Films and Daily Burn.
Vimeo
Services.Vimeo operates a global video sharing platform for creatorscreative professionals, marketers and enterprises to connect with their audiences. Throughaudiences, customers and employees. Vimeo we provide creators with professional toolsprovides cloud-based software products to stream, host, manage, review, distribute and monetize videos online and across devices, as well as provide audiences withpremium video tools on a high quality, ad-free viewing experience across devices.subscription basis. Vimeo also sells live streaming accessories.
We offerPlatform
Through Vimeo’s Platform business, we provide basic video hosting and sharing servicescapabilities free of charge. For certain fees, we offerWe also provide various packages of premium video tools via a Software-as-a-Service ("SaaS") model on a subscription basis (monthly or annual). Package capabilities for creators, including:may include additional video storage space, advancedand high quality live streaming capabilities, robust video privacy controls, video player customization options, team collaboration and management tools, review and workflow tools, detailed analytics, lead generation premiumand marketing tools, priority support and the ability to sell videos (on a subscription or transactional basis) directly to consumers in a customized viewing experience.experience, with the precise mix of capabilities dependent upon the tier of package purchased. As of December 31, 2017,2018, there were approximately 873,000952,000 subscribers to Vimeo'sVimeo’s SaaS offering.
Vimeo also operates two marketplaces for buying and selling videos, the Vimeo on Demand store and the Vimeo Stock store. Through the Vimeo on Demand store, subscribers may offer their videos for sale to their audiences. Through the Vimeo Stock store, Vimeo offers stock video tools, and forfootage from certain licensors. In both cases, Vimeo earns fees from the quarter ended December 31, 2017, Vimeo reached over 260 million unique users worldwide.sale of video content.
We also provide creators with professional live streaming capabilities directly through Vimeo, as well as through Livestream, a leading live video solution that we acquired in October 2017. Hardware
Through Livestream, we also provide creators with productionsell a number of live streaming accessories, including hardware tools and servicesdevices for capturing, broadcasting and editing live events, including: (i) ourvideo and the Mevo® camera, a pocket-sized live event cameradevice that allows creatorsbroadcasters to professionally stream and edit live video. We also sell hardware equipment for customers with more sophisticated live
streaming needs, such as 4K encoding, multi-camera switching and on-screen graphics. Our hardware devices enable customers to stream video live asof their events unfold,through Vimeo software, as well as stream their events live to multiple destinations, including otherthird-party platforms simultaneously. Subscribers to our SaaS offering can host, distribute and monetize live streamingvideo edited with these hardware devices through Vimeo platforms.
Marketing and social media platforms, (ii) live editing software for desktop, laptops and certain other devices that provides creators with live production control room-like features and (iii) professional services to assist creators with the planning, set up, production and management of live events.Sales
Marketing.We market Vimeo’sVimeo services primarily through online marketing efforts, including paid search engine marketing, social media, e-mail campaigns, display advertising and affiliate marketing. We also market these products and services through offline marketing efforts, including outdoor advertising, offline events and product integrations, as well as directly through our ownedself-serve websites and operated websiteapps. Vimeo services and mobile applications.products can be purchased directly through our self-serve websites and apps, the Apple App Store and Google Play Store and our sales force, and in the case of livestreaming accessories only, through a network of retailers and distributors.
Revenue
Revenue.Vimeo revenue is derived primarily from annual and monthly SaaS subscription fees paid by creators for premium capabilities and, to a lesser extent, sales of live streaming hardware, software and professional services.
Competition.Competition
Vimeo competes with a variety of online video providers,platforms, from general purposefree, ad-based video sharing sites forservices directed at consumers and creators to niche workflow and distribution solutions fordirected at professionals and enterprises. We believe that Vimeo differentiates itself from its competitors by offering a customizable, high definition video player, proprietary uploading and encoding infrastructure, aproviding an ad-free, high quality ad-free viewinguser experience and a turnkeyone-stop professional solution for the production, distributionthat is easy to use and monetization of video content.affordable.
We believe that our ability to compete successfully will depend primarily on:upon the following factors:
the quality of our technology platform, premium offerings, live streamingvideo tools and services and user (creator and viewer) experience;
whether our premium offeringsSaaS subscription offering and live streaming tools and servicesaccessories resonate with creators;consumers;
the continued ability of creatorsusers to distribute Vimeo-hosted content across third partythird-party platforms and the prominence and visibility of such content within search engine results and social media platforms;
the recognition and strength of the Vimeo brand relative to those of competitor brands;
our competitors;ability to host and stream high-bandwidth video on a scalable platform;
our ability to retain existing subscribers by continuing to provide a compelling value proposition and convert non-paying users into subscribers; and
our ability to drive new subscribersvisitors to our platform through various forms of direct marketing.
Services. Through Electus, we provide production Dotdash
Overview
Built upon more than 20 years of data and producer services for both unscriptedexpert-written content, Dotdash is a portfolio of digital brands providing expert information and scripted television and digitalinspiration in select vertical content primarily for initial sale and distribution in the United States. Our content is distributed on a wide range ofcategories to over 90 million users each month.
Content
platforms, including broadcast television, premium and basic cable television, subscription-based and ad-supported video-on-demand services and other outlets. We also sell and distribute Electus programming and other content, together with programming and other content developed by third parties, outsideAs of the United States through Electus International, as well as work with various brands to integrate their products into, as well as sponsor, Electus content throughdate of this report, our Content Marketing team.
In addition, we operate Electus Digital, which consistsDotdash business consist of the following brands:
the Verywell family of brands, a leading online health publisher and resource where users can explore a full spectrum of health and wellness topics, from comprehensive information on medical conditions to advice on fitness, nutrition, mental health, pregnancy and more;
the Spruce family of brands, a leading online lifestyle property covering home decor, home repair, recipes, cooking techniques, pets and crafts where users can find practical, real-life tips and inspiration to help them create their best home;
the Balance family of brands, a leading online property covering personal finance, career and small business topics that makes personal finance easy to understand and where users can find clear, practical and straightforward personal financial advice;
Investopedia, an online resource for investment and personal finance education and information;
Lifewire, a leading online technology information property that provides expert-created, real-world technology content with informative visuals and straightforward instruction that helps users fix tech gadgets, learn how to perform specific tech tasks and find the best tech products;
TripSavvy, a travel website written by real experts (not anonymous reviewers) where users can find useful travel advice and inspiration from destinations around the world;
ThoughtCo, a leading online information and reference site with a focus on expert-created education content where users can find answers to questions and information regarding a broad range of disciplines, including science, technology and math, the humanities and the arts, music and recreation; and
two recently acquired websites, Byrdie, a leading beauty website covering beauty tips, style, product reviews and properties: CollegeHumor.com, Dorkly.commakeup trends, and Drawfee.com; YouTube channels WatchLOUD, NuevonMyDomaine, a lifestyle website where users can find fresh recipes, smart career tips and Hungry;insider travel guides that awaken a life well lived.
Through these brands, we provide original and Big Breakfast (a production company). The various brands and businesses within Electus Digital specializeengaging digital content in creating and distributing content for digital and television platforms across a variety of genres, as well as provide brandedformats, including articles, illustrations, videos and third party creative production services. Through Electus,images. We work with hundreds of experts in their respective fields to create the content that we also operate Notional.publish, including doctors, chefs, certified financial advisors and others.
Revenue. ElectusRevenue
Dotdash revenue consists principally of digital advertising revenue and affiliate commerce commission revenue. Digital advertising revenue is derivedgenerated primarily from media productionthrough digital display advertisements sold directly and distribution and display advertising.through programmatic advertising networks. Affiliate commerce commission revenue is generated when Dotdash refers users to commerce partner websites resulting in a purchase or transaction.
Marketing
Marketing.We do not engage in any formal marketing efforts in the case of our production and producer services, instead relying on referrals and the quality of our services and projects. For content distribution, we rely on our sales force, referrals and the quality of our services and projects, and for international distribution only, attendance at industry trade shows. In addition, the platforms to which we license our content for distribution market our content through their own independent marketing efforts. Electus Digital attractsa variety of digital distribution channels, including search engines, social media platforms and direct navigation programs. Users who engage with Dotdash brands are invited to share Dotdash content and sign up for our e-mail newsletters.
Competition
Dotdash competes with a wide variety of parties in connection with our efforts to attract and retain users and audienceadvertisers. Competitors primarily throughinclude other online publishers and destination websites with brands in similar vertical content categories and social media, search enginechannels.
Some of our current competitors have longer operating histories, greater brand recognition, larger user bases and/or greater financial, technical or marketing resources than we do. As a result, they have the ability to devote comparatively greater resources to the development and affiliate agreements.promotion of their content, which could result in greater market acceptance of their content relative to our content.
Competition. We compete with entertainment studios, production companies, distribution companies, creative agencies and content websites. We believe that ourthe ability of Dotdash to compete successfully will depend primarily upon the following factors:
the quality and diversity of our content relative to that of our competitors and the third parties to whom we license our content, as well as the quality of the services provided by licensees ofcontent and features on our content;
our continued ability to create new content that resonates with licensees and viewers; and
our ability to sell integration and sponsorship opportunities for our content.
IAC Films
Services. IAC Films provides production and producer services for feature films (primarily for initial sale and distribution in the United States and internationally). Our content is distributed through theatrical releases and video-on-demand services.
Revenue. IAC Films revenue is derived primarily from media production and distribution.
Marketing. We pay third parties to market our films to consumers through traditional offline marketing (national television and radio campaigns), trailers in theaters and digital marketing (primarily paid marketing through search engine and social media platforms), and to a lesser extent through viral marketing and paid advertisement in print media.
Competition. We compete with major studios, independent motion picture companies, distribution companies and digital media platforms. We believe that our ability to compete successfully will depend primarily upon the following factors:
the quality and diversity of our filmswebsites, relative to those of our competitors;
our continued ability to retainsuccessfully create or acquire content (or the servicesrights thereto) in a cost-effective manner;
the relevance and authority of quality actors, directors, producers and other creative and technical personnel, as well as production financing;the content featured on our websites; and
our continued ability to create new films that resonate with viewers and distribute themsuccessfully drive visitors to our portfolio of digital brands in a broad viewing audience through theaters and video-on-demand channels.cost-effective manner.
Daily Burn
Services. Daily Burn is a health and fitness property that provides streaming fitness and workout videos across a variety of platforms, including iOS, Android, Roku and other Internet-enabled television platforms, as well as audio workouts downloadable to iOS and Android devices for workouts on the go.
Revenue. Daily Burn’s revenue consists primarily of subscription fees.
Marketing. We market our streaming fitness and workout videos primarily through television advertising, advertising on ad-supported video-on-demand services and content platforms and search engine marketing.
Competition. The fitness and workout market is highly competitive and barriers to entry, particularly in the case of online platforms, are minimal. We compete primarily with other streaming fitness and workout platforms and, to a lesser extent, fitness and workout DVDs.
Applications
Overview
Our Applications segment consists of:
Consumer, which developsof our Desktop business and distributes downloadableMosaic Group, our mobile business. Through these businesses, we are a leading provider of global, advertising-driven desktop and subscription-based mobile applications and includes Apalon, which houses our mobile applications, and SlimWare; andapplications.
Partnerships, which includes our business-to-business partnership operations.
ConsumerDesktop
Through our ConsumerDesktop business, we develop, marketown and distributeoperate a varietyportfolio of applications, primarilydesktop browser extensions, which consist of a browser tab page and related technology that together enable users to run search queries directly from their new tab page and web browsers. Many of our browser extensions are coupled with other applications that we have developed that provide users with access to various formsa wide variety of online content, tools and software capabilities. These applications include:services. Aligned around the common theme of making the lives of our users easier in just a few clicks, these products span a myriad of categories, including: FromDoctoPDFFromDocToPDF, through which users can convert documents from one format into various others and share them across multiple platforms;others; MapsGalaxy, through which users can access accurate street maps, local traffic conditions and aerial and satellite street views; and WeatherBlinkGetFormsOnline,, through which users can access local weather conditionsessential forms (tax, healthcare, travel and satellite radar maps directly from their web browsers. Other applications target users with a special or passionate interest in select vertical categories (such as recipes, entertainment and astrology, among others) ormore) online. We provide users who download our desktop browser applications with particular reference information or access to specific capabilities (suchnew tab search services, as internet speed, online forms and package tracking, among others).well as the option of default browser search services. We distribute theseour desktop browser applications directly to consumers free of charge.charge on an opt-in basis directly through direct to consumer (primarily the Chrome Web Store) and partnership distribution channels.
The Consumer businessWe also includes: (i)develop, distribute and provide a suite of Slimware-branded desktop-support software and services, including: DriverUpdate®, which scans, identifies and completes required updates to device-to-PC communicating drivers; SlimCleaner® software, which cleans, updates, secures and optimizes computer operating systems; and Slimware® Premium Support, a subscription service that provides subscribers with 24/7 access to remote tech support for their computers, mobile phones and other digital devices.
Mosaic Group
Through Mosaic Group, we are a leading provider of global subscription mobile applications. Mosaic Group consists of the following businesses that we own and operate: Apalon, iTranslate (acquired in March 2018), TelTech (acquired in October 2018) and Daily Burn.
Apalon is a leading mobile development company with one of the largest and most popular application portfolios worldwide. iTranslate develops and distributes applications that enable users to read, write, speak and learn foreign languages anywhere in the world. TelTech develops and distributes unique and innovative mobile communications applications that help protect consumer privacy. Daily Burn is a health and fitness property that provides streaming fitness and workout videos across a variety of platforms (including iOS, Android, Roku and other Internet-enabled television platforms).
Through Mosaic Group, collectively, we operated 39 branded mobile applications worldwidein 28 languages across 173 countries as of the date of this report. Our branded mobile applications consist of applications spanning a variety of categories, each designed to meet the varying and (ii) SlimWare, a providerunique needs of community-powered softwareour subscribers and services that clean, repair, update, secureenhance their daily lives, including: iTranslate, through which subscribers can connect and optimize computers,communicate across over 100 languages; Robokiller, which thwarts telemarketing spam phones calls; and NOAA Radar, which provides up-to-date weather information and storm tracking worldwide. We distribute our branded mobile phones and digital devices.
Partnerships
Through our Partnerships business, we work closely with partners in the software, media and other industries to design and develop customized browser-based search applications to be bundledour subscribers primarily through the Apple App and distributed with these partners’ products and services.Google Play stores.
Revenue
Substantially all of the Applications segment'sDesktop revenue largely consists of advertising revenue generated principally through the display of paid listings in response to search queries. Paid listings are advertisements displayed on search results pages that generally contain a link to advertiser websites. Paid listings are generally displayed based on keywords selected by advertisers. The substantial majority of the paid listings displayed by our Applications businesses areDesktop business is supplied to us by Google Inc. ("Google") in the manner provided by and pursuant to aour services agreement with Google, which expires on March 31, 2020. The Company may choose to terminate this agreement effective March 31, 2019.Google.
Pursuant to this agreement, those of our ApplicationsDesktop businesses that provide search services transmit search queries to Google, which in turn transmits a set of relevant and responsive paid listings back to these businesses for display in search results. This ad-serving process occurs independently of, but concurrently with, the generation of algorithmic search results for the same search queries. Google paid listings are displayed separately from algorithmic search results and are identified as sponsored listings on search results pages. Paid listings are priced on a price per click basis and when a user submits a search query through one of our ApplicationsDesktop businesses and then clicks on a Google paid listing displayed in response to the query, Google bills the advertiser that purchased the paid listing directly and shares a portion of the fee charged to the advertiser with us. We recognize paid listing revenue from Google when it delivers the user's click. In cases where the user’s click is generated due to the efforts of a third party distributor, we recognize the amount due from Google as revenue and record a revenue share or other payment obligation to the third party distributor as traffic acquisition costs. See “Item"Item 1A-Risk Factors-We depend upon arrangements with Google and any adverse change in this relationship could adversely affect our business, financial condition and results of operations.”Google."
To a significantly lesser extent, the Applications segment'sDesktop revenue also includes fees related to subscription downloadable desktop applications, as well as display advertisements.
Mosaic Group revenue consists primarily of fees related to subscription downloadable mobile applications distributed through the Apple App and services, fees related to paid mobile downloadable applications andGoogle Play stores, as well as display advertisements.
CompetitionMarketing
We market our Desktop applications to users primarily through digital display advertisements and paid search engine marketing efforts, as well as through a number of affiliate advertisers who engage in these efforts on our behalf. We market our mobile applications to users primarily through digital storefronts (primarily Apple App and Google Play stores) and digital display advertisements on social media, messaging and media platforms, as well as in-app and cross-app advertising.
Competition
The Applications industry is competitive and has no single, dominant desktop or mobile application brand globally. In the case of our Desktop business, we compete with a wide varietynumber of parties in connection with our efforts toother companies that develop and market similar desktop browser application products and distribute applicationsthem through direct to consumer and related technology directly and through third parties. Competitors of our Applications businesses include Google, Yahoo!, Bing and other third party browser extension, conveniencethird-party agreements. We also compete with search and desktop and mobile applications providers, as well as otherengines to provide users with new tab, homepage and/or default search technology and convenience service providers.
Moreover, some of the current and potential competitors of our Applications businesses have longer operating histories, greater brand recognition, larger customer bases and/or significantly greater financial, technical and marketing resources than we do. As a result, they have the ability to devote comparatively greater resources to the development and promotion of their products and services, which could result in greater market acceptance of their products and services relative to those offered by us.
services. We believe that the ability of our Applications businessesDesktop business to compete successfully will depend primarily upon the following factors:
our ability to maintain industry-leading monetization solutions for our desktop browser applications in response to technological changes and platform demands;
the size and stability of our global base of installed desktop application products and our ability to grow this base;
the continued ability to:
createcreation of desktop browser extensions and other applications that resonate with consumers, (which requires that we continuewhich depends upon our continued ability to bundle attractive features, content and services some(some of which may be owned by third parties, with quality search services)parties);
maintain industry-leading monetization solutions for our applications;
ability to differentiate our desktop browser extensions and other applications from those of our competitors (primarily through providing customized browser tab pages and access to multiple search and other services through our browser extensions);
secure cost-effective distribution arrangements with third parties;competitors; and
our ability to market and distribute our desktop browser extensionsapplications through direct to consumer (primarily the Chrome Web Store) and other applications directly to consumersthird-party channels in a cost-effective manner.
In the case of Mosaic Group, we compete with many mobile application companies that provide similar free and paid mobile application products. Our competition also comes from services provided by non-mobile, analog and disparate sources, along with certain digital companies whose competitive products are ancillary or immaterial to their primary sources of revenue. We believe that the ability of Mosaic Group to compete successfully will depend primarily upon the following factors:
the continued growth of consumer adoption of free and paid mobile applications generally and related engagement levels;
our ability to operate our mobile applications as a scalable platform;
our ability to retain existing subscribers and acquire new subscribers in a cost-effective manner;
our ability to continue to optimize our marketing and monetization strategies;
the continued growth of smartphone adoption in certain regions of the world, particularly emerging markets;
the continued strength of Mosaic Group brands; and
our ability to introduce new and enhanced mobile applications in response to competitor offerings, consumer preferences, platform demands, social trends and evolving technological landscape.
PublishingEmerging & Other
Overview
Our Publishing segment consists of:
our Premium Brands business, which includes Dotdash (formerly About.com), Dictionary.com, Investopedia and The Daily Beast; and
our AskEmerging & Other business, whichsegment primarily includes includes:
Ask Media Group, CityGrid and, for periods prior to its sale on June 30, 2016, ASKfm.
Our Publishing businesses publish digital content and/or providea collection of websites providing general search services to users. Those of our Publishing businessesand information;
BlueCrew, an on-demand staffing platform that publish digital content (our Premium Brands) generate such content through various sources, including, for example, through a combination of internalconnects temporary workers with traditional blue-collar jobs in areas like warehouse, delivery and independent freelance subject matter "experts" in the case of Dotdashmoving, data entry and internal editorial staff in the case of The Daily Beast, and/or acquire such content (or the rights to publish such content) from third parties. Those of our Publishing businesses that provide search services generally generate and display of a set of algorithmic search results, or hyperlinks to websites deemed relevant to search queries entered by users. In addition to these algorithmic search results, paid listings are also generally displayed in response to search queries. The paid listings displayed by our Publishing businesses are supplied to us by Google in the manner provided by and pursuant to our services agreement with Google, which is described above.
Premium Brands
Our Premium Brands business primarily consists of the following businesses:
Dotdash, which operates a network of digital brands that provide reliable information and inspiration in select vertical categories, including The Spruce (Home), The Balance (Money), Verywell (Health), Lifewire (Tech), TripSavvy (Travel) and ThoughtCo (Lifelong Learning);
Dictionary.com, which primarily provides online and mobile dictionary, thesaurus and reference services;
Investopedia, a resource for investment and personal finance education and information, as well as online courses through Investopedia Academy for a fee; andcustomer service;
The Daily Beast, a website dedicated to news, commentary, culture and entertainment that curatespublishes original reporting and publishes existing and original online contentopinion from its own roster of contributorsfull-time journalists and contributors;
College Humor Media, a provider of digital content, including its recently launched subscription only property, Dropout.tv; and
IAC Films, a provider of production and producer services for feature films, primarily for initial sale and distribution through theatrical releases and video-on-demand services in the United States.States and internationally.
Ask & OtherFor information regarding businesses that were included in this segment prior to their respective sales, see "Item 8-Consolidated Financial Statements and Supplementary Data-Note 1-Organization."
Our Ask & Other business consists primarily of:Revenue
Revenue of Ask Media Group a collection of websites (including Ask.com) that provide general search services and information; and
CityGrid, an advertising network that integrates local content and advertising for distribution to affiliated and third party publishers across web and mobile platforms.
Revenue
The Publishing segment's revenue consists principally of advertising revenue, which is generated primarily through the display of paid listings in response to search queries and display advertisements (sold directly and through programmatic ad sales) and fees related to paid mobile downloadable applications.. The substantial majority of the paid listings that our Publishing businesses displaydisplayed are supplied to us by Google in the manner, provided by and pursuant to ourthe services agreement with Google, described above under "-Applications-Revenue."
The Daily Beast revenue consists of advertising revenue, which is described above.
Competition
We compete with a wide variety of parties in connection with our efforts to attractgenerated primarily through display advertisements (sold directly and retain users and advertisers to our Publishing businesses.
In terms of publishing digital content, our competitors include destination websites that primarily acquire traffic through paid and algorithmic search results in relevant vertical categories and social channels. In terms of providing search services, generally our competitors include Google, Yahoo!, Bing and other destination search websites and search-centric portals (some of which provide a broad range of content and services and/or link to various desktop applications)programmatic ad sales).
Moreover, someBlueCrew revenue consists of the currentservice revenue, which is generated through staffing temporary workers.
Revenue of College Humor Media and potential competitors of our Publishing businesses have longer operating histories, greater brand recognition, larger customer bases and/or significantly greater financial, technicalIAC Films is generated primarily through media production and marketing resources than we do. As a result, they have the ability to devote comparatively greater resources to the developmentdistribution and promotion of their products and services, which could result in greater market acceptance of their products and services relative to those offered by us.
We believe that the ability of our Publishing businesses to compete successfully will depend primarily upon:
the quality of the content and features on our various Publishing platforms (websites and mobile applications), and the attractiveness of the services provided by these platforms generally, relative to those of our competitors;
our ability to successfully generate and acquire content (or the rights thereto) in a cost-effective manner;
the relevance and authority of the content and search results featured on our various Publishing platforms; and
our ability to successfully market the content and search services offered by our Publishing businesses in a cost-effective manner.
Other
Our Other segment consisted of The Princeton Review, which provided a variety of educational test preparation, academic tutoring and college counseling services, ShoeBuy, an Internet retailer of footwear and related apparel and accessories, and PriceRunner, a shopping comparison website. The Princeton Review, ShoeBuy and PriceRunner were sold in March 2017, December 2016 and March 2016, respectively.advertising.
Employees
As of December 31, 2017,2018, IAC had approximately 7,800 employees worldwide, the substantial majority of which provided services to our brands and its subsidiaries employed approximately 7,000 employees.business located in the United States. We believe that we generally have good relationships with our employees.
Additional Information
Company Website and Public Filings.Filings
The Company maintains a website at www.iac.com. Neither the information on the Company’s website, nor the information on the website of any IAC business, is incorporated by reference into this annual report, or into any other filings with, or into any other information furnished or submitted to, the SEC.
The Company makes available, free of charge through its website, its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K (including related amendments) as soon as reasonably practicable after they have been electronically filed with (or furnished to) the SEC.
Code of Ethics.Ethics
The Company’s code of ethics applies to all employees (including IAC’s principal executive officers, principal financial officer and principal accounting officer) and directors and is posted on the Investor Relations section of the Company's website at www.iac.com/Investors under the "Code of Ethics" tab. This code of ethics complies with Item 406 of SEC Regulation S-K and the rules of The Nasdaq Stock Market LLC. Any changes to the code of ethics that affect the provisions required by Item 406 of Regulation S-K and(and any waivers of such provisions of the code of ethics for IAC’s executive officers, senior financial officers or directors,directors) will also be disclosed on IAC’s website.
Item 1A. Risk Factors
Cautionary Statement Regarding Forward-Looking Information
This annual report on Form 10-K contains “forward‑"forward‑looking statements”statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The use of words such as “anticipates,” “estimates,” “expects,” “plans”"anticipates," "estimates," "expects," "plans" and “believes,”"believes," among others, generally identify forward-looking statements. These forward-looking statements include, among others, statements relating to: IAC’s future financial performance, IAC’s business prospects and strategy, anticipated trends and prospects in the industries in which IAC’s businesses operate and other similar matters. These forward-looking statements are based on IAC management's expectations and assumptions about future events as of the date of this annual 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, the risk factors set forth below. Other unknown or unpredictable factors that could also adversely affect IAC’s business, financial condition and results of operations may arise from time to time. In light of these risks and uncertainties, the forward‑looking statements discussed in this annual 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 IAC management as of the date of this annual report. IAC does not undertake to update these forward‑looking statements.
Risk Factors
Our success depends, in substantial part, on our continued ability to market, distribute and monetize our products and services through search engines, social media platforms and digital app stores.
The marketing, distribution and monetization of our products and services depends on our ability to cultivate and maintain cost-effective and otherwise satisfactory relationships with search engines, social media platforms and digital app stores, in particular, those operated by Google, Facebook and Apple. These platforms could decide not to market and distribute some or all of our products and services, change their terms and conditions of use at any time (and without notice), favor their own products and services over ours and/or significantly increase their fees. While we expect to maintain cost-effective and otherwise satisfactory relationships with these platforms, no assurances can be provided that we will be able to do so and our inability to do so in the case of one or more of these platforms could have a material adverse effect on our business, financial condition and results of operations. The risk factors below discuss these risks
In particular, as consumers increasingly access our products and services through mobile applications, we (primarily in the case of our dating and Mosaic Group businesses) increasingly depend upon the Apple App Store and the Google Play Store to distribute our mobile applications. Both Apple and Google have broad discretion to change their respective terms and conditions applicable to the distribution of our mobile applications, including those relating to the amount of (and requirement to pay) certain fees associated with purchases facilitated by Apple and Google through our mobile applications, to interpret their respective terms and conditions in ways that may limit, eliminate or otherwise interfere with our ability to distribute mobile applications through their stores, the features we provide and the manner in which we market in-app products. We cannot assure you that Apple or Google will not limit, eliminate or otherwise interfere with the distribution of our mobile applications, the features we provide and the manner in which we market our in-app products. To the extent either or both of them do so, our business, financial condition and results of operations could be adversely affected.
In addition, the use of certain of our businessesproducts and services also depends, in greater detail.part, on social media platforms. For example, many users of Match Group’s Tinder, Hinge and certain other dating products historically registered for (and logged into) these dating products exclusively through their Facebook profiles. While Match Group launched an alternate authentication method that allows users to register for (and log into) Tinder, Hinge and other affected products using their mobile phone number, no assurances can be provided that users will no longer register for (and log into) Tinder, Hinge and other affected products through their Facebook profiles. Facebook has broad discretion to change its terms and conditions applicable to the data collected by its platform (and the use of such data) and to interpret its terms and conditions in ways that could limit, eliminate or otherwise interfere with our ability to use Facebook as an authentication method or to allow Facebook to use such data to gain a competitive advantage. If any such event were to occur, our, business, financial condition and results of operations could be adversely affected.
Our success depends, in part, upon the continued migration of certain markets and industries online and the continued growth and acceptance of online products and services as effective alternatives to traditional offline products and services.
Through our various businesses, we provide a variety of online products and services that continue to compete with their traditional offline counterparts. We believe that the continued growth and acceptance of online products and services generally will depend, to a large extent, on the continued growth in commercial use of the Internet (particularly abroad) and the continued migration of traditional offline markets and industries online.
For example, the success of the businesses within our Match Group segment depends, in substantial part, on the continued migration of the dating market online. We believe this migration will be driven, in substantial part, by the continued proliferation of mobile devices worldwide, which continues to expand the ways in which people can interact and build relationships, and increasing social acceptance and adoption of online, dating products generally. The success of these businesses will also depend, in part, on our ability to continue to provide dating products that users find more efficient, effective, comfortable and convenient relative to traditional means of meeting people. The failurepeople and the continued erosion of stigma surrounding online dating (particularly in emerging markets and other parts of the world). If for any reason the dating market does not continue to migrate online as quickly as (or at lower levels than) we expect and/or a meaningful number of users todo not embrace our dating products and/(and/or the return of a meaningful number of users to offline dating products and services could adversely affect the businesses within our Match Group segment, and in turn,services), our business, financial condition and results of operations.
operations could be adversely affected.
Similarly, the success of the businesses within our ANGI Homeservices segment depends, in substantial part, on the continued migration of the home services market online. We believe that the digital penetration ofIf for any reason the home services market remains low, with the vast majority of consumers continuing to search for, selectdoes not migrate online as quickly as (or at lower levels than) we expect and hire service professionals offline. While many consumer demographics have historically been (and remain) averse to finding service professionals online, others have demonstrated a greater willingness to embrace the online shift (for example, millennials). Service professionals must also embrace the online shift, which will depend, in substantial part, on whether online products and services help them to better connect and engage with consumers relative to traditional offline efforts. The speed and ultimate outcome of the shift of the home services market online for consumers and service professionals is uncertain and may not occur as quickly as we expect or at all. The failure or delay of a meaningful number of consumers and/or service professionalscontinue, in large part, to migrate online and/or the return of a meaningful number of existing participants in the online home services marketrely on traditional offline efforts to offline markets could adversely
affect the businesses within our ANGI Homeservices segment, and in turn,connect with one another, our business, financial condition and results of operations.operations could be adversely affected.
Lastly, as it relates to our advertising-supported businesses, our success also depends, in part, on our ability to compete for a share of available advertising expenditures as more traditional offline and emerging media companies continue to enter the online advertising market, as well as on the continued growth and acceptance of online advertising generally. In addition to the factors discussed above in the case of online products and services generally, we believe that the continued growth and acceptance ofIf for any reason online advertising generally will depend, in large part, on itsis not perceived effectivenessas effective (relative to traditional advertising) and the acceptance of related mobile and other advertising models (particularly in the case of mobile advertising), the extent to whichare not accepted, web browsers, software programs and/or other applications that limit or prevent advertising from being displayed become commonplace and the extent to whichand/or the industry is ablefails to effectively manage click fraud, the continuing and increasing problem of click fraud.market for online advertising will be negatively impacted. Any lack of growth in the market for online advertising (particularly for paid listings) and/or any decrease in the effectiveness and value of online advertising (whether due to changes in laws, changes in industry practices, the emergence of technologies that can block the display of advertisements across platforms or other developments) could adversely affect our business, financial condition and results of operations.
Our success depends, in part, on our continued ability to introduce new and enhanced products and services that resonate with consumers.
We may not be able to convert traffic to our various platforms into repeat users, nor increase user engagement levels, unless we continue to introduce new and enhanced products and services in response to evolving trends and technologies in the various markets in which we operate, as well as provide quality products and services that otherwise resonate with consumers.
Online products and services and related systems, technology and infrastructure, as well as the manner in which consumers access online products and services generally, have historically been, and are expected to continue to be, subject to rapid change and continuing evolution. We may not be able to adapt quickly enough or at all to online trends generally and/or trends in the various markets and industries in which we operate (including changes in the preferences and needs of our users and consumers generally), appropriately time the introduction of new and enhanced products and services and/or identify new business opportunities in a timely manner. Moreover, the evolving preferences and needs of our users and consumers could require timely and costly updates to our products and services and related systems, technology and infrastructure.
While the continued introduction of new and/or enhanced products and services is critical to our success, by definition, new products and services have limited operating histories, which could make it difficult for us to evaluate our then current business and future prospects. For example, through Match Group, we seek to tailor each of our dating brands and products to meet the preferences of specific user communities. Building a given dating brand or product is generally an iterative process that occurs over a meaningful period of time and involves considerable resources and expenditures. Although certain of our newer dating brands and products have experienced significant growth over relatively short periods of time, the historical growth rates of these dating brands and products may not be an indication of future growth rates for our newer dating brands and products generally. We have encountered, and may continue to encounter, risks and difficulties as we build new and/or enhanced products and services.
Lastly, new technologies and policies could interfere with our ability to offer our products and services. For example, third parties continue to introduce technologies (including new and enhanced web browsers and operating systems) that may limit or prevent consumers from installing certain types of applications and/or have features and policies that significantly lessen the likelihood that consumers will install our applications or that previously installed applications will remain in active use. Our failure to successfully modify our products and services in a cost-effective manner in response to the introduction and adoption of new technologies, features and policies and/or find alternative sources of revenue to support products and services that currently generate revenue through advertising, could adversely affect our business, financial condition and results of operations.
The failure to successfully address any of these risks could adversely affect our business, financial condition and results of operations.
Marketing efforts designed to drive trafficvisitors to our various brands and businesses may not be successful or cost-effective.
Traffic building and conversion initiatives involve considerable expenditures for online and offline advertising and marketing. We have made, and expect to continue to make, significant expenditures for search engine marketing (primarily in the form of the purchase of keywords, which we purchase primarily through Google and, to a lesser extent, Microsoft and Yahoo!), online display advertising and traditional offline advertising (including television and radio campaigns) in connection
with these initiatives, which may not be successful or cost-effective. Historically, we have had to increase advertising and marketing expenditures over time in order to attract and convert consumers, retain users and sustain our growth.
In the case of paid advertising generally, ourOur ability to market our brands on any given property or channel is subject to the policies of the relevant third partythird-party seller, publisher of advertising (including search engines and social media platforms)platforms with extraordinarily high levels of traffic and numbers of users) or marketing affiliate. As a result, a third party couldwe cannot assure you that these parties will not limit our ability to purchaseor prohibit us from purchasing certain types of advertising, and/or advertiseadvertising certain of our products and services which could affect our ability to compete effectively and, in turn, adversely affect our business, financial condition and results of operations. We cannot assure you that third parties will not limit and/or prohibitusing one or more of our businesses from using certain current or prospective marketing channels in the future. If a significant marketing channel were to imposetook such a limitation or prohibition on one of more of our businessesan action generally, for a significant period of time and/or on a recurring basis, our business, financial condition and results of operations could be adversely affected. In addition, if we fail to comply with the policies of third partythird-party sellers, publishers of advertising and/or marketing affiliates, our advertisements could be removed without notice and/or our accounts could be suspended or terminated, any of which could adversely affect our business, financial condition and results of operations.
In the case of our search engine marketing and optimization efforts,addition, our failure to respond successfully to rapid and frequent changes in the pricing and operating dynamics of search engines, as well as changing policies and guidelines applicable to keyword advertising (which may be unilaterally updated by search engines without advance notice), could adversely affect both our paid search engine marketing efforts and free search engine traffic. Such changes could adversely affect paid listings (both their placement and pricing), as well as the ranking of our brands and businesses within search results, any or all of which could increase our costs (particularly if free traffic is replaced with paid traffic) and adversely affect the effectiveness of our marketing efforts overall. Certain of our businesses engage in efforts similar to search engine optimization through Facebook and other social media platforms (for example, developing content designed to appear higher in a given Facebook News Feed and generate "likes") that involve challenges and risks similar to those we face in connection with our search engine marketing efforts.
Evolving consumer behavior (specifically, increased consumption of media through digital means) can also affect the availability of cost-effective marketing opportunities. For example, as traditional television viewership declines and media is increasingly consumed through various digital means, the reach of traditional advertising channels is contracting and the number of digital advertising channels is expanding. To continue to reach consumers, engage with users and continue to grow in this environment, we will need to identify and devote more of our overall marketing expenditures to newer digital advertising channels (such as online video and other digital platforms), as well as targeted consumertarget consumers and user campaignsusers via these channels. Generally, the opportunities in (and sophistication of)Since newer advertising channels are undeveloped and unproven relative to traditional channels which(such as television), it could make itbe difficult for us to assess returns on our related marketing investment in the caseinvestments, which could adversely affect our business, financial condition and results of these channels. In addition, as we increasingly depend on newer digital means for traffic, these efforts will involve challenges and risks similar to those we face in connection with our search engine marketing efforts.operations.
Lastly, we also enter into various arrangements with third parties in an effort to drive trafficvisitors to our various brands and businesses, which arrangements are generally more cost-effective than traditional marketing efforts. If we are unable to renew existing (and enter into new) arrangements of this nature, sales and marketing costs as a percentage of revenue would increase over the long-term.
Any failure to attract and acquire new (and retain existing) consumer traffic and users in a cost-effective mannerlong-term, which could adversely affect our business, financial condition and results of operations.
Certain In addition, the quality and convertibility of leads generated through third-party arrangements are dependent on many factors, most of which are outside our control. If the quality and/or convertibility of leads do not meet the expectations of the users of our various products and services, our business, financial condition and results of operations could be adversely affected.
Our brands and businesses operate in especially competitive industries and innovation by our competitors in these industries could adversely affect our business, financial condition and results of operations.
industries.
The datingindustries in which our brands and home services industriesbusinesses operate are competitive, with a consistent and growing stream of new products and entrants. Some of our competitors may enjoy better competitive positions in certain geographical areas, user demographics and/or with consumer demographicsother key areas that we currently serve or may serve in the future. In addition, someGenerally (and particularly in the case of our competitors, givendating business), we compete with social media platforms with access to large existing pools of potential users and their personal information, which means these platforms can drive visitors to their products and services, as well as use better tailor products and service to individual users, at little to no cost relative to our efforts. For example, our dating business competes with Facebook, which introduced a dating feature on its
platform that it is testing in certain markets and intends to roll out globally in the primary business in which they engage,near future. We also compete generally with search engine providers and online marketplaces that can market their products and services online in a more prominent and cost-effective manner than we can. Any of these advantages could enable our competitors to offer products and services that are more appealing to consumers than our products and services, and/or respond more quickly and/or cost effectively than we do to evolving market opportunities and trends. For example, search engine providers continue to expand their product and service offerings into non-search-related categories, including home services. Search engine providers can and maytrends and/or display their own integrated or related home services products and services in a more prominent manner than our products and services in search results. Thisresults, which could result in a substantial decrease in freeadversely affect our business, financial condition and paid traffic to the businesses within our ANGI Homeservices segment and, in turn, increased marketing expenditures (particularly if free traffic is replaced with paid traffic).
results of operations.
In addition, within the dating and home services industries, costs for consumers to switch among products and services are low or non-existent. And in the case of service providers, while they would lose amounts paid for Marketplace membership packagesnon-existent and advertising if they switched toconsumers generally have a competitor before the expiration of the related term, costs for switching over the long term are low. Low switching costs, coupled with the propensity of consumers to try new products and services generally, will most likely(and use multiple products and services simultaneously). As a result, inwe expect the continued emergence of new products and services, entrants and business models in the datingvarious industries in which our brands and home services industries.businesses operate. Our inability to compete effectively against current or future competitors and new products, services and services that may emergecompetitors could result in decreases in the size and levellevels of engagement of our various user, subscriber and service providermembership bases, which could have an adverse effect onadversely affect our business, financial condition and results of operations.
Our success depends, in part, on our ability to build, maintain and/or enhance our various brands.
Through our various businesses, we own and operate a number of widely known consumer brands with strong brand appeal and recognition within their respective markets and industries, as well as a number of emerging brands that we are in the process of building. We believe that our success depends, in large part, on our continued ability to maintain and enhance our established brands, as well as build awareness of (and loyalty to) our emerging brands. OurEvents that could adversely impact our brands and brand-building efforts could be negatively impacted by a number of factors, includinginclude (among others): product and service quality concerns, consumer complaints, actions brought by consumers, ineffective advertising, inappropriate and/or criminalunlawful actions taken by users, and related media coverage, actions taken by governmental or regulatory authorities, and data protection and security breaches. In addition, trust in the integritybreaches and objective, unbiased nature of the ratings and reviews found across our home services brands (particularly Angie’s List) contributes significantly to public perceptionrelated bad publicity. The occurrence or any of these brands and their ability to attract consumers and convert them into users. If consumers perceive that ratings and reviews are not authenticevents could, in general, the reputation and the strength of the relevant brand could be materially andturn, adversely affected. Moreover, the inability to develop and introduce products and services that resonate with consumers, adapt quickly enough (and/or in a cost effective manner) to evolving changes in the Internet and related technologies, applications and devices and market our products and services successfully (or in a cost-effective manner), could adversely affect our various brands and brand-building efforts, and in turn, our business, financial condition and results of operations.
Our success depends, in part, on our ability to develop and monetize versions of our products and services for mobile and other digital devices.
Our success depends, in part, on our ability to develop and monetize versions of our products and services for mobile and other digital devices. As consumers increasingly access our products and services through mobile and other digital devices (including through digital voice assistants), we will need to devote significant time and resources to ensure that our products and services are accessible across these platforms (and multiple platforms generally). Despite these efforts,If we maydo not be able to keep pace with evolving online, trends generally and/or trends in the various marketsmarket and industries in which we operateindustry trends (including changes in the preferences and needs of our users and consumers generally). Even if we do,, offer new and/or enhanced products and services we offer may notin response to such trends that resonate with consumers, and, in turn, not generate sufficient traffic to our various brands and businesses. Moreover, we may not be able to monetize products and services for mobile and other digital devices as effectively as we have been able to monetize our traditional products and services.services and/or maintain related systems, technology and infrastructure in an efficient and cost-effective manner, our business, financial condition and results of operations could be adversely affected.
In addition, the success of our mobile and other digital applications is dependentproducts and services depends on their interoperability with various third partythird-party operating systems, technology, infrastructure and standards, over which we have no control and anycontrol. Any changes to any of these things that compromise the quality or functionality of our mobile and digital applicationsproducts and services could adversely affect their usage levels and in turn,and/or our ability to attract consumers and advertisers. Our failure or inability to successfully respond to the general shift of consumers to mobile and other digital devicesadvertisers, which could adversely affect our business, financial condition and results of operations.
Lastly, as technology continues to evolve, products and services that we develop for mobile and other digital devices could require us to modify our related systems, technology and infrastructure. If these modifications are not done in an efficient and cost-effective manner, our products and services for mobile and other digital devices (and related systems, technology and infrastructure) could be rendered obsolete.
The distribution and use of our products and services depends, in part, on third parties.
We distribute our products and services through a variety of third party publishers and distribution channels. For example, as consumers increasingly access our products and services through mobile applications, we (primarily in the case of our dating business and Apalon, one of the businesses within our Applications segment) increasingly depend upon the Apple App Store and the Google Play Store to distribute our mobile applications. Both Apple and Google have broad discretion to change their respective terms and conditions applicable to the distribution of our mobile applications, including those relating to the amount
of (and requirement to pay) certain fees associated with purchases facilitated by Apple and Google through our mobile applications, and to interpret their respective terms and conditions in ways that may limit, eliminate or otherwise interfere with our ability to distribute mobile applications through their stores. We cannot assure you that Apple or Google will not limit. eliminate or otherwise interfere with the distribution of our mobile applications. If either or both of them did so, our business, financial condition and results of operations could be adversely affected.
The use of certain of our products and services also depends, in part, on third parties. For example, many users of Match Group's Tinder and certain other dating products currently register for (and log in to) these dating products exclusively through their Facebook profiles. While Match Group recently launched an alternate authentication method that allows users to register for (and log into) Tinder using their mobile phone number, no assurances can be provided that this method will be widely adopted by users. Facebook has broad discretion to change its terms and conditions applicable to the use of its platform and to interpret its terms and conditions in ways that could limit, eliminate or otherwise interfere with our ability to use Facebook as an authentication method and if Facebook did so and the alternate method described above is not widely adopted by users or becomes unavailable for any reason, Match Group’s, and in turn, our, business, financial condition and results of operations could be adversely affected.
Lastly, certain of the businesses within our Applications segment have entered into (and expect to continue to enter into) agreements to distribute search boxes, browser extensions and other applications to users through third parties. Most of these agreements are either non-exclusive and short-term in nature or, in the case of long‑term or exclusive agreements, are terminable by either party in certain specified circumstances. The inability of these businesses to enter into new (or renew existing) agreements to distribute search boxes, browser extensions and other applications through third parties for any reason would result in decreases in traffic to our variousOur brands and businesses queries and advertising revenue, which could have an adverse effect on our business, financial condition and results of operations.
Generalare sensitive to general economic events or trends, particularly those that adversely impact advertising spending levels and consumer confidence and spending behavior, could harm our business, financial condition and results of operations.behavior.
We have historically been, and will continue to be, particularly sensitive to events and trends that adversely impact advertising spending levels and consumer confidence and spending behavior. A significant portion of our consolidated revenue (and a substantial portion of our net cash from operations that we can freely access), is attributable to online advertising, primarily revenue from our Dotdash and Applications segments and Publishing segments.our Ask Media Group business. Accordingly, weevents and trends that result in decreased advertising expenditures and/or levels of consumer confidence and discretionary spending could adversely affect our business, financial condition and results of operations.
Similarly, the businesses within our ANGI Homeservices segment are particularly sensitive to events and trends that could result in decreased advertising expenditures. Advertising expenditures have historically been cyclical in nature, reflecting overall economic conditions and budgeting and buying patterns, as well as levels of consumer confidence and discretionary spending.
Similarly, some of our businesses (primarily those within our ANGI Homeservices segment) are particularly sensitive to events and trends that adversely impact consumer confidence and spending behavior. For example, in the event of a general economic downturn or sudden disruption in business conditions, consumer confidence, spending levels and access to credit could be adversely affected. The occurrence of any of these events or trends could result in consumers delaying or foregoing home services projects whichand/or service professionals being less likely to pay for Marketplace subscriptions and consumer matches. could result in decreases in Marketplace service requests and related fees paid by Marketplace service professionals for consumer matches, which could adversely affect our business, financial condition and results of operations.
In addition, because a significant number of service professionals across ANGI Homeservices brands are sole proprietorships and small businesses, they may be particularly impacted by events and trends that adversely impact consumer confidence, spending behavior and access to credit. If so, they may be less likely to pay for Marketplace membership and/or advertising, whichdirectory searches. Any such decreases could result in turnover at the Marketplace and/or any of our directories. Any significant and/or recurring turnover over a prolonged period coulddirectories, adversely impact the number and quality of service professionals inat the Marketplace and our directories as well as
and/or adversely impact the reach of (and breadthbreath of services offered through) the Marketplace and our directories, any or all of which could adversely affect our business, financial condition and results of operations
Lastly, we have historically been, and will continue to be, sensitive to events and trends that could result in a decreasedecreased marketing and advertising expenditures by service professionals. Adverse economic conditions and trends could result in traffic to ANGI Homeservices brandsservice professionals decreasing and/or delaying membership subscriptions, fees paid for consumer matches and/or time-based advertising spend, any or all of which would result in decreased revenue and businesses and increased costs, which could adversely affect our business, financial condition and results of operations.
In the recent past, adverse economic conditions have caused, and if such conditions wereOur ability to recur in the future they could cause, decreases and/or delays in advertising expenditures and discretionary spending by consumers and limited access to credit, which would reducecommunicate with our revenues and adversely affect our business, financial condition and results of operations.
Communicating with users and consumers via e-mail (or other sufficient means) is critical to our success and any erosion in our ability to communicate in this fashion that is not sufficiently replaced by other means could adversely affect our business, financial condition and results of operations.
Historically, one of our primary means of communicating withAs consumers and keeping our users engaged with our products and services has beenincreasingly communicate via e-mail communication. As consumer habits continue to evolve in the era of mobile and other digital devices and messaging and social media apps, usage of e-mail particularly(particularly among younger consumers,consumers) has declined and we expect this trend to continue. In addition, deliverability and other restrictions imposed by third party e-mail providers and/or applicable law could limit or prevent our ability to send e-mails to consumersusers and users.consumers. A continued and significant erosion in our ability to communicate successfully with consumers and users via e-mail could have an adverseadversely impact on the user experience, user engagement levels and the rate atconversion rates, which non‑paying users become paid subscribers. While we continually work to find new means of communicating and connecting with consumers and our users (for example, through push notifications), we cannot assure you that such alternative means of communication will be as effective as e-mail has been historically. Any failure to develop or take advantage of new means of communication and/or limitations on such means imposed by applicable law, mobile and digital device manufacturers or otherwise could adversely affect our business, financial condition and results of operations.
Each We cannot assure you that any means of our dating products monetizes users at different rates. If a meaningful migration of our user base from our higher monetizing dating products to our lower monetizing dating products were to occur, it could adversely affect our business, financial condition and results of operations.
Through Match Group, we own, operate and manage a large and diverse portfolio of dating products. Each dating productcommunication (for example, push notifications) will be as effective as e-mail has its own mix of free and paid features designed to optimize the user experience for, and revenue generation from, that product’s user community. In general, the mix of features for the various dating products within our more established brands leads to higher monetization rates per user than the mix of features for the various dating products within our newer brands. If a significant portion of our user base were to migrate to our less profitable dating brands, our business, financial condition and results of operations could be adversely affected.been historically.
As the distribution of our dating products through digital app stores increases, in order to maintain our profit margins, weWe may need to offset increasing digital 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.
As users of our dating products continue to shift to mobile and other digital devices, weWe increasingly rely upon the Apple App Store and the Google Play Store to distribute the mobile applications of our various businesses. While some of our mobile applications. While our mobile dating applications are generally free to download from these stores, users can purchase subscriptionsmany of our mobile applications (primarily our dating and certainMosaic Group applications) are subscription-based and/or offer in-app à la carte features through these applications.for a fee. We determine the prices at which these subscriptions and à la carte features are sold; however, related purchases must be processed through the in-app payment systems provided by Apple and, to a lesser extent, Google. As a result, 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 increasing distribution of our dating productsmobile applications through digital app stores and strict in-app payment system requirements, we may need to offset these increased digital app store fees by decreasing traditional marketing expenditures as a percentage of revenue, increasing user volume or monetization per user or engaging in other efforts to increase revenue or decrease costs generally, or our business, financial condition and results of operations could be adversely affected. Additionally, to the extent Google changes its terms and conditions or practices to require us to process purchases of subscriptions and à la carte features through its in-app payment system, our business, financial condition and results of operations could be adversely affected.
Our success depends, in part, of the ability of ANGI Homeservices to establish and maintain relationships with quality service professionals.
We will need to continue to attract, retain and grow the number of skilled and reliable service professionals who can provide home services that consumers want in a timely manner across ANGI Homeservices platforms. ToIf we do so, we must continue tonot offer innovative products and services that resonate with consumers and service professionals generally, as well provide service professionals with an attractive return on their marketing and advertising investments. If we fail to provide compelling productsinvestments (quality matches and services acrossleads that convert into jobs), the number of service professionals affiliated with ANGI Homeservices brands and businesses, Marketplace service professionals may leave (or fail to join) the Marketplace and certified service professionals may leave (of fail to join) the Angie’s List nationwide online directory, one or both of whichplatforms would decrease. Any such decrease would result in a less attractive overall digital marketplace for consumers seeking quality service professionals. Any decrease in quality service professionals (or the lack of new quality service professionals) would result in a smaller and less diverse Marketplacenetworks and smaller and less diverse directories which could adversely impact the consumer experience,of service professionals, and in turn, result in decreases in service requests and directory searches, which could adversely impact our business, financial condition and results of operations.
We depend upon arrangements with Google and any adverse change in this relationship could adversely affect our business, financial condition and results of operations.Google.
A meaningful portion of our consolidated revenue (and a substantial portion of our net cash from operations that we can freely access) is attributable to a services agreement with Google. Pursuant to this agreement, we display and syndicate paid listings provided by Google in response to search queries generated by users of our Applications and Publishingcertain Emerging & Other properties. In exchange for making our search traffic available to Google, we receive a share of the revenue generated by the paid listings supplied to us, as well as certain other search‑related services. Our current agreement with Google expires on March 31, 2020 and2020. In February 2019, we may choose to terminateamended this agreement, effective as
of April 1, 2020, to extend the expiration date of our agreement to March 31, 2019.2023; provided, however, that beginning September 2020 and each September thereafter, we or Google 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. We believe that the amended agreement, taken as a whole, is comparable to our current agreement with Google.
The amount of revenue we receive from Google depends on a number of factors outside of our control, including the amount Google charges for advertisements, the efficiency of Google’s system in attracting advertisers and serving up paid listings in response to search queries and parameters established by Google regarding the number and placement of paid listings displayed in response to search queries. In addition, Google makes judgments about the relative attractiveness (to advertisers) of clicks on paid listings from searches performed on our Applications and Publishing properties and these judgments factor into the amount of revenue we receive. Google also makes judgments about the relative attractiveness (to users) of paid listings from searches performed on our properties and these judgments factor into the amountnumber of advertisements we can purchase. Changes to the amount Google charges advertisers, the efficiency of Google’s paid listings network, Google's judgment about the relative attractiveness to advertisers of clicks on paid listings from our Applications and Publishing properties or to the parameters applicable to the display of paid listings generally could result in a decrease in the amount of revenue we receive from Google and could adversely affect our business, financial condition and results of operations. Such changes could come about for a number of reasons, including general market conditions, competition or policy and operating decisions made by Google.
Our services agreement with Google also requires that we comply with certain guidelines for the use of Google brands and services, including the Chrome browser and Chrome Web Store. These guidelines that govern which of our products and applications may access Google services or be distributed through its Chrome Web Store, and the manner in which Google’s paid listings are displayed within search results across various third partythird-party platforms and products (including our Applications and Publishing properties). Our services agreement also requires that we establish guidelines to govern certain activities of third parties to whom we syndicate paid listings, including the manner in which these parties drive search traffic to their websites and display paid listings. Google may generally unilaterally update its policies and guidelines without advance notice, which 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 adversely affect our business, financial condition and results of operations. Noncompliance with Google’s guidelines by us or the third parties to whom we are permitted to syndicate paid listings or through which we secure distribution arrangements for certain of our Applications properties could, if not cured, result in the suspension of some or all Google services to our properties (or the websites of our third partythird-party partners) and/or the termination of the services agreement by Google.
The termination of the services agreement by Google, the curtailment of our rights under the agreement (whether pursuant to the terms thereof or otherwise) and/or the failure of Google to perform its obligations under the agreement would have an adverse effect on our business, financial condition and results of operations. If any of these events were to occur, we may not be able to find another suitable alternate provider of paid listings provider (or if an alternate provider were found, the economic and other terms of the agreement and the quality of paid listings may be inferior relative to our arrangements with, and the paid listings supplied by, Google) or otherwise replace the lost revenues.
Foreign currency exchange rate fluctuations could adversely affect our results of operations.us.
We operate in certainvarious foreign markets, primarily in various jurisdictions within the European Union, and as a result, are exposed to foreign exchange risk for both the Euro and British Pound ("GBP"). During the fiscal years ended December 31, 2018 and 2017, approximately 34% and 2016, approximately 30% and 26%, respectively, of our total revenues, respectively, were international revenues. We translate international revenues into U.S. Dollar-denominated results. As a result, as foreign currency exchange rates fluctuate, the translation of the statement of operations of our international businesses into U.S. Dollars affects the period-over-period comparability of operating results. The average GBP and Euro versus the U.S. Dollar exchange rate was approximately 5% higher and 2% lower, respectively, in 2017 compared to 2016.
We are also exposed to foreign currency exchange gains and losses to the extent we or areour subsidiaries conduct transactions in, and/or have assets and/or liabilities that are denominated in, a currency other than the relevant entity's functional currency. We recordedFor details regarding exchange rates and foreign currency exchange losses of $16.8 milliongains and gains of $34.4 millionlosses for the fiscal years ended December 31, 20172018 and 2016, respectively. The increase in GBP versus the U.S. Dollar during 2017, and the decrease in the GBP versus the U.S. Dollar during 2016 following the Brexit vote on June 23, 2016 generated the majority of
our foreign currency exchange losses and gains during these fiscal years. For additional detail regarding these gains and losses, see "Item 7A—Quantitative7A-Quantitative and Qualitative Disclosures About Market Risk—ForeignRisk-Foreign Currency Exchange Risk."
ForeignBrexit may continue to cause disruptions to capital and currency markets worldwide, and the full impact of the Brexit decision remains uncertain. Ongoing negotiations between the United Kingdom and the European Union will determine the terms of their relationship following Brexit. During this period of negotiation and following the completion of Brexit, our operating results could be adversely affected by exchange gainsrate and losses historicallyother market and economic volatility.
We have not beenhedged foreign currency exposures historically given that related gains or losses were not material to the Company. As a result, historically, we have not hedged our foreign currency exposures. The continued growthcontinue to grow and expansion ofexpand our international operations, into new markets and jurisdictions increases our exposure to foreign exchange rate fluctuations. Significant foreign currency exchange rate fluctuations in the case of one currency or collectively with other currencies,will increase and if significant, could adversely affect our futurebusiness, financial condition and results of operations.
We may not be able to protect our systems, technology and infrastructure from cyberattacks. In addition, we may be adversely impacted bycyberattacks and cyberattacks experienced by third parties. Any disruption of our systems, technology and infrastructure or compromise of our user data or other information due to cyberattacks couldparties may adversely affect our business, financial condition and results of operations.us.
We are regularly under attack by perpetrators of malicious technology-related events, such as cyberattacks, computer hacking, computer viruses, worms, bot attacksthe use of botnets, malware or other destructive or disruptive software, distributed denial of service attacks, phishing, attempts to misappropriate user information (including credit card information) orand account login credentials and other similar malicious activities. Events of this nature could compromise the integrity of our systems, technology and infrastructure, as well as our various products and services, which could in turn adversely affect our users. The incidence of events of this nature (or any combination thereof) is on the rise worldwide.
While we continuously develop and maintain systems designed to detect and prevent events of this nature from impacting our various businesses (and their respective systems, technology, infrastructure, products, services and users), andusers, have invested (and continue to invest) heavily in these efforts and related personnel and training and deploy data minimization strategies (where appropriate), these efforts are costly and require ongoing monitoring and updating as technologies change and efforts to overcome preventative security measures become more sophisticated. Despite these efforts, some of our efforts,systems have experienced past security incidents, none of which had a material adverse effect on our business, financial condition and results of operations, and we cannot assure you that we will notcould experience significant events of this nature in the future and if such an event does occur, that it will not adversely affect our business, financial condition and results of operations.future.
Any cyberattack or security breachevent of this nature that we experience could damage our systems, technology and infrastructure and/or those of our users, prevent us from providing our products and services, compromise the integrity of our products and services, damage our reputation, erode our brands and/or be costly to remedy, as well as subject us to investigations by regulatory authorities, fines and/or litigation that could result in liability to third parties. Even if we do not experience such events firsthand, the impact of any such events experienced by third parties with whom we do business (or upon whom we otherwise rely in connection with our operations) could have a similar effect. Moreover, even cyberattacks and security breaches that do not impact us directly may result in consumers being less likely to use online products and services generally.
In addition, weWe may not have adequate insurance coverage to compensate for losses resulting from any of these events. If we (or any third-party with whom we do business or otherwise rely upon) experience(s) an event of this nature, our business, financial condition and results of operations could be adversely affected.
If the security of personal, confidential or sensitive user information, including credit card information that we maintain and store is breached or otherwise accessed by unauthorized persons, it may be costly to mitigate the impact of such an event,and our reputation could be harmed and our business, financial condition and results of operations could be adversely affected.harmed.
We receive, process, store and transmit a significant amount of personal, confidential or sensitive user or other information, including credit card information and, in the case of certain of our products and services, enable users to share their personal information with each other. In some cases, we retain third party vendors to store this information. While we continuously develop and maintain systems designed to protect the security, integrity and confidentiality of this information, we cannot guarantee that inadvertent or unauthorized use or disclosure will not occur or that third parties will not gain unauthorized access to this information despite our efforts. If anyinformation. When such event were toevents occur, we may not be able to remedy the event,them and weit may havebe costly to expend significant capital and other resources to mitigate the impact of such an event, and to develop and implement protections to prevent future events of this nature from occurring. If a breachWhen breaches of security (ours or that of any third-party we engage to store information) occurs, the reputation of our security (or the security of third party vendors we have retained) occurs, the perception of the effectiveness of our security measures and our reputation may be harmed, we could lose users and the recognition of our various brands and businesses and their competitive positionsbusiness could be diminished, any or all ofharmed, which could adversely affect our business, financial condition and results of operations.
We are subject to a number of risks related to creditCredit card payments, including data security breaches or fraud that we or third parties experience or additional regulation, any of which could adversely affect our business, financial condition and results of operations.us.
Certain of our businesses accept payment (including recurring payments) from users, primarily throughvia credit card transactionsand debit cards and certain online payment service providers. The ability of these businesses to access payment information on a real time‑basis without having to proactively reach out to users to process payments for products and services (including auto-renewal payments or payments for premium features on or with certain of our products or services) is critical to our success.
When we or a third partythird-party experience(s) a data security breach involving credit card information, affected cardholders will often cancel their cards. In the case of a breach experienced by a third party,third-party, the more sizable the third party’sthird-party’s customer base, the greater the number of accounts impacted and the more likely it is that our users would be impacted by such a breach. If our users are everwere affected, by such a breach, we would need to contact affected individualsusers to obtain new payment information and process any pending transactions.information. It is likely that we would not be able to reach all affected individuals,users, and even if we could, new payment information for some individuals may not be obtained and some pending transactions may not be processed, which could adversely affect our business, financial condition and results of operations.
Even if our users are not directly impacted by a given data security breach, they may lose confidence in the ability of providers of online products and services to protect their personal information generally, which could cause them to stop using their credit cards online and choose alternative payment methods that are not as convenient for us or restrict our ability to process payments without significant effort.
Our ability to access credit card information on a real-time basis without having to proactively reach out to affected individuals could also be adversely impacted by increases in various fees charged by credit card companies and processors (such as transaction, interchange, chargeback and/or other fees), the malfunction of credit card billing systems and software and non-compliance with applicable payment card association operating rules, certification requirements and rules governing electronic funds transfers, including the Payment Card Industry Data Security Standard ("PCI DSS"), a security standard with which companies that collect, store or transmit certain data related to credit and debit cards, credit and debit card holders and credit and debit card transactions are required to comply.
If we fail to adequately prevent credit card data security breaches and fraudulent credit card transactions, and/or comply with the PCI DSS, we could face litigation, fines, governmental enforcement action, fines, civil liability, diminished public perception of our security measures, significantly higher credit card-related costs and substantial remediation costs, or credit card processors could cease doing business with us, any of which could adversely affect our business, financial condition and results of operations.operations
The processing, storage, use and disclosure of personal data could give rise to liabilities and increased costs as a result of governmental regulation, conflicting legal requirements or differing views of personal privacy rights and compliance with laws designed to prevent unauthorized access of personal data could be costly.costs.
We receive, transmit and store a large volume of personal information and other user data (including personal credit card data, as well as private content (such as videos and correspondence)) in connection with the processing of search queries, the provision of online products and services, payment transactions and advertising on our various properties. The manner in which we share, store, use, disclose and protect this information is determined by the respective privacy and data security policies of our various businesses. These policies are, in turn, subject tobusinesses, as well as federal, state and foreign laws and regulations as well asand evolving industry standards and practices, regarding privacy generallywhich are changing, and the sharing, storage, use, disclosure and protection of personal information and user data. These laws, regulations, standards and practices are changing,in some cases, inconsistent and conflicting and subject to differing interpretations, andinterpretations. In addition, new laws, regulations, standards and practices of this nature are proposed and adopted from time to time.
For example, in 2016, the European Commission adopted the General Data Protection Regulation (the "GDPR"), a comprehensive European Union privacy and data protection reform, that becomesthe General Data Protection Regulation (the "GDPR"), became effective in May 2018. The GDPR, which applies to companies that are organized in the European Union (oror otherwise provide services to (or monitor) consumers who reside in the European Union),Union, imposes strict standards regarding the sharing, storage, use, disclosure and protection of end user data and significant penalties (monetary and otherwise) for non-compliance. In addition, theThe GDPR will continue to be interpreted by European Union data protection regulators, which may require that we make changes to our business practices, and could generate additional risks and liabilities. The European Union is also considering an update to its Privacy and Electronic Communications Directive to impose stricter rules regarding the use of cookies in connection with the provision of online products and services to consumers who reside in the European Union.cookies. In addition, the potential exit from the European Union by the United Kingdom could result in the application of new and
conflicting data privacy and protection laws and standards to our operations in the United Kingdom and how we handleour handling of personal data of consumers who resideusers located in the United Kingdom. In addition, there are a number of draft privacy and data protection laws and regulations recently passed or under consideration inby the U.S. (includingCongress, as well as in various states)U.S. states and in various foreign jurisdictions in which we do business.business, including the California Consumer Privacy Act of 2018, which becomes effective January 1, 2020.
While we believe that we comply with applicable privacy and data protection policies, laws and regulations as well as evolvingand industry standards and practices relating to privacy and data security in all material respects, there is no assurance that we will notcould still be subject to claims of non-compliance that we have violated applicable laws and regulations, standards and practices, that we willmay not be able to successfully defend against such claims and/or that we will not be subject to significant fines and penalties in the event of non-compliance.penalties. Moreover, any failurenon-compliance or perceived failurenon-compliance by us (or the third parties with whomany third-party we have contractedengage to handle suchstore or process information) to comply with applicable privacy policies, laws, regulations or privacy‑related contractual obligations or any compromise of security that results in unauthorized access to (or use or transmission of) personal information could result in a variety of claims against us, including governmental enforcement actions, significant fines, litigation, claims of breach of contract and indemnity by third parties and adverse publicity. In the case ofWhen such an event,events occur, our reputation maycould be harmed we could lose current and potential users and the competitive positions of our various brands and businesses could be diminished, any or all of which could adversely affect our business, financial condition and results of operations.
In addition,Lastly, ongoing compliance with the numerousexisting (and compliance with future) privacy and data protection laws in the various countries in which our businesses operate (particularly the GDPR)worldwide could be costly, as well ascostly. The devotion of significant costs to compliance (versus to product development) could result in delays in the development of new products and services, if significant resources are allocatedus ceasing to compliance efforts, particularly as these laws become more comprehensiveprovide problematic products and services in scope, more commonplaceexisting jurisdictions and continue to evolve. If these costs and/or productus being prevented from introducing products and service delays are significant,services in new and existing jurisdictions, which could adversely affect our business, financial condition and results of operations could be adversely affected.
Lastly, evolving privacy and data protection laws in the various countries in which are businesses operate could prevent us from introducing products and services in jurisdictions in which we wish to do business and/or continuing to offer certain products and services in jurisdictions in which we currently operate. If markets in new jurisdictions in which we cannot do business are large and/or revenue attributable to products and services we can no longer offer is significant, our business, financial condition and results of operations could be adversely affected.operations.
Our success depends, in part, on the integrity, quality, efficiency and qualityscalability of our systems, technology and infrastructure, and those of third parties. System interruptions and the lack of integration and redundancy in our and third party information systems may adversely affect our business.
To succeed,We rely on our systems, technology and infrastructure mustto perform well on a consistent basis. From time to time in the past we have experienced (and in the future we may experienceexperience) occasional interruptions that make some or all of our systems, technology, infrastructure or user datathis framework and related information unavailable or that prevent us from providing products and services; any such interruption could arise for any number of reasons. Furthermore,We also rely on third-party data center service providers and cloud-based, hosted web service providers, as well as third-party computer systems and a variety of communications systems
and service providers in connection with the provision of our products and services generally, as well as to facilitate and process certain payment and other transactions with users. We have no control over any of these third parties or their operations.
The framework described could be damaged or interrupted at any time due to fire, power loss, telecommunications failure, natural disasters, acts of war or terrorism, acts of God and other similar events or disruptions may damage or interrupt computer, data, cloud-based web hosting, broadband, wireless or other storage or communications systems at any time.disruptions. Any event of this nature could cause system interruptions, delays and loss of critical data, and could prevent us from providing our products and services to consumers.at all (or result in the provision of our products on a delayed or interrupted basis) and/or result in the loss of critical data. While we and the third parties upon whom we rely have certain backup systems in place for certain aspects of our operations,respective frameworks, none of our systems, technology and infrastructureframeworks are not fully redundant and disaster recovery planning is not sufficient for all eventualities. In addition, we may not have adequate insurance coverage to compensate for losses from a major interruption. AnyWhen such damages, interruptions or outages regardless ofoccur, our reputation could be harmed and the cause, could negatively impact the consumer experience, tarnish the reputationcompetitive positions of our various brands and decrease demand for our products and services,businesses could be diminished, any or all of which could adversely affect our business, financial condition and results of operations.
We also continually work to expand and enhance the efficiency and scalability of our systems, technology and infrastructureframework to improve the consumer experience, accommodate substantial increases in traffic volumethe number of visitors to our various brands,platforms, ensure acceptable page load times for our various products and services and keep up with changes in technology and evolving user and consumer preferences. Any failure toIf we do not do so in a timely and cost-effective manner, could adversely affect the user experience and demand across our brands and businesses which could be adversely affect demand for our products and services and/or increase our costs, any ofaffected, which could adversely affect our business, financial condition and results of operations.
We also rely on third party computer systems, data center service providers, cloud-based web hosting service providers and broadband, wireless and other communications systems service providers in connection with the provision of our products and services generally, as well as to facilitate and process certain transactions with users. We have no control over any of these third parties or their operations.
Any interruptions, outages or delays in our systems, technology and infrastructure or those of our third party providers, changes in service levels or any deterioration in performance, could impair our ability to provide our products and services and/or process certain transactions. If any of these events were to occur, it could damage our reputation and result in the loss of users, which could adversely affect our business, financial condition and results of operations and otherwise be costly to remedy.
Mr. Diller and certain members of his family collectively have sole voting and/or investment power over a significant percentage of the voting power of our stock. As a result, Mr. Diller and these family members are able to exercise significant influence over the composition of our Board of Directors, matters subject to stockholder approval and our operations.
As of the date of this report, Mr. Diller, his spouse, Diane von Furstenberg, and his stepson, Alexander von Furstenberg, collectively beneficially own 5,789,499owned shares of IAC Class B common stock by virtue of their respective voting and/or investment power(s) over these securities, 4,530,075 of which are held in trusts for the benefit of Mr. Diller and certain members of his family and the remainder of which are held by Mr. Diller personally. Shares of IAC Class B common stock beneficially owned by Mr. Diller, his spouse and his stepson collectively represent 100% of IAC’s outstanding Class B common stock and together with shares of IAC common stock held as of the date of this report by Mr. von Furstenberg (58,542), a trust for the benefit of certain members of Mr. Diller's family (136,711) and a family foundation (1,711), representthat represented approximately 43.1%42.8% of the total outstanding voting power of IAC (based on the number of shares of IAC common stock outstanding on February 2, 2018)1, 2019). As ofFor details regarding the date of this report, Mr. Diller also holds 800,000 vested options and 500,000 unvested options to purchase IAC common stock.
In addition, pursuant to an amended and restated governance agreement between IAC and Mr. Diller, for so long as Mr. Diller serves as IAC’s Chairman and Senior Executive and he beneficially owns (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended) at least 5,000,000 shares of IAC Class B common stock and/or common stock in which he has a pecuniary interest (including IAC securities beneficially owned by him directlyMr. Diller, Ms. Von Furstenberg and indirectly through trusts for the benefit of himMr. Von Furstenberg, see "Item 1-Business-Equity Ownership and certain members of his family), he generally has the right to consent to limited matters in the event that IAC’s ratio of total debt to EBITDA (as defined in the governance agreement) equals or exceeds four to one over a continuous twelve-month period.Vote."
As a result of IAC securities beneficially owned by Mr. Diller and certain members of his family, Mr. Diller and these family membersindividuals, they are, collectively, currently in a position to influence, subject to our organizational documents and Delaware law, the composition of IAC’s Board of Directors and the outcome of corporate actions requiring shareholder approval, such as mergers, business combinations and dispositions of assets, among other corporate transactions. In addition, this concentration of investment and voting power could discourage others from initiating a potential merger, takeover or other change of control transaction that may otherwise be beneficial to IAC, which could adversely affect the market price of IAC securities.
We depend on our key personnel.
Our future success will depend upon our continued ability to identify, hire, develop, motivate and retain highly skilled individuals, withparticularly in the continued contributionscase of our senior management being especially critical to our success.management. Competition for well-qualified employees across IAC and its various businesses is intense and our continued abilitywe must attract new (and retain existing) employees to compete effectively depends, in part, upon our ability to attract new employees.effectively. While we have established programs to attract new (and retain existing) employees, and provide incentives to retain existing employees, particularly our senior management, we cannot assure you that we willmay not be able to attract new employees or(or retain the services of our senior management or anyexisting) key and other key employees in the future. Effective succession planning is also important to our future success. IfIn addition, if we fail todo not ensure the effective transfer of senior management knowledge to successors and smooth transitions involving(particularly in the case of senior managementmanagement) across our various businesses, our ability to execute short and long term strategic, financial and operating goals, as well as our business, financial condition and results of operations generally, could be adversely affected.
Our current and future indebtedness maycould affect our ability to operate our business, which could have a material adverse effect on our financial condition and results of operations. We and our subsidiaries may incur additional indebtedness, including secured indebtedness.
As of December 31, 2017,2018, we had total debt outstanding of approximately $2.1$2.3 billion, including $1.3of which $552 million, $1.5 billion and $275$261.3 million of total debt outstanding atwas owed by IAC, Match Group and ANGI Homeservices, respectively. As of that date, we, Match Group and ANGI Homeservices had borrowing availability of $300$250 million, $240 million and Match Group had borrowing availability of $500$250 million, respectively, under our respective revolving credit facilities. Neither Match Group, ANGI Homeservices nor any of their respective subsidiaries guarantee any indebtedness of IAC or are currently subject to any of the covenants related to such indebtedness. Similarly, neither IAC nor any of its subsidiaries (other than Match Group and its subsidiaries in the case of Match Group indebtedness and ANGI Homeservices and its subsidiaries in the case of ANGI Homeservices
indebtedness) guarantee any indebtedness of Match Group or ANGI Homeservices nor are subject to any of the covenants related to such indebtedness.
The terms of the indebtedness of IAC, Match Group and ANGI Homeservices could:
limit our respective abilities to obtain additional financing to fund working capital needs, acquisitions, capital expenditures or other debt service requirements or for other purposes;
limit our respective abilities to use operating cash flow in other areas of our respective businesses because we must dedicate a substantial portion of these funds to service indebtedness;
limit our respective abilities to compete with other companies who are not as highly leveraged;
restrict any one or more of us from making strategic acquisitions, developing properties or exploiting business opportunities;
restrict the way in which one or more of us conducts business because of financial and operating covenants in the agreements governing our indebtedness;
business;
expose one or more of us to potential events of default, under financial and operating covenants contained in our respective debt instruments, which if not cured or waived, could have a material adverse effect on our business, financial condition and operating results;
increase our respective vulnerabilities to a downturn in general economic conditions or in pricing of our various products and services; and
limit our respective abilities to react to changing market conditions in the various industries in which we do business.
In addition to our respective debt service obligations, the operations of IAC, Match Group and ANGI Homeservices require substantial investments on a continuing basis. The ability of any of us to make scheduled debt payments, to refinance indebtedness obligations and to fund capital and non-capital expenditures necessary to maintain the condition of our respective operating assets and properties, as well as to provide capacity for the growth of our respective businesses, depends on our respective financial and operating performance, which, in turn, is subject to prevailing economic conditions and financial, business, competitive, legal and other factors.
Subject to certain restrictions, in the agreements governing certain indebtedness, we and our subsidiaries may incur significant additional indebtedness, including additional unsecured and secured indebtedness. Although the terms of agreements governing certain indebtedness contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, andIf additional indebtedness incurred in compliance with these restrictions could be significant. If we and/or any of our subsidiaries incur additional indebtedness,is significant, the risks described above could increase.
Also,Lastly, if an event a default has occurred or our leverage ratio exceeds thresholds specified in the agreements governing our indebtedness,thresholds, our ability to pay dividends, or to make distributions and repurchase or redeem our capital stock would be limited and the agreements governing the indebtedness oflimited. Match Group and ANGI Homeservices containare subject to similar restrictions. See "Item 7-Management's Discussion and Analysis of Financial Condition and Results of Operations-Financial Position, Liquidity and Capital Resources-FinancialResources and Financial Position."
We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness that may not be successful.indebtedness.
The ability of IAC, Match Group and ANGI Homeservices to satisfy our respective debt obligations will depend upon, among other things:
our respective future financial and operating performance, which will be affected by prevailing economic conditions and financial, business, regulatory and other factors, many of which are beyond our control; and
the future ability of IAC, and Match Group and ANGI Homeservices to borrow under our respective revolving credit agreements, as well as the future ability of ANGI Homeservices to add one or more incremental term loans or revolving facilities, under its credit agreement, the availability of which will depend on, among other things, compliance with the covenants in the agreements governing suchour indebtedness.
We cannot assure you thatNeither we, nor Match Group ofnor ANGI Homeservices willmay be able to generate sufficient cash flow from our respective operations and/or that we, Match Group or ANGI Homeservices will be able to otherwise take the actions described immediately above,borrow under our respective revolving credit facilities in amounts sufficient to fundmeet our respective liquidity needs.scheduled debt obligations. See also "-We may not freely access the cash of Match Group, ANGI Homeservices and their respective subsidiaries" below.
If cash flows and capital resources are insufficient to service indebtedness,so, we maycould be forced to reduce or delay capital expenditures, sell assets or seek additional capital in a manner that complies with the terms (including certain restrictions and limitations) of our current indebtedness. If these efforts do not generate sufficient funds to meet our scheduled debt obligations, we would need to seek additional financing and/or negotiate with our lenders to restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. Our ability to restructure or refinance our debt willdo so would depend on the condition of the capital markets and our financial condition at such time. Any such financing, restructuring or refinancing of our debt could be at higher interest rateson less favorable terms than those governing our current indebtedness and may require uswould need to comply with more onerous covenants, which could further restrict our business operations. In addition, the terms (including certain restrictions and limitations) of our existing or future debt agreements may restrict us from adopting some of these alternatives. In the absence of such operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations, sell equity, and/or negotiate with our lenders to restructure the applicable debt, in order to meet our debt service and other obligations. We may not be able to consummate those dispositions for fair market value or at all. The agreements governing the indebtedness of IAC, Match Group and/or ANGI Homeservices may restrict, or market or business conditions may limit, our ability to avail ourselves of some or all of these options. Furthermore, any proceeds that we could realize from any such dispositions may not be adequate to meet our debt service obligations then due.indebtedness.
We may not freely access the cash of Match Group, ANGI Homeservices and their respective subsidiaries.
IAC's potentialPotential sources of cash for IAC include our available cash balances, net cash from the operating activities of certain of our subsidiaries, availability under our revolving credit facility and proceeds from asset sales, including marketable securities. TheWhile the ability of our operating subsidiaries to pay dividends or to make other payments or advances to us depends on their individual operating results and anyapplicable statutory, regulatory or contractual restrictions to which they may be or become subject. The agreements governinggenerally, in the indebtednesscase of Match Group and ANGI Homeservices, the terms of their indebtedness limit their ability to pay dividends or make distributions, loans or advances to stockholders, including IAC. In addition, because Match Group and ANGI Homeservices are separate and distinct legal entities with public shareholders, they have no obligation to provide us with funds, whether by dividends, distributions, loans or other payments.funds.
VariableOur variable rate indebtedness will subjectsubjects us to interest rate risk, which could cause our debt service obligations to increase significantly.risk.
As of December 31, 2017,2018, Match Group had $260 million and $425 million outstanding under its revolving credit facility and term loan, respectively, and ANGI Homeservices had $425has $263.1 million and $275 million, respectively, of indebtedness outstanding under their respectiveits term loans.loan. Borrowings under both termthese loans are, and any borrowings under the revolving credit facilities of IAC or Match GroupANGI Homeservices will be, at variable interest rates. Indebtedness that bears interest at variable rates, which exposes us to interest rate risk. For details regarding interest rates applicable to the variable rate indebtedness of Match Group's term loan bears interest at LIBOR plus 2.50%Group and ANGI Homeservices described above as of December 31, 2017, the2018 and how certain increases and decreases in LIBOR rate in effect was 3.85%. If LIBOR were to increase or decrease by 100 basis points, then the annualwould affect related interest expense, on the Match Group term loan would increase or decrease by $4.3 million. The ANGI Homeservices term loan bears interest at LIBOR plus 2.00% and as of December 31, 2017, the rate in effect was 3.38%. If LIBOR were to increase or decrease by 100 basis points, then the annual interest expense on the ANGI Homeservices term loan would increase or decrease by $2.8 million. See alsosee "Item 7A-Quantitative and Qualitative Disclosures About Market Risk."
You may experience dilution with respect to your investment in IAC, and IAC may experience dilution with respect to its investments in Match Group and ANGI Homeservices, as a result of compensatory equity awards.
We have issued various compensatory equity awards, including stock options, stock appreciation rights and restricted stock unit awards denominated in shares of our common stock, as well as in equity of our various consolidated subsidiaries, including Match Group and ANGI Homeservices. For more information regarding these awards and their impact on our diluted earnings per share calculation, see "Note 13-Stock-Based11-Stock-Based Compensation" and "Note 12-Earnings10-Earnings Per Share,”" respectively, to the consolidated financial statements included in "Item 8-Consolidated Financial Statements and Supplementary Data."
The issuance of shares of IAC common stock in settlement of these equity awards could dilute your ownership interest in IAC. Awards denominated in shares of Match Group or ANGI Homeservices common stock that are settled in shares of those subsidiaries could dilute IAC’s ownership interest in Match Group and ANGI Homeservices, respectively. The dilution of our ownership stake(s) in Match Group and/or ANGI Homeservices could impact our ability, among other things, to maintain Match Group and/or ANGI Homeservices as part of our consolidated tax group for U.S. federal income tax purposes, to effect a tax-free distribution of our Match Group and/or ANGI Homeservices stake(s) to our stockholders or to maintain control of Match Group and/or ANGI Homeservices. As we generally have the right to maintain our levels of ownership in Match Group
and ANGI Homeservices to the extent Match Group or ANGI Homeservices issues additional shares of their respective capital stock in the future pursuant to investor rights agreements, we do not intend to allow any of the foregoing to occur.
With respect to awards denominated in shares of our non-publicly traded subsidiaries, we estimate the dilutive impact of those awards based on our estimated fair value of those subsidiaries. Those estimates may change from time to time, and the fair value determined in connection with vesting and liquidity events could lead to more or less dilution than reflected in our diluted earnings per share calculation.
We may not be ableexperience risks related to identify suitable acquisition candidates and even if we do so, we may experience operational and financial risks in connection with acquisitions and/or not realize anticipated benefits following acquisitions. In addition, some of the businesses we acquire may incur significant losses from operations or experience impairment of carrying value.
We have made numerous acquisitions in the past and we continue to seek to identify potential acquisition candidates that will allow us to apply our expertise to expand their capabilities, as well as maximize our existing assets. As a result, our future growth may depend, in part, on acquisitions. We mayIf we do not be able to identify suitable acquisition candidates or complete acquisitions on satisfactory pricing or other terms, and we expect to continue to experience competition in connection with our acquisition-related efforts.growth could be adversely affected.
Even if we identifycomplete what we believe to be suitable acquisition candidates and negotiate satisfactory terms,acquisitions, we may experience related operational and financial risks in connection with acquisitions, andrisks. So, to the extent that we continue to grow through acquisitions, we will need to:
properly value prospective acquisitions, especially those with limited operating histories;
successfully integrate the operations, as well as the accounting, financial controls, management information, technology, human resourcesvarious functions and other administrative systems, of acquired businesses with our existing operations, functions and systems;
successfully identify and realize potential synergies among acquired and existing businesses;
retain or hire senior management and other key personnel at acquired businesses; and
successfully manage acquisition‑related strain on the management, operations and financial resources of IAC and its businesses and/or acquired businesses.resources.
We may not be successful in addressing these challenges or any other problems encountered in connection with historical and future acquisitions, including the Combination.acquisition-related challenges. In addition, the anticipated benefits of one or more acquisitions, including the anticipated synergies,acquisition-related cost savings, and growth opportunities, we expect to realize as a result of the Combination,synergies or other benefits may not be realized. Also, future acquisitions could result in increased operating losses, potentially dilutive issuances of equity securities and the assumption of contingent liabilities. Lastly, the value of goodwill and other intangible assets acquired could be impacted by one or more continuing unfavorable events and/or trends, which could result in significant impairment charges. The occurrence of any of these events could have an adverse effect onadversely affect our business, financial condition and results of operations.
We operate in various international markets, some in which we have limited experience. As a result, we face additional risks in connection with our international operations. Also, we may not be able to successfully expand into new, or further into our existing, international markets.
We currently operate in various jurisdictions abroad and may continue to expand our international presence. In order for our products and services in these jurisdictions to achieve widespread acceptance, commercial use and acceptance of the Internet (particularly via mobile devices) must continue to grow, which growth may occur at slower rates than those experienced in the United States. Moreover, we must continue to successfully tailor our products and services to the unique customs and cultures of foreign jurisdictions, which can be difficult and costly and the failure to do so could slow our international growth and adversely impact our business, financial condition and results of operations.
Operating abroad, particularly in jurisdictions where we have limited experience, exposes us to additional risks, including among others:including:
operational and compliance challenges caused by distance, language barriers and cultural differences;
difficulties in staffing and managing international operations;
differing levels (or lack) of social and technological acceptance of our products and servicesservices;
slow or lack oflagging growth in the commercial use and acceptance of them generally;
the Internet (particularly via mobile devices);
foreign currency fluctuations;
restrictions on the transfer of funds among countries and back to the United States and costs associated with repatriating funds to the United States;
related repatriation costs;
differing and potentially adverse tax laws;
multiple, conflicting and changing laws, rules and regulations, and difficulties understanding and ensuring compliance with those laws by both our employees and our business partners, over whom we exert no control;
challenges;
competitive environments that favor local businesses;
limitations on the level of intellectual property protection; and
trade sanctions, political unrest, terrorism, war and epidemics or the threat of any of these events.
The occurrence of any or all of these events could adversely affect our international operations, which couldand in turn, adversely affect our business, financial condition and results of operations. Our success in international markets will also depend, in large part, on our ability to identify potential acquisition candidates,successfully complete international acquisitions, joint ventureventures or other partners,transactions and to enter into arrangements withintegrate these parties on favorable terms and successfully integrate their businesses and operations with our own.
A variety of new laws, or new interpretations of existing laws, could subject us to claims or otherwise harm our business.
We are subject to a variety of laws and regulations in the U.S. and abroad that involve matters that are costlyimportant to comply with,or may otherwise impact our business, including, among others, broadband internet access, online commerce, advertising, privacy and data protection, intermediary liability, consumer protection, protection of minors, taxation and securities compliance. These domestic and foreign laws, 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, in negative publicitythe
application, interpretation and diversion of management time and effort, can subject us to claims or other remedies and otherwise harm our business. Someenforcement of these laws such as income, sales, use, value‑added and other tax laws and consumer protection laws,regulations are applicable to businesses generally and others are unique to the various types of businessesoften uncertain, particularly in which we are engaged. Many of these laws were adopted prior to the advent of the Internet industry, and related technologiesmay be interpreted and applied inconsistently from jurisdiction to jurisdiction, as a result, do not contemplate or address the unique issues of the Internet and related technologies. Laws that do reference the Internet are being interpreted by the courts, but their applicability and scope remain uncertain. In addition, evolving Internet business practices may attract increased legal and regulatory attention. For example, the U.S. Federal Trade Commission continues to monitor the use of paid search and online "native" advertising (a form of advertising in which sponsored content is presentedwell as in a manner that could be viewed as similar to traditional editorial content) to ensure that it is presented in a manner that is not confusing or deceptive.
Any failure onconflict with our part to comply with applicable laws may subject us to additional liabilities, which could adversely affect our business, financial conditioncurrent policies and results of operations. In addition, ifpractices. We face the laws to which we are currently subject are amended or interpreted adversely to our interests, or if new adverse laws are adopted, our products and services might need to be modified to comply with such laws, which would increase our costs and could result in decreased demand for our products and services to the extent that we pass on such costs to our users. Specifically,same issues in the case of taxamended, proposed or new 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 complyand regulations.
Compliance with applicable law, there canlaws and regulations, as well as responding to any related inquiries, investigations or other government action, could be no assurancescostly, delay or impede the development of new products and services, require modifications to existing products and services and/or require significant management time and attention. Non-compliance could subject us to remedies that the relevant taxing authorities will not take a contrary position,could harm our business, such as fines, demands or orders that require us to modify or cease then current products and services, as well as result in negative publicity. Consequences of compliance and non-compliance with applicable laws and regulations, if so, that such positions will not adversely affect us. Any events of this naturesignificant, could adversely affect our business, financial condition and results of operations.
Moreover,We are particularly sensitive to laws and regulations that adversely impact use (orthe popularity or growth in use)use of the Internet and/or thatonline products and services generally, restrict or otherwise unfavorably impact the ability or manner in which we provide our products and services, regulate the practices of third parties upon which we rely to provide our online products and services could decrease user demand for our products and services, increase costs or otherwise harm our business.undermine open and neutrally administered Internet access. For example, in February 2019, the Secretary of State for Digital, Culture, Media and Sport of the United Kingdom, indicated in public comments that his office intends to inquire as to the measures utilized by online dating platforms (including Tinder) to prevent access by underage users. To the extent our dating business is required to implement new measures to prevent such access, our business, financial condition and results of operations could be adversely affected. In addition, in December 2017, the U.S. Federal Communications Commission (the "FCC") adopted an order reversing its May 2016 Opennet neutrality protections in the United States, including the repeal of specific rules against blocking, throttling or "paid prioritization" of content or services by Internet Order, which codified "network neutrality,"service providers. To the principle thatextent Internet service providers should treat all data traveling through their networks the same, not discriminating or charging differentially by content, website, platform or application. As a result of this reversal, broadband Internet access providers now have more power to prioritize different types of Internet traffic and set pricing, which means they could discriminate against Internet traffic of our businesses in favor of others (by way of blocking or throttling traffic from our businesses, "paid prioritization" of traffic through their networks generally or other similar actions) and/or charge us to provide our products and
services via their networks. If any of thesetake such actions, were to occur, our costs could increase and our business, financial condition and results of operations wouldcould be adversely affected.
Lastly,We are also sensitive to the passage or adoption of any new or amended legislationlaw or regulation affecting the ability of our businesses to periodically charge for recurring membership or subscription payments, which could harmadversely affect our business.business, financial condition and results of operations. For example, the European Union Payment Services directive, which became effective in January 2018, and regulates payment services and payment service providers, could restrictimpact the ability of certain of our businesses to process auto-renewal payments for, as well offer promotional or differentiated pricing tiers to, users who reside in the European Union. Similar new legislation or regulations, or changes to existing legislation or regulations governing subscription payments, are being considered in many U.S. states.
We are also sensitive to the adoption of new tax laws. The European Commission and several European countries have issued proposals that would change various aspects of the current tax framework under which we are taxed, including proposals to change or impose new types of non-income taxes (including taxes based on a percentage of revenue). For example, the United Kingdom has proposed a Digital Services Tax applicable to revenues of social media platforms, online marketplaces and search engines linked to users residing in the United Kingdom, which would likely apply to certain of our business. If enacted, one or more of these or similar proposed tax laws could adversely affect our business, financial condition and results of operations.
We may fail to adequately protect our intellectual property rights or may be accused of infringing the intellectual property rights of third parties.
We rely heavily upon our trademarks and related domain names and logos to market our brands and to build and maintain brand loyalty and recognition, as well as upon trade secrets. We also rely, to a lesser extent, upon patented and patent-pending proprietary technologies with expiration dates ranging from 2019 to 2038.2037.
We rely on a combination of laws and contractual restrictions with employees, customers, suppliers, affiliates and others to establish and protect our various intellectual property rights. For example, we have generally registered and continue to apply to register and renew, or secure by contract where appropriate, trademarks and service marks as they are developed and used, and reserve, register and renew domain names as we deem appropriate. Effective trademark protection may not be available or may not be sought in every country in which products and services are made available and contractual disputes may affect the use of marks governed by private contract. Similarly, not every variation of a domain name may be available or be registered, even if available.
We also generally seek to apply for patents or for other similar statutory protections as and if we deem appropriate, based on then current facts and circumstances, and will continue to do so in the future. No assurances can be given that any patent application we have filed (or will file)these efforts will result in adequate trademark and service mark protection, adequate domain name rights and protections, the issuance of a patent being issued, or that any existing or future patents will afford adequate patent protection against competitors and similar technologies. In addition, no assurances can be given that thirdThird parties will notcould also create new products or methods that achieve similar results without infringing upon patents we own.
Despite these measures, challenges to our intellectual property rights maycould still not be protected in a meaningful manner, challenges to contractual rights could arise, third parties could copy or otherwise obtain and use our intellectual property without authorization and/or laws (or interpretations of laws) regarding the enforceability of our existing intellectual property rights cancould change in an adverse manner. The occurrence of any of these events could result in the erosion of our brands and limitations on our ability to control marketing on or through the Internetonline using our various domain names, as well as impede our ability to effectively compete against competitors with similar technologies, any of which could adversely affect our business, financial condition and results of operations.
From time to time, we have been subject to legal proceedings and claims in the ordinary course of business includingrelated to alleged claims of alleged infringement of trademarks, copyrights, patents and otherthe intellectual property rights held by third parties. In addition, litigationof others and may be necessaryneed to institute legal proceedings in the future to enforce, protect or refine the scope of our intellectual property rights, protectrights. For example, on March 17, 2018, our Match Group business filed a lawsuit against Bumble Trading Inc., which operates and markets the online dating application Bumble in the United States, for patent and trademark infringement, as well as trade secrets orsecret misappropriation. Bumble’s counterclaims request that our trademark registration for Tinder’s SWIPE trademark be canceled and that a number of our pending applications for trademark registration be denied. This case is currently pending in Federal Court in the Western District of Texas. Any legal proceedings related to determine the validity and scope of proprietary rights claimed by others. Any litigation of this nature,intellectual property, regardless of outcome or merit, could be costly and result in substantial costs and diversion of management and technical resources, any of which could adversely affect our business, financial condition and results of operations. Patent litigation tends to be particularly protracted and expensive.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
IAC believes that the facilities for its management and operations are generally adequate for its current and near-term future needs. IAC's facilities, most of which are leased by IAC's businesses in various cities and locations in the United States and various jurisdictions abroad, generally consist of executive and administrative offices, operations centers, data centers and sales offices.
All of IAC's leases are at prevailing market rates. IAC believes that the duration of each lease is adequate.
IAC believes that its principal properties, whether owned or leased, are currently adequate for the purposes for which they are used and are suitably maintained for these purposes. IAC does not anticipate any future problems renewing or obtaining suitable leases on commercially reasonable terms for any of its principal businesses. IAC's approximately 202,500 square foot corporate headquarters in New York, New York houses offices for IAC corporate and various IAC businesses within the following segments: Match Group, Video,Vimeo, Applications and Publishing.Emerging & Other.
Item 3. Legal Proceedings
In the ordinary course of business, the Company and its subsidiaries are (or may become) parties to litigation involving property, personal injury, contract, intellectual property and other claims.claims, 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.
Rules of the Securities and Exchange Commission require the description of material pending legal proceedings (other than ordinary, routine litigation incidental to the registrant's business) to which the registrant or any of its subsidiaries is a party or to which any of their property is subject and advise that proceedings ordinarily need not be described if they primarily involve claims for damages for amounts (exclusive of interest and costs) not exceeding 10% of the current assets of the registrant and its subsidiaries on a consolidated basis. In the judgment of Company management, none of the pending litigation matters that the Company and its subsidiaries are defending, including the litigation matters described below, involves or is likely to involve amounts of that magnitude. The litigation matters described below involve issues or claims that may be of particular interest to our stockholders, regardless of whether any suchof these matters may be material to our financial position or operations based upon the standard set forth in the rules of the Securities and Exchange Commission.
Securities Class Action Litigation against Match Group
As previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, on February 26, 2016, a putative nationwide class action was filed in federal court in Texas against Match Group, five of its officers and directors, and twelve underwriters of Match Group's initial public offering in November 2015. See David M. Stein v. Match Group, Inc. et al., No. 3:16-cv-549 (U.S. District Court, Northern District of Texas). The complaint alleged that Match Group's registration statement and prospectus issued in connection with its initial public offering were materially false and misleading given their failure to state that: (i) Match Group's Non-dating business would miss its revenue projection for the quarter ended December 31, 2015, and (ii) ARPPU (as defined in "Item 2-Management's Discussion and Analysis of Financial Condition and Results of Operations-General-Key Terms") would decline substantially in the quarter ended December 31, 2015. The complaint asserted that these alleged failures to timely disclose material information caused Match Group's stock price to drop after the announcement of its earnings for the quarter ended December 31, 2015. The complaint pleaded claims under the Securities Act of 1933 for untrue statements of material fact in, or omissions of material facts from, the registration statement, the prospectus, and related communications in violation of Sections 11 and 12 and, as to the officer/director defendants only, control-person liability under Section 15 for Match Group’s alleged violations. The complaint sought among other relief class certification and damages in an unspecified amount.
On March 9, 2016, a virtually identical class action complaint was filed in the same court against the same defendants by a different named plaintiff. See Stephany Kam-Wan Chan v. Match Group, Inc. et al., No. 3:16-cv-668 (U.S. District Court, Northern District of Texas). On April 25, 2016, Judge Boyle in the Chan case issued an order granting the parties’ joint motion to transfer that case to Judge Lindsay, who is presiding over the earlier-filed Stein case. On April 27, 2016, various current or former Match Group shareholders and their respective law firms filed motions seeking appointment as lead plaintiff(s) and lead or liaison counsel for the putative class. On April 28, 2016, the Court issued orders: (i) consolidating the Chan case into the Stein case, (ii) approving the parties’ stipulation to extend the defendants’ time to respond to the complaint until after the Court has appointed a lead plaintiff and lead counsel for the putative class and has set a schedule for the plaintiff’s filing of a consolidated complaint and the defendants’ response to that pleading, and (iii) referring the various motions for appointment of lead plaintiff(s) and lead or liaison counsel for the putative class to a United States Magistrate Judge for determination. On June 9, 2016, the Magistrate Judge issued an order appointing two lead plaintiffs, two law firms as co-lead plaintiffs’ counsel, and a third law firm as plaintiffs’ liaison counsel. In accordance with this order, the consolidated case is now captioned Mary McCloskey et ano. v. Match Group, Inc. et al., No. 3:16-CV-549-L.
On July 27, 2016, the parties submitted to the Court a joint status report proposing a schedule for the plaintiffs’ filing of a consolidated amended complaint and the parties’ briefing of the defendants’ contemplated motion to dismiss the consolidated complaint. On August 17, 2016, the Court issued an order approving the parties’ proposed schedule. On September 9, 2016, in accordance with the schedule, the plaintiffs filed an amended consolidated complaint. The amended pleading focused solely on allegedly misleading statements or omissions concerning the Match Group’s Non-dating business. The defendants filed motions to dismiss the amended consolidated complaint on November 8, 2016. The plaintiffs filed oppositions to the motions on
December 23, 2016, and the defendants filed replies to the oppositions on February 6, 2017. On September 27, 2017, the court issued an opinion and order: (i) denying, without prejudice to renewal, the defendants’ motions and (ii) directing the plaintiffs to file a further amended pleading addressing the deficiencies in the amended consolidated complaint that were identified in the defendants’ motions. On October 30, 2017, the plaintiffs filed a second amended consolidated complaint, which among other things, dropped their claim under Section 12 of the Securities Act of 1933. Pursuant to an agreed-upon briefing schedule approved by the court, the defendants filed motions to dismiss the second amended consolidated complaint on December 15, 2017, the plaintiffs filed an opposition to the motions on January 29, 2018, and the defendants filed replies to the opposition on February 20, 2018. We and Match Group believe that the material allegations and claims in this lawsuit are without merit and intend to continue to defend vigorously against it.
Consumer Class Action Challenging Tinder’s Age-TieredAge‑Tiered Pricing
On May 28, 2015, a putative state-widestate‑wide class action was filed against Tinder, Inc. ("Tinder") in state court in California. See Allan Candelore v. Tinder, Inc., No. BC583162 (Superior Court of California, County of Los Angeles). The complaint principally alleged 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 service. The complaint sought certification of a class of California Tinder Plus subscribers age 30 and over and
damages in an unspecified amount. On 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-basedage‑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.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 intends to filefiled 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 has been returned to the trial court for further proceedings and is currently in discovery. We and Match Group believe that the allegations in this lawsuit are without merit and will continue to defend vigorously against it.
Bumble Claims against Match Group, LLC
On March 28, 2018, Bumble and its parent company filed a lawsuit against Match Group, LLC ("Match") in state court in Texas. SeeBumble Trading, Inc. and Bumble Holding, Ltd. v. Match Group, LLC, No. DC‑18‑04140 (160th Judicial District Court, County of Dallas). The petition alleged that Match wrongfully obtained confidential information from the plaintiffs in connection with a potential Bumble sale process and filed an intellectual property lawsuit against Bumble in bad faith to undermine that process. The petition asserts claims for tortious interference with business relationships, fraud, misappropriation of trade secrets, unfair competition, promissory estoppel and disparagement. The petition seeks damages in excess of $400 million and an injunction against interference with the plaintiffs’ prospective business relationships or use of their confidential information. On September 26, 2018, Match filed its answer and counterclaims, a notice of removal of the case to the U.S. District Court for the Northern District of Texas, and a motion to transfer the case to the U.S. District Court for the Western District of Texas, where Match’s intellectual property lawsuit against Bumble is pending. See Bumble Trading, Inc. and Bumble Trading, Ltd. v. Match Group, LLC,No. 3:18-cv-2578 (U.S. District Court, Northern District of Texas). On October 18, 2018, Bumble filed a motion to dismiss its own petition without prejudice. On November 1, 2018, Match opposed the motion as an attempt to circumvent the federal court’s jurisdiction and also amended its counterclaims to seek declaratory judgments of non-liability on the claims asserted in Bumble’s petition. On November 15, 2018, Bumble filed a motion to dismiss those counterclaims, which motion Match has opposed. On November 29, 2018, the court granted Match’s motion to transfer the case to the Western District of Texas. See Bumble Trading, Inc. and Bumble Trading, Ltd. v. Match Group, LLC,No. 6:18-cv-350 (U.S. District Court, Western District of Texas). On January 15, 2019, Bumble filed a motion for leave to file another petition, this one against Match and IAC, in state court in Dallas County. Bumble’s proposed claims are for fraud, negligent misrepresentation, unfair competition, promissory estoppel and interference with prospective business relations and are based upon the allegation that Match and IAC misled Bumble in its sale process by falsely representing they would make a higher offer to purchase Bumble. On January 22, 2019, Match filed its opposition to Bumble’s motion for leave. We and Match Group believe that the plaintiffs’ allegations in both the pending and the proposed lawsuits are without merit and will continue to defend vigorously against them.
Tinder Optionholder Litigation against IAC and Match Group
On August 14, 2018, ten then-current and former employees of Match or Tinder, an operating business of Match Group, filed a lawsuit in New York state court against IAC 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 Match Group, thereby depriving one of the plaintiffs (Mr. Rad) of his contractual right to later valuations of Tinder on a stand‑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 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. On August 31, 2018, four plaintiffs who were still employed by Match Group filed a notice of discontinuance of their claims without prejudice, leaving the six former employees as the remaining plaintiffs. 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. On December 17, 2018, plaintiffs filed their opposition to the motion to dismiss. On January 15, 2019, the defendants filed their reply brief. A hearing on the motion is scheduled for March 6, 2019, and discovery in the case is proceeding. IAC and Match Group believe that the allegations in this lawsuit are without merit and will continue to defend vigorously against it.
FTC Investigation of Certain Match.com Business Practices
In March 2017, the Federal Trade Commission (the "FTC") requested information and documents in connection with a civil investigation regarding certain business practices of Match.com. In November 2018, the FTC offered to resolve its potential claims relating to Match.com’s marketing, chargeback and online cancellation practices via a consent judgment mandating certain changes in Match.com’s business practices, as well as a payment in the amount of $60 million. We and Match Group believe that the FTC’s legal challenges to Match.com’s practices, policies and procedures are without merit and are prepared to defend vigorously against them.
Item 4. Mine Safety Disclosures
Not applicable.
PART IIMatch Group
Overview
Our Match Group segment consists of the businesses and operations of Match Group, Inc. ("Match Group"). Through Match Group, we operate a portfolio of dating brands, including Tinder, Match, PlentyOfFish, Meetic, OkCupid, OurTime, Pairs and Hinge, as well as a number of other brands, each designed to increase user likelihood of finding a meaningful connection. As of December 31, 2018, IAC’s ownership and voting interests in Match Group were 81.1% and 97.6%, respectively.
Services
Through Match Group, we are a leading provider of dating products all over the world through applications and websites that we own and operate. As of December 31, 2018, there were approximately 7.9 million Average Subscribers to our dating products (calculated by summing the total number of users who purchased one of our subscription-based dating products at the end of each day in the year ended December 31, 2018, divided by the number of calendar days in such year).
Dating is a highly personal endeavor and consumers have a wide variety of preferences that determine what type of dating product they choose. As a result, our strategy focuses on a portfolio approach of various brands in order to reach a broad range of users. Our brands are collectively available in 40 languages to users all over the world. The following is a list of our key brands:
Tinder. Tinder was launched in 2012, and has since risen to scale and popularity faster than any other product in the online dating category with limited marketing spend, growing to over 4.3 million subscribers today. Tinder’s distinctive "right swipe" feature has led to significant adoption among the millennial generation, previously underserved by the online dating category. Tinder employs a freemium model, through which users can enjoy many of the core features of Tinder for free, including limited use of the "swipe right" feature with unlimited communication with other users. However, to enjoy premium features, such as unlimited use of the "swipe right" feature, a Tinder user must subscribe to either Tinder Plus, launched in early 2015, or Tinder Gold, which was launched in late summer 2017. Tinder users and subscribers may also pay for certain premium features, such as Super Likes and Boosts, on a pay-per-use basis.
Match. Match was launched in 1995 and helped create the online dating category. Among its distinguishing features are the ability to search profiles, receive algorithmic matches and attend live events (promoted by Match) with other subscribers. Additionally, new features, such as Missed Connections, which uses location-based technology to enable users to connect with other users with whom they have crossed paths in the past, engage users into more meaningful connections. Match is a brand that focuses on users with a high level of intent to enter into a relationship and its product and marketing are designed to reinforce that approach. Match relies heavily on word-of-mouth traffic, repeat usage and paid marketing.
PlentyOfFish. PlentyOfFish was launched in 2003 and acquired in October 2015. Similar to Match, among its distinguishing features is the ability to both search profiles and receive algorithmic matches. Similar to Tinder, PlentyOfFish has grown to popularity over the years with very limited marketing spend and also relies on a freemium model. PlentyOfFish has broad appeal in the central United States, Canada, the United Kingdom and a number of other international markets.
Meetic. Meetic, a leading European online dating brand based in France, was launched in 2001. Similar to Match, among its distinguishing features are the ability to search profiles, receive algorithmic matches and attend live events (promoted by Meetic) with other subscribers and non-subscribers from time to time. Also, similar to Match, Meetic is a brand that focuses on users with a high level of intent to enter into a relationship and its product and marketing are designed to reinforce that approach. Meetic relies heavily on word-of-mouth traffic, repeat usage and paid marketing.
OkCupid. OkCupid was launched in 2004, and has attracted users through a mathematical and Q&A approach to the online dating category. Similar to Tinder and PlentyOfFish, OkCupid has grown in popularity over the years without significant marketing spend and also relies on a freemium model. OkCupid has a loyal and highly educated user base predominately located in major cities in the United States and the United Kingdom.
OurTime. OurTime is the largest brand within our affinity-oriented brands. OurTime is the largest community of singles over age 50 of any dating product.
Pairs. Pairs was launched in 2012 and acquired in May 2015. Pairs is a leading provider of dating products in Japan, with a strong presence in Taiwan and a growing presence in certain other Asian countries. Pairs is a dating app that was specifically designed to address social barriers generally associated with the use of dating products in Asian countries, particularly Japan.
Hinge. Hinge was launched in 2012 and, following a series of investments, Match took a controlling stake in Hinge in June 2018 and purchased all of the remaining outstanding equity in December 2018. Hinge is a mobile-only experience and employs a freemium model. Hinge focuses on users with a high level of intent to enter into a relationship and its product is designed to reinforce that approach.
All of our dating products enable users to establish a profile and review the profiles of other users without charge. Each product also offers additional features, some of which are free and some of which are paid, depending on the particular product. In general, access to premium features requires a subscription, which is typically offered in packages (primarily ranging from one month to six months), depending on the product and circumstance. Prices differ meaningfully within a given brand by the duration of subscription purchased, the bundle of paid features that a user chooses to access and whether or not a subscriber is taking advantage of any special offers. In addition to subscriptions, many of our dating products offer users certain features, such as the ability to promote themselves for a given period of time or to review certain profiles without any signaling to other users, and these features are offered on a pay‑per‑use basis. The precise mix of paid and premium features is established over time on a brand‑by‑brand basis and is constantly subject to iteration and evolution.
Revenue
Match Group revenue is primarily derived directly from users in the form of recurring subscriptions. Revenue is also earned from online advertising, the purchase of à la carte features and offline events.
Marketing
Certain of our brands attract the majority of their users through word-of-mouth and other free channels. Our other brands rely on paid user acquisition efforts for a significant percentage of their users. Our online marketing activities generally consist of social media advertising, banner and other display advertising, search engine marketing, e-mail campaigns, video advertising, business development or partnership deals and hiring influencers to promote our dating products. Our offline marketing activities generally consist of television advertising and related public relations efforts, as well as events.
Competition
The dating industry is competitive and has no single, dominant brand globally. We compete with a number of other companies that provide similar dating and matchmaking products.
In addition to other online dating brands, we compete with social media platforms and offline dating services, such as in‑person matchmakers. Arguably, our biggest competition comes from the traditional ways that people meet each other and the choices some people make to not utilize dating products or services.
We believe that our ability to compete successfully in the case of our dating business will depend primarily upon the following factors:
our ability to continue to increase consumer acceptance and adoption of online dating products, particularly in emerging markets and other parts of the world where the stigma is only beginning to erode;
continued growth in Internet access and smart phone adoption in certain regions of the world, particularly emerging markets;
the continued strength of Match Group brands;
the breadth and depth of Match Group active user communities relative to those of its competitors;
our ability to evolve our dating products in response to competitor offerings, user requirements, social trends, the ever-evolving technological landscape and the ever-changing regulatory landscape (in particular, as it relates to the regulation of online platforms);
our ability to efficiently acquire new users for our dating products;
our ability to continue to optimize our monetization strategies; and
the design and functionality of our dating products.
Lastly, since a large portion of online dating customers use multiple dating products over a given period of time, either concurrently or sequentially, we believe our broad portfolio of dating brands is a competitive advantage.
ANGI Homeservices
Overview
Through the ANGI Homeservices portfolio of digital home services brands, including HomeAdvisor®, Angie’s List® and Handy, we connect millions of homeowners to home service professionals, collect reviews and allow homeowners to research, match and connect on-demand to the largest network of service professionals online, through our mobile apps or by voice assistants.
In addition to its market-leading U.S. operations, ANGI owns leading home services online marketplaces in France (Travaux), Germany (MyHammer), Netherlands (Werkspot), United Kingdom (MyBuilder), Canada (HomeStars) and Italy (Instapro), as well as operations in Austria (MyHammer). As of December 31, 2018, IAC’s economic and voting interests in ANGI Homeservices were 83.9% and 98.1%, respectively.
Our ANGI Homeservices segment consists of the North American (United States and Canada) and European businesses and operations of ANGI Homeservices, a publicly traded holding company that was formed to facilitate the combination of the businesses within our former HomeAdvisor segment with Angie’s List, Inc. ("Angie's List"), which transaction was completed on September 29, 2017 (the "Combination"). ANGI Homeservices acquired Handy Technologies, Inc. ("Handy"), a leading platform in the United States for connecting individuals looking for household services (primarily cleaning and handyman services) with top-quality, pre-screened independent service professionals, in October 2018.
Services
Overview. The HomeAdvisor digital marketplace service (formerly known as our HomeAdvisor domestic business ("HomeAdvisor")) connects consumers with service professionals nationwide for home repair, maintenance and improvement projects. HomeAdvisor provides consumers with tools and resources to help them find local, pre-screened and customer-rated service professionals, as well as instantly book appointments online. HomeAdvisor also connects consumers with service professionals instantly by telephone, as well as offers several home services-related resources, such as cost guides for different types of home services projects. Handy connects consumers looking for household services (primarily cleaning and handyman services) with top-quality, pre-screened independent service professionals.
Together, we refer to the HomeAdvisor and Handy businesses in the United States as the "Marketplace." We provide all Marketplace matching services, related tools and directories to consumers free of charge.
As of December 31, 2018, the Marketplace had a network of approximately 214,000 service professionals, each of whom had an active network membership and/or paid for consumer matches (in the case of HomeAdvisor service professionals) or completed a job sourced through the Handy platform (in the case of Handy service professionals) in December 2018. Collectively, these service professionals provided services in more than 500 categories and 400 discrete markets in the United States, ranging from cleaning and installation services to simple home repairs and larger home remodeling projects. The Marketplace generated approximately 23.5 million service requests from over 13 million households during the year ended December 31, 2018. Service requests consisted of fully completed customer service requests submitted to HomeAdvisor and completed jobs sourced through the Handy platform.
Angie’s List connects consumers with service professionals for local services through a nationwide online directory of service professionals in over 700 service categories, as well as provides consumers with valuable tools, services and content (including verified reviews), to help them research, shop and hire for local services. We provide consumers with access to the Angie's List nationwide directory and related basic tools and services free of charge.
Marketplace Consumer Services. Consumers can submit a service request for a service professional directly through HomeAdvisor platforms, as well as indirectly through certain paths on some of our other branded platforms and various third-party affiliate platforms. In the case of service requests submitted through HomeAdvisor and third-party affiliate platforms, consumers are generally matched (through our proprietary algorithms) with up to four service professionals from the HomeAdvisor network of service professionals based on several factors, including the type of services desired, location and the number of service professionals available to fulfill the request. In the case of service requests submitted through our other branded platforms, consumers are generally matched (through our proprietary algorithms) with a combination of HomeAdvisor service professionals and service professionals from the relevant branded platform (as and if available for the given service request).
Service professionals may contact consumers with whom they have been matched directly and consumers can review profiles, ratings and reviews of presented service professionals and select the service professional whom they believe best meets their specific needs. Consumers are under no obligation to work with any service professional(s) referred by or found through any of our branded platforms or third-party affiliate platforms.
HomeAdvisor also provides several on-demand services, including Instant Booking and Instant Connect (patent-pending). Through Instant Booking, consumers can schedule appointments for select home services with a HomeAdvisor service professional instantly across certain HomeAdvisor platforms. Through Instant Connect, consumers can connect with a HomeAdvisor service professional instantly by phone, as well as through digital voice assistant platforms. In certain markets, HomeAdvisor also provides Same Day Service and Next Day Service for certain home services. In addition to matching and on-demand services, consumers can access the online HomeAdvisor True Cost Guide, which provides project cost information for more than 400 project types nationwide, as well as a library of home services-related content.
Through the Handy platform, consumers can select the service they need and specify when (date and time) they want the service to be provided; this information is then used to match consumers with Handy service professionals. In certain markets, consumers can also submit a request to book a specific Handy service professional for a given job. In both cases, the service is then scheduled and paid for directly through the Handy platform. In addition, consumers who purchase furniture, electronics, appliances and other home-related items from select third-party retail partners online (and in certain markets, in store) can simultaneously purchase assembly, installation and other related services to be fulfilled by Handy service professionals. The service is then paid for directly through the applicable third-party retail partner platform and scheduled through the Handy platform. Consumers can also search for service professionals by zip code on the Handy platform and contact them through the Handy platform.
Marketplace Service Professional Services. We primarily offer and sell HomeAdvisor memberships and related products and services to service professionals through our sales force (described below). The basic HomeAdvisor annual membership package includes membership in the HomeAdvisor network of service professionals, as well as access to consumer matches through HomeAdvisor platforms and a listing in the HomeAdvisor online directory and certain other affiliate directories, among other benefits. In addition to the membership subscription fee, HomeAdvisor service professionals pay fees for consumer matches. In the case of Handy, we provide service professionals who self-register on the Handy platform with access to a pool of consumers seeking service professionals. When a service is scheduled through the Handy platform, the related payment is processed and we charge the service professional a
booking fee. We also offer certain other subscription products, primarily to HomeAdvisor service professionals, through mHelpDesk, a provider of cloud-based field service software for small to mid-size businesses, as well as custom website development and hosting services.
Angie's List Consumer Services. Through most Angie’s List platforms, consumers can currently register and search for a service professional in the Angie’s List nationwide online directory and/or be matched with a service professional. Consumers who register can access ratings and reviews and search for service professionals, as well as access certain promotions. For a fee, we offer two premium membership packages, which include varying degrees of online and phone support, access to exclusive promotions and features and the award-winning Angie’s Listprint magazine.
Angie's List Service Professional Services. Angie’s List provides service professionals with a variety of services and tools, including certification. Generally, service professionals with an overall member grade below a "B" are not eligible for certification. Service professionals must satisfy certain criteria for certification, including retaining the requisite member grade, passing certain criminal background checks and attesting to proper licensure requirements. Once eligibility criteria are satisfied, service professionals must purchase term-based advertising from us to obtain certification. As of December 31, 2018, we had approximately 36,000 certified service professionals under contract for advertising.
Certified service professionals rotate among the first service professionals listed in directory search results for an applicable category, with non-certified service professionals appearing below certified service professionals in directory search results. Certified service professionals can also provide exclusive promotions to members. When consumers choose to be matched with a service professional, our proprietary algorithms will determine where a given service professional appears within related results.
Revenue
ANGI Homeservices revenue is primarily derived from: (i) consumer connection revenue, which consists of fees paid by HomeAdvisor service professionals for consumer matches (regardless of whether the service professional ultimately provides the requested service) and booking fees from completed jobs sourced through the Handy platform, and (ii) membership subscription fees paid by HomeAdvisor service professionals. Consumer connection revenue varies based upon several factors, including the service requested, product experience offered and geographic location of service.
Revenue is also derived from: (i) sales of time-based website, mobile and call center advertising to service professionals and (ii) membership subscription fees from consumers.
Marketing
ANGI Homeservices products and services are marketed to consumers primarily through digital marketing (primarily paid search engine marketing, display advertising and third-party affiliate agreements) and traditional offline marketing (national television and radio campaigns), as well as through e-mail. Pursuant to third-party affiliate agreements, third parties agree to advertise and promote HomeAdvisor products and services (and those of HomeAdvisor service professionals) on their platforms. In exchange for these efforts, these third parties are paid a fixed fee when visitors from their platforms click through and submit a valid service request through HomeAdvisor, or when visitors submit a valid service request on the affiliate platform and the affiliate transmits the service request to HomeAdvisor. ANGI Homeservices products and services are also marketed to consumers through relationships with select third-party retail partners and, to a lesser extent, through partnerships with other contextually related websites and direct mail.
We market subscription packages and related products and services to service professionals primarily through our Golden, Colorado based sales force, as well as through sales forces in Denver and Colorado Springs, Colorado, Lenexa, Kansas, New York, New York, Indianapolis, Indiana and Chicago, Illinois. We also market these products and services, together with our various directories, through paid search engine marketing, digital media advertising and direct relationships with trade associations and manufacturers. We market term-based advertising and related products to service professionals primarily through our Indianapolis based sales force.
Competition
The home services industry is highly competitive and fragmented, and in many important respects, local in nature. ANGI Homeservices competes with, among others: (i) search engines and online directories, (ii) home and/or local services-related platforms, (iii) providers of consumer ratings, reviews and referrals and (iv) various forms of traditional offline advertising (primarily local in nature), including radio, direct marketing campaigns, yellow pages, newspapers and other offline directories. We also compete with local and national retailers of home improvement products that offer or promote installation services. We believe our biggest competition comes from the traditional methods most people currently use to find service professionals, which is by word-of-mouth and through referrals.
We believe that our ability to compete successfully will depend primarily upon the following factors:
the size, quality, diversity and stability of our network of service professionals and the breadth of our online directory listings;
the functionality of our websites and mobile applications and the attractiveness of their features and our products and services generally to consumers and service professionals, as well as our continued ability to introduce new products and services that resonate with consumers and service professionals generally;
our ability to continue to build and maintain awareness of, and trust in and loyalty to, our various brands, particularly our Angie’s List, HomeAdvisor and Handy brands;
our ability to consistently generate service requests and jobs through the Marketplace and leads through our online directories that convert into revenue for our service professionals in a cost-effective manner; and
the quality and consistency of our service professional pre-screening processes and ongoing quality control efforts, as well as the reliability, depth and timeliness of customer ratings and reviews.
Vimeo
Overview
Vimeo operates a global video platform for creative professionals, marketers and enterprises to connect with their audiences, customers and employees. Vimeo provides cloud-based software products to stream, host, distribute and monetize videos online and across devices, as well as premium video tools on a subscription basis. Vimeo also sells live streaming accessories.
Platform
Through Vimeo’s Platform business, we provide basic video hosting and sharing capabilities free of charge. We also provide various packages of premium video tools via a Software-as-a-Service ("SaaS") model on a subscription basis (monthly or annual). Package capabilities may include additional video storage and high quality live streaming capabilities, robust video privacy controls, video player customization options, team collaboration and management tools, review and workflow tools, detailed analytics, lead generation and marketing tools, priority support and the ability to sell videos directly to consumers in a customized viewing experience, with the precise mix of capabilities dependent upon the tier of package purchased. As of December 31, 2018, there were approximately 952,000 subscribers to Vimeo’s SaaS offering.
Vimeo also operates two marketplaces for buying and selling videos, the Vimeo on Demand store and the Vimeo Stock store. Through the Vimeo on Demand store, subscribers may offer their videos for sale to their audiences. Through the Vimeo Stock store, Vimeo offers stock video footage from certain licensors. In both cases, Vimeo earns fees from the sale of video content.
Hardware
Through Livestream, we sell a number of live streaming accessories, including hardware devices for capturing, broadcasting and editing live video and the Mevo® camera, a pocket-sized device that allows broadcasters to professionally stream and edit live video. We also sell hardware equipment for customers with more sophisticated live
streaming needs, such as 4K encoding, multi-camera switching and on-screen graphics. Our hardware devices enable customers to stream video of their events through Vimeo software, as well as to multiple third-party platforms simultaneously. Subscribers to our SaaS offering can host, distribute and monetize live video edited with these hardware devices through Vimeo platforms.
Marketing and Sales
We market Vimeo services primarily through online marketing efforts, including paid search engine marketing, social media, e-mail campaigns, display advertising and affiliate marketing. We also market these products and services through offline marketing efforts, including outdoor advertising, offline events and product integrations, as well as directly through our self-serve websites and apps. Vimeo services and products can be purchased directly through our self-serve websites and apps, the Apple App Store and Google Play Store and our sales force, and in the case of livestreaming accessories only, through a network of retailers and distributors.
Revenue
Vimeo revenue is derived primarily from annual and monthly SaaS subscription fees paid by creators for premium capabilities and, to a lesser extent, sales of live streaming hardware, software and professional services.
Competition
Vimeo competes with a variety of online video platforms, from free, ad-based video sharing services directed at consumers to niche workflow and distribution solutions directed at professionals and enterprises. We believe that Vimeo differentiates itself from its competitors by providing an ad-free, high quality user experience and one-stop professional solution that is easy to use and affordable.
We believe that our ability to compete successfully will depend primarily upon the following factors:
the quality of our technology platform, video tools and user experience;
whether our SaaS subscription offering and live streaming accessories resonate with consumers;
the continued ability of users to distribute Vimeo-hosted content across third-party platforms and the prominence and visibility of such content within search engine results and social media platforms;
the recognition and strength of the Vimeo brand relative to competitor brands;
our ability to host and stream high-bandwidth video on a scalable platform;
our ability to retain existing subscribers by continuing to provide a compelling value proposition and convert non-paying users into subscribers; and
our ability to drive visitors to our platform through various forms of direct marketing.
Dotdash
Overview
Built upon more than 20 years of data and expert-written content, Dotdash is a portfolio of digital brands providing expert information and inspiration in select vertical content categories to over 90 million users each month.
Content
As of the date of this report, our Dotdash business consist of the following brands:
the Verywell family of brands, a leading online health publisher and resource where users can explore a full spectrum of health and wellness topics, from comprehensive information on medical conditions to advice on fitness, nutrition, mental health, pregnancy and more;
the Spruce family of brands, a leading online lifestyle property covering home decor, home repair, recipes, cooking techniques, pets and crafts where users can find practical, real-life tips and inspiration to help them create their best home;
the Balance family of brands, a leading online property covering personal finance, career and small business topics that makes personal finance easy to understand and where users can find clear, practical and straightforward personal financial advice;
Investopedia, an online resource for investment and personal finance education and information;
Lifewire, a leading online technology information property that provides expert-created, real-world technology content with informative visuals and straightforward instruction that helps users fix tech gadgets, learn how to perform specific tech tasks and find the best tech products;
TripSavvy, a travel website written by real experts (not anonymous reviewers) where users can find useful travel advice and inspiration from destinations around the world;
ThoughtCo, a leading online information and reference site with a focus on expert-created education content where users can find answers to questions and information regarding a broad range of disciplines, including science, technology and math, the humanities and the arts, music and recreation; and
two recently acquired websites, Byrdie, a leading beauty website covering beauty tips, style, product reviews and makeup trends, and MyDomaine, a lifestyle website where users can find fresh recipes, smart career tips and insider travel guides that awaken a life well lived.
Through these brands, we provide original and engaging digital content in a variety of formats, including articles, illustrations, videos and images. We work with hundreds of experts in their respective fields to create the content that we publish, including doctors, chefs, certified financial advisors and others.
Revenue
Dotdash revenue consists principally of digital advertising revenue and affiliate commerce commission revenue. Digital advertising revenue is generated primarily through digital display advertisements sold directly and through programmatic advertising networks. Affiliate commerce commission revenue is generated when Dotdash refers users to commerce partner websites resulting in a purchase or transaction.
Marketing
We market our content through a variety of digital distribution channels, including search engines, social media platforms and direct navigation programs. Users who engage with Dotdash brands are invited to share Dotdash content and sign up for our e-mail newsletters.
Competition
Dotdash competes with a wide variety of parties in connection with our efforts to attract and retain users and advertisers. Competitors primarily include other online publishers and destination websites with brands in similar vertical content categories and social channels.
Some of our current competitors have longer operating histories, greater brand recognition, larger user bases and/or greater financial, technical or marketing resources than we do. As a result, they have the ability to devote comparatively greater resources to the development and promotion of their content, which could result in greater market acceptance of their content relative to our content.
We believe that the ability of Dotdash to compete successfully will depend primarily upon the following factors:
the quality of the content and features on our websites, relative to those of our competitors;
our ability to successfully create or acquire content (or the rights thereto) in a cost-effective manner;
the relevance and authority of the content featured on our websites; and
our ability to successfully drive visitors to our portfolio of digital brands in a cost-effective manner.
Applications
Overview
Our Applications segment consists of our Desktop business and Mosaic Group, our mobile business. Through these businesses, we are a leading provider of global, advertising-driven desktop and subscription-based mobile applications.
Desktop
Through our Desktop business, we own and operate a portfolio of desktop browser applications that provide users with access to a wide variety of online content, tools and services. Aligned around the common theme of making the lives of our users easier in just a few clicks, these products span a myriad of categories, including: FromDocToPDF, through which users can convert documents from one format into various others; MapsGalaxy, through which users can access accurate street maps, local traffic conditions and aerial and satellite street views; and GetFormsOnline, through which users can access essential forms (tax, healthcare, travel and more) online. We provide users who download our desktop browser applications with new tab search services, as well as the option of default browser search services. We distribute our desktop browser applications to consumers free of charge on an opt-in basis directly through direct to consumer (primarily the Chrome Web Store) and partnership distribution channels.
We also develop, distribute and provide a suite of Slimware-branded desktop-support software and services, including: DriverUpdate®, which scans, identifies and completes required updates to device-to-PC communicating drivers; SlimCleaner® software, which cleans, updates, secures and optimizes computer operating systems; and Slimware® Premium Support, a subscription service that provides subscribers with 24/7 access to remote tech support for their computers, mobile phones and other digital devices.
Mosaic Group
Through Mosaic Group, we are a leading provider of global subscription mobile applications. Mosaic Group consists of the following businesses that we own and operate: Apalon, iTranslate (acquired in March 2018), TelTech (acquired in October 2018) and Daily Burn.
Apalon is a leading mobile development company with one of the largest and most popular application portfolios worldwide. iTranslate develops and distributes applications that enable users to read, write, speak and learn foreign languages anywhere in the world. TelTech develops and distributes unique and innovative mobile communications applications that help protect consumer privacy. Daily Burn is a health and fitness property that provides streaming fitness and workout videos across a variety of platforms (including iOS, Android, Roku and other Internet-enabled television platforms).
Through Mosaic Group, collectively, we operated 39 branded mobile applications in 28 languages across 173 countries as of the date of this report. Our branded mobile applications consist of applications spanning a variety of categories, each designed to meet the varying and unique needs of our subscribers and enhance their daily lives, including: iTranslate, through which subscribers can connect and communicate across over 100 languages; Robokiller, which thwarts telemarketing spam phones calls; and NOAA Radar, which provides up-to-date weather information and storm tracking worldwide. We distribute our branded mobile applications to our subscribers primarily through the Apple App and Google Play stores.
Revenue
Desktop revenue largely consists of advertising revenue generated principally through the display of paid listings in response to search queries. Paid listings are advertisements displayed on search results pages that generally contain a link to advertiser websites. The substantial majority of the paid listings displayed by our Desktop business is supplied to us by Google Inc. ("Google") pursuant to our services agreement with Google.
Pursuant to this agreement, those of our Desktop businesses that provide search services transmit search queries to Google, which in turn transmits a set of relevant and responsive paid listings back to these businesses for display in search results. This ad-serving process occurs independently of, but concurrently with, the generation of algorithmic search results for the same search queries. Google paid listings are displayed separately from algorithmic search results and are identified as sponsored listings on search results pages. Paid listings are priced on a price per click basis and when a user submits a search query through one of our Desktop businesses and then clicks on a Google paid listing displayed in response to the query, Google bills the advertiser that purchased the paid listing and shares a portion of the fee charged to the advertiser with us. See "Item 1A-Risk Factors-We depend upon arrangements with Google."
To a lesser extent, Desktop revenue also includes fees related to subscription downloadable desktop applications, as well as display advertisements.
Mosaic Group revenue consists primarily of fees related to subscription downloadable mobile applications distributed through the Apple App and Google Play stores, as well as display advertisements.
Marketing
We market our Desktop applications to users primarily through digital display advertisements and paid search engine marketing efforts, as well as through a number of affiliate advertisers who engage in these efforts on our behalf. We market our mobile applications to users primarily through digital storefronts (primarily Apple App and Google Play stores) and digital display advertisements on social media, messaging and media platforms, as well as in-app and cross-app advertising.
Competition
The Applications industry is competitive and has no single, dominant desktop or mobile application brand globally. In the case of our Desktop business, we compete with a number of other companies that develop and market similar desktop browser application products and distribute them through direct to consumer and third-party agreements. We also compete with search engines to provide users with new tab, homepage and/or default search services. We believe that the ability of our Desktop business to compete successfully will depend primarily upon the following factors:
our ability to maintain industry-leading monetization solutions for our desktop browser applications in response to technological changes and platform demands;
the size and stability of our global base of installed desktop application products and our ability to grow this base;
the continued creation of desktop browser applications that resonate with consumers, which depends upon our continued ability to bundle attractive features, content and services (some of which may be owned by third parties);
our ability to differentiate our desktop browser applications from those of our competitors; and
our ability to market and distribute our desktop browser applications through direct to consumer (primarily the Chrome Web Store) and third-party channels in a cost-effective manner.
In the case of Mosaic Group, we compete with many mobile application companies that provide similar free and paid mobile application products. Our competition also comes from services provided by non-mobile, analog and disparate sources, along with certain digital companies whose competitive products are ancillary or immaterial to their primary sources of revenue. We believe that the ability of Mosaic Group to compete successfully will depend primarily upon the following factors:
the continued growth of consumer adoption of free and paid mobile applications generally and related engagement levels;
our ability to operate our mobile applications as a scalable platform;
our ability to retain existing subscribers and acquire new subscribers in a cost-effective manner;
our ability to continue to optimize our marketing and monetization strategies;
the continued growth of smartphone adoption in certain regions of the world, particularly emerging markets;
the continued strength of Mosaic Group brands; and
our ability to introduce new and enhanced mobile applications in response to competitor offerings, consumer preferences, platform demands, social trends and evolving technological landscape.
Emerging & Other
Overview
Our Emerging & Other segment primarily includes:
Ask Media Group, a collection of websites providing general search services and information;
BlueCrew, an on-demand staffing platform that connects temporary workers with traditional blue-collar jobs in areas like warehouse, delivery and moving, data entry and customer service;
The Daily Beast, a website dedicated to news, commentary, culture and entertainment that publishes original reporting and opinion from its roster of full-time journalists and contributors;
College Humor Media, a provider of digital content, including its recently launched subscription only property, Dropout.tv; and
IAC Films, a provider of production and producer services for feature films, primarily for initial sale and distribution through theatrical releases and video-on-demand services in the United States and internationally.
For information regarding businesses that were included in this segment prior to their respective sales, see "Item 8-Consolidated Financial Statements and Supplementary Data-Note 1-Organization."
Revenue
Revenue of Ask Media Group consists principally of advertising revenue, which is generated primarily through the display of paid listings in response to search queries and display advertisements (sold directly and through programmatic ad sales). The majority of the paid listings displayed are supplied to us by Google in the manner, and pursuant to the services agreement with Google, described above under "-Applications-Revenue."
The Daily Beast revenue consists of advertising revenue, which is generated primarily through display advertisements (sold directly and through programmatic ad sales).
BlueCrew revenue consists of service revenue, which is generated through staffing temporary workers.
Revenue of College Humor Media and IAC Films is generated primarily through media production and distribution and advertising.
Employees
As of December 31, 2018, IAC had approximately 7,800 employees worldwide, the substantial majority of which provided services to our brands and business located in the United States. We believe that we generally have good relationships with our employees.
Additional Information
Company Website and Public Filings
The Company maintains a website at www.iac.com. Neither the information on the Company’s website, nor the information on the website of any IAC business, is incorporated by reference into this annual report, or into any other filings with, or into any other information furnished or submitted to, the SEC.
The Company makes available, free of charge through its website, its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K (including related amendments) as soon as reasonably practicable after they have been electronically filed with (or furnished to) the SEC.
Code of Ethics
The Company’s code of ethics applies to all employees (including IAC’s principal executive officers, principal financial officer and principal accounting officer) and directors and is posted on the Investor Relations section of the Company's website at www.iac.com/Investors under the "Code of Ethics" tab. This code of ethics complies with Item 406 of SEC Regulation S-K and the rules of The Nasdaq Stock Market LLC. Any changes to the code of ethics that affect the provisions required by Item 406 of Regulation S-K (and any waivers of such provisions of the code of ethics for IAC’s executive officers, senior financial officers or directors) will also be disclosed on IAC’s website.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
1A. Risk Factors
MarketCautionary Statement Regarding Forward-Looking Information
This annual report on Form 10-K contains "forward‑looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The use of words such as "anticipates," "estimates," "expects," "plans" and "believes," among others, generally identify forward-looking statements. These forward-looking statements include, among others, statements relating to: IAC’s future financial performance, IAC’s business prospects and strategy, anticipated trends and prospects in the industries in which IAC’s businesses operate and other similar matters. These forward-looking statements are based on IAC management's expectations and assumptions about future events as of the date of this annual 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 Registrant's Common Equitya variety of reasons, including, among others, the risk factors set forth below. Other unknown or unpredictable factors that could also adversely affect IAC’s business, financial condition and Related Stockholder Mattersresults of operations may arise from time to time. In light of these risks and uncertainties, the forward‑looking statements discussed in this annual 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 IAC management as of the date of this annual report. IAC does not undertake to update these forward‑looking statements.
IAC common stock is quotedRisk Factors
Our success depends, in substantial part, on our continued ability to market, distribute and monetize our products and services through search engines, social media platforms and digital app stores.
The marketing, distribution and monetization of our products and services depends on our ability to cultivate and maintain cost-effective and otherwise satisfactory relationships with search engines, social media platforms and digital app stores, in particular, those operated by Google, Facebook and Apple. These platforms could decide not to market and distribute some or all of our products and services, change their terms and conditions of use at any time (and without notice), favor their own products and services over ours and/or significantly increase their fees. While we expect to maintain cost-effective and otherwise satisfactory relationships with these platforms, no assurances can be provided that we will be able to do so and our inability to do so in the case of one or more of these platforms could have a material adverse effect on our business, financial condition and results of operations.
In particular, as consumers increasingly access our products and services through mobile applications, we (primarily in the case of our dating and Mosaic Group businesses) increasingly depend upon the Apple App Store and the Google Play Store to distribute our mobile applications. Both Apple and Google have broad discretion to change their respective terms and conditions applicable to the distribution of our mobile applications, including those relating to the amount of (and requirement to pay) certain fees associated with purchases facilitated by Apple and Google through our mobile applications, to interpret their respective terms and conditions in ways that may limit, eliminate or otherwise interfere with our ability to distribute mobile applications through their stores, the features we provide and the manner in which we market in-app products. We cannot assure you that Apple or Google will not limit, eliminate or otherwise interfere with the distribution of our mobile applications, the features we provide and the manner in which we market our in-app products. To the extent either or both of them do so, our business, financial condition and results of operations could be adversely affected.
In addition, the use of certain of our products and services also depends, in part, on social media platforms. For example, many users of Match Group’s Tinder, Hinge and certain other dating products historically registered for (and logged into) these dating products exclusively through their Facebook profiles. While Match Group launched an alternate authentication method that allows users to register for (and log into) Tinder, Hinge and other affected products using their mobile phone number, no assurances can be provided that users will no longer register for (and log into) Tinder, Hinge and other affected products through their Facebook profiles. Facebook has broad discretion to change its terms and conditions applicable to the data collected by its platform (and the use of such data) and to interpret its terms and conditions in ways that could limit, eliminate or otherwise interfere with our ability to use Facebook as an authentication method or to allow Facebook to use such data to gain a competitive advantage. If any such event were to occur, our, business, financial condition and results of operations could be adversely affected.
Our success depends, in part, upon the continued migration of certain markets and industries online and the continued growth and acceptance of online products and services as effective alternatives to traditional offline products and services.
Through our various businesses, we provide a variety of online products and services that continue to compete with their traditional offline counterparts. We believe that the continued growth and acceptance of online products and services generally will depend, to a large extent, on the Nasdaq Global Select Market ("NASDAQ"continued growth in commercial use of the Internet (particularly abroad) and the continued migration of traditional offline markets and industries online.
For example, the success of the businesses within our Match Group segment depends, in substantial part, on the continued migration of the dating market online, our ability to continue to provide dating products that users find more efficient, effective, comfortable and convenient relative to traditional means of meeting people and the continued erosion of stigma surrounding online dating (particularly in emerging markets and other parts of the world). If for any reason the dating market does not continue to migrate online as quickly as (or at lower levels than) we expect and/or a meaningful number of users do not embrace our dating products (and/or return to offline dating products and services), our business, financial condition and results of operations could be adversely affected.
Similarly, the success of the businesses within our ANGI Homeservices segment depends, in substantial part, on the continued migration of the home services market online. If for any reason the home services market does not migrate online as quickly as (or at lower levels than) we expect and consumers and service professionals continue, in large part, to rely on traditional offline efforts to connect with one another, our business, financial condition and results of operations could be adversely affected.
Lastly, as it relates to our advertising-supported businesses, our success also depends, in part, on our ability to compete for a share of available advertising expenditures as more traditional offline and emerging media companies continue to enter the online advertising market, as well as on the continued growth and acceptance of online advertising generally. If for any reason online advertising is not perceived as effective (relative to traditional advertising) and related mobile and other advertising models are not accepted, web browsers, software programs and/or other applications that limit or prevent advertising from being displayed become commonplace and/or the industry fails to effectively manage click fraud, the market for online advertising will be negatively impacted. Any lack of growth in the market for online advertising (particularly for paid listings) could adversely affect our business, financial condition and results of operations.
Marketing efforts designed to drive visitors to our various brands and businesses may not be successful or cost-effective.
Traffic building and conversion initiatives involve considerable expenditures for online and offline advertising and marketing. We have made, and expect to continue to make, significant expenditures for search engine marketing (primarily in the form of the purchase of keywords, which we purchase primarily through Google and, to a lesser extent, Microsoft and Yahoo!), online display advertising and traditional offline advertising (including television and radio campaigns) in connection with these initiatives, which may not be successful or cost-effective. Historically, we have had to increase advertising and marketing expenditures over time in order to attract and convert consumers, retain users and sustain our growth.
Our ability to market our brands on any given property or channel is subject to the policies of the relevant third-party seller, publisher of advertising (including search engines and social media platforms with extraordinarily high levels of traffic and numbers of users) or marketing affiliate. As a result, we cannot assure you that these parties will not limit or prohibit us from purchasing certain types of advertising, advertising certain of our products and services and/or using one or more current or prospective marketing channels in the future. If a significant marketing channel took such an action generally, for a significant period of time and/or on a recurring basis, our business, financial condition and results of operations could be adversely affected. In addition, if we fail to comply with the policies of third-party sellers, publishers of advertising and/or marketing affiliates, our advertisements could be removed without notice and/or our accounts could be suspended or terminated, any of which could adversely affect our business, financial condition and results of operations.
In addition, our failure to respond successfully to rapid and frequent changes in the pricing and operating dynamics of search engines, as well as changing policies and guidelines applicable to keyword advertising (which may be unilaterally updated by search engines without advance notice), could adversely affect both our paid search engine marketing efforts and free search engine traffic. Such changes could adversely affect paid listings (both their placement and pricing), as well as the ranking of our brands and businesses within search results, any or all of which could increase our costs (particularly if free traffic is replaced with paid traffic) and adversely affect the effectiveness of our marketing efforts overall. Certain of our businesses engage in efforts similar to search engine optimization through Facebook and other social media platforms (for example, developing content designed to appear higher in a given Facebook News Feed and generate "likes") that involve challenges and risks similar to those we face in connection with our search engine marketing efforts.
Evolving consumer behavior (specifically, increased consumption of media through digital means) can also affect the availability of cost-effective marketing opportunities. To continue to reach consumers, engage with users and continue to grow in this environment, we will need to identify and devote more of our overall marketing expenditures to newer digital advertising channels (such as online video and other digital platforms), as well as target consumers and users via these channels. Since newer advertising channels are undeveloped and unproven relative to traditional channels (such as television), it could be difficult to assess returns on our related marketing investments, which could adversely affect our business, financial condition and results of operations.
Lastly, we also enter into various arrangements with third parties to drive visitors to our various brands and businesses, which arrangements are generally more cost-effective than traditional marketing efforts. If we are unable to renew existing (and enter into new) arrangements of this nature, sales and marketing costs as a percentage of revenue would increase over the long-term, which could adversely affect our business, financial condition and results of operations. In addition, the quality and convertibility of leads generated through third-party arrangements are dependent on many factors, most of which are outside our control. If the quality and/or convertibility of leads do not meet the expectations of the users of our various products and services, our business, financial condition and results of operations could be adversely affected.
Our brands and businesses operate in especially competitive industries.
The industries in which our brands and businesses operate are competitive, with a consistent and growing stream of new products and entrants. Some of our competitors may enjoy better competitive positions in certain geographical areas, user demographics and/or other key areas that we currently serve or may serve in the future. Generally (and particularly in the case of our dating business), we compete with social media platforms with access to large existing pools of potential users and their personal information, which means these platforms can drive visitors to their products and services, as well as use better tailor products and service to individual users, at little to no cost relative to our efforts. For example, our dating business competes with Facebook, which introduced a dating feature on its
platform that it is testing in certain markets and intends to roll out globally in the near future. We also compete generally with search engine providers and online marketplaces that can market their products and services online in a more prominent and cost-effective manner than we can. Any of these advantages could enable our competitors to offer products and services that are more appealing to consumers than our products and services, respond more quickly and/or cost effectively than we do to evolving market opportunities and trends and/or display their own integrated or related products and services in a more prominent manner than our products and services in search results, which could adversely affect our business, financial condition and results of operations.
In addition, costs to switch among products and services are low or non-existent and consumers generally have a propensity to try new products and services (and use multiple products and services simultaneously). As a result, we expect the continued emergence of new products and services, entrants and business models in the various industries in which our brands and businesses operate. Our inability to compete effectively against new products, services and competitors could result in decreases in the size and levels of engagement of our various user, subscriber and membership bases, which could adversely affect our business, financial condition and results of operations.
Our success depends, in part, on our ability to build, maintain and/or enhance our various brands.
Through our various businesses, we own and operate a number of widely known consumer brands with strong brand appeal and recognition within their respective markets and industries, as well as a number of emerging brands that we are in the process of building. We believe that our success depends, in large part, on our continued ability to maintain and enhance our established brands, as well as build awareness of (and loyalty to) our emerging brands. Events that could adversely impact our brands and brand-building efforts include (among others): product and service quality concerns, consumer complaints, actions brought by consumers, ineffective advertising, inappropriate and/or unlawful actions taken by users, actions taken by governmental or regulatory authorities, data protection and security breaches and related bad publicity. The occurrence or any of these events could, in turn, adversely affect our business, financial condition and results of operations.
Our success depends, in part, on our ability to develop and monetize versions of our products and services for mobile and other digital devices.
As consumers increasingly access our products and services through mobile and other digital devices (including through digital voice assistants), we will need to devote significant time and resources to ensure that our products and services are accessible across these platforms (and multiple platforms generally). If we do not keep pace with evolving online, market and industry trends (including changes in the preferences and needs of our users and consumers generally), offer new and/or enhanced products and services in response to such trends that resonate with consumers, monetize products and services for mobile and other digital devices as effectively as our traditional products and services and/or maintain related systems, technology and infrastructure in an efficient and cost-effective manner, our business, financial condition and results of operations could be adversely affected.
In addition, the success of our mobile and other digital products and services depends on their interoperability with various third-party operating systems, technology, infrastructure and standards, over which we have no control. Any changes to any of these things that compromise the quality or functionality of our mobile and digital products and services could adversely affect their usage levels and/or our ability to attract consumers and advertisers, which could adversely affect our business, financial condition and results of operations.
Our brands and businesses are sensitive to general economic events or trends, particularly those that adversely impact advertising spending levels and consumer confidence and spending behavior.
A significant portion of our consolidated revenue (and a substantial portion of our net cash from operations that we can freely access), is attributable to online advertising, primarily revenue from our Dotdash and Applications segments and our Ask Media Group business. Accordingly, events and trends that result in decreased advertising expenditures and/or levels of consumer confidence and discretionary spending could adversely affect our business, financial condition and results of operations.
Similarly, the businesses within our ANGI Homeservices segment are particularly sensitive to events and trends that could result in consumers delaying or foregoing home services projects and/or service professionals being less likely to pay for Marketplace subscriptions and consumer matches. could result in decreases in Marketplace service requests and directory searches. Any such decreases could result in turnover at the Marketplace and/or any of our directories, adversely impact the number and quality of service professionals at the Marketplace and our directories
and/or adversely impact the reach of (and breath of services offered through) the Marketplace and our directories, any or all of which could adversely affect our business, financial condition and results of operations
Lastly, we have historically been, and will continue to be, sensitive to events and trends that could result in decreased marketing and advertising expenditures by service professionals. Adverse economic conditions and trends could result in service professionals decreasing and/or delaying membership subscriptions, fees paid for consumer matches and/or time-based advertising spend, any or all of which would result in decreased revenue and could adversely affect our business, financial condition and results of operations.
Our ability to communicate with our users and consumers via e-mail (or other sufficient means) is critical to our success.
As consumers increasingly communicate via mobile and other digital devices and messaging and social media apps, usage of e-mail (particularly among younger consumers) has declined and we expect this trend to continue. In addition, deliverability and other restrictions could limit or prevent our ability to send e-mails to users and consumers. A continued and significant erosion in our ability to communicate with consumers and users via e-mail could adversely impact the user experience, engagement levels and conversion rates, which could adversely affect our business, financial condition and results of operations. We cannot assure you that any means of communication (for example, push notifications) will be as effective as e-mail has been historically.
We may need to offset increasing digital 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.
We increasingly rely upon the Apple App Store and the Google Play Store to distribute the mobile applications of our various businesses. While some of our mobile applications are generally free to download from these stores, many of our mobile applications (primarily our dating and Mosaic Group applications) are subscription-based and/or offer in-app à la carte features for a fee. We determine the prices at which these subscriptions and à la carte features are sold; however, related purchases must be processed through the in-app payment systems provided by Apple and, to a lesser extent, Google. As a result, 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 increasing distribution of our mobile applications through digital app stores and strict in-app payment system requirements, we may need to offset these increased digital app store fees by decreasing traditional marketing expenditures as a percentage of revenue, increasing user volume or monetization per user or engaging in other efforts to increase revenue or decrease costs generally, or our business, financial condition and results of operations could be adversely affected. Additionally, to the extent Google changes its terms and conditions or practices to require us to process purchases of subscriptions and à la carte features through its in-app payment system, our business, financial condition and results of operations could be adversely affected.
Our success depends, in part, of the ability of ANGI Homeservices to establish and maintain relationships with quality service professionals.
We will need to continue to attract, retain and grow the number of skilled and reliable service professionals who can provide home services across ANGI Homeservices platforms. If we do not offer innovative products and services that resonate with consumers and service professionals generally, as well provide service professionals with an attractive return on their marketing and advertising investments (quality matches and leads that convert into jobs), the number of service professionals affiliated with ANGI Homeservices platforms would decrease. Any such decrease would result in smaller and less diverse networks and directories of service professionals, and in turn, decreases in service requests and directory searches, which could adversely impact our business, financial condition and results of operations.
We depend upon arrangements with Google.
A meaningful portion of our consolidated revenue (and a substantial portion of our net cash from operations that we can freely access) is attributable to a services agreement with Google. Pursuant to this agreement, we display and syndicate paid listings provided by Google in response to search queries generated by users of our Applications and certain Emerging & Other properties. In exchange for making our search traffic available to Google, we receive a share of the revenue generated by the paid listings supplied to us, as well as certain other search‑related services. Our current agreement with Google expires on March 31, 2020. In February 2019, we amended this agreement, effective as
of April 1, 2020, to extend the expiration date of our agreement to March 31, 2023; provided, however, that beginning September 2020 and each September thereafter, we or Google 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. We believe that the amended agreement, taken as a whole, is comparable to our current agreement with Google.
The amount of revenue we receive from Google depends on a number of factors outside of our control, including the amount Google charges for advertisements, the efficiency of Google’s system in attracting advertisers and serving up paid listings in response to search queries and parameters established by Google regarding the number and placement of paid listings displayed in response to search queries. In addition, Google makes judgments about the relative attractiveness (to advertisers) of clicks on paid listings from searches performed on our properties and these judgments factor into the amount of revenue we receive. Google also makes judgments about the relative attractiveness (to users) of paid listings from searches performed on our properties and these judgments factor into the number of advertisements we can purchase. Changes to the amount Google charges advertisers, the efficiency of Google’s paid listings network, Google's judgment about the relative attractiveness to advertisers of clicks on paid listings from our properties or to the parameters applicable to the display of paid listings generally could result in a decrease in the amount of revenue we receive from Google and could adversely affect our business, financial condition and results of operations. Such changes could come about for a number of reasons, including general market conditions, competition or policy and operating decisions made by Google.
Our services agreement with Google also requires that we comply with certain guidelines for the use of Google brands and services, including the Chrome browser and Chrome Web Store. These guidelines govern which of our products and applications may access Google services or be distributed through its Chrome Web Store, and the manner in which Google’s paid listings are displayed within search results across various third-party platforms and products (including our properties). Our services agreement also requires that we establish guidelines to govern certain activities of third parties to whom we syndicate paid listings, including the manner in which these parties drive search traffic to their websites and display paid listings. Google may generally unilaterally update its policies and guidelines without advance notice, which 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 adversely affect our business, financial condition and results of operations. Noncompliance with Google’s guidelines by us or the third parties to whom we are permitted to syndicate paid listings or through which we secure distribution arrangements for certain of our Applications properties could, if not cured, result in the suspension of some or all Google services to our properties (or the websites of our third-party partners) and/or the termination of the services agreement by Google.
The termination of the services agreement by Google, the curtailment of our rights under the ticker symbol "IAC." There is no established public trading marketagreement (whether pursuant to the terms thereof or otherwise) and/or the failure of Google to perform its obligations under the agreement would have an adverse effect on our business, financial condition and results of operations. If any of these events were to occur, we may not be able to find another suitable alternate provider of paid listings (or if an alternate provider were found, the economic and other terms of the agreement and the quality of paid listings may be inferior relative to our arrangements with, and the paid listings supplied by, Google) or otherwise replace the lost revenues.
Foreign currency exchange rate fluctuations could adversely affect us.
We operate in various foreign markets, primarily in various jurisdictions within the European Union, and as a result, are exposed to foreign exchange risk for IAC Class B common stock. The table below sets forth,both the Euro and British Pound ("GBP"). During the fiscal years ended December 31, 2018 and 2017, approximately 34% and 30% of our total revenues, respectively, were international revenues. We translate international revenues into U.S. Dollar-denominated results. As a result, as foreign currency exchange rates fluctuate, the translation of the statement of operations of our international businesses into U.S. Dollars affects the period-over-period comparability of operating results. We are also exposed to foreign currency exchange gains and losses to the extent we or our subsidiaries conduct transactions in, and/or have assets and/or liabilities that are denominated in, a currency other than the relevant entity's functional currency. For details regarding exchange rates and foreign currency exchange gains and losses for the calendar periods indicated,fiscal years ended December 31, 2018 and 2017, see "Item 7A-Quantitative and Qualitative Disclosures About Market Risk-Foreign Currency Exchange Risk."
Brexit may continue to cause disruptions to capital and currency markets worldwide, and the high and low sales prices per share for IAC common stock as reported on NASDAQ. As February 28, 2018, the closing price of IAC common stock on NASDAQ was $148.91.
|
| | | | | | | |
| | High | | Low |
| Year Ended December 31, 2017 | | | |
| Fourth Quarter | $ | 137.86 |
| | $ | 116.59 |
|
| Third Quarter | 119.53 |
| | 98.91 |
|
| Second Quarter | 107.98 |
| | 72.84 |
|
| First Quarter | 77.46 |
| | 64.69 |
|
| Year Ended December 31, 2016 | | | |
| Fourth Quarter | $ | 68.75 |
| | $ | 60.39 |
|
| Third Quarter | 64.00 |
| | 55.41 |
|
| Second Quarter | 57.14 |
| | 45.37 |
|
| First Quarter | 60.56 |
| | 38.82 |
|
As of February 2, 2018, there were approximately 1,300 holders of recordfull impact of the Company's common stockBrexit decision remains uncertain. Ongoing negotiations between the United Kingdom and five holdersthe European Union will determine the terms of record (all truststheir relationship following Brexit. During this period of negotiation and following the completion of Brexit, our operating results could be adversely affected by exchange rate and other market and economic volatility.
We have not hedged foreign currency exposures historically given that related gains or losses were not material to the Company. As we continue to grow and expand our international operations, our exposure to foreign exchange rate fluctuations will increase and if significant, could adversely affect our business, financial condition and results of operations.
We may not be able to protect our systems, technology and infrastructure from cyberattacks and cyberattacks experienced by third parties may adversely affect us.
We are regularly under attack by perpetrators of malicious technology-related events, such as the use of botnets, malware or other destructive or disruptive software, distributed denial of service attacks, phishing, attempts to misappropriate user information and account login credentials and other similar malicious activities. The incidence of events of this nature (or any combination thereof) is on the rise worldwide. While we continuously develop and maintain systems designed to detect and prevent events of this nature from impacting our systems, technology, infrastructure, products, services and users, have invested (and continue to invest) heavily in these efforts and related personnel and training and deploy data minimization strategies (where appropriate), these efforts are costly and require ongoing monitoring and updating as technologies change and efforts to overcome preventative security measures become more sophisticated. Despite these efforts, some of our systems have experienced past security incidents, none of which had a material adverse effect on our business, financial condition and results of operations, and we could experience significant events of this nature in the future.
Any event of this nature that we experience could damage our systems, technology and infrastructure and/or those of our users, prevent us from providing our products and services, compromise the integrity of our products and services, damage our reputation, erode our brands and/or be costly to remedy, as well as subject us to investigations by regulatory authorities, fines and/or litigation that could result in liability to third parties. Even if we do not experience such events firsthand, the impact of any such events experienced by third parties could have a similar effect. We may not have adequate insurance coverage to compensate for losses resulting from any of these events. If we (or any third-party with whom we do business or otherwise rely upon) experience(s) an event of this nature, our business, financial condition and results of operations could be adversely affected.
If personal, confidential or sensitive user information that we maintain and store is breached or otherwise accessed by unauthorized persons, it may be costly to mitigate and our reputation could be harmed.
We receive, process, store and transmit a significant amount of personal, confidential or sensitive user information and, in the benefitcase of certain of our products and services, enable users to share their personal information with each other. While we continuously develop and maintain systems designed to protect the security, integrity and confidentiality of this information, we cannot guarantee that inadvertent or unauthorized use or disclosure will not occur or that third parties will not gain unauthorized access to this information. When such events occur, we may not be able to remedy them and it may be costly to mitigate and to develop and implement protections to prevent future events of this nature from occurring. When breaches of security (ours or that of any third-party we engage to store information) occurs, the reputation of our brands and business could be harmed, which could adversely affect our business, financial condition and results of operations.
Credit card data security breaches or fraud that we or third parties experience could adversely affect us.
Certain of our businesses accept payment (including recurring payments) via credit and debit cards and certain online payment service providers. The ability of these businesses to access payment information on a real time‑basis without having to proactively reach out to users to process payments is critical to our success.
When we or a third-party experience(s) a data security breach involving credit card information, affected cardholders will often cancel their cards. In the case of a breach experienced by a third-party, the more sizable the third-party’s customer base, the greater the number of accounts impacted and the more likely it is that our users would be impacted by such a breach. If our users were affected, we would need to contact affected users to obtain new payment information. It is likely that we would not be able to reach all affected users, and even if we could, new payment information for some individuals may not be obtained and pending transactions may not be processed, which could adversely affect our business, financial condition and results of operations.
Even if our users are not directly impacted by a given data security breach, they may lose confidence in the ability of providers of online products and services to protect their personal information generally, which could cause them to stop using their credit cards online and choose alternative payment methods that are not as convenient for us or restrict our ability to process payments without significant effort.
If we fail to prevent credit card data security breaches and fraudulent credit card transactions, we could face litigation, governmental enforcement action, fines, civil liability, diminished public perception of our security measures, higher credit card-related costs and substantial remediation costs, or credit card processors could cease doing business with us, any of which could adversely affect our business, financial condition and results of operations
The processing, storage, use and disclosure of personal data could give rise to liabilities and increased costs.
We receive, transmit and store a large volume of personal information and other user data (including personal credit card data, as well as private content (such as videos and correspondence)) in connection with the processing of search queries, the provision of online products and services, payment transactions and advertising on our various properties. The manner in which we share, store, use, disclose and protect this information is determined by the respective privacy and data security policies of our various businesses, as well as federal, state and foreign laws and regulations and evolving industry standards and practices, which are changing, and in some cases, inconsistent and conflicting and subject to differing interpretations. In addition, new laws, regulations, standards and practices of this nature are proposed and adopted from time to time.
For example, a comprehensive European Union privacy and data protection reform, the General Data Protection Regulation (the "GDPR"), became effective in May 2018. The GDPR, which applies to companies that are organized in the European Union or otherwise provide services to (or monitor) consumers who reside in the European Union, imposes significant penalties (monetary and otherwise) for non-compliance. The GDPR will continue to be interpreted by European Union data protection regulators, which may require that we make changes to our business practices, and could generate additional risks and liabilities. The European Union is also considering an update to its Privacy and Electronic Communications Directive to impose stricter rules regarding the use of cookies. In addition, the potential exit from the European Union by the United Kingdom could result in the application of new and conflicting data privacy and protection laws and standards to our operations in the United Kingdom and our handling of personal data of users located in the United Kingdom. In addition, there are a number of privacy and data protection laws and regulations recently passed or under consideration by the U.S. Congress, as well as in various U.S. states and foreign jurisdictions in which we do business, including the California Consumer Privacy Act of 2018, which becomes effective January 1, 2020.
While we believe that we comply with applicable privacy and data protection policies, laws and regulations and industry standards and practices in all material respects, we could still be subject to claims of non-compliance that we may not be able to successfully defend and/or significant fines and penalties. Moreover, any non-compliance or perceived non-compliance by us (or any third-party we engage to store or process information) or any compromise of security that results in unauthorized access to (or use or transmission of) personal information could result in a variety of claims against us, including governmental enforcement actions, significant fines, litigation, claims of breach of contract and indemnity by third parties and adverse publicity. When such events occur, our reputation could be harmed and the competitive positions of our various brands and businesses could be diminished, which could adversely affect our business, financial condition and results of operations.
Lastly, ongoing compliance with existing (and compliance with future) privacy and data protection laws worldwide could be costly. The devotion of significant costs to compliance (versus to product development) could result in delays in the development of new products and services, us ceasing to provide problematic products and services in existing jurisdictions and us being prevented from introducing products and services in new and existing jurisdictions, which could adversely affect our business, financial condition and results of operations.
Our success depends, in part, on the integrity, quality, efficiency and scalability of our systems, technology and infrastructure, and those of third parties.
We rely on our systems, technology and infrastructure to perform well on a consistent basis. From time to time in the past we have experienced (and in the future we may experience) occasional interruptions that make some or all of this framework and related information unavailable or that prevent us from providing products and services; any such interruption could arise for any number of reasons. We also rely on third-party data center service providers and cloud-based, hosted web service providers, as well as third-party computer systems and a variety of communications systems
and service providers in connection with the provision of our products and services generally, as well as to facilitate and process certain payment and other transactions with users. We have no control over any of these third parties or their operations.
The framework described could be damaged or interrupted at any time due to fire, power loss, telecommunications failure, natural disasters, acts of war or terrorism, acts of God and other similar events or disruptions. Any event of this nature could prevent us from providing our products and services at all (or result in the provision of our products on a delayed or interrupted basis) and/or result in the loss of critical data. While we and the third parties upon whom we rely have certain backup systems in place for certain aspects of our respective frameworks, none of our frameworks are fully redundant and disaster recovery planning is not sufficient for all eventualities. In addition, we may not have adequate insurance coverage to compensate for losses from a major interruption. When such damages, interruptions or outages occur, our reputation could be harmed and the competitive positions of our various brands and businesses could be diminished, any or all of which could adversely affect our business, financial condition and results of operations.
We also continually work to expand and enhance the efficiency and scalability of our framework to improve the consumer experience, accommodate substantial increases in the number of visitors to our various platforms, ensure acceptable load times for our various products and services and keep up with changes in technology user preferences. If we do not do so in a timely and cost-effective manner, the user experience and demand across our brands and businesses could be adversely affected, which could adversely affect our business, financial condition and results of operations.
Mr. Diller and certain members of his family)family are able to exercise significant influence over the composition of the Company's Class B common stock. our Board of Directors, matters subject to stockholder approval and our operations.
As of the date of this report, there were six holders of record (Mr. Diller and five trusts for the benefit of Mr. Diller, his spouse, Diane von Furstenberg, and certain membershis stepson, Alexander von Furstenberg, collectively beneficially owned shares of his family) of the Company's Class B common stock. Because the substantial majoritystock and common stock that represented approximately 42.8% of the total outstanding voting power of IAC (based on the number of shares of IAC common stock outstanding on February 1, 2019). For details regarding the IAC securities beneficially owned by Mr. Diller, Ms. Von Furstenberg and Mr. Von Furstenberg, see "Item 1-Business-Equity Ownership and Vote."
As a result of IAC securities beneficially owned by these individuals, they are, held by brokerscollectively, currently in a position to influence, subject to our organizational documents and Delaware law, the composition of IAC’s Board of Directors and the outcome of corporate actions requiring shareholder approval, such as mergers, business combinations and dispositions of assets, among other corporate transactions. In addition, this concentration of investment and voting power could discourage others from initiating a potential merger, takeover or other change of control transaction that may otherwise be beneficial to IAC, which could adversely affect the market price of IAC securities.
We depend on our key personnel.
Our future success will depend upon our continued ability to identify, hire, develop, motivate and retain highly skilled individuals, particularly in the case of senior management. Competition for well-qualified employees across IAC and its various businesses is intense and we must attract new (and retain existing) employees to compete effectively. While we have established programs to attract new (and retain existing) employees, we may not be able to attract new (or retain existing) key and other institutions on behalf of shareholders, IAC is not able to estimateemployees in the total number of beneficial shareholders represented by these record holders.
We did not pay any cash or other dividends to holders of our common and Class B common stock in 2016 and 2017 andfuture. In addition, if we do not currently expect that any cash or other dividends will be paidensure the effective transfer of knowledge to holders of our commonsuccessors and Class B common stocksmooth transitions (particularly in the near future. Anycase of senior management) across our various businesses, our business, financial condition and results of operations generally, could be adversely affected.
Our current and future cash or other dividend declarations are subjectindebtedness could affect our ability to the determinationoperate our business, which could have a material adverse effect on our financial condition and results of IAC's Boardoperations.
As of Directors.
During the quarter ended December 31, 2017, the Company did not issue or sell any shares2018, we had total debt outstanding of its common stock or other equity securities pursuant to unregistered transactions.
Issuer Purchasesapproximately $2.3 billion, of Equity Securities
The Company did not purchase any shares of its common stock during the quarter ended December 31, 2017.which $552 million, $1.5 billion and $261.3 million was owed by IAC, Match Group and ANGI Homeservices, respectively. As of that date, 8,580,742 shareswe, Match Group and ANGI Homeservices had borrowing availability of common stock remained available for repurchase$250 million, $240 million and $250 million, respectively, under our revolving credit facilities. Neither Match Group, ANGI Homeservices nor any of their respective subsidiaries guarantee any indebtedness of IAC or are currently subject to any of the Company's previously announced May 2016 repurchase authorization.covenants related to such indebtedness. Similarly, neither IAC may purchase shares pursuant to this repurchase authorization over an indefinite periodnor any of timeits subsidiaries (other than Match Group and its subsidiaries in the open marketcase of Match Group indebtedness and ANGI Homeservices and its subsidiaries in privately negotiated transactions, depending on those factors IAC management deems relevant at any particular time, including, without limitation, market conditions, share price and future outlook.
Item 6. Selected Financial Data
The following selected financial data for the five years ended December 31, 2017 should be read in conjunction with the consolidated financial statements and accompanying notes included herein.case of ANGI Homeservices
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| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| | (In thousands, except per share data) |
Statement of Operations Data:(a) | | | | | | | | | |
| Revenue | $ | 3,307,239 |
| | $ | 3,139,882 |
| | $ | 3,230,933 |
| | $ | 3,109,547 |
| | $ | 3,022,987 |
|
| Earnings (loss) from continuing operations | 358,008 |
| | (16,151 | ) | | 113,374 |
| | 234,557 |
| | 281,799 |
|
Earnings from discontinued operations (b) | — |
| | — |
| | — |
| | 174,673 |
| | 1,926 |
|
| Net (earnings) loss attributable to noncontrolling interests | (53,084 | ) | | (25,129 | ) | | 6,098 |
| | 5,643 |
| | 2,059 |
|
| Net earnings (loss) attributable to IAC shareholders | 304,924 |
| | (41,280 | ) | | 119,472 |
| | 414,873 |
| | 285,784 |
|
| Earnings (loss) per share from continuing operations attributable to IAC shareholders: | | | | |
| Basic | $ | 3.81 |
| | $ | (0.52 | ) | | $ | 1.44 |
| | $ | 2.88 |
| | $ | 3.40 |
|
| Diluted | $ | 3.18 |
| | $ | (0.52 | ) | | $ | 1.33 |
| | $ | 2.71 |
| | $ | 3.27 |
|
| | | | | | | | | | |
| Dividends declared per share | $ | — |
| | $ | — |
| | $ | 1.36 |
| | $ | 1.16 |
| | $ | 0.96 |
|
| | | | | | | | | | |
| | December 31, |
| | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| | (In thousands) |
| Balance Sheet Data: | | | | | | | | | |
| Total assets | $ | 5,867,810 |
| | $ | 4,645,873 |
| | $ | 5,188,691 |
| | $ | 4,241,421 |
| | $ | 4,183,810 |
|
| Long-term debt: | | | | | | | | | |
| Current portion of long-term debt | 13,750 |
| | 20,000 |
| | 40,000 |
| | — |
| | — |
|
| Long-term debt, net | 1,979,469 |
| | 1,582,484 |
| | 1,726,954 |
| | 1,064,536 |
| | 1,062,446 |
|
| |
(b) | There were no discontinued operations for the three years ended December 31, 2017. For the year ended December 31, 2014, earnings from discontinued operations were due to the release of tax reserves related to the expiration of the statutes of limitations for federal income taxes for the years 2001 through 2009. |
Item 7. Management'sindebtedness) guarantee any indebtedness of Match Group or ANGI Homeservices nor are subject to any of the covenants related to such indebtedness.
The terms of the indebtedness of IAC, Match Group and ANGI Homeservices could:
limit our respective abilities to obtain additional financing to fund working capital needs, acquisitions, capital expenditures or other debt service requirements or for other purposes;
limit our respective abilities to use operating cash flow in other areas of our respective businesses because we must dedicate a substantial portion of these funds to service indebtedness;
limit our respective abilities to compete with other companies who are not as highly leveraged;
restrict any one or more of us from making strategic acquisitions, developing properties or exploiting business opportunities;
restrict the way in which one or more of us conducts business;
expose one or more of us to potential events of default, which if not cured or waived, could have a material adverse effect on our business, financial condition and operating results;
increase our respective vulnerabilities to a downturn in general economic conditions or in pricing of our various products and services; and
limit our respective abilities to react to changing market conditions in the various industries in which we do business.
Subject to certain restrictions, we and our subsidiaries may incur additional unsecured and secured indebtedness. If additional indebtedness incurred in compliance with these restrictions is significant, the risks described above could increase.
Lastly, if an event a default has occurred or our leverage ratio exceeds specified thresholds, our ability to pay dividends, make distributions and repurchase or redeem our capital stock would be limited. Match Group and ANGI Homeservices are subject to similar restrictions. See "Item 7-Management's Discussion and Analysis of Financial Condition and Results of OperationsOperations-Financial Position, Liquidity and Capital Resources and Financial Position."
We may not be able to generate sufficient cash to service all of our indebtedness.
The ability of IAC, Match Group and ANGI Homeservices to satisfy our respective debt obligations will depend upon, among other things:
our respective future financial and operating performance, which will be affected by prevailing economic conditions and financial, business, regulatory and other factors, many of which are beyond our control; and
the future ability of IAC, Match Group and ANGI Homeservices to borrow under our respective revolving credit facilities, which will depend on, among other things, compliance with the covenants governing our indebtedness.
Neither we, nor Match Group nor ANGI Homeservices may be able to generate sufficient cash flow from our respective operations and/or borrow under our respective revolving credit facilities in amounts sufficient to meet our scheduled debt obligations. See also "-We may not freely access the cash of Match Group, ANGI Homeservices and their respective subsidiaries" below. If so, we could be forced to reduce or delay capital expenditures, sell assets or seek additional capital in a manner that complies with the terms (including certain restrictions and limitations) of our current indebtedness. If these efforts do not generate sufficient funds to meet our scheduled debt obligations, we would need to seek additional financing and/or negotiate with our lenders to restructure or refinance our indebtedness. Our ability to do so would depend on the condition of the capital markets and our financial condition at such time. Any such financing, restructuring or refinancing could be on less favorable terms than those governing our current indebtedness and would need to comply with the terms (including certain restrictions and limitations) of our existing indebtedness.
We may not freely access the cash of Match Group, ANGI Homeservices and their respective subsidiaries.
Potential sources of cash for IAC include our available cash balances, net cash from the operating activities of certain of our subsidiaries, availability under our revolving credit facility and proceeds from asset sales, including marketable securities. While the ability of our operating subsidiaries to pay dividends or make other payments or advances to us depends on their individual operating results and applicable statutory, regulatory or contractual restrictions generally, in the case of Match Group and ANGI Homeservices, the terms of their indebtedness limit their ability to pay dividends or make distributions, loans or advances to stockholders, including IAC. In addition, because Match Group and ANGI Homeservices are separate and distinct legal entities with public shareholders, they have no obligation to provide us with funds.
Our variable rate indebtedness subjects us to interest rate risk.
As of December 31, 2018, Match Group had $260 million and $425 million outstanding under its revolving credit facility and term loan, respectively, and ANGI Homeservices has $263.1 million outstanding under its term loan. Borrowings under these loans are, and any borrowings under the revolving credit facilities of IAC or ANGI Homeservices will be, at variable interest rates, which exposes us to interest rate risk. For details regarding interest rates applicable to the variable rate indebtedness of Match Group and ANGI Homeservices described above as of December 31, 2018 and how certain increases and decreases in LIBOR rate would affect related interest expense, see "Item 7A-Quantitative and Qualitative Disclosures About Market Risk."
You may experience dilution with respect to your investment in IAC, and IAC may experience dilution with respect to its investments in Match Group and ANGI Homeservices, as a result of compensatory equity awards.
We have issued various compensatory equity awards, including stock options, stock appreciation rights and restricted stock unit awards denominated in shares of our common stock, as well as in equity of our various consolidated subsidiaries, including Match Group and ANGI Homeservices. For more information regarding these awards and their impact on our diluted earnings per share calculation, see "Note 11-Stock-Based Compensation" and "Note 10-Earnings Per Share," respectively, to the consolidated financial statements included in "Item 8-Consolidated Financial Statements and Supplementary Data."
The issuance of shares of IAC common stock in settlement of these equity awards could dilute your ownership interest in IAC. Awards denominated in shares of Match Group or ANGI Homeservices common stock that are settled in shares of those subsidiaries could dilute IAC’s ownership interest in Match Group and ANGI Homeservices, respectively. The dilution of our ownership stake(s) in Match Group and/or ANGI Homeservices could impact our ability, among other things, to maintain Match Group and/or ANGI Homeservices as part of our consolidated tax group for U.S. federal income tax purposes, to effect a tax-free distribution of our Match Group and/or ANGI Homeservices stake(s) to our stockholders or to maintain control of Match Group and/or ANGI Homeservices. As we generally have the right to maintain our levels of ownership in Match Group and ANGI Homeservices to the extent Match Group or ANGI Homeservices issues additional shares of their respective capital stock in the future pursuant to investor rights agreements, we do not intend to allow any of the foregoing to occur.
With respect to awards denominated in shares of our non-publicly traded subsidiaries, we estimate the dilutive impact of those awards based on our estimated fair value of those subsidiaries. Those estimates may change from time to time, and the fair value determined in connection with vesting and liquidity events could lead to more or less dilution than reflected in our diluted earnings per share calculation.
We may experience risks related to acquisitions.
We have made numerous acquisitions in the past and we continue to seek to identify potential acquisition candidates that will allow us to apply our expertise to expand their capabilities, as well as maximize our existing assets. If we do not identify suitable acquisition candidates or complete acquisitions on satisfactory pricing or other terms, our growth could be adversely affected.
Even if we complete what we believe to be suitable acquisitions, we may experience related operational and financial risks. So, to the extent that we continue to grow through acquisitions, we will need to:
properly value prospective acquisitions, especially those with limited operating histories;
successfully integrate the operations, as well as the various functions and systems, of acquired businesses with our existing operations, functions and systems;
successfully identify and realize potential synergies among acquired and existing businesses;
retain or hire senior management and other key personnel at acquired businesses; and
successfully manage acquisition‑related strain on management, operations and financial resources.
We may not be successful in addressing these or any other acquisition-related challenges. In addition, acquisition-related cost savings, growth opportunities, synergies or other benefits may not be realized. Also, future acquisitions could result in increased operating losses, dilutive issuances of equity securities and the assumption of contingent liabilities. Lastly, the value of goodwill and other intangible assets acquired could be impacted by unfavorable events and/or trends, which could result in significant impairment charges. The occurrence of any of these events could adversely affect our business, financial condition and results of operations.
We face additional risks in connection with our international operations.
We currently operate in various jurisdictions abroad and may continue to expand our international presence. Operating abroad, particularly in jurisdictions where we have limited experience, exposes us to additional risks, including:
operational and compliance challenges caused by distance, language barriers and cultural differences;
difficulties in staffing and managing international operations;
differing levels (or lack) of social and technological acceptance of our products and services;
slow or lagging growth in the commercial use and acceptance of the Internet (particularly via mobile devices);
foreign currency fluctuations;
restrictions on the transfer of funds among countries and back to the United States and related repatriation costs;
differing and potentially adverse tax laws;
compliance challenges;
competitive environments that favor local businesses;
limitations on the level of intellectual property protection; and
trade sanctions, political unrest, terrorism, war and epidemics or the threat of any of these events.
The occurrence of any or all of these events could adversely affect our international operations, and in turn, our business, financial condition and results of operations. Our success in international markets will also depend, in large part, on our ability to successfully complete international acquisitions, joint ventures or other transactions and integrate these businesses and operations with our own.
A variety of new laws, or new interpretations of existing laws, could subject us to claims or otherwise harm our business.
We are subject to a variety of laws and regulations in the U.S. and abroad that involve matters that are important to or may otherwise impact our business, including, among others, broadband internet access, online commerce, advertising, privacy and data protection, intermediary liability, consumer protection, protection of minors, taxation and securities compliance. These domestic and foreign laws, 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 Internet industry, and may be interpreted and applied inconsistently from jurisdiction to jurisdiction, as well as in a manner that could conflict with our current policies and practices. We face the same issues in the case of amended, proposed or new laws and regulations.
Compliance with applicable laws and regulations, as well as responding to any related inquiries, investigations or other government action, could be costly, delay or impede the development of new products and services, require modifications to existing products and services and/or require significant management time and attention. Non-compliance could subject us to remedies that could harm our business, such as fines, demands or orders that require us to modify or cease then current products and services, as well as result in negative publicity. Consequences of compliance and non-compliance with applicable laws and regulations, if significant, could adversely affect our business, financial condition and results of operations.
We are particularly sensitive to laws and regulations that adversely impact the popularity or growth in use of the Internet and/or online products and services generally, restrict or otherwise unfavorably impact the ability or manner in which we provide our products and services, regulate the practices of third parties upon which we rely to provide our products and services and undermine open and neutrally administered Internet access. For example, in February 2019, the Secretary of State for Digital, Culture, Media and Sport of the United Kingdom, indicated in public comments that his office intends to inquire as to the measures utilized by online dating platforms (including Tinder) to prevent access by underage users. To the extent our dating business is required to implement new measures to prevent such access, our business, financial condition and results of operations could be adversely affected. In addition, in December 2017, the U.S. Federal Communications Commission (the "FCC") adopted an order reversing net neutrality protections in the United 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 take such actions, our business, financial condition and results of operations could be adversely affected.
We are also sensitive to the adoption of any law or regulation affecting the ability of our businesses to periodically charge for recurring membership or subscription payments, which could adversely affect our business, financial condition and results of operations. For example, the European Union Payment Services directive, which became effective in 2018, could impact the ability of our businesses to process auto-renewal payments for, as well offer promotional or differentiated pricing to, users who reside in the European Union. Similar new legislation or regulations, or changes to existing legislation or regulations governing subscription payments, are being considered in many U.S. states.
We are also sensitive to the adoption of new tax laws. The European Commission and several European countries have issued proposals that would change various aspects of the current tax framework under which we are taxed, including proposals to change or impose new types of non-income taxes (including taxes based on a percentage of revenue). For example, the United Kingdom has proposed a Digital Services Tax applicable to revenues of social media platforms, online marketplaces and search engines linked to users residing in the United Kingdom, which would likely apply to certain of our business. If enacted, one or more of these or similar proposed tax laws could adversely affect our business, financial condition and results of operations.
We may fail to adequately protect our intellectual property rights or may be accused of infringing the intellectual property rights of third parties.
We rely heavily upon our trademarks and related domain names and logos to market our brands and to build and maintain brand loyalty and recognition, as well as upon trade secrets. We also rely, to a lesser extent, upon patented and patent-pending proprietary technologies with expiration dates ranging from 2019 to 2037.
We rely on a combination of laws and contractual restrictions with employees, customers, suppliers, affiliates and others to establish and protect our various intellectual property rights. For example, we have generally registered and continue to apply to register and renew, or secure by contract where appropriate, trademarks and service marks as they are developed and used, and reserve, register and renew domain names as we deem appropriate. We also generally seek to apply for patents or for other similar statutory protections as and if we deem appropriate, based on then current facts and circumstances, and will continue to do so in the future. No assurances can be given that these efforts will result in adequate trademark and service mark protection, adequate domain name rights and protections, the issuance of a patent or adequate patent protection against competitors and similar technologies. Third parties could also create new products or methods that achieve similar results without infringing upon patents we own.
Despite these measures, challenges to our intellectual property rights could still arise, third parties could copy or otherwise obtain and use our intellectual property without authorization and/or laws regarding the enforceability of existing intellectual property rights could change in an adverse manner. The occurrence of any of these events could result in the erosion of our brands and limitations on our ability to control marketing online using our various domain names, as well as impede our ability to effectively compete against competitors with similar technologies, any of which could adversely affect our business, financial condition and results of operations.
From time to time, we have been subject to legal proceedings and claims in the ordinary course of business related to alleged claims of infringement of the intellectual property of others and may need to institute legal proceedings in the future to enforce, protect or refine the scope of our intellectual property rights. For example, on March 17, 2018, our Match Group business filed a lawsuit against Bumble Trading Inc., which operates and markets the online dating application Bumble in the United States, for patent and trademark infringement, as well as trade secret misappropriation. Bumble’s counterclaims request that our trademark registration for Tinder’s SWIPE trademark be canceled and that a number of our pending applications for trademark registration be denied. This case is currently pending in Federal Court in the Western District of Texas. Any legal proceedings related to intellectual property, regardless of outcome or merit, could be costly and result in diversion of and technical resources, which could adversely affect our business, financial condition and results of operations.
Key Terms:Item 1B. Unresolved Staff Comments
WhenNot applicable.
Item 2. Properties
IAC believes that the facilities for its management and operations are generally adequate for its current and near-term future needs. IAC's facilities, most of which are leased by IAC's businesses in various cities and locations in the United States and various jurisdictions abroad, generally consist of executive and administrative offices, operations centers, data centers and sales offices.
IAC believes that its principal properties, whether owned or leased, are currently adequate for the purposes for which they are used and are suitably maintained for these purposes. IAC does not anticipate any future problems renewing or obtaining suitable leases on commercially reasonable terms for any of its principal businesses. IAC's approximately 202,500 square foot corporate headquarters in New York, New York houses offices for IAC corporate and various IAC businesses within the following terms appearsegments: Match Group, Vimeo, Applications and Emerging & Other.
Item 3. Legal Proceedings
In the ordinary course of business, the Company and its subsidiaries are (or may become) parties to litigation involving property, personal injury, contract, intellectual property and other claims, 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 rules of the Securities and Exchange Commission.
Consumer Class Action Challenging Tinder’s Age‑Tiered Pricing
On May 28, 2015, a putative state‑wide class action was filed against Tinder, Inc. ("Tinder") in state court in California. See Allan Candelore v. Tinder, Inc., No. BC583162 (Superior Court of California, County of Los Angeles). The complaint principally alleged 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 service. The complaint sought certification of a class of California Tinder Plus subscribers age 30 and over and
damages in an unspecified amount. On 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 has been returned to the trial court for further proceedings and is currently in discovery. We and Match Group believe that the allegations in this report, they have the meanings indicated below:lawsuit are without merit and will continue to defend vigorously against it.
Reportable Segments:
Bumble Claims against Match Group, LLC
On March 28, 2018, Bumble and its parent company filed a lawsuit against Match Group, LLC ("Match") in state court in Texas. - is the world's leading provider of dating products, operating a portfolio of brands, including Tinder,SeeBumble Trading, Inc. and Bumble Holding, Ltd. v. Match PlentyOfFish and OkCupid.
ANGI Homeservices - is the world's largest digital marketplace for home services, connecting millions of homeowners across the globe with home service professionals, and operates leading brands in eight countries, including HomeAdvisor and Angie's List.
Video - consists of Vimeo, Electus, IAC Films and Daily Burn.
Applications - consists of ConsumerGroup, LLC, No. DC‑18‑04140 (160th Judicial District Court, County of Dallas). The petition alleged that Match wrongfully obtained confidential information from the plaintiffs in connection with a potential Bumble sale process and filed an intellectual property lawsuit against Bumble in bad faith to undermine that process. The petition asserts claims for tortious interference with business relationships, fraud, misappropriation of trade secrets, unfair competition, promissory estoppel and disparagement. The petition seeks damages in excess of $400 million and an injunction against interference with the plaintiffs’ prospective business relationships or use of their confidential information. On September 26, 2018, Match filed its answer and counterclaims, a notice of removal of the case to the U.S. District Court for the Northern District of Texas, and a motion to transfer the case to the U.S. District Court for the Western District of Texas, where Match’s intellectual property lawsuit against Bumble is pending. See Bumble Trading, Inc. and Bumble Trading, Ltd. v. Match Group, LLC,No. 3:18-cv-2578 (U.S. District Court, Northern District of Texas). On October 18, 2018, Bumble filed a motion to dismiss its own petition without prejudice. On November 1, 2018, Match opposed the motion as an attempt to circumvent the federal court’s jurisdiction and also amended its counterclaims to seek declaratory judgments of non-liability on the claims asserted in Bumble’s petition. On November 15, 2018, Bumble filed a motion to dismiss those counterclaims, which includes our direct-to-consumer downloadable desktop applications, Apalon, which houses our mobile operations,motion Match has opposed. On November 29, 2018, the court granted Match’s motion to transfer the case to the Western District of Texas. See Bumble Trading, Inc. and SlimWare, which houses our downloadable desktop softwareBumble Trading, Ltd. v. Match Group, LLC,No. 6:18-cv-350 (U.S. District Court, Western District of Texas). On January 15, 2019, Bumble filed a motion for leave to file another petition, this one against Match and service operations;IAC, in state court in Dallas County. Bumble’s proposed claims are for fraud, negligent misrepresentation, unfair competition, promissory estoppel and interference with prospective business relations and are based upon the allegation that Match and IAC misled Bumble in its sale process by falsely representing they would make a higher offer to purchase Bumble. On January 22, 2019, Match filed its opposition to Bumble’s motion for leave. We and Match Group believe that the plaintiffs’ allegations in both the pending and the proposed lawsuits are without merit and will continue to defend vigorously against them.
Tinder Optionholder Litigation against IAC and Match Group
On August 14, 2018, ten then-current and former employees of Match or Tinder, an operating business of Match Group, filed a lawsuit in New York state court against IAC and Match Group.Partnerships 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 Match Group, thereby depriving one of the plaintiffs (Mr. Rad) of his contractual right to later valuations of Tinder on a stand‑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 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. On August 31, 2018, four plaintiffs who were still employed by Match Group filed a notice of discontinuance of their claims without prejudice, leaving the six former employees as the remaining plaintiffs. 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 includes our business-to-business partnership operations.is both
Publishing - consiststime‑barred under applicable law and available only on narrow substantive grounds that the plaintiffs have not pleaded in their complaint. On December 17, 2018, plaintiffs filed their opposition to the motion to dismiss. On January 15, 2019, the defendants filed their reply brief. A hearing on the motion is scheduled for March 6, 2019, and discovery in the case is proceeding. IAC and Match Group believe that the allegations in this lawsuit are without merit and will continue to defend vigorously against it.
FTC Investigation of Premium Brands, which includes Dotdash, Dictionary.com, Investopedia and The Daily Beast; and Ask & Other, which primarily includes Ask Media Group, CityGrid and, for periods prior to its sale on June 30, 2016, ASKfm.
Other - consists of The Princeton Review, ShoeBuy and PriceRunner, for periods prior to their sales on March 31, 2017, December 30, 2016 and March 18, 2016, respectively.
Operating metrics:Certain Match.com Business Practices
In March 2017, the Federal Trade Commission (the "FTC") requested information and documents in connection with a civil investigation regarding certain business practices of Match.com. In November 2018, the managementFTC offered to resolve its potential claims relating to Match.com’s marketing, chargeback and online cancellation practices via a consent judgment mandating certain changes in Match.com’s business practices, as well as a payment in the amount of our businesses, we identify, measure$60 million. We and assess a variety of operating metrics. The principal metrics we use in managing our businessesMatch Group believe that the FTC’s legal challenges to Match.com’s practices, policies and procedures are set forth below:without merit and are prepared to defend vigorously against them.
Item 4. Mine Safety Disclosures
Not applicable.
Match Group
Overview
Our Match Group segment consists of the businesses and operations of Match Group, Inc. ("Match Group"). Through Match Group, we operate a portfolio of dating brands, including Tinder, Match, PlentyOfFish, Meetic, OkCupid, OurTime, Pairs and Hinge, as well as a number of other brands, each designed to increase user likelihood of finding a meaningful connection. As of December 31, 2018, IAC’s ownership and voting interests in Match Group were 81.1% and 97.6%, respectively.
Services
Through Match Group, we are a leading provider of dating products all over the world through applications and websites that we own and operate. As of December 31, 2018, there were approximately 7.9 million Average Subscribers to our dating products (calculated by summing the total number of users who purchased one of our subscription-based dating products at the end of each day in the year ended December 31, 2018, divided by the number of calendar days in such year).
Dating is a highly personal endeavor and consumers have a wide variety of preferences that determine what type of dating product they choose. As a result, our strategy focuses on a portfolio approach of various brands in order to reach a broad range of users. Our brands are collectively available in 40 languages to users all over the world. The following is a list of our key brands:
Tinder. Tinder was launched in 2012, and has since risen to scale and popularity faster than any other product in the online dating category with limited marketing spend, growing to over 4.3 million subscribers today. Tinder’s distinctive "right swipe" feature has led to significant adoption among the millennial generation, previously underserved by the online dating category. Tinder employs a freemium model, through which users can enjoy many of the core features of Tinder for free, including limited use of the "swipe right" feature with unlimited communication with other users. However, to enjoy premium features, such as unlimited use of the "swipe right" feature, a Tinder user must subscribe to either Tinder Plus, launched in early 2015, or Tinder Gold, which was launched in late summer 2017. Tinder users and subscribers may also pay for certain premium features, such as Super Likes and Boosts, on a pay-per-use basis.
Match. Match was launched in 1995 and helped create the online dating category. Among its distinguishing features are the ability to search profiles, receive algorithmic matches and attend live events (promoted by Match) with other subscribers. Additionally, new features, such as Missed Connections, which uses location-based technology to enable users to connect with other users with whom they have crossed paths in the past, engage users into more meaningful connections. Match is a brand that focuses on users with a high level of intent to enter into a relationship and its product and marketing are designed to reinforce that approach. Match relies heavily on word-of-mouth traffic, repeat usage and paid marketing.
PlentyOfFish. PlentyOfFish was launched in 2003 and acquired in October 2015. Similar to Match, among its distinguishing features is the ability to both search profiles and receive algorithmic matches. Similar to Tinder, PlentyOfFish has grown to popularity over the years with very limited marketing spend and also relies on a freemium model. PlentyOfFish has broad appeal in the central United States, Canada, the United Kingdom and a number of other international markets.
Meetic. Meetic, a leading European online dating brand based in France, was launched in 2001. Similar to Match, among its distinguishing features are the ability to search profiles, receive algorithmic matches and attend live events (promoted by Meetic) with other subscribers and non-subscribers from time to time. Also, similar to Match, Meetic is a brand that focuses on users with a high level of intent to enter into a relationship and its product and marketing are designed to reinforce that approach. Meetic relies heavily on word-of-mouth traffic, repeat usage and paid marketing.
OkCupid. OkCupid was launched in 2004, and has attracted users through a mathematical and Q&A approach to the online dating category. Similar to Tinder and PlentyOfFish, OkCupid has grown in popularity over the years without significant marketing spend and also relies on a freemium model. OkCupid has a loyal and highly educated user base predominately located in major cities in the United States and the United Kingdom.
OurTime. OurTime is the largest brand within our affinity-oriented brands. OurTime is the largest community of singles over age 50 of any dating product.
Pairs. Pairs was launched in 2012 and acquired in May 2015. Pairs is a leading provider of dating products in Japan, with a strong presence in Taiwan and a growing presence in certain other Asian countries. Pairs is a dating app that was specifically designed to address social barriers generally associated with the use of dating products in Asian countries, particularly Japan.
Hinge. Hinge was launched in 2012 and, following a series of investments, Match took a controlling stake in Hinge in June 2018 and purchased all of the remaining outstanding equity in December 2018. Hinge is a mobile-only experience and employs a freemium model. Hinge focuses on users with a high level of intent to enter into a relationship and its product is designed to reinforce that approach.
All of our dating products enable users to establish a profile and review the profiles of other users without charge. Each product also offers additional features, some of which are free and some of which are paid, depending on the particular product. In general, access to premium features requires a subscription, which is typically offered in packages (primarily ranging from one month to six months), depending on the product and circumstance. Prices differ meaningfully within a given brand by the duration of subscription purchased, the bundle of paid features that a user chooses to access and whether or not a subscriber is taking advantage of any special offers. In addition to subscriptions, many of our dating products offer users certain features, such as the ability to promote themselves for a given period of time or to review certain profiles without any signaling to other users, and these features are offered on a pay‑per‑use basis. The precise mix of paid and premium features is established over time on a brand‑by‑brand basis and is constantly subject to iteration and evolution.
Revenue
Match Group revenue is primarily derived directly from users in the form of recurring subscriptions. Revenue is also earned from online advertising, the purchase of à la carte features and offline events.
Marketing
Certain of our brands attract the majority of their users through word-of-mouth and other free channels. Our other brands rely on paid user acquisition efforts for a significant percentage of their users. Our online marketing activities generally consist of social media advertising, banner and other display advertising, search engine marketing, e-mail campaigns, video advertising, business development or partnership deals and hiring influencers to promote our dating products. Our offline marketing activities generally consist of television advertising and related public relations efforts, as well as events.
Competition
The dating industry is competitive and has no single, dominant brand globally. We compete with a number of other companies that provide similar dating and matchmaking products.
In addition to other online dating brands, we compete with social media platforms and offline dating services, such as in‑person matchmakers. Arguably, our biggest competition comes from the traditional ways that people meet each other and the choices some people make to not utilize dating products or services.
We believe that our ability to compete successfully in the case of our dating business will depend primarily upon the following factors:
our ability to continue to increase consumer acceptance and adoption of online dating products, particularly in emerging markets and other parts of the world where the stigma is only beginning to erode;
continued growth in Internet access and smart phone adoption in certain regions of the world, particularly emerging markets;
the continued strength of Match Group brands;
the breadth and depth of Match Group active user communities relative to those of its competitors;
our ability to evolve our dating products in response to competitor offerings, user requirements, social trends, the ever-evolving technological landscape and the ever-changing regulatory landscape (in particular, as it relates to the regulation of online platforms);
our ability to efficiently acquire new users for our dating products;
our ability to continue to optimize our monetization strategies; and
the design and functionality of our dating products.
Lastly, since a large portion of online dating customers use multiple dating products over a given period of time, either concurrently or sequentially, we believe our broad portfolio of dating brands is a competitive advantage.
ANGI Homeservices
Overview
Through the ANGI Homeservices portfolio of digital home services brands, including HomeAdvisor®, Angie’s List® and Handy, we connect millions of homeowners to home service professionals, collect reviews and allow homeowners to research, match and connect on-demand to the largest network of service professionals online, through our mobile apps or by voice assistants.
In addition to its market-leading U.S. operations, ANGI owns leading home services online marketplaces in France (Travaux), Germany (MyHammer), Netherlands (Werkspot), United Kingdom (MyBuilder), Canada (HomeStars) and Italy (Instapro), as well as operations in Austria (MyHammer). As of December 31, 2018, IAC’s economic and voting interests in ANGI Homeservices were 83.9% and 98.1%, respectively.
Our ANGI Homeservices segment consists of the North American (United States and Canada) and European businesses and operations of ANGI Homeservices, a publicly traded holding company that was formed to facilitate the combination of the businesses within our former HomeAdvisor segment with Angie’s List, Inc. ("Angie's List"), which transaction was completed on September 29, 2017 (the "Combination"). ANGI Homeservices acquired Handy Technologies, Inc. ("Handy"), a leading platform in the United States for connecting individuals looking for household services (primarily cleaning and handyman services) with top-quality, pre-screened independent service professionals, in October 2018.
Services
Overview. The HomeAdvisor digital marketplace service (formerly known as our HomeAdvisor domestic business ("HomeAdvisor")) connects consumers with service professionals nationwide for home repair, maintenance and improvement projects. HomeAdvisor provides consumers with tools and resources to help them find local, pre-screened and customer-rated service professionals, as well as instantly book appointments online. HomeAdvisor also connects consumers with service professionals instantly by telephone, as well as offers several home services-related resources, such as cost guides for different types of home services projects. Handy connects consumers looking for household services (primarily cleaning and handyman services) with top-quality, pre-screened independent service professionals.
Together, we refer to the HomeAdvisor and Handy businesses in the United States as the "Marketplace." We provide all Marketplace matching services, related tools and directories to consumers free of charge.
As of December 31, 2018, the Marketplace had a network of approximately 214,000 service professionals, each of whom had an active network membership and/or paid for consumer matches (in the case of HomeAdvisor service professionals) or completed a job sourced through the Handy platform (in the case of Handy service professionals) in December 2018. Collectively, these service professionals provided services in more than 500 categories and 400 discrete markets in the United States, ranging from cleaning and installation services to simple home repairs and larger home remodeling projects. The Marketplace generated approximately 23.5 million service requests from over 13 million households during the year ended December 31, 2018. Service requests consisted of fully completed customer service requests submitted to HomeAdvisor and completed jobs sourced through the Handy platform.
Angie’s List connects consumers with service professionals for local services through a nationwide online directory of service professionals in over 700 service categories, as well as provides consumers with valuable tools, services and content (including verified reviews), to help them research, shop and hire for local services. We provide consumers with access to the Angie's List nationwide directory and related basic tools and services free of charge.
Marketplace Consumer Services. Consumers can submit a service request for a service professional directly through HomeAdvisor platforms, as well as indirectly through certain paths on some of our other branded platforms and various third-party affiliate platforms. In the case of service requests submitted through HomeAdvisor and third-party affiliate platforms, consumers are generally matched (through our proprietary algorithms) with up to four service professionals from the HomeAdvisor network of service professionals based on several factors, including the type of services desired, location and the number of service professionals available to fulfill the request. In the case of service requests submitted through our other branded platforms, consumers are generally matched (through our proprietary algorithms) with a combination of HomeAdvisor service professionals and service professionals from the relevant branded platform (as and if available for the given service request).
Service professionals may contact consumers with whom they have been matched directly and consumers can review profiles, ratings and reviews of presented service professionals and select the service professional whom they believe best meets their specific needs. Consumers are under no obligation to work with any service professional(s) referred by or found through any of our branded platforms or third-party affiliate platforms.
HomeAdvisor also provides several on-demand services, including Instant Booking and Instant Connect (patent-pending). Through Instant Booking, consumers can schedule appointments for select home services with a HomeAdvisor service professional instantly across certain HomeAdvisor platforms. Through Instant Connect, consumers can connect with a HomeAdvisor service professional instantly by phone, as well as through digital voice assistant platforms. In certain markets, HomeAdvisor also provides Same Day Service and Next Day Service for certain home services. In addition to matching and on-demand services, consumers can access the online HomeAdvisor True Cost Guide, which provides project cost information for more than 400 project types nationwide, as well as a library of home services-related content.
Through the Handy platform, consumers can select the service they need and specify when (date and time) they want the service to be provided; this information is then used to match consumers with Handy service professionals. In certain markets, consumers can also submit a request to book a specific Handy service professional for a given job. In both cases, the service is then scheduled and paid for directly through the Handy platform. In addition, consumers who purchase furniture, electronics, appliances and other home-related items from select third-party retail partners online (and in certain markets, in store) can simultaneously purchase assembly, installation and other related services to be fulfilled by Handy service professionals. The service is then paid for directly through the applicable third-party retail partner platform and scheduled through the Handy platform. Consumers can also search for service professionals by zip code on the Handy platform and contact them through the Handy platform.
Marketplace Service Professional Services. We primarily offer and sell HomeAdvisor memberships and related products and services to service professionals through our sales force (described below). The basic HomeAdvisor annual membership package includes membership in the HomeAdvisor network of service professionals, as well as access to consumer matches through HomeAdvisor platforms and a listing in the HomeAdvisor online directory and certain other affiliate directories, among other benefits. In addition to the membership subscription fee, HomeAdvisor service professionals pay fees for consumer matches. In the case of Handy, we provide service professionals who self-register on the Handy platform with access to a pool of consumers seeking service professionals. When a service is scheduled through the Handy platform, the related payment is processed and we charge the service professional a
booking fee. We also offer certain other subscription products, primarily to HomeAdvisor service professionals, through mHelpDesk, a provider of cloud-based field service software for small to mid-size businesses, as well as custom website development and hosting services.
Angie's List Consumer Services. Through most Angie’s List platforms, consumers can currently register and search for a service professional in the Angie’s List nationwide online directory and/or be matched with a service professional. Consumers who register can access ratings and reviews and search for service professionals, as well as access certain promotions. For a fee, we offer two premium membership packages, which include varying degrees of online and phone support, access to exclusive promotions and features and the award-winning Angie’s Listprint magazine.
Angie's List Service Professional Services. Angie’s List provides service professionals with a variety of services and tools, including certification. Generally, service professionals with an overall member grade below a "B" are not eligible for certification. Service professionals must satisfy certain criteria for certification, including retaining the requisite member grade, passing certain criminal background checks and attesting to proper licensure requirements. Once eligibility criteria are satisfied, service professionals must purchase term-based advertising from us to obtain certification. As of December 31, 2018, we had approximately 36,000 certified service professionals under contract for advertising.
Certified service professionals rotate among the first service professionals listed in directory search results for an applicable category, with non-certified service professionals appearing below certified service professionals in directory search results. Certified service professionals can also provide exclusive promotions to members. When consumers choose to be matched with a service professional, our proprietary algorithms will determine where a given service professional appears within related results.
Revenue
ANGI Homeservices revenue is primarily derived from: (i) consumer connection revenue, which consists of fees paid by HomeAdvisor service professionals for consumer matches (regardless of whether the service professional ultimately provides the requested service) and booking fees from completed jobs sourced through the Handy platform, and (ii) membership subscription fees paid by HomeAdvisor service professionals. Consumer connection revenue varies based upon several factors, including the service requested, product experience offered and geographic location of service.
Revenue is also derived from: (i) sales of time-based website, mobile and call center advertising to service professionals and (ii) membership subscription fees from consumers.
Marketing
ANGI Homeservices products and services are marketed to consumers primarily through digital marketing (primarily paid search engine marketing, display advertising and third-party affiliate agreements) and traditional offline marketing (national television and radio campaigns), as well as through e-mail. Pursuant to third-party affiliate agreements, third parties agree to advertise and promote HomeAdvisor products and services (and those of HomeAdvisor service professionals) on their platforms. In exchange for these efforts, these third parties are paid a fixed fee when visitors from their platforms click through and submit a valid service request through HomeAdvisor, or when visitors submit a valid service request on the affiliate platform and the affiliate transmits the service request to HomeAdvisor. ANGI Homeservices products and services are also marketed to consumers through relationships with select third-party retail partners and, to a lesser extent, through partnerships with other contextually related websites and direct mail.
We market subscription packages and related products and services to service professionals primarily through our Golden, Colorado based sales force, as well as through sales forces in Denver and Colorado Springs, Colorado, Lenexa, Kansas, New York, New York, Indianapolis, Indiana and Chicago, Illinois. We also market these products and services, together with our various directories, through paid search engine marketing, digital media advertising and direct relationships with trade associations and manufacturers. We market term-based advertising and related products to service professionals primarily through our Indianapolis based sales force.
Competition
The home services industry is highly competitive and fragmented, and in many important respects, local in nature. ANGI Homeservices competes with, among others: (i) search engines and online directories, (ii) home and/or local services-related platforms, (iii) providers of consumer ratings, reviews and referrals and (iv) various forms of traditional offline advertising (primarily local in nature), including radio, direct marketing campaigns, yellow pages, newspapers and other offline directories. We also compete with local and national retailers of home improvement products that offer or promote installation services. We believe our biggest competition comes from the traditional methods most people currently use to find service professionals, which is by word-of-mouth and through referrals.
We believe that our ability to compete successfully will depend primarily upon the following factors:
the size, quality, diversity and stability of our network of service professionals and the breadth of our online directory listings;
the functionality of our websites and mobile applications and the attractiveness of their features and our products and services generally to consumers and service professionals, as well as our continued ability to introduce new products and services that resonate with consumers and service professionals generally;
our ability to continue to build and maintain awareness of, and trust in and loyalty to, our various brands, particularly our Angie’s List, HomeAdvisor and Handy brands;
our ability to consistently generate service requests and jobs through the Marketplace and leads through our online directories that convert into revenue for our service professionals in a cost-effective manner; and
the quality and consistency of our service professional pre-screening processes and ongoing quality control efforts, as well as the reliability, depth and timeliness of customer ratings and reviews.
Vimeo
Overview
Vimeo operates a global video platform for creative professionals, marketers and enterprises to connect with their audiences, customers and employees. Vimeo provides cloud-based software products to stream, host, distribute and monetize videos online and across devices, as well as premium video tools on a subscription basis. Vimeo also sells live streaming accessories.
Platform
Through Vimeo’s Platform business, we provide basic video hosting and sharing capabilities free of charge. We also provide various packages of premium video tools via a Software-as-a-Service ("SaaS") model on a subscription basis (monthly or annual). Package capabilities may include additional video storage and high quality live streaming capabilities, robust video privacy controls, video player customization options, team collaboration and management tools, review and workflow tools, detailed analytics, lead generation and marketing tools, priority support and the ability to sell videos directly to consumers in a customized viewing experience, with the precise mix of capabilities dependent upon the tier of package purchased. As of December 31, 2018, there were approximately 952,000 subscribers to Vimeo’s SaaS offering.
Vimeo also operates two marketplaces for buying and selling videos, the Vimeo on Demand store and the Vimeo Stock store. Through the Vimeo on Demand store, subscribers may offer their videos for sale to their audiences. Through the Vimeo Stock store, Vimeo offers stock video footage from certain licensors. In both cases, Vimeo earns fees from the sale of video content.
Hardware
Through Livestream, we sell a number of live streaming accessories, including hardware devices for capturing, broadcasting and editing live video and the Mevo® camera, a pocket-sized device that allows broadcasters to professionally stream and edit live video. We also sell hardware equipment for customers with more sophisticated live
streaming needs, such as 4K encoding, multi-camera switching and on-screen graphics. Our hardware devices enable customers to stream video of their events through Vimeo software, as well as to multiple third-party platforms simultaneously. Subscribers to our SaaS offering can host, distribute and monetize live video edited with these hardware devices through Vimeo platforms.
Marketing and Sales
We market Vimeo services primarily through online marketing efforts, including paid search engine marketing, social media, e-mail campaigns, display advertising and affiliate marketing. We also market these products and services through offline marketing efforts, including outdoor advertising, offline events and product integrations, as well as directly through our self-serve websites and apps. Vimeo services and products can be purchased directly through our self-serve websites and apps, the Apple App Store and Google Play Store and our sales force, and in the case of livestreaming accessories only, through a network of retailers and distributors.
Revenue
Vimeo revenue is derived primarily from annual and monthly SaaS subscription fees paid by creators for premium capabilities and, to a lesser extent, sales of live streaming hardware, software and professional services.
Competition
Vimeo competes with a variety of online video platforms, from free, ad-based video sharing services directed at consumers to niche workflow and distribution solutions directed at professionals and enterprises. We believe that Vimeo differentiates itself from its competitors by providing an ad-free, high quality user experience and one-stop professional solution that is easy to use and affordable.
We believe that our ability to compete successfully will depend primarily upon the following factors:
the quality of our technology platform, video tools and user experience;
whether our SaaS subscription offering and live streaming accessories resonate with consumers;
the continued ability of users to distribute Vimeo-hosted content across third-party platforms and the prominence and visibility of such content within search engine results and social media platforms;
the recognition and strength of the Vimeo brand relative to competitor brands;
our ability to host and stream high-bandwidth video on a scalable platform;
our ability to retain existing subscribers by continuing to provide a compelling value proposition and convert non-paying users into subscribers; and
our ability to drive visitors to our platform through various forms of direct marketing.
Dotdash
Overview
Built upon more than 20 years of data and expert-written content, Dotdash is a portfolio of digital brands providing expert information and inspiration in select vertical content categories to over 90 million users each month.
Content
As of the date of this report, our Dotdash business consist of the following brands:
the Verywell family of brands, a leading online health publisher and resource where users can explore a full spectrum of health and wellness topics, from comprehensive information on medical conditions to advice on fitness, nutrition, mental health, pregnancy and more;
the Spruce family of brands, a leading online lifestyle property covering home decor, home repair, recipes, cooking techniques, pets and crafts where users can find practical, real-life tips and inspiration to help them create their best home;
the Balance family of brands, a leading online property covering personal finance, career and small business topics that makes personal finance easy to understand and where users can find clear, practical and straightforward personal financial advice;
Investopedia, an online resource for investment and personal finance education and information;
Lifewire, a leading online technology information property that provides expert-created, real-world technology content with informative visuals and straightforward instruction that helps users fix tech gadgets, learn how to perform specific tech tasks and find the best tech products;
TripSavvy, a travel website written by real experts (not anonymous reviewers) where users can find useful travel advice and inspiration from destinations around the world;
ThoughtCo, a leading online information and reference site with a focus on expert-created education content where users can find answers to questions and information regarding a broad range of disciplines, including science, technology and math, the humanities and the arts, music and recreation; and
two recently acquired websites, Byrdie, a leading beauty website covering beauty tips, style, product reviews and makeup trends, and MyDomaine, a lifestyle website where users can find fresh recipes, smart career tips and insider travel guides that awaken a life well lived.
Through these brands, we provide original and engaging digital content in a variety of formats, including articles, illustrations, videos and images. We work with hundreds of experts in their respective fields to create the content that we publish, including doctors, chefs, certified financial advisors and others.
Revenue
Dotdash revenue consists principally of digital advertising revenue and affiliate commerce commission revenue. Digital advertising revenue is generated primarily through digital display advertisements sold directly and through programmatic advertising networks. Affiliate commerce commission revenue is generated when Dotdash refers users to commerce partner websites resulting in a purchase or transaction.
Marketing
We market our content through a variety of digital distribution channels, including search engines, social media platforms and direct navigation programs. Users who engage with Dotdash brands are invited to share Dotdash content and sign up for our e-mail newsletters.
Competition
Dotdash competes with a wide variety of parties in connection with our efforts to attract and retain users and advertisers. Competitors primarily include other online publishers and destination websites with brands in similar vertical content categories and social channels.
Some of our current competitors have longer operating histories, greater brand recognition, larger user bases and/or greater financial, technical or marketing resources than we do. As a result, they have the ability to devote comparatively greater resources to the development and promotion of their content, which could result in greater market acceptance of their content relative to our content.
We believe that the ability of Dotdash to compete successfully will depend primarily upon the following factors:
the quality of the content and features on our websites, relative to those of our competitors;
our ability to successfully create or acquire content (or the rights thereto) in a cost-effective manner;
the relevance and authority of the content featured on our websites; and
our ability to successfully drive visitors to our portfolio of digital brands in a cost-effective manner.
Applications
Overview
Our Applications segment consists of our Desktop business and Mosaic Group, our mobile business. Through these businesses, we are a leading provider of global, advertising-driven desktop and subscription-based mobile applications.
Desktop
Through our Desktop business, we own and operate a portfolio of desktop browser applications that provide users with access to a wide variety of online content, tools and services. Aligned around the common theme of making the lives of our users easier in just a few clicks, these products span a myriad of categories, including: FromDocToPDF, through which users can convert documents from one format into various others; MapsGalaxy, through which users can access accurate street maps, local traffic conditions and aerial and satellite street views; and GetFormsOnline, through which users can access essential forms (tax, healthcare, travel and more) online. We provide users who download our desktop browser applications with new tab search services, as well as the option of default browser search services. We distribute our desktop browser applications to consumers free of charge on an opt-in basis directly through direct to consumer (primarily the Chrome Web Store) and partnership distribution channels.
We also develop, distribute and provide a suite of Slimware-branded desktop-support software and services, including: DriverUpdate®, which scans, identifies and completes required updates to device-to-PC communicating drivers; SlimCleaner® software, which cleans, updates, secures and optimizes computer operating systems; and Slimware® Premium Support, a subscription service that provides subscribers with 24/7 access to remote tech support for their computers, mobile phones and other digital devices.
Mosaic Group
Through Mosaic Group, we are a leading provider of global subscription mobile applications. Mosaic Group consists of the following businesses that we own and operate: Apalon, iTranslate (acquired in March 2018), TelTech (acquired in October 2018) and Daily Burn.
Apalon is a leading mobile development company with one of the largest and most popular application portfolios worldwide. iTranslate develops and distributes applications that enable users to read, write, speak and learn foreign languages anywhere in the world. TelTech develops and distributes unique and innovative mobile communications applications that help protect consumer privacy. Daily Burn is a health and fitness property that provides streaming fitness and workout videos across a variety of platforms (including iOS, Android, Roku and other Internet-enabled television platforms).
Through Mosaic Group, collectively, we operated 39 branded mobile applications in 28 languages across 173 countries as of the date of this report. Our branded mobile applications consist of applications spanning a variety of categories, each designed to meet the varying and unique needs of our subscribers and enhance their daily lives, including: iTranslate, through which subscribers can connect and communicate across over 100 languages; Robokiller, which thwarts telemarketing spam phones calls; and NOAA Radar, which provides up-to-date weather information and storm tracking worldwide. We distribute our branded mobile applications to our subscribers primarily through the Apple App and Google Play stores.
Revenue
Desktop revenue largely consists of advertising revenue generated principally through the display of paid listings in response to search queries. Paid listings are advertisements displayed on search results pages that generally contain a link to advertiser websites. The substantial majority of the paid listings displayed by our Desktop business is supplied to us by Google Inc. ("Google") pursuant to our services agreement with Google.
Pursuant to this agreement, those of our Desktop businesses that provide search services transmit search queries to Google, which in turn transmits a set of relevant and responsive paid listings back to these businesses for display in search results. This ad-serving process occurs independently of, but concurrently with, the generation of algorithmic search results for the same search queries. Google paid listings are displayed separately from algorithmic search results and are identified as sponsored listings on search results pages. Paid listings are priced on a price per click basis and when a user submits a search query through one of our Desktop businesses and then clicks on a Google paid listing displayed in response to the query, Google bills the advertiser that purchased the paid listing and shares a portion of the fee charged to the advertiser with us. See "Item 1A-Risk Factors-We depend upon arrangements with Google."
To a lesser extent, Desktop revenue also includes fees related to subscription downloadable desktop applications, as well as display advertisements.
Mosaic Group revenue consists primarily of fees related to subscription downloadable mobile applications distributed through the Apple App and Google Play stores, as well as display advertisements.
Marketing
We market our Desktop applications to users primarily through digital display advertisements and paid search engine marketing efforts, as well as through a number of affiliate advertisers who engage in these efforts on our behalf. We market our mobile applications to users primarily through digital storefronts (primarily Apple App and Google Play stores) and digital display advertisements on social media, messaging and media platforms, as well as in-app and cross-app advertising.
Competition
The Applications industry is competitive and has no single, dominant desktop or mobile application brand globally. In the case of our Desktop business, we compete with a number of other companies that develop and market similar desktop browser application products and distribute them through direct to consumer and third-party agreements. We also compete with search engines to provide users with new tab, homepage and/or default search services. We believe that the ability of our Desktop business to compete successfully will depend primarily upon the following factors:
our ability to maintain industry-leading monetization solutions for our desktop browser applications in response to technological changes and platform demands;
the size and stability of our global base of installed desktop application products and our ability to grow this base;
the continued creation of desktop browser applications that resonate with consumers, which depends upon our continued ability to bundle attractive features, content and services (some of which may be owned by third parties);
our ability to differentiate our desktop browser applications from those of our competitors; and
our ability to market and distribute our desktop browser applications through direct to consumer (primarily the Chrome Web Store) and third-party channels in a cost-effective manner.
In the case of Mosaic Group, we compete with many mobile application companies that provide similar free and paid mobile application products. Our competition also comes from services provided by non-mobile, analog and disparate sources, along with certain digital companies whose competitive products are ancillary or immaterial to their primary sources of revenue. We believe that the ability of Mosaic Group to compete successfully will depend primarily upon the following factors:
the continued growth of consumer adoption of free and paid mobile applications generally and related engagement levels;
our ability to operate our mobile applications as a scalable platform;
our ability to retain existing subscribers and acquire new subscribers in a cost-effective manner;
our ability to continue to optimize our marketing and monetization strategies;
the continued growth of smartphone adoption in certain regions of the world, particularly emerging markets;
the continued strength of Mosaic Group brands; and
our ability to introduce new and enhanced mobile applications in response to competitor offerings, consumer preferences, platform demands, social trends and evolving technological landscape.
Emerging & Other
Overview
Our Emerging & Other segment primarily includes:
Ask Media Group, a collection of websites providing general search services and information;
BlueCrew, an on-demand staffing platform that connects temporary workers with traditional blue-collar jobs in areas like warehouse, delivery and moving, data entry and customer service;
The Daily Beast, a website dedicated to news, commentary, culture and entertainment that publishes original reporting and opinion from its roster of full-time journalists and contributors;
College Humor Media, a provider of digital content, including its recently launched subscription only property, Dropout.tv; and
IAC Films, a provider of production and producer services for feature films, primarily for initial sale and distribution through theatrical releases and video-on-demand services in the United States and internationally.
For information regarding businesses that were included in this segment prior to their respective sales, see "Item 8-Consolidated Financial Statements and Supplementary Data-Note 1-Organization."
Revenue
Revenue of Ask Media Group consists principally of advertising revenue, which is generated primarily through the display of paid listings in response to search queries and display advertisements (sold directly and through programmatic ad sales). The majority of the paid listings displayed are supplied to us by Google in the manner, and pursuant to the services agreement with Google, described above under "-Applications-Revenue."
The Daily Beast revenue consists of advertising revenue, which is generated primarily through display advertisements (sold directly and through programmatic ad sales).
BlueCrew revenue consists of service revenue, which is generated through staffing temporary workers.
Revenue of College Humor Media and IAC Films is generated primarily through media production and distribution and advertising.
Employees
As of December 31, 2018, IAC had approximately 7,800 employees worldwide, the substantial majority of which provided services to our brands and business located in the United States. We believe that we generally have good relationships with our employees.
Additional Information
Company Website and Public Filings
The Company maintains a website at www.iac.com. Neither the information on the Company’s website, nor the information on the website of any IAC business, is incorporated by reference into this annual report, or into any other filings with, or into any other information furnished or submitted to, the SEC.
The Company makes available, free of charge through its website, its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K (including related amendments) as soon as reasonably practicable after they have been electronically filed with (or furnished to) the SEC.
Code of Ethics
The Company’s code of ethics applies to all employees (including IAC’s principal executive officers, principal financial officer and principal accounting officer) and directors and is posted on the Investor Relations section of the Company's website at www.iac.com/Investors under the "Code of Ethics" tab. This code of ethics complies with Item 406 of SEC Regulation S-K and the rules of The Nasdaq Stock Market LLC. Any changes to the code of ethics that affect the provisions required by Item 406 of Regulation S-K (and any waivers of such provisions of the code of ethics for IAC’s executive officers, senior financial officers or directors) will also be disclosed on IAC’s website.
Item 1A. Risk Factors
Cautionary Statement Regarding Forward-Looking Information
This annual report on Form 10-K contains "forward‑looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The use of words such as "anticipates," "estimates," "expects," "plans" and "believes," among others, generally identify forward-looking statements. These forward-looking statements include, among others, statements relating to: IAC’s future financial performance, IAC’s business prospects and strategy, anticipated trends and prospects in the industries in which IAC’s businesses operate and other similar matters. These forward-looking statements are based on IAC management's expectations and assumptions about future events as of the date of this annual 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, the risk factors set forth below. Other unknown or unpredictable factors that could also adversely affect IAC’s business, financial condition and results of operations may arise from time to time. In light of these risks and uncertainties, the forward‑looking statements discussed in this annual 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 IAC management as of the date of this annual report. IAC does not undertake to update these forward‑looking statements.
Risk Factors
Our success depends, in substantial part, on our continued ability to market, distribute and monetize our products and services through search engines, social media platforms and digital app stores.
The marketing, distribution and monetization of our products and services depends on our ability to cultivate and maintain cost-effective and otherwise satisfactory relationships with search engines, social media platforms and digital app stores, in particular, those operated by Google, Facebook and Apple. These platforms could decide not to market and distribute some or all of our products and services, change their terms and conditions of use at any time (and without notice), favor their own products and services over ours and/or significantly increase their fees. While we expect to maintain cost-effective and otherwise satisfactory relationships with these platforms, no assurances can be provided that we will be able to do so and our inability to do so in the case of one or more of these platforms could have a material adverse effect on our business, financial condition and results of operations.
In particular, as consumers increasingly access our products and services through mobile applications, we (primarily in the case of our dating and Mosaic Group businesses) increasingly depend upon the Apple App Store and the Google Play Store to distribute our mobile applications. Both Apple and Google have broad discretion to change their respective terms and conditions applicable to the distribution of our mobile applications, including those relating to the amount of (and requirement to pay) certain fees associated with purchases facilitated by Apple and Google through our mobile applications, to interpret their respective terms and conditions in ways that may limit, eliminate or otherwise interfere with our ability to distribute mobile applications through their stores, the features we provide and the manner in which we market in-app products. We cannot assure you that Apple or Google will not limit, eliminate or otherwise interfere with the distribution of our mobile applications, the features we provide and the manner in which we market our in-app products. To the extent either or both of them do so, our business, financial condition and results of operations could be adversely affected.
In addition, the use of certain of our products and services also depends, in part, on social media platforms. For example, many users of Match Group’s Tinder, Hinge and certain other dating products historically registered for (and logged into) these dating products exclusively through their Facebook profiles. While Match Group launched an alternate authentication method that allows users to register for (and log into) Tinder, Hinge and other affected products using their mobile phone number, no assurances can be provided that users will no longer register for (and log into) Tinder, Hinge and other affected products through their Facebook profiles. Facebook has broad discretion to change its terms and conditions applicable to the data collected by its platform (and the use of such data) and to interpret its terms and conditions in ways that could limit, eliminate or otherwise interfere with our ability to use Facebook as an authentication method or to allow Facebook to use such data to gain a competitive advantage. If any such event were to occur, our, business, financial condition and results of operations could be adversely affected.
Our success depends, in part, upon the continued migration of certain markets and industries online and the continued growth and acceptance of online products and services as effective alternatives to traditional offline products and services.
Through our various businesses, we provide a variety of online products and services that continue to compete with their traditional offline counterparts. We believe that the continued growth and acceptance of online products and services generally will depend, to a large extent, on the continued growth in commercial use of the Internet (particularly abroad) and the continued migration of traditional offline markets and industries online.
For example, the success of the businesses within our Match Group segment depends, in substantial part, on the continued migration of the dating market online, our ability to continue to provide dating products that users find more efficient, effective, comfortable and convenient relative to traditional means of meeting people and the continued erosion of stigma surrounding online dating (particularly in emerging markets and other parts of the world). If for any reason the dating market does not continue to migrate online as quickly as (or at lower levels than) we expect and/or a meaningful number of users do not embrace our dating products (and/or return to offline dating products and services), our business, financial condition and results of operations could be adversely affected.
Similarly, the success of the businesses within our ANGI Homeservices segment depends, in substantial part, on the continued migration of the home services market online. If for any reason the home services market does not migrate online as quickly as (or at lower levels than) we expect and consumers and service professionals continue, in large part, to rely on traditional offline efforts to connect with one another, our business, financial condition and results of operations could be adversely affected.
Lastly, as it relates to our advertising-supported businesses, our success also depends, in part, on our ability to compete for a share of available advertising expenditures as more traditional offline and emerging media companies continue to enter the online advertising market, as well as on the continued growth and acceptance of online advertising generally. If for any reason online advertising is not perceived as effective (relative to traditional advertising) and related mobile and other advertising models are not accepted, web browsers, software programs and/or other applications that limit or prevent advertising from being displayed become commonplace and/or the industry fails to effectively manage click fraud, the market for online advertising will be negatively impacted. Any lack of growth in the market for online advertising (particularly for paid listings) could adversely affect our business, financial condition and results of operations.
Marketing efforts designed to drive visitors to our various brands and businesses may not be successful or cost-effective.
Traffic building and conversion initiatives involve considerable expenditures for online and offline advertising and marketing. We have made, and expect to continue to make, significant expenditures for search engine marketing (primarily in the form of the purchase of keywords, which we purchase primarily through Google and, to a lesser extent, Microsoft and Yahoo!), online display advertising and traditional offline advertising (including television and radio campaigns) in connection with these initiatives, which may not be successful or cost-effective. Historically, we have had to increase advertising and marketing expenditures over time in order to attract and convert consumers, retain users and sustain our growth.
Our ability to market our brands on any given property or channel is subject to the policies of the relevant third-party seller, publisher of advertising (including search engines and social media platforms with extraordinarily high levels of traffic and numbers of users) or marketing affiliate. As a result, we cannot assure you that these parties will not limit or prohibit us from purchasing certain types of advertising, advertising certain of our products and services and/or using one or more current or prospective marketing channels in the future. If a significant marketing channel took such an action generally, for a significant period of time and/or on a recurring basis, our business, financial condition and results of operations could be adversely affected. In addition, if we fail to comply with the policies of third-party sellers, publishers of advertising and/or marketing affiliates, our advertisements could be removed without notice and/or our accounts could be suspended or terminated, any of which could adversely affect our business, financial condition and results of operations.
In addition, our failure to respond successfully to rapid and frequent changes in the pricing and operating dynamics of search engines, as well as changing policies and guidelines applicable to keyword advertising (which may be unilaterally updated by search engines without advance notice), could adversely affect both our paid search engine marketing efforts and free search engine traffic. Such changes could adversely affect paid listings (both their placement and pricing), as well as the ranking of our brands and businesses within search results, any or all of which could increase our costs (particularly if free traffic is replaced with paid traffic) and adversely affect the effectiveness of our marketing efforts overall. Certain of our businesses engage in efforts similar to search engine optimization through Facebook and other social media platforms (for example, developing content designed to appear higher in a given Facebook News Feed and generate "likes") that involve challenges and risks similar to those we face in connection with our search engine marketing efforts.
Evolving consumer behavior (specifically, increased consumption of media through digital means) can also affect the availability of cost-effective marketing opportunities. To continue to reach consumers, engage with users and continue to grow in this environment, we will need to identify and devote more of our overall marketing expenditures to newer digital advertising channels (such as online video and other digital platforms), as well as target consumers and users via these channels. Since newer advertising channels are undeveloped and unproven relative to traditional channels (such as television), it could be difficult to assess returns on our related marketing investments, which could adversely affect our business, financial condition and results of operations.
Lastly, we also enter into various arrangements with third parties to drive visitors to our various brands and businesses, which arrangements are generally more cost-effective than traditional marketing efforts. If we are unable to renew existing (and enter into new) arrangements of this nature, sales and marketing costs as a percentage of revenue would increase over the long-term, which could adversely affect our business, financial condition and results of operations. In addition, the quality and convertibility of leads generated through third-party arrangements are dependent on many factors, most of which are outside our control. If the quality and/or convertibility of leads do not meet the expectations of the users of our various products and services, our business, financial condition and results of operations could be adversely affected.
Our brands and businesses operate in especially competitive industries.
The industries in which our brands and businesses operate are competitive, with a consistent and growing stream of new products and entrants. Some of our competitors may enjoy better competitive positions in certain geographical areas, user demographics and/or other key areas that we currently serve or may serve in the future. Generally (and particularly in the case of our dating business), we compete with social media platforms with access to large existing pools of potential users and their personal information, which means these platforms can drive visitors to their products and services, as well as use better tailor products and service to individual users, at little to no cost relative to our efforts. For example, our dating business competes with Facebook, which introduced a dating feature on its
platform that it is testing in certain markets and intends to roll out globally in the near future. We also compete generally with search engine providers and online marketplaces that can market their products and services online in a more prominent and cost-effective manner than we can. Any of these advantages could enable our competitors to offer products and services that are more appealing to consumers than our products and services, respond more quickly and/or cost effectively than we do to evolving market opportunities and trends and/or display their own integrated or related products and services in a more prominent manner than our products and services in search results, which could adversely affect our business, financial condition and results of operations.
In addition, costs to switch among products and services are low or non-existent and consumers generally have a propensity to try new products and services (and use multiple products and services simultaneously). As a result, we expect the continued emergence of new products and services, entrants and business models in the various industries in which our brands and businesses operate. Our inability to compete effectively against new products, services and competitors could result in decreases in the size and levels of engagement of our various user, subscriber and membership bases, which could adversely affect our business, financial condition and results of operations.
Our success depends, in part, on our ability to build, maintain and/or enhance our various brands.
Through our various businesses, we own and operate a number of widely known consumer brands with strong brand appeal and recognition within their respective markets and industries, as well as a number of emerging brands that we are in the process of building. We believe that our success depends, in large part, on our continued ability to maintain and enhance our established brands, as well as build awareness of (and loyalty to) our emerging brands. Events that could adversely impact our brands and brand-building efforts include (among others): product and service quality concerns, consumer complaints, actions brought by consumers, ineffective advertising, inappropriate and/or unlawful actions taken by users, actions taken by governmental or regulatory authorities, data protection and security breaches and related bad publicity. The occurrence or any of these events could, in turn, adversely affect our business, financial condition and results of operations.
Our success depends, in part, on our ability to develop and monetize versions of our products and services for mobile and other digital devices.
As consumers increasingly access our products and services through mobile and other digital devices (including through digital voice assistants), we will need to devote significant time and resources to ensure that our products and services are accessible across these platforms (and multiple platforms generally). If we do not keep pace with evolving online, market and industry trends (including changes in the preferences and needs of our users and consumers generally), offer new and/or enhanced products and services in response to such trends that resonate with consumers, monetize products and services for mobile and other digital devices as effectively as our traditional products and services and/or maintain related systems, technology and infrastructure in an efficient and cost-effective manner, our business, financial condition and results of operations could be adversely affected.
In addition, the success of our mobile and other digital products and services depends on their interoperability with various third-party operating systems, technology, infrastructure and standards, over which we have no control. Any changes to any of these things that compromise the quality or functionality of our mobile and digital products and services could adversely affect their usage levels and/or our ability to attract consumers and advertisers, which could adversely affect our business, financial condition and results of operations.
Our brands and businesses are sensitive to general economic events or trends, particularly those that adversely impact advertising spending levels and consumer confidence and spending behavior.
A significant portion of our consolidated revenue (and a substantial portion of our net cash from operations that we can freely access), is attributable to online advertising, primarily revenue from our Dotdash and Applications segments and our Ask Media Group business. Accordingly, events and trends that result in decreased advertising expenditures and/or levels of consumer confidence and discretionary spending could adversely affect our business, financial condition and results of operations.
Similarly, the businesses within our ANGI Homeservices segment are particularly sensitive to events and trends that could result in consumers delaying or foregoing home services projects and/or service professionals being less likely to pay for Marketplace subscriptions and consumer matches. could result in decreases in Marketplace service requests and directory searches. Any such decreases could result in turnover at the Marketplace and/or any of our directories, adversely impact the number and quality of service professionals at the Marketplace and our directories
and/or adversely impact the reach of (and breath of services offered through) the Marketplace and our directories, any or all of which could adversely affect our business, financial condition and results of operations
Lastly, we have historically been, and will continue to be, sensitive to events and trends that could result in decreased marketing and advertising expenditures by service professionals. Adverse economic conditions and trends could result in service professionals decreasing and/or delaying membership subscriptions, fees paid for consumer matches and/or time-based advertising spend, any or all of which would result in decreased revenue and could adversely affect our business, financial condition and results of operations.
Our ability to communicate with our users and consumers via e-mail (or other sufficient means) is critical to our success.
As consumers increasingly communicate via mobile and other digital devices and messaging and social media apps, usage of e-mail (particularly among younger consumers) has declined and we expect this trend to continue. In addition, deliverability and other restrictions could limit or prevent our ability to send e-mails to users and consumers. A continued and significant erosion in our ability to communicate with consumers and users via e-mail could adversely impact the user experience, engagement levels and conversion rates, which could adversely affect our business, financial condition and results of operations. We cannot assure you that any means of communication (for example, push notifications) will be as effective as e-mail has been historically.
We may need to offset increasing digital 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.
We increasingly rely upon the Apple App Store and the Google Play Store to distribute the mobile applications of our various businesses. While some of our mobile applications are generally free to download from these stores, many of our mobile applications (primarily our dating and Mosaic Group applications) are subscription-based and/or offer in-app à la carte features for a fee. We determine the prices at which these subscriptions and à la carte features are sold; however, related purchases must be processed through the in-app payment systems provided by Apple and, to a lesser extent, Google. As a result, 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 increasing distribution of our mobile applications through digital app stores and strict in-app payment system requirements, we may need to offset these increased digital app store fees by decreasing traditional marketing expenditures as a percentage of revenue, increasing user volume or monetization per user or engaging in other efforts to increase revenue or decrease costs generally, or our business, financial condition and results of operations could be adversely affected. Additionally, to the extent Google changes its terms and conditions or practices to require us to process purchases of subscriptions and à la carte features through its in-app payment system, our business, financial condition and results of operations could be adversely affected.
Our success depends, in part, of the ability of ANGI Homeservices to establish and maintain relationships with quality service professionals.
We will need to continue to attract, retain and grow the number of skilled and reliable service professionals who can provide home services across ANGI Homeservices platforms. If we do not offer innovative products and services that resonate with consumers and service professionals generally, as well provide service professionals with an attractive return on their marketing and advertising investments (quality matches and leads that convert into jobs), the number of service professionals affiliated with ANGI Homeservices platforms would decrease. Any such decrease would result in smaller and less diverse networks and directories of service professionals, and in turn, decreases in service requests and directory searches, which could adversely impact our business, financial condition and results of operations.
We depend upon arrangements with Google.
A meaningful portion of our consolidated revenue (and a substantial portion of our net cash from operations that we can freely access) is attributable to a services agreement with Google. Pursuant to this agreement, we display and syndicate paid listings provided by Google in response to search queries generated by users of our Applications and certain Emerging & Other properties. In exchange for making our search traffic available to Google, we receive a share of the revenue generated by the paid listings supplied to us, as well as certain other search‑related services. Our current agreement with Google expires on March 31, 2020. In February 2019, we amended this agreement, effective as
of April 1, 2020, to extend the expiration date of our agreement to March 31, 2023; provided, however, that beginning September 2020 and each September thereafter, we or Google 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. We believe that the amended agreement, taken as a whole, is comparable to our current agreement with Google.
The amount of revenue we receive from Google depends on a number of factors outside of our control, including the amount Google charges for advertisements, the efficiency of Google’s system in attracting advertisers and serving up paid listings in response to search queries and parameters established by Google regarding the number and placement of paid listings displayed in response to search queries. In addition, Google makes judgments about the relative attractiveness (to advertisers) of clicks on paid listings from searches performed on our properties and these judgments factor into the amount of revenue we receive. Google also makes judgments about the relative attractiveness (to users) of paid listings from searches performed on our properties and these judgments factor into the number of advertisements we can purchase. Changes to the amount Google charges advertisers, the efficiency of Google’s paid listings network, Google's judgment about the relative attractiveness to advertisers of clicks on paid listings from our properties or to the parameters applicable to the display of paid listings generally could result in a decrease in the amount of revenue we receive from Google and could adversely affect our business, financial condition and results of operations. Such changes could come about for a number of reasons, including general market conditions, competition or policy and operating decisions made by Google.
Our services agreement with Google also requires that we comply with certain guidelines for the use of Google brands and services, including the Chrome browser and Chrome Web Store. These guidelines govern which of our products and applications may access Google services or be distributed through its Chrome Web Store, and the manner in which Google’s paid listings are displayed within search results across various third-party platforms and products (including our properties). Our services agreement also requires that we establish guidelines to govern certain activities of third parties to whom we syndicate paid listings, including the manner in which these parties drive search traffic to their websites and display paid listings. Google may generally unilaterally update its policies and guidelines without advance notice, which 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 adversely affect our business, financial condition and results of operations. Noncompliance with Google’s guidelines by us or the third parties to whom we are permitted to syndicate paid listings or through which we secure distribution arrangements for certain of our Applications properties could, if not cured, result in the suspension of some or all Google services to our properties (or the websites of our third-party partners) and/or the termination of the services agreement by Google.
The termination of the services agreement by Google, the curtailment of our rights under the agreement (whether pursuant to the terms thereof or otherwise) and/or the failure of Google to perform its obligations under the agreement would have an adverse effect on our business, financial condition and results of operations. If any of these events were to occur, we may not be able to find another suitable alternate provider of paid listings (or if an alternate provider were found, the economic and other terms of the agreement and the quality of paid listings may be inferior relative to our arrangements with, and the paid listings supplied by, Google) or otherwise replace the lost revenues.
Foreign currency exchange rate fluctuations could adversely affect us.
We operate in various foreign markets, primarily in various jurisdictions within the European Union, and as a result, are exposed to foreign exchange risk for both the Euro and British Pound ("GBP"). During the fiscal years ended December 31, 2018 and 2017, approximately 34% and 30% of our total revenues, respectively, were international revenues. We translate international revenues into U.S. Dollar-denominated results. As a result, as foreign currency exchange rates fluctuate, the translation of the statement of operations of our international businesses into U.S. Dollars affects the period-over-period comparability of operating results. We are also exposed to foreign currency exchange gains and losses to the extent we or our subsidiaries conduct transactions in, and/or have assets and/or liabilities that are denominated in, a currency other than the relevant entity's functional currency. For details regarding exchange rates and foreign currency exchange gains and losses for the fiscal years ended December 31, 2018 and 2017, see "Item 7A-Quantitative and Qualitative Disclosures About Market Risk-Foreign Currency Exchange Risk."
Brexit may continue to cause disruptions to capital and currency markets worldwide, and the full impact of the Brexit decision remains uncertain. Ongoing negotiations between the United Kingdom and the European Union will determine the terms of their relationship following Brexit. During this period of negotiation and following the completion of Brexit, our operating results could be adversely affected by exchange rate and other market and economic volatility.
We have not hedged foreign currency exposures historically given that related gains or losses were not material to the Company. As we continue to grow and expand our international operations, our exposure to foreign exchange rate fluctuations will increase and if significant, could adversely affect our business, financial condition and results of operations.
We may not be able to protect our systems, technology and infrastructure from cyberattacks and cyberattacks experienced by third parties may adversely affect us.
We are regularly under attack by perpetrators of malicious technology-related events, such as the use of botnets, malware or other destructive or disruptive software, distributed denial of service attacks, phishing, attempts to misappropriate user information and account login credentials and other similar malicious activities. The incidence of events of this nature (or any combination thereof) is on the rise worldwide. While we continuously develop and maintain systems designed to detect and prevent events of this nature from impacting our systems, technology, infrastructure, products, services and users, have invested (and continue to invest) heavily in these efforts and related personnel and training and deploy data minimization strategies (where appropriate), these efforts are costly and require ongoing monitoring and updating as technologies change and efforts to overcome preventative security measures become more sophisticated. Despite these efforts, some of our systems have experienced past security incidents, none of which had a material adverse effect on our business, financial condition and results of operations, and we could experience significant events of this nature in the future.
Any event of this nature that we experience could damage our systems, technology and infrastructure and/or those of our users, prevent us from providing our products and services, compromise the integrity of our products and services, damage our reputation, erode our brands and/or be costly to remedy, as well as subject us to investigations by regulatory authorities, fines and/or litigation that could result in liability to third parties. Even if we do not experience such events firsthand, the impact of any such events experienced by third parties could have a similar effect. We may not have adequate insurance coverage to compensate for losses resulting from any of these events. If we (or any third-party with whom we do business or otherwise rely upon) experience(s) an event of this nature, our business, financial condition and results of operations could be adversely affected.
If personal, confidential or sensitive user information that we maintain and store is breached or otherwise accessed by unauthorized persons, it may be costly to mitigate and our reputation could be harmed.
We receive, process, store and transmit a significant amount of personal, confidential or sensitive user information and, in the case of certain of our products and services, enable users to share their personal information with each other. While we continuously develop and maintain systems designed to protect the security, integrity and confidentiality of this information, we cannot guarantee that inadvertent or unauthorized use or disclosure will not occur or that third parties will not gain unauthorized access to this information. When such events occur, we may not be able to remedy them and it may be costly to mitigate and to develop and implement protections to prevent future events of this nature from occurring. When breaches of security (ours or that of any third-party we engage to store information) occurs, the reputation of our brands and business could be harmed, which could adversely affect our business, financial condition and results of operations.
Credit card data security breaches or fraud that we or third parties experience could adversely affect us.
Certain of our businesses accept payment (including recurring payments) via credit and debit cards and certain online payment service providers. The ability of these businesses to access payment information on a real time‑basis without having to proactively reach out to users to process payments is critical to our success.
When we or a third-party experience(s) a data security breach involving credit card information, affected cardholders will often cancel their cards. In the case of a breach experienced by a third-party, the more sizable the third-party’s customer base, the greater the number of accounts impacted and the more likely it is that our users would be impacted by such a breach. If our users were affected, we would need to contact affected users to obtain new payment information. It is likely that we would not be able to reach all affected users, and even if we could, new payment information for some individuals may not be obtained and pending transactions may not be processed, which could adversely affect our business, financial condition and results of operations.
Even if our users are not directly impacted by a given data security breach, they may lose confidence in the ability of providers of online products and services to protect their personal information generally, which could cause them to stop using their credit cards online and choose alternative payment methods that are not as convenient for us or restrict our ability to process payments without significant effort.
If we fail to prevent credit card data security breaches and fraudulent credit card transactions, we could face litigation, governmental enforcement action, fines, civil liability, diminished public perception of our security measures, higher credit card-related costs and substantial remediation costs, or credit card processors could cease doing business with us, any of which could adversely affect our business, financial condition and results of operations
The processing, storage, use and disclosure of personal data could give rise to liabilities and increased costs.
We receive, transmit and store a large volume of personal information and other user data (including personal credit card data, as well as private content (such as videos and correspondence)) in connection with the processing of search queries, the provision of online products and services, payment transactions and advertising on our various properties. The manner in which we share, store, use, disclose and protect this information is determined by the respective privacy and data security policies of our various businesses, as well as federal, state and foreign laws and regulations and evolving industry standards and practices, which are changing, and in some cases, inconsistent and conflicting and subject to differing interpretations. In addition, new laws, regulations, standards and practices of this nature are proposed and adopted from time to time.
For example, a comprehensive European Union privacy and data protection reform, the General Data Protection Regulation (the "GDPR"), became effective in May 2018. The GDPR, which applies to companies that are organized in the European Union or otherwise provide services to (or monitor) consumers who reside in the European Union, imposes significant penalties (monetary and otherwise) for non-compliance. The GDPR will continue to be interpreted by European Union data protection regulators, which may require that we make changes to our business practices, and could generate additional risks and liabilities. The European Union is also considering an update to its Privacy and Electronic Communications Directive to impose stricter rules regarding the use of cookies. In addition, the potential exit from the European Union by the United Kingdom could result in the application of new and conflicting data privacy and protection laws and standards to our operations in the United Kingdom and our handling of personal data of users located in the United Kingdom. In addition, there are a number of privacy and data protection laws and regulations recently passed or under consideration by the U.S. Congress, as well as in various U.S. states and foreign jurisdictions in which we do business, including the California Consumer Privacy Act of 2018, which becomes effective January 1, 2020.
While we believe that we comply with applicable privacy and data protection policies, laws and regulations and industry standards and practices in all material respects, we could still be subject to claims of non-compliance that we may not be able to successfully defend and/or significant fines and penalties. Moreover, any non-compliance or perceived non-compliance by us (or any third-party we engage to store or process information) or any compromise of security that results in unauthorized access to (or use or transmission of) personal information could result in a variety of claims against us, including governmental enforcement actions, significant fines, litigation, claims of breach of contract and indemnity by third parties and adverse publicity. When such events occur, our reputation could be harmed and the competitive positions of our various brands and businesses could be diminished, which could adversely affect our business, financial condition and results of operations.
Lastly, ongoing compliance with existing (and compliance with future) privacy and data protection laws worldwide could be costly. The devotion of significant costs to compliance (versus to product development) could result in delays in the development of new products and services, us ceasing to provide problematic products and services in existing jurisdictions and us being prevented from introducing products and services in new and existing jurisdictions, which could adversely affect our business, financial condition and results of operations.
Our success depends, in part, on the integrity, quality, efficiency and scalability of our systems, technology and infrastructure, and those of third parties.
We rely on our systems, technology and infrastructure to perform well on a consistent basis. From time to time in the past we have experienced (and in the future we may experience) occasional interruptions that make some or all of this framework and related information unavailable or that prevent us from providing products and services; any such interruption could arise for any number of reasons. We also rely on third-party data center service providers and cloud-based, hosted web service providers, as well as third-party computer systems and a variety of communications systems
and service providers in connection with the provision of our products and services generally, as well as to facilitate and process certain payment and other transactions with users. We have no control over any of these third parties or their operations.
The framework described could be damaged or interrupted at any time due to fire, power loss, telecommunications failure, natural disasters, acts of war or terrorism, acts of God and other similar events or disruptions. Any event of this nature could prevent us from providing our products and services at all (or result in the provision of our products on a delayed or interrupted basis) and/or result in the loss of critical data. While we and the third parties upon whom we rely have certain backup systems in place for certain aspects of our respective frameworks, none of our frameworks are fully redundant and disaster recovery planning is not sufficient for all eventualities. In addition, we may not have adequate insurance coverage to compensate for losses from a major interruption. When such damages, interruptions or outages occur, our reputation could be harmed and the competitive positions of our various brands and businesses could be diminished, any or all of which could adversely affect our business, financial condition and results of operations.
We also continually work to expand and enhance the efficiency and scalability of our framework to improve the consumer experience, accommodate substantial increases in the number of visitors to our various platforms, ensure acceptable load times for our various products and services and keep up with changes in technology user preferences. If we do not do so in a timely and cost-effective manner, the user experience and demand across our brands and businesses could be adversely affected, which could adversely affect our business, financial condition and results of operations.
Mr. Diller and certain members of his family are able to exercise significant influence over the composition of our Board of Directors, matters subject to stockholder approval and our operations.
As of the date of this report, Mr. Diller, his spouse, Diane von Furstenberg, and his stepson, Alexander von Furstenberg, collectively beneficially owned shares of Class B common stock and common stock that represented approximately 42.8% of the total outstanding voting power of IAC (based on the number of shares of IAC common stock outstanding on February 1, 2019). For details regarding the IAC securities beneficially owned by Mr. Diller, Ms. Von Furstenberg and Mr. Von Furstenberg, see "Item 1-Business-Equity Ownership and Vote."
As a result of IAC securities beneficially owned by these individuals, they are, collectively, currently in a position to influence, subject to our organizational documents and Delaware law, the composition of IAC’s Board of Directors and the outcome of corporate actions requiring shareholder approval, such as mergers, business combinations and dispositions of assets, among other corporate transactions. In addition, this concentration of investment and voting power could discourage others from initiating a potential merger, takeover or other change of control transaction that may otherwise be beneficial to IAC, which could adversely affect the market price of IAC securities.
We depend on our key personnel.
Our future success will depend upon our continued ability to identify, hire, develop, motivate and retain highly skilled individuals, particularly in the case of senior management. Competition for well-qualified employees across IAC and its various businesses is intense and we must attract new (and retain existing) employees to compete effectively. While we have established programs to attract new (and retain existing) employees, we may not be able to attract new (or retain existing) key and other employees in the future. In addition, if we do not ensure the effective transfer of knowledge to successors and smooth transitions (particularly in the case of senior management) across our various businesses, our business, financial condition and results of operations generally, could be adversely affected.
Our current and future indebtedness could affect our ability to operate our business, which could have a material adverse effect on our financial condition and results of operations.
As of December 31, 2018, we had total debt outstanding of approximately $2.3 billion, of which $552 million, $1.5 billion and $261.3 million was owed by IAC, Match Group and ANGI Homeservices, respectively. As of that date, we, Match Group and ANGI Homeservices had borrowing availability of $250 million, $240 million and $250 million, respectively, under our revolving credit facilities. Neither Match Group, ANGI Homeservices nor any of their respective subsidiaries guarantee any indebtedness of IAC or are currently subject to any of the covenants related to such indebtedness. Similarly, neither IAC nor any of its subsidiaries (other than Match Group and its subsidiaries in the case of Match Group indebtedness and ANGI Homeservices and its subsidiaries in the case of ANGI Homeservices
indebtedness) guarantee any indebtedness of Match Group or ANGI Homeservices nor are subject to any of the covenants related to such indebtedness.
The terms of the indebtedness of IAC, Match Group and ANGI Homeservices could:
limit our respective abilities to obtain additional financing to fund working capital needs, acquisitions, capital expenditures or other debt service requirements or for other purposes;
limit our respective abilities to use operating cash flow in other areas of our respective businesses because we must dedicate a substantial portion of these funds to service indebtedness;
limit our respective abilities to compete with other companies who are not as highly leveraged;
restrict any one or more of us from making strategic acquisitions, developing properties or exploiting business opportunities;
restrict the way in which one or more of us conducts business;
expose one or more of us to potential events of default, which if not cured or waived, could have a material adverse effect on our business, financial condition and operating results;
increase our respective vulnerabilities to a downturn in general economic conditions or in pricing of our various products and services; and
limit our respective abilities to react to changing market conditions in the various industries in which we do business.
Subject to certain restrictions, we and our subsidiaries may incur additional unsecured and secured indebtedness. If additional indebtedness incurred in compliance with these restrictions is significant, the risks described above could increase.
Lastly, if an event a default has occurred or our leverage ratio exceeds specified thresholds, our ability to pay dividends, make distributions and repurchase or redeem our capital stock would be limited. Match Group and ANGI Homeservices are subject to similar restrictions. See "Item 7-Management's Discussion and Analysis of Financial Condition and Results of Operations-Financial Position, Liquidity and Capital Resources and Financial Position."
We may not be able to generate sufficient cash to service all of our indebtedness.
The ability of IAC, Match Group and ANGI Homeservices to satisfy our respective debt obligations will depend upon, among other things:
our respective future financial and operating performance, which will be affected by prevailing economic conditions and financial, business, regulatory and other factors, many of which are beyond our control; and
the future ability of IAC, Match Group and ANGI Homeservices to borrow under our respective revolving credit facilities, which will depend on, among other things, compliance with the covenants governing our indebtedness.
Neither we, nor Match Group nor ANGI Homeservices may be able to generate sufficient cash flow from our respective operations and/or borrow under our respective revolving credit facilities in amounts sufficient to meet our scheduled debt obligations. See also "-We may not freely access the cash of Match Group, ANGI Homeservices and their respective subsidiaries" below. If so, we could be forced to reduce or delay capital expenditures, sell assets or seek additional capital in a manner that complies with the terms (including certain restrictions and limitations) of our current indebtedness. If these efforts do not generate sufficient funds to meet our scheduled debt obligations, we would need to seek additional financing and/or negotiate with our lenders to restructure or refinance our indebtedness. Our ability to do so would depend on the condition of the capital markets and our financial condition at such time. Any such financing, restructuring or refinancing could be on less favorable terms than those governing our current indebtedness and would need to comply with the terms (including certain restrictions and limitations) of our existing indebtedness.
We may not freely access the cash of Match Group, ANGI Homeservices and their respective subsidiaries.
Potential sources of cash for IAC include our available cash balances, net cash from the operating activities of certain of our subsidiaries, availability under our revolving credit facility and proceeds from asset sales, including marketable securities. While the ability of our operating subsidiaries to pay dividends or make other payments or advances to us depends on their individual operating results and applicable statutory, regulatory or contractual restrictions generally, in the case of Match Group and ANGI Homeservices, the terms of their indebtedness limit their ability to pay dividends or make distributions, loans or advances to stockholders, including IAC. In addition, because Match Group and ANGI Homeservices are separate and distinct legal entities with public shareholders, they have no obligation to provide us with funds.
Our variable rate indebtedness subjects us to interest rate risk.
As of December 31, 2018, Match Group had $260 million and $425 million outstanding under its revolving credit facility and term loan, respectively, and ANGI Homeservices has $263.1 million outstanding under its term loan. Borrowings under these loans are, and any borrowings under the revolving credit facilities of IAC or ANGI Homeservices will be, at variable interest rates, which exposes us to interest rate risk. For details regarding interest rates applicable to the variable rate indebtedness of Match Group and ANGI Homeservices described above as of December 31, 2018 and how certain increases and decreases in LIBOR rate would affect related interest expense, see "Item 7A-Quantitative and Qualitative Disclosures About Market Risk."
You may experience dilution with respect to your investment in IAC, and IAC may experience dilution with respect to its investments in Match Group and ANGI Homeservices, as a result of compensatory equity awards.
We have issued various compensatory equity awards, including stock options, stock appreciation rights and restricted stock unit awards denominated in shares of our common stock, as well as in equity of our various consolidated subsidiaries, including Match Group and ANGI Homeservices. For more information regarding these awards and their impact on our diluted earnings per share calculation, see "Note 11-Stock-Based Compensation" and "Note 10-Earnings Per Share," respectively, to the consolidated financial statements included in "Item 8-Consolidated Financial Statements and Supplementary Data."
The issuance of shares of IAC common stock in settlement of these equity awards could dilute your ownership interest in IAC. Awards denominated in shares of Match Group or ANGI Homeservices common stock that are settled in shares of those subsidiaries could dilute IAC’s ownership interest in Match Group and ANGI Homeservices, respectively. The dilution of our ownership stake(s) in Match Group and/or ANGI Homeservices could impact our ability, among other things, to maintain Match Group and/or ANGI Homeservices as part of our consolidated tax group for U.S. federal income tax purposes, to effect a tax-free distribution of our Match Group and/or ANGI Homeservices stake(s) to our stockholders or to maintain control of Match Group and/or ANGI Homeservices. As we generally have the right to maintain our levels of ownership in Match Group and ANGI Homeservices to the extent Match Group or ANGI Homeservices issues additional shares of their respective capital stock in the future pursuant to investor rights agreements, we do not intend to allow any of the foregoing to occur.
With respect to awards denominated in shares of our non-publicly traded subsidiaries, we estimate the dilutive impact of those awards based on our estimated fair value of those subsidiaries. Those estimates may change from time to time, and the fair value determined in connection with vesting and liquidity events could lead to more or less dilution than reflected in our diluted earnings per share calculation.
We may experience risks related to acquisitions.
We have made numerous acquisitions in the past and we continue to seek to identify potential acquisition candidates that will allow us to apply our expertise to expand their capabilities, as well as maximize our existing assets. If we do not identify suitable acquisition candidates or complete acquisitions on satisfactory pricing or other terms, our growth could be adversely affected.
Even if we complete what we believe to be suitable acquisitions, we may experience related operational and financial risks. So, to the extent that we continue to grow through acquisitions, we will need to:
properly value prospective acquisitions, especially those with limited operating histories;
successfully integrate the operations, as well as the various functions and systems, of acquired businesses with our existing operations, functions and systems;
successfully identify and realize potential synergies among acquired and existing businesses;
retain or hire senior management and other key personnel at acquired businesses; and
successfully manage acquisition‑related strain on management, operations and financial resources.
We may not be successful in addressing these or any other acquisition-related challenges. In addition, acquisition-related cost savings, growth opportunities, synergies or other benefits may not be realized. Also, future acquisitions could result in increased operating losses, dilutive issuances of equity securities and the assumption of contingent liabilities. Lastly, the value of goodwill and other intangible assets acquired could be impacted by unfavorable events and/or trends, which could result in significant impairment charges. The occurrence of any of these events could adversely affect our business, financial condition and results of operations.
We face additional risks in connection with our international operations.
We currently operate in various jurisdictions abroad and may continue to expand our international presence. Operating abroad, particularly in jurisdictions where we have limited experience, exposes us to additional risks, including:
operational and compliance challenges caused by distance, language barriers and cultural differences;
difficulties in staffing and managing international operations;
differing levels (or lack) of social and technological acceptance of our products and services;
slow or lagging growth in the commercial use and acceptance of the Internet (particularly via mobile devices);
foreign currency fluctuations;
restrictions on the transfer of funds among countries and back to the United States and related repatriation costs;
differing and potentially adverse tax laws;
compliance challenges;
competitive environments that favor local businesses;
limitations on the level of intellectual property protection; and
trade sanctions, political unrest, terrorism, war and epidemics or the threat of any of these events.
The occurrence of any or all of these events could adversely affect our international operations, and in turn, our business, financial condition and results of operations. Our success in international markets will also depend, in large part, on our ability to successfully complete international acquisitions, joint ventures or other transactions and integrate these businesses and operations with our own.
A variety of new laws, or new interpretations of existing laws, could subject us to claims or otherwise harm our business.
We are subject to a variety of laws and regulations in the U.S. and abroad that involve matters that are important to or may otherwise impact our business, including, among others, broadband internet access, online commerce, advertising, privacy and data protection, intermediary liability, consumer protection, protection of minors, taxation and securities compliance. These domestic and foreign laws, 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 Internet industry, and may be interpreted and applied inconsistently from jurisdiction to jurisdiction, as well as in a manner that could conflict with our current policies and practices. We face the same issues in the case of amended, proposed or new laws and regulations.
Compliance with applicable laws and regulations, as well as responding to any related inquiries, investigations or other government action, could be costly, delay or impede the development of new products and services, require modifications to existing products and services and/or require significant management time and attention. Non-compliance could subject us to remedies that could harm our business, such as fines, demands or orders that require us to modify or cease then current products and services, as well as result in negative publicity. Consequences of compliance and non-compliance with applicable laws and regulations, if significant, could adversely affect our business, financial condition and results of operations.
We are particularly sensitive to laws and regulations that adversely impact the popularity or growth in use of the Internet and/or online products and services generally, restrict or otherwise unfavorably impact the ability or manner in which we provide our products and services, regulate the practices of third parties upon which we rely to provide our products and services and undermine open and neutrally administered Internet access. For example, in February 2019, the Secretary of State for Digital, Culture, Media and Sport of the United Kingdom, indicated in public comments that his office intends to inquire as to the measures utilized by online dating platforms (including Tinder) to prevent access by underage users. To the extent our dating business is required to implement new measures to prevent such access, our business, financial condition and results of operations could be adversely affected. In addition, in December 2017, the U.S. Federal Communications Commission (the "FCC") adopted an order reversing net neutrality protections in the United 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 take such actions, our business, financial condition and results of operations could be adversely affected.
We are also sensitive to the adoption of any law or regulation affecting the ability of our businesses to periodically charge for recurring membership or subscription payments, which could adversely affect our business, financial condition and results of operations. For example, the European Union Payment Services directive, which became effective in 2018, could impact the ability of our businesses to process auto-renewal payments for, as well offer promotional or differentiated pricing to, users who reside in the European Union. Similar new legislation or regulations, or changes to existing legislation or regulations governing subscription payments, are being considered in many U.S. states.
We are also sensitive to the adoption of new tax laws. The European Commission and several European countries have issued proposals that would change various aspects of the current tax framework under which we are taxed, including proposals to change or impose new types of non-income taxes (including taxes based on a percentage of revenue). For example, the United Kingdom has proposed a Digital Services Tax applicable to revenues of social media platforms, online marketplaces and search engines linked to users residing in the United Kingdom, which would likely apply to certain of our business. If enacted, one or more of these or similar proposed tax laws could adversely affect our business, financial condition and results of operations.
We may fail to adequately protect our intellectual property rights or may be accused of infringing the intellectual property rights of third parties.
We rely heavily upon our trademarks and related domain names and logos to market our brands and to build and maintain brand loyalty and recognition, as well as upon trade secrets. We also rely, to a lesser extent, upon patented and patent-pending proprietary technologies with expiration dates ranging from 2019 to 2037.
We rely on a combination of laws and contractual restrictions with employees, customers, suppliers, affiliates and others to establish and protect our various intellectual property rights. For example, we have generally registered and continue to apply to register and renew, or secure by contract where appropriate, trademarks and service marks as they are developed and used, and reserve, register and renew domain names as we deem appropriate. We also generally seek to apply for patents or for other similar statutory protections as and if we deem appropriate, based on then current facts and circumstances, and will continue to do so in the future. No assurances can be given that these efforts will result in adequate trademark and service mark protection, adequate domain name rights and protections, the issuance of a patent or adequate patent protection against competitors and similar technologies. Third parties could also create new products or methods that achieve similar results without infringing upon patents we own.
Despite these measures, challenges to our intellectual property rights could still arise, third parties could copy or otherwise obtain and use our intellectual property without authorization and/or laws regarding the enforceability of existing intellectual property rights could change in an adverse manner. The occurrence of any of these events could result in the erosion of our brands and limitations on our ability to control marketing online using our various domain names, as well as impede our ability to effectively compete against competitors with similar technologies, any of which could adversely affect our business, financial condition and results of operations.
From time to time, we have been subject to legal proceedings and claims in the ordinary course of business related to alleged claims of infringement of the intellectual property of others and may need to institute legal proceedings in the future to enforce, protect or refine the scope of our intellectual property rights. For example, on March 17, 2018, our Match Group business filed a lawsuit against Bumble Trading Inc., which operates and markets the online dating application Bumble in the United States, for patent and trademark infringement, as well as trade secret misappropriation. Bumble’s counterclaims request that our trademark registration for Tinder’s SWIPE trademark be canceled and that a number of our pending applications for trademark registration be denied. This case is currently pending in Federal Court in the Western District of Texas. Any legal proceedings related to intellectual property, regardless of outcome or merit, could be costly and result in diversion of and technical resources, which could adversely affect our business, financial condition and results of operations.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
IAC believes that the facilities for its management and operations are generally adequate for its current and near-term future needs. IAC's facilities, most of which are leased by IAC's businesses in various cities and locations in the United States and various jurisdictions abroad, generally consist of executive and administrative offices, operations centers, data centers and sales offices.
IAC believes that its principal properties, whether owned or leased, are currently adequate for the purposes for which they are used and are suitably maintained for these purposes. IAC does not anticipate any future problems renewing or obtaining suitable leases on commercially reasonable terms for any of its principal businesses. IAC's approximately 202,500 square foot corporate headquarters in New York, New York houses offices for IAC corporate and various IAC businesses within the following segments: Match Group, Vimeo, Applications and Emerging & Other.
Item 3. Legal Proceedings
In the ordinary course of business, the Company and its subsidiaries are (or may become) parties to litigation involving property, personal injury, contract, intellectual property and other claims, 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 rules of the Securities and Exchange Commission.
Consumer Class Action Challenging Tinder’s Age‑Tiered Pricing
On May 28, 2015, a putative state‑wide class action was filed against Tinder, Inc. ("Tinder") in state court in California. See Allan Candelore v. Tinder, Inc., No. BC583162 (Superior Court of California, County of Los Angeles). The complaint principally alleged 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 service. The complaint sought certification of a class of California Tinder Plus subscribers age 30 and over and
damages in an unspecified amount. On 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 has been returned to the trial court for further proceedings and is currently in discovery. We and Match Group believe that the allegations in this lawsuit are without merit and will continue to defend vigorously against it.
Bumble Claims against Match Group, LLC
On March 28, 2018, Bumble and its parent company filed a lawsuit against Match Group, LLC ("Match") in state court in Texas. SeeBumble Trading, Inc. and Bumble Holding, Ltd. v. Match Group, LLC, No. DC‑18‑04140 (160th Judicial District Court, County of Dallas). The petition alleged that Match wrongfully obtained confidential information from the plaintiffs in connection with a potential Bumble sale process and filed an intellectual property lawsuit against Bumble in bad faith to undermine that process. The petition asserts claims for tortious interference with business relationships, fraud, misappropriation of trade secrets, unfair competition, promissory estoppel and disparagement. The petition seeks damages in excess of $400 million and an injunction against interference with the plaintiffs’ prospective business relationships or use of their confidential information. On September 26, 2018, Match filed its answer and counterclaims, a notice of removal of the case to the U.S. District Court for the Northern District of Texas, and a motion to transfer the case to the U.S. District Court for the Western District of Texas, where Match’s intellectual property lawsuit against Bumble is pending. See Bumble Trading, Inc. and Bumble Trading, Ltd. v. Match Group, LLC,No. 3:18-cv-2578 (U.S. District Court, Northern District of Texas). On October 18, 2018, Bumble filed a motion to dismiss its own petition without prejudice. On November 1, 2018, Match opposed the motion as an attempt to circumvent the federal court’s jurisdiction and also amended its counterclaims to seek declaratory judgments of non-liability on the claims asserted in Bumble’s petition. On November 15, 2018, Bumble filed a motion to dismiss those counterclaims, which motion Match has opposed. On November 29, 2018, the court granted Match’s motion to transfer the case to the Western District of Texas. See Bumble Trading, Inc. and Bumble Trading, Ltd. v. Match Group, LLC,No. 6:18-cv-350 (U.S. District Court, Western District of Texas). On January 15, 2019, Bumble filed a motion for leave to file another petition, this one against Match and IAC, in state court in Dallas County. Bumble’s proposed claims are for fraud, negligent misrepresentation, unfair competition, promissory estoppel and interference with prospective business relations and are based upon the allegation that Match and IAC misled Bumble in its sale process by falsely representing they would make a higher offer to purchase Bumble. On January 22, 2019, Match filed its opposition to Bumble’s motion for leave. We and Match Group believe that the plaintiffs’ allegations in both the pending and the proposed lawsuits are without merit and will continue to defend vigorously against them.
Tinder Optionholder Litigation against IAC and Match Group
On August 14, 2018, ten then-current and former employees of Match or Tinder, an operating business of Match Group, filed a lawsuit in New York state court against IAC 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 Match Group, thereby depriving one of the plaintiffs (Mr. Rad) of his contractual right to later valuations of Tinder on a stand‑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 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. On August 31, 2018, four plaintiffs who were still employed by Match Group filed a notice of discontinuance of their claims without prejudice, leaving the six former employees as the remaining plaintiffs. 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. On December 17, 2018, plaintiffs filed their opposition to the motion to dismiss. On January 15, 2019, the defendants filed their reply brief. A hearing on the motion is scheduled for March 6, 2019, and discovery in the case is proceeding. IAC and Match Group believe that the allegations in this lawsuit are without merit and will continue to defend vigorously against it.
FTC Investigation of Certain Match.com Business Practices
In March 2017, the Federal Trade Commission (the "FTC") requested information and documents in connection with a civil investigation regarding certain business practices of Match.com. In November 2018, the FTC offered to resolve its potential claims relating to Match.com’s marketing, chargeback and online cancellation practices via a consent judgment mandating certain changes in Match.com’s business practices, as well as a payment in the amount of $60 million. We and Match Group believe that the FTC’s legal challenges to Match.com’s practices, policies and procedures are without merit and are prepared to defend vigorously against them.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market for Registrant's Common Equity and Related Stockholder Matters
IAC common stock is quoted on the Nasdaq Global Select Market ("NASDAQ") under the ticker symbol "IAC." There is no established public trading market for IAC Class B common stock.
As of February 1, 2019, there were approximately 1,200 holders of record of the Company's common stock and six holders of record (Mr. Diller and five trusts, all for the benefit of Mr. Diller and/or certain members of his family) of the Company's Class B common stock. As of the date of this report, there were four holders of record (Mr. Diller and three trusts for the benefit of certain members of Mr. Diller's family) of the Company's Class B common stock. Because the substantial majority of the outstanding shares of IAC common stock are held by brokers and other institutions on behalf of shareholders, IAC is not able to estimate the total number of beneficial holders represented by these record holders.
Dividends
We do not currently expect that any cash or other dividends will be paid to holders of our common or Class B common stock in the near future. Any future cash dividend or other dividend declarations are subject to the determination of IAC's Board of Directors.
Unregistered Sales of Equity Securities
During the quarter ended December 31, 2018, the Company did not issue or sell any shares of its common stock or other equity securities pursuant to unregistered transactions.
Issuer Purchases of Equity Securities
The Company did not purchase any shares of its common stock during the quarter ended December 31, 2018. As of that date, 8,036,226 shares of IAC common stock remained available for repurchase under the Company's previously announced May 2016 repurchase authorization. On IAC may purchase shares pursuant to this repurchase authorization over an indefinite period of time in the open market and in privately negotiated transactions, depending on those factors IAC management deems relevant at any particular time, including, without limitation, market conditions, share price and future outlook.
Item 6. Selected Financial Data
The following selected financial data for the five years ended December 31, 2018 should be read in conjunction with the consolidated financial statements and accompanying notes included herein.
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 | | 2016 | | 2015 | | 2014 |
| | (In thousands, except per share data) |
Statement of Operations Data:(a) | | | | | | | | | |
| Revenue | $ | 4,262,892 |
| | $ | 3,307,239 |
| | $ | 3,139,882 |
| | $ | 3,230,933 |
| | $ | 3,109,547 |
|
| Earnings (loss) from continuing operations | 757,747 |
| | 358,008 |
| | (16,151 | ) | | 113,374 |
| | 234,557 |
|
Earnings from discontinued operations (b) | — |
| | — |
| | — |
| | — |
| | 174,673 |
|
| Net (earnings) loss attributable to noncontrolling interests | (130,786 | ) | | (53,084 | ) | | (25,129 | ) | | 6,098 |
| | 5,643 |
|
| Net earnings (loss) attributable to IAC shareholders | 626,961 |
| | 304,924 |
| | (41,280 | ) | | 119,472 |
| | 414,873 |
|
| | | | | | | | | | |
| Earnings (loss) per share from continuing operations attributable to IAC shareholders: | | | | |
| Basic | $ | 7.52 |
| | $ | 3.81 |
| | $ | (0.52 | ) | | $ | 1.44 |
| | $ | 2.88 |
|
| Diluted | $ | 6.59 |
| | $ | 3.18 |
| | $ | (0.52 | ) | | $ | 1.33 |
| | $ | 2.71 |
|
| | | | | | | | | | |
| Dividends declared per share | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1.36 |
| | $ | 1.16 |
|
| | | | | | | | | | |
| | December 31, |
| | 2018 | | 2017 | | 2016 | | 2015 | | 2014 |
| | (In thousands) |
| Balance Sheet Data: | | | | | | | | | |
| Total assets | $ | 6,874,585 |
| | $ | 5,867,810 |
| | $ | 4,645,873 |
| | $ | 5,188,691 |
| | $ | 4,241,421 |
|
| Long-term debt: | | | | | | | | | |
| Current portion of long-term debt | 13,750 |
| | 13,750 |
| | 20,000 |
| | 40,000 |
| | — |
|
| Long-term debt, net | 2,245,548 |
| | 1,979,469 |
| | 1,582,484 |
| | 1,726,954 |
| | 1,064,536 |
|
| |
| (b) | There were no discontinued operations for the four years ended December 31, 2018. For the year ended December 31, 2014, earnings from discontinued operations were due to the release of tax reserves related to the expiration of the statutes of limitations for federal income taxes for the years 2001 through 2009. |
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Key Terms:
When the following terms appear in this report, they have the meanings indicated below:
Match Group ("MTCH") - is a leading provider of subscription dating products, operating a portfolio of dating brands, including Tinder, Match, PlentyOfFish and OkCupid. At December 31, 2018, IAC’s economic and voting interest in MTCH were 81.1% and 97.6%, respectively.
ANGI Homeservices ("ANGI") - connects millions of homeowners to home service professionals through its portfolio of digital home service brands, including HomeAdvisor, Angie's List and Handy. At December 31, 2018, IAC’s economic and voting interest in ANGI were 83.9% and 98.1%, respectively.
Vimeo - operates a global video platform for creative professionals, marketers and enterprises to connect with their audiences, customers and employees.
Dotdash - is a portfolio of digital brands providing expert information and inspiration in select vertical content categories.
Applications - consists of Desktop, which includes our direct-to-consumer downloadable desktop applications and the business-to-business partnership operations, and Mosaic Group (previously referred to as Mobile), which is a leading provider of global subscription mobile applications comprised of the following businesses that we own and operate: Apalon, iTranslate, TelTech and Daily Burn, transferred from the Emerging & Other segment effective April 1, 2018.
Emerging & Other - consists of Ask Media Group, BlueCrew, The Daily Beast, College Humor Media, IAC Films and, for periods prior to its transfer to the Applications segment effective April 1, 2018, Daily Burn. It also includes CityGrid, Dictionary.com, Electus, The Princeton Review, ShoeBuy, ASKfm and PriceRunner for periods prior to the sales of these businesses (described below).
Operating Metrics:
In connection with the management of our businesses, we identify, measure and assess a variety of operating metrics. The principal metrics we use in managing our businesses are set forth below:
Match Group
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 its products and includes both subscription and à la carte revenue.
Subscribers - are users who purchase a subscription to one of Match Group'sMTCH's 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 (or "ARPU"("ARPU") - is Direct Revenue from Subscribers in the relevant measurement period (whether in the form of subscription or à la carte)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.
ANGI Homeservices
Marketplace (formerly HomeAdvisor Domestic) Revenue - reflectsincludes revenue from the HomeAdvisor and Handy domestic marketplace service,services, including consumer connection revenue for consumer matches, and membership subscription revenue from HomeAdvisor service professionals.professionals and revenue from completed jobs sourced through the Handy platform. It excludes other North America operating subsidiaries within the segment.revenue from Angie's List, mHelpDesk, HomeStars and Felix.
Marketplace (formerly HomeAdvisor Domestic) Service Requests - are fully completed and submitted domestic customer service requests on HomeAdvisor.to HomeAdvisor and completed jobs sourced through the Handy platform.
Marketplace (formerly HomeAdvisor Domestic) Paying Service Professionals (or "Marketplace("Marketplace Paying SPs") - are the number of HomeAdvisor and Handy domestic service professionals that had an active membershipsubscription and/or paid for consumer matches or completed a job sourced through the Handy platform in the last month of the period. An active HomeAdvisor subscription is a subscription for which HomeAdvisor was recognizing revenue on the last day of the relevant period.
VideoVimeo
Platform Revenue - primarily includes revenue from Software-as-a-Service ("SaaS") subscription fees and other related revenue from Vimeo subscribers.
Hardware Revenue - includes sales of our live streaming accessories.
Vimeo ending subscribersEnding Subscribers - areis the number of subscribers to Vimeo's SaaS video tools at the end of the period.
Operating costsCosts and expenses:Expenses:
Cost of revenue - consists primarily of traffic acquisition costs and includes (i) the amortization of fees paid to Apple and Google related to the distribution and the facilitation of in-app purchases of product features and (ii) payments made to partners who distribute our Partnershipsbusiness-to-business customized browser-based applications and who integrate our paid listings into their websites. These payments include amounts based on revenue share and other arrangements. Cost of revenue also includes production costs related to media produced by Electus and other businesses within our Video segment, hosting fees, compensation expense (including stock-based compensation expense) and other employee-related costs for personnel engaged in data center operations and Match GroupMTCH customer service functions, credit card processing fees, production costs related to IAC Films, College Humor Media and, prior to its sale, Electus, content costs, and expenses associated with the operation of the Company's data centers.centers and costs associated with publishing and distributing the Angie's List Magazine. For periods prior to the sale of The Princeton Review, and ShoeBuy, cost of revenue also includes rent and cost for teachers and tutors and cost of products sold, including shipping and handling costs, respectively.tutors.
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 Consumerdirect-to-consumer downloadable desktop applications, offline marketing, which is primarily television advertising, and partner-related payments to those who direct traffic to the Match Groupbrands within our MTCH and ANGI Homeservices brands,segments, and compensation expense (including stock-based compensation expense) and other employee-related costs for personnel engaged in sellingANGI's sales force and marketing and sales support.personnel.
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 Match GroupMTCH which includes customer service costs within cost of revenue), fees for professional services (including transaction-related costs related to acquisitions and the Combination), 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.
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.technology and software license and maintenance costs.
Acquisition-related contingent consideration fair value adjustments - relate to the portion of the purchase price of certain acquisitions that is contingent upon the future operating performance of the acquired company. The amounts ultimately paid are generally dependent upon earnings performance and/or operating metrics as stipulated inof the relevant purchase agreements.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. IfSignificant changes in forecasted earnings and/or operating metrics will result in a significantly higher or lower fair value measurement. The changes in the payment dateestimated fair value of the liabilitycontingent consideration arrangements during each reporting period, including the accretion of the discount if the arrangement is longer than one year, the amount is initially recorded net of a discount, which is amortized as an expense each period. In a period where the acquired company is expected to perform better than the previous estimate, the liability will be increased resultingare recognized in additional expense;"General and in a period when the acquired company is expected to perform worse than the previous estimate, the liability will be decreased resulting in income. The year-over-year impact can be significant, for example, if there is income in one period and expenseadministrative expense" in the other period.accompanying consolidated statement of operations.
MTCH Term Loan - due November 16, 2022. The outstanding balance of the MTCH Term Loan as of December 31, 2018 is $425.0 million. The MTCH Term Loan bears interest at LIBOR plus 2.50% and was 5.09% and 3.85% at December 31, 2018 and 2017, respectively.
MTCH Credit Facility - On December 7, 2018, the MTCH $500 million revolving credit facility was amended and restated, and is due on December 7, 2023. The outstanding borrowings under the MTCH Credit Facility as of December 31, 2018 are $260.0 million and bear interest at LIBOR plus 1.50%, or approximately 4.00%. At December 31, 2017, there were no outstanding borrowings under the MTCH Credit Facility.
Long-term debt: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 December 31, 2018 is $400.0 million.
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 proceeds, along with cash on hand, were used to redeem the outstanding balance of the 6.75% MTCH Senior Notes. The outstanding balance of the 5.00% MTCH Senior Notes as of December 31, 2018 is $450.0 million.
5.625% MTCH Senior Notes - On February 15, 2019, MTCH completed a private offering of $350 million aggregate principal amount of its 5.625% Senior Notes due 2029. The proceeds were used to repay outstanding borrowings under the MTCH Credit Facility, to pay expenses associated with the offering, and for general corporate purposes.
6.75% MTCH Senior Notes - MTCH's 6.75% Senior Notes with an outstanding balance of $445.2 million were redeemed on December 17, 2017 with the proceeds from the 5.00% MTCH Senior Notes and cash on hand.
ANGI Term Loan - On November 5, 2018, the ANGI Term Loan was amended and restated, and is now due on November 5, 2023. The outstanding balance of the ANGI Term Loan as of December 31, 2018 is $261.3 million. The ANGI Term Loan bears interest, payable quarterly, at LIBOR plus 1.50%, or approximately 4.00% at December 31, 2018, and has quarterly principal payments. The ANGI Term Loan bore interest at LIBOR plus 2.00%, or 3.38%, at December 31, 2017.
ANGI Credit Facility - On November 5, 2018, ANGI entered into a five-year $250 million revolving credit facility. At December 31, 2018, there were no outstanding borrowings under the ANGI Credit Facility.
Exchangeable Notes - On October 2, 2017, a finance subsidiary of the Company issued $517.5 million aggregate principal of 0.875% Exchangeable Senior Notes due October 1, 2022, which notes are guaranteed by the Company and are exchangeable into shares of the Company's common stock. A portion of the proceeds were used to repay the outstanding balance of the 4.875% Senior Notes (described below). Interest is payable each April 1 and October 1, which commences on April 1, 2018.1. The outstanding balance of the Exchangeable Notes as of December 31, 20172018 is $517.5 million. Each $1,000 of principal of the Exchangeable Notes is exchangeable for 6.5713 shares of the Company's common stock, which is equivalent to an exchange price of approximately $152.18 per share, subject to adjustment upon the occurrence of specified events. A portion of the proceeds were used to repay the outstanding balance of the 4.875% Senior Notes (described below).
4.75% Senior Notes - IAC's 4.75% Senior Notes due December 15, 2022, with interest payable each June 15 and December 15, a portion of which were exchanged for the Match Group 6.75% Senior Notes (described below) on November 16, 2015.15. The outstanding balance of the 4.75% Senior Notes as of December 31, 20172018 is $34.9$34.5 million.
4.875% Senior Notes - TheIAC's 4.875% Senior Notes with an outstanding balance of $361.9 million waswere redeemed on November 30, 2017 usingwith a portion of the proceeds from the Exchangeable Notes.
Match Exchange OfferIAC Credit Facility - MatchOn November 5, 2018, the IAC Credit Facility, under which IAC Group, exchanged $445LLC, a subsidiary of the Company is the borrower, was amended and restated, reducing the facility size from $300 million of Match Group 6.75% Senior Notes for a substantially like amount of 4.75% Senior Notesto $250 million,
and now expires on November 16, 2015.
Match Group 6.75% Senior Notes - Match Group's 6.75% Senior Notes due December 15, 2022, with interest payable each June 15 and December 15. Match Group's 6.75% Senior Notes were issued in exchange for the 4.75% Senior Notes on November 16, 2015. The outstanding balance of $445.2 million was redeemed on December 17, 2017 with the proceeds from the Match Group 5.00% Senior Notes (described below) and cash on hand.
Match Group Term Loan - a seven-year term loan entered into by Match Group on November 16, 2015 in the original amount of $800 million. During 2016, Match Group made $450 million of principal payments, $400 million of which was funded from proceeds of the 6.375% Senior Notes (described below). On August 14, 2017, the Match Group Term Loan was increased by $75 million to $425 million, repriced the outstanding balance at LIBOR plus 2.50% and reduced the LIBOR floor to 0.00%. The outstanding balance of the Match Group Term Loan as of5, 2023. At December 31, 2018 and 2017, is $425 million. The interest rate onthere were no outstanding borrowings under the Match Group Term Loan at December 31, 2017 is 3.85%.
Match Group 6.375% Senior Notes - Match Group's 6.375% Senior Notes due June 1, 2024, with interest payable each June 1 and December 1. The outstanding balance of the Match Group 6.375% Senior Notes as of December 31, 2017 is $400 million.
Match Group 5.00% Senior Notes - Match Group's 5.00% Senior Notes due December 15, 2027, with interest payable each June 15 and December 15, which commences on June 15, 2018. The proceeds, along with cash on hand, were used to redeem the outstanding balance of the Match Group 6.75% Senior Notes. The outstanding balance of the Match Group 5.00% Senior Notes as of December 31, 2017 is $450 million.
ANGI Homeservices Term Loan - a five-year term loan entered into by ANGI Homeservices on November 1, 2017 in the amount of $275 million. The ANGI Homeservices Term Loan currently bears interest at LIBOR plus 2.00%. The outstanding balance of the ANGI Homeservices Term Loan as of December 31, 2017 is $275 million. The interest rate on the ANGI Homeservices Term Loan at December 31, 2017 is 3.38%.
Non-GAAP financial measure:
| |
| • | 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.EBITDA and a reconciliation of net earnings (loss) attributable to IAC shareholders to operating income (loss) to consolidated Adjusted EBITDA for the years ended December 31, 2018, 2017, and 2016. |
MANAGEMENT OVERVIEW
IAC is a leading media and Internet company composedhas majority ownership of widely known consumer brands, such asboth Match Group, which includes Tinder, Match, PlentyOfFish and OkCupid, which are part of Match Group's online dating portfolio, HomeAdvisor and Angie's List, which are operated by ANGI Homeservices, as well aswhich includes HomeAdvisor, Angie’s List and Handy, and also operates Vimeo, Dotdash Dictionary.com,and The Daily Beast, and Investopedia.among many other online businesses.
Sources of Revenue
Match Group'sMTCH's revenue is primarily derived directly from users in the form of recurring subscription fees, which typically provide unlimited access to a bundle of features for a specific period of time. Revenue is also derived from à la carte features, where users pay a non-recurring fee for a specific action or event, and from online advertisers who pay to reach our large audiences.
ANGI Homeservices revenue is primarily derived from (i) consumer connection revenue, which includescomprises fees paid by HomeAdvisor service professionals for consumer matches (regardless of whether the service professional ultimately provides the requested service) and booking fees from completed jobs sourced through the Handy platform, and (ii) membership subscription fees paid by HomeAdvisor service professionals. Consumer connection revenue varies based upon certainseveral factors, including the service requested, type of match (such as Instant Booking, Instant Connect, same day service or next day service)product experience offered and geographic location of service. Effective with the Combination (described below), revenue is also derived from Angie's List (i) sales of time-based website, mobile and call center advertising to service professionals and (ii) membership subscription fees from consumers.
Vimeo revenue is derived primarily from annual and monthly Software-as-a-Service ("SaaS") subscription fees paid by creators for premium capabilities and, to a lesser extent, sales of live streaming hardware, software and professional services.
Dotdash revenue consists principally of digital advertising revenue and affiliate commerce commission revenue. Digital advertising revenue is generated primarily through digital display advertisements sold directly and through programmatic advertising networks. Affiliate commerce commission revenue is generated when Dotdash refers users to commerce partner websites resulting in a purchase or transaction.
A substantialmeaningful portion of the revenue from ourof the Desktop business within the Applications segment and Publishing segments is derived from online advertising, most of whichthe Ask Media Group within the Emerging & Other segment is attributable to oura services agreement with Google Inc. ("Google"). The Company's services agreement became effective on April 1, 2016, following the expiration of the previous services agreement. The services agreement, and expires on March 31, 2020; however,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 beginning September 2020 and each September thereafter, either party may, choose toafter discussion with the other party, terminate the services agreement, effective March 31, 2019.on September 30 of the year following the year such notice is given. The services agreement requires that wethe Company comply with certain guidelines promulgated by Google, andGoogle. Google may generally unilaterally update its policies and guidelines without advance notice. Any such updatesnotice, which 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 business, financial condition and results of operations. Google’s policy changes related to its Chrome browser became effective on September 12, 2018 and negatively impacted the distribution of our business-to-consumer ("B2C") desktop products. The impact of these changes on revenue and profits in 2018 were modest as the Company optimized marketing spend in anticipation of the changes. However, we expect these changes to reduce revenue and profits of the Desktop business in the future, which among other reasons led to a $27.7 million impairment of the related indefinite-lived intangible asset in the fourth quarter of 2018. For the years ended December 31, 20172018, 20162017 and 20152016, consolidated revenue earned from Google was $825.2 million, $740.7 million and $824.4 million, and $1.3 billion, respectively. For the years ended December 31, 2018, 2017, and 2016,and2015, revenue earned from Google represents 83%73%, 87%83% and 94%87% of Applications revenue and 71%94%, 73%96% and 83%96% of PublishingAsk Media Group revenue (and 68%, 48% and 35% of Emerging & Other revenue), respectively.
The revenue earned by our Video
Revenue for the other businesses within the Emerging & Other segment is derived from subscriptions,generated primarily through media production and distribution, advertising and subscriptions. For periods prior to their sales: Dictionary.com and PriceRunner's revenue was derived principally from advertising.
Electus revenue was primarily generated through media production and distribution. The Princeton Review's revenue was primarily earned from fees received directly from students for in-person and online test preparation classes, access to online test preparation materials and individual tutoring services. ShoeBuy's revenue was derived principally from merchandise sales. PriceRunner's revenue was derived principally from advertising.
Strategic Partnerships, Advertiser Relationships and Online Advertising
A meaningful portionMost of the Company's online advertising revenue is attributable to thea services agreement with Google described above. For the years ended December 31, 2018, 2017 2016 and 2015,2016, revenue earned from Google representsrepresents 19%, 22%, and 26% and 40%, respectively, of our consolidated revenue.
We pay traffic acquisition costs, which consist of fees paid to Apple and Google related to the distribution and the facilitation of in-app purchases of product features and payments made to partners who distribute our Partnershipsbusiness-to-business customized browser-based applications and who integrate our paid listings into their websites. We also pay to market and distribute our services on third-party distribution channels, such as search engines and social media websites such as Facebook. In addition, some of our businesses manage affiliate programs, pursuant to which we pay commissions and fees to third parties based on revenue earned. These distribution channels might also offer their own services and products, as well as those of other third parties, which compete with those we offer.
We market and offer our services and products to consumers through branded websites, allowing consumers to transact directly with us in a convenient manner. We have made, and expect to continue to make, substantial investments in online and offline advertising to build our brands and drive traffic to our websites and consumers and advertisers to our businesses.
20172018 Developments
Combination and Acquisitions
On October 18, 2017, Vimeo22, 2018, IAC acquired Livestream,TelTech Systems, Inc. ("TelTech"), a developer of mobile applications, including RoboKiller and TapeACall, within its Applications segment.
On October 19, 2018, ANGI acquired Handy Technologies, Inc. ("Handy"), a leading live video solution that powers millions of events a year.platform in the United States for connecting people looking for household services (primarily cleaning and handyman services) with top-quality, pre-screened independent service professionals.
Dispositions
On September 29, 2017, the Company's HomeAdvisor segment and Angie's List, Inc. ("Angie's List") combined under a new publicly traded company called ANGI Homeservices Inc. (the "Combination"). At December 31, 20172018, the Company sold CityGrid Media, LLC ("CityGrid"), an advertising network that integrated local content and advertising for distribution to affiliated and third-party publishers across web and mobile platforms.
On December 31, 2018, ANGI sold its pay-per-call advertising service business, Felix Calls, LLC ("Felix").
On November 13, 2018, IAC owned 86.9%sold Dictionary LLC ("Dictionary.com"), an online and 98.5%mobile dictionary and thesaurus service.
On October 29, 2018, IAC sold Electus, a production and producer service for both unscripted and scripted television and digit content, primarily for initial sale and distribution in the United States.
The combined pre-tax gains for these businesses sold in 2018 is $120.6 million and is included in "Other income (expense), net" in the accompanying consolidated statement of operations.
Financing Transactions
On December 7, 2018, the economicMTCH Credit Facility of $500 million was amended and voting interest, respectively,restated, and is now due on December 7, 2023.
On November 5, 2018,
IAC's revolving credit facility was amended and restated, reducing the facility size from $300 million to $250 million, and now expires November 5, 2023.
ANGI entered into a five-year $250 million revolving credit facility and the ANGI Term Loan was amended and restated, and is now due on November 5, 2023.
Other Developments
During the fourth quarter of ANGI Homeservices.2018, IAC realigned its reportable segments. See "Note 4—Business Combination1—Organization" to the consolidated financial statements included in "Item 8. 8—Consolidated Financial Statements and Supplementary Data." The Company's financial information for additional information related to the Combination. In connection with the Combination, the Company changed the name of its HomeAdvisor segment to ANGI Homeservices and year-over-year comparisons for financial results for this segment are to the historical results of the HomeAdvisor segment (adjusted to reflect corporate allocations from IAC). During the year ended December 31, 2017, the Company incurred $44.1 million in costs related to this transaction (including severance, retention, transaction and integration related costs) as well as deferred revenue write-offs of $7.8 million. The Company expects the remaining aggregate amount of transaction-related expenses, including deferred revenue write-offs, during 2018 to be in the range of $10 million to $20 million. The Company also incurred $122.1 million in stock-based compensation expense during 2017 related to the modification of previously issued HomeAdvisor vested and unvested equity awards, which were converted into ANGI Homeservices' equity awards, the expense related to previously issued Angie's List equity awards and the acceleration of certain Angie's List equity awards resulting from the termination of employees in connection with the Combination. Stock-based compensation expense arising from the Combination is expected to be approximately $70 million in 2018. HomeAdvisor acquired controlling interests in MyBuilder Limited ("MyBuilder") on March 24, 2017, and HomeStars Inc. ("HomeStars") on February 8, 2017, leading home services platforms in the United Kingdom and Canada, respectively.
Financing Transactions
On December 4, 2017, Match Group completed a private offering of $450 million aggregate principal amount of its 5.00% Senior Notes due December 15, 2027. The proceeds from these notes, along with cash on hand, were used to redeem the outstanding balance of the Match Group 6.75% Senior Notes of $445.2 million on December 17, 2017.
On November 1, 2017, ANGI Homeservices borrowed $275 million under a five-year term loan facility.
On October 2, 2017, a finance subsidiary of the Company issued $517.5 million aggregate principal amount of Exchangeable Notes due October 1, 2022, which notes are guaranteed by the Company and are exchangeable into shares of the Company's common stock. The proceeds from these notes were, in part, loaned to IAC, which repaid the outstanding balance of its 4.875% Senior Notes of $361.9 million on November 30, 2017. Each $1,000 of principal of the Exchangeable Notes is exchangeable for 6.5713 shares of the Company's common stock, which is equivalent to an exchange price of approximately $152.18 per share, subject to adjustment upon the occurrence of specified events.
On August 14, 2017, Match Group increased its Term Loan by $75 million to $425 million, repriced the outstanding balance at LIBOR plus 2.50% and reduced the LIBOR floor to 0.00%. Previously, the interest charged on the Match Group Term Loan was LIBOR plus 3.25%, with a LIBOR floor of 0.75%.
Other Developments
During 2017, the Company repurchased 0.7 million shares of common stock at an average price of $69.73 per share, or $50.1 million in aggregate.
On October 23, 2017, Match Group sold a cost method investment for net proceeds of $60.2 million. The gain on sale of $9.1 million is included in "Other (expense) income, net" in the accompanying consolidated statement of operations.
In July 2017, Match Group elected to convert all outstanding equity awards of its wholly-owned subsidiary Tinder, which awards were primarily held by current and former Tinder employees, to stock options of Match Group (the "Tinder Equity Plan Settlement"). Subsequently, during 2017, Match Group made cash payments of approximately $520 million to cover both withholding taxes paid on behalf of employees exercising these converted awards, as these awards were net settled, and the purchase of certain fully vested awards.
On March 31, 2017, Match Group sold its non-dating business, consisting of The Princeton Review. The non-dating business does not meet the threshold to be reflected as a discontinued operation at the IAC level. The Company moved the non-dating business to its “Other” segment effective March 31, 2017 and prior period segment data hasperiods have been recast to conform to the current period presentation.
On November 6, 2018, MTCH declared a special dividend of $2.00 per share on MTCH common stock and Class B common stock, payable on December 19, 2018 to shareholders of record on December 5, 2018. The total amount of this presentation.dividend was $556.4 million, of which $451.2 million was paid to IAC and $105.1 million was paid to MTCH noncontrolling interests. MTCH funded the special dividend with cash on hand and borrowings under the MTCH Credit Facility.
20172018 Consolidated Results
In 2017, the Company's revenueRevenue increased $167.4$955.7 million, or 5%29%, operating income increased $221.1 million from a loss of $32.6 million in the prior year and Adjusted EBITDA grew $74.1 million, or 15%. Revenue increasedto $4.3 billion due primarily to growth from MTCH of $399.2 million, an increase of $237.5 million from ANGI Homeservicesof $395.9 million due, in part, to the Combination growth(defined below), and increases of $212.6$59.7 million from Match Group and $48.3Emerging & Other, $56.3 million from Video,Vimeo and $40.1 million from Dotdash.
Operating income increased $376.7 million, or 200%, to $565.1 million due primarily to an increase in Adjusted EBITDA of $413.5 million, a decrease of $26.2 million in stock-based compensation expense, and a change of $4.3 million in acquisition-related contingent consideration fair value adjustments, partially offset by increases of $66.3 million in amortization of intangibles and $1.1 million in depreciation. The decrease in stock-based compensation expense was due primarily to a declinedecrease of $259.4$51.4 million from Other duein modification and acceleration charges related to the salesCombination ($70.6 million in 2018 compared to $122.1 million in 2017), partially offset by the modification of ShoeBuy, The Princeton Review and PriceRunner on December 30, 2016, March 31, 2017 and March 18, 2016, respectively, and a decline of $45.5 million from Publishing primarilycertain awards in 2018, due in part, to the effectssale of businesses during the Google contract.fourth quarter of 2018 and the issuance of new equity awards since 2017. The operating income increase in amortization of intangibles was due primarily to the Combination and the inclusion in 20162018 of a $275.4 million goodwillan impairment charge of $27.7 million at Publishing, an increase of $74.1 million in Applications related to a trade name at the Desktop business.
Adjusted EBITDA described below, and a decrease of $37.3increased $413.5 million, in amortization of intangibles, partially offset by an increase of $159.8or 72%, to $988.8 million in stock-based compensation expense due, in part, to the Combination. The goodwill impairment charge at Publishing in 2016 was driven by the impact from the Google contract, traffic trends and monetization challenges. The Adjusted EBITDA increase was due primarily to growth of $65.6$209.6 million from Match Group,ANGI, $185.0 million from MTCH, $24.1 million from Dotdash and $10.3 million from Emerging & Other, partially offset by a profit from Publishingdecrease of $31.5 million in 2017 compared to a loss of $7.6 million in 2016 and growth of $4.5$4.9 million from Applications partially offset byand increased losses of $14.5$6.3 million and $4.4 million from Corporate $9.2 million from Video and a decline of $8.0 million from ANGI Homeservices due primarily to costs of $44.1 million (including severance, retention, transaction and integration related costs) and deferred revenue write-offs of $7.8 million related to the Combination.Vimeo, respectively.
Other eventsEvents affecting year-over-year comparability that occurred prior to 2017 include:
| |
| (i) | the salecombination on September 29, 2017 of ASKfm on June 30, 2016 (reflectedthe businesses comprising the Company's former HomeAdvisor segment and Angie's List, Inc. ("Angie's List") under a new publicly traded company called ANGI Homeservices Inc. (the "Combination"), which comprises the Company's ANGI segment. Stock-based compensation expense related to the modification of previously issued HomeAdvisor equity awards and previously issued Angie's List equity awards, both of which were converted into ANGI Homeservices' equity awards in the Publishing segment)Combination, is expected to be approximately $35 million in 2019 and $20 million in 2020; |
| |
| (ii) | acquisitionsthe adoption of the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers, on January 1, 2018. For the year ended December 31, 2018, the adoption of ASU No. 2014-09 increased consolidated operating income by $2.6 million, due primarily to a reduction in 2016sales commissions expense of $4.9 million at ANGI due to the capitalization and 2015:amortization of certain sales commissions. For the year ended December 31, 2018, the effect of ASU No. 2014-09 decreased consolidated revenue by $0.5 million; |
MyHammer Holding AG ("MyHammer") on November 3, 2016 (reflected in the ANGI Homeservices segment)
PlentyOfFish on October 28, 2015 (reflected in the Match Group segment); and
Pairs (also known as Eureka) on April 24, 2015 (reflected in the Match Group segment).
| |
| (iii) | coststhe adoption of $4.9 millionFASB ASU No. 2016-01, Recognition and $16.8Measurement of Financial Assets and Financial Liabilities, on January 1, 2018. For the year ended December 31, 2018, the adoption of ASU No. 2016-01 |
increased other income (expense), net by $124.2 million, which includes gross unrealized gains related to the remeasurement of Company's remaining investments in an investee following the sale of a portion of the Company's investment during the second quarter of 2018; and
| |
| (iv) | in 2016addition to those listed under "2018 Developments" above, the acquisitions and 2015, respectively, relateddispositions of the following businesses: |
|
| | | | |
| Acquisitions: | | Reportable Segment: | | Acquisition Date: |
| BlueCrew - controlling interest | | Emerging & Other | | February 26, 2018 |
| Hinge - controlling interest * | | MTCH | | Second quarter of 2018 |
| iTranslate | | Applications | | March 15, 2018 |
| HomeStars Inc. ("HomeStars") - controlling interest | | ANGI | | February 8, 2017 |
| MyBuilder Limited ("MyBuilder") - controlling interest | | ANGI | | March 24, 2017 |
| Livestream | | Vimeo | | October 18, 2017 |
| My Hammer Holding AG ("MyHammer) - controlling interest | | ANGI | | November 3, 2016 |
_______________________
* In the fourth quarter of 2018, MTCH acquired the remaining noncontrolling interests in Hinge.
|
| | | | |
| Dispositions: | | Reportable Segment: | | Sale Date: |
| The Princeton Review | | Emerging & Other | | March 31, 2017 |
| PriceRunner | | Emerging & Other | | March 18, 2016 |
| ASKfm | | Emerging & Other | | June 30, 2016 |
| ShoeBuy | | Emerging & Other | | December 30, 2016 |
| |
| (v) | the transfer of Daily Burn from the Emerging & Other segment to the consolidation and streamlining of technology systems and European operations at the Match Group segment. This project was complete as of December 31, 2016.Applications segment effective April 1, 2018. |
| |
(iv)(vi) | restructuring charges in 2016 of $15.6$14.5 million, $2.6 million and $2.6$1.1 million at the PublishingAsk Media Group, Applications and Applications segments,Dotdash, respectively, to reduce costs in light of significant declines in revenue from the new Google contract, which was effective April 1, 2016, as well as declines from certain other legacy businesses. |
Results of Operations for the Years Ended December 31, 2018, 2017 2016 and 20152016
Revenue
| | | | Years Ended December 31, | Years Ended December 31, |
| | 2017 | | $ Change | | % Change | | 2016 | | $ Change | | % Change | | 2015 | 2018 | | $ Change | | % Change | | 2017 | | $ Change | | % Change | | 2016 |
| | (Dollars in thousands) | (Dollars in thousands) |
| Match Group | $ | 1,330,661 |
| | $ | 212,551 |
| | 19 | % | | $ | 1,118,110 |
| | $ | 208,405 |
| | 23 | % | | $ | 909,705 |
| $ | 1,729,850 |
| | $ | 399,189 |
| | 30% | | $ | 1,330,661 |
| | $ | 212,551 |
| | 19% | | $ | 1,118,110 |
|
| ANGI Homeservices | 736,386 |
| | 237,496 |
| | 48 | % | | 498,890 |
| | 137,689 |
| | 38 | % | | 361,201 |
| 1,132,241 |
| | 395,855 |
| | 54% | | 736,386 |
| | 237,496 |
| | 48% | | 498,890 |
|
| Video | 276,994 |
| | 48,345 |
| | 21 | % | | 228,649 |
| | 15,332 |
| | 7 | % | | 213,317 |
| |
| Vimeo | | 159,641 |
| | 56,309 |
| | 54% | | 103,332 |
| | 24,527 |
| | 31% | | 78,805 |
|
| Dotdash | | 130,991 |
| | 40,101 |
| | 44% | | 90,890 |
| | 12,977 |
| | 17% | | 77,913 |
|
| Applications | 577,998 |
| | (26,142 | ) | | (4 | )% | | 604,140 |
| | (156,608 | ) | | (21 | )% | | 760,748 |
| 582,287 |
| | 4,289 |
| | 1% | | 577,998 |
| | (26,142 | ) | | (4)% | | 604,140 |
|
| Publishing | 361,837 |
| | (45,476 | ) | | (11 | )% | | 407,313 |
| | (284,373 | ) | | (41 | )% | | 691,686 |
| |
Other* | 23,980 |
| | (259,385 | ) | | (92 | )% | | 283,365 |
| | (11,456 | ) | | (4 | )% | | 294,821 |
| |
| Emerging & Other | | 528,250 |
| | 59,661 |
| | 13% | | 468,589 |
| | (294,020 | ) | | (39)% | | 762,609 |
|
| Inter-segment elimination | (617 | ) | | (32 | ) | | (6 | )% | | (585 | ) | | (40 | ) | | (7 | )% | | (545 | ) | (368 | ) | | 249 |
| | 40% | | (617 | ) | | (32 | ) | | (6)% | | (585 | ) |
| Total | $ | 3,307,239 |
| | $ | 167,357 |
| | 5 | % | | $ | 3,139,882 |
| | $ | (91,051 | ) | | (3 | )% |
| $ | 3,230,933 |
| $ | 4,262,892 |
| | $ | 955,653 |
| | 29% | | $ | 3,307,239 |
| | $ | 167,357 |
| | 5% |
| $ | 3,139,882 |
|
________________________For the year ended December 31, 2018 compared to the year ended December 31, 2017
MTCH revenue increased 30% to $1.7 billion driven by International Direct Revenue growth of $234.8 million, or 43%, and North America Direct Revenue growth of $161.1 million, or 22%. Both International and North America Direct Revenue growth were driven by higher Average Subscribers, up 31% to 3.7 million and 17% to 4.2 million, respectively, due primarily to continued growth in Subscribers at Tinder. Total ARPU increased 6% due to Tinder, as Subscribers purchased premium subscriptions, such as Tinder Gold, as well as additional à la carte features.
ANGI revenue increased 54% to $1.1 billion driven by the Marketplace growth of $193.1 million, or 33%, the contribution from Angie's List and growth of $12.6 million, or 22%, at the European businesses. Marketplace Revenue growth was driven by a 30% increase in Marketplace Service Requests to 23.5 million and a 18% increase in Marketplace Paying SPs to 214,000. Angie's List revenue reflects the write-off of deferred revenue due to the Combination of $5.5 million in 2018 compared to $7.8 million in 2017. Revenue growth at the European businesses was driven by the acquisition of a controlling interest in MyBuilder on March 24, 2017, as well as growth across other regions. European revenue also benefited from the weakening of the U.S. dollar relative to the Euro.
Vimeo revenue grew 54% to $159.6 million due to Platform revenue growth of $47.0 million, or 47%, and Hardware revenue growth of $9.3 million, both due in part, to the contribution of Livestream. Platform revenue growth was further impacted by a 9% increase in Vimeo Ending Subscribers to 952,000 and average revenue per user growth of 31%.
*Dotdash revenue grew 44% to $131.0 million due to strong advertising growth across several verticals, particularly Verywell and The Spruce, as well as growth in affiliate commerce commission revenue.
Applications revenue increased 1% to $582.3 million due to an increase of $67.7 million, or 121%, in Mosaic Group, partially offset by a decline of $63.4 million, or 12%, in Desktop. The increase in Mosaic Group revenue was driven primarily by growth of 55% related to the ongoing transition to subscription products as well as higher marketing expense and new products, contributions from iTranslate and TelTech, and the transfer of Daily Burn from the Emerging & Other segment consistseffective April 1, 2018. The decline at Desktop was driven by the business-to-business partnership operations' loss of certain partners and a decrease in the resultsdirect-to-consumer desktop applications business due primarily to lower revenue per query. The adoption of PriceRunner, ShoeBuyASU No. 2014-09 resulted in a net increase in revenue of $0.8 million (an increase of $7.3 million in Mosaic Group, partially offset by a decrease of $6.5 million in Desktop).
Emerging & Other revenue increased 13% to $528.3 million due primarily to higher revenue at Ask Media Group due to growth in paid traffic, primarily in international markets, and the contribution from BlueCrew, partially offset by the sales of Electus and Dictionary.com in the fourth quarter of 2018, the sale of The Princeton Review for periods priorin 2017, lower revenue from IAC Films due to the salessale of these businesses, which occurred on March 18, 2016, December 30, 2016 and March 31, 2017, respectively. Beginninga film in the secondthird quarter of 2017 as a resultand the transfer of the sales of these businesses, the Other segment does not include any financial results.Daily Burn.
For the year ended December 31, 2017 compared to the year ended December 31, 2016
Match GroupMTCH revenue increased 19% to $1.3 billion driven by International Direct Revenue growth of $146.3$146.5 million, or 38%37%, and North America Direct Revenue growth of $67.6$67.4 million, or 10%. Both International and North America Direct Revenue growth were driven by higher Average Subscribers, up 33% to 2.8 million and 9%, to 3.6 million, respectively, due primarily to continued growth in Subscribers at Tinder. Total ARPU increased 1%.
ANGI Homeservices revenue increased 48% to $736.4 million driven by Marketplace growth of $152.5 million, or 36%, at Marketplace (formerly HomeAdvisor Domestic) and growth of $20.4 million, or 55%, at the European business.businesses. Marketplace Revenue growth was driven by a 37% increase in Marketplace Service Requests to 18.1 million and a 26% increase in Marketplace Paying SPs to 181,000. Revenue in 2017 includes the contribution from Angie's List since the date of Combination, which reflects the write-off of deferred revenue of $7.8 million. Revenue growth at the European businessbusinesses was driven by the acquisitions of controlling interests in MyHammer on November 3, 2016 and MyBuilder, on March 24, 2017, as well as by organic growth across other regions. Revenue in 2017 includes a contribution of $58.9 million from Angie's List since the date of the Combination, which reflects a reduction in
Vimeo revenue of $7.8grew 31% to $103.3 million due to the write-offPlatform revenue growth of deferred$20.8 million, or 26%, and Hardware revenue relatedof $3.7 million both due in part, to the Combination.contribution of Livestream. Platform revenue growth was further impacted by a 14% increase in Vimeo Ending Subscribers to 873,000 and average revenue per user growth of 11%.
Dotdash revenue grew 17% to $90.9 million due to an increase in organic traffic and advertising revenue.
Applications revenue decreased 4% due to a decline of $41.2 million, or 7%, in Desktop, partially offset by an increase of $15.0 million, or 37%, in Mosaic Group. The decline at Desktop were driven by the business-to-business partnership operations' loss of certain partners, and a decrease in the direct-to-consumer desktop applications business due primarily to lower revenue per query, partially offset by higher subscription revenue. The increase in Mosaic Group revenue was driven by higher advertising and subscription revenue.
VideoEmerging & Other revenue increased 21% drivendecreased 39% to $468.6 million due primarily to the sales of ShoeBuy, The Princeton Review and PriceRunner, declines in paid traffic primarily as a result of the Google contract at Ask Media Group and a decline at College Humor Media, partially offset by the sales of The Meyerowitz Stories (New and Selected) and The Legacy of a Whitetail Deer Hunter and the release of Lady Bird at IAC Films, and strong growth at Vimeo, which had ending subscribers of 873,000, an increase of 14% year-over-year, partially offset by a decline at Electus.
ApplicationsCost of revenue decreased 4% due to a decrease of $37.8 million, or 27%, in Partnerships, partially offset by an increase of $11.7 million, or 3%, in Consumer. Partnerships revenue continued to decline due primarily to the loss of certain partners. The growth in Consumer was due primarily to growth of 37% at Apalon, driven by higher advertising and subscription revenue, and growth at SlimWare, driven by higher subscription revenue, partially offset by lower revenue per query at the Consumer desktop applications business. Apalon and SlimWare together comprised 16% of total Applications revenue in 2017.
Publishing revenue decreased 11% due to $58.8 million, or 20%, lower Ask & Other revenue, partially offset by $13.3 million, or 12%, higher Premium Brands revenue. Ask & Other revenue decreased due to declines in paid traffic primarily as a result of the Google contract. Premium Brands revenue increase was due to growth at Investopedia and Dotdash due to an increase in organic traffic and advertising revenue. |
| | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | $ Change | | % Change | | 2017 | | $ Change | | % Change | | 2016 |
| | (Dollars in thousands) |
| Cost of revenue (exclusive of depreciation shown separately below) | $911,146 | | $260,138 | | 40% | | $651,008 | | $(104,722) | | (14)% | | $755,730 |
| As a percentage of revenue | 21% | | | | | | 20% | | | | | | 24% |
For the year ended December 31, 20162018 compared to the year ended December 31, 20152017
Match GroupCost of revenue in 2018 increased 23%from 2017 due to increases of $130.5 million from MTCH, $79.0 million from Emerging & Other, $21.7 million from ANGI and $19.0 million from Vimeo.
The MTCH increase was due primarily to an increase of $123.8 million in in-app purchase fees as MTCH's revenues are increasingly sourced through mobile app stores.
The Emerging & Other increase was due primarily to an increase of $143.2 million in traffic acquisition costs principally driven by higher Average Subscribers at both North America and International, up 22% and 46%, respectively, due primarily to growth in Subscribers at Tinder and the contribution from the 2015 acquisition of PlentyOfFish. This revenue growth was partially offset by a 6% decline in ARPU. North America and International ARPU
decreased 5% and 7%, respectively, due primarily to the continued mix shift towards lower ARPU brands, including Tinder and PlentyOfFish, which had lower price points compared to Match Group's more established brands. North America ARPU decline was partially offset by an increase in mix-adjusted rates.
ANGI Homeservices revenue increased 38% due primarily to 44% growth at Marketplace and 18% growth at the European business. Marketplace Revenue growth was driven by a 34% increase in Marketplace Service Requests to 13.2 million and a 41% increase in Marketplace Paying SPs to 143,000. Revenue growth at the European business was driven by organic growth across all regions as well as the acquisition of a controlling interest in MyHammer.
Video revenue increased 7% due primarily to growth at Electus, Vimeo and Daily Burn, partially offset by lower revenue from IAC Films as 2015 benefited from the release of the movie While We're Young. Vimeo's ending subscribers were 768,000, an increase of 14%, compared to 2015.
Applications revenue decreased 21% due to a 39% decline in Partnerships and a 12% decline in Consumer. Partnerships revenue decreased due primarily to the loss of certain partners. The Consumer decline was driven by lower search revenue from our downloadable desktop applications due primarily to lower monetization, partially offset by strong growth at Apalon and SlimWare, which together comprised 12% of total Applications revenue in 2016.
Publishing revenue decreased 41% due to 54% lower Ask & Other revenue and 25% lower Premium Brands revenue. Ask & Other revenue decreased due to a decline in revenue at Ask Media Group, primarily asin international markets, and the expense from the inclusion of BlueCrew, which was acquired on February 26, 2018, partially offset by a resultdecrease of $71.1 million in production costs, driven primarily by the new Google contract, which became effective April 1, 2016, as well as declinessale of Electus in 2018 and lower revenue from certain other legacy businesses. Premium Brands revenue decreasedIAC Films, the sale of The Princeton Review in 2017 and the transfer of Daily Burn to Applications.
The ANGI increase was due primarily to declinesincreases of $7.2 million in monetization, mainly attributabletraffic acquisition costs, $7.0 million in credit card processing fees, including $3.5 million from the inclusion of Angie's List, and higher Marketplace Revenue, $3.7
million in costs associated with publishing and distributing the Angie's List Magazine and $2.5 million in hosting fees, principally from the inclusion of Angie's List.
The Vimeo increase was due primarily to the new Google contract and organic traffic at Dotdash, partially offset by strong growth at Investopedia and The Daily Beast.
Other revenue decreased 4% due toexpense from the saleinclusion of PriceRunner on March 18, 2016 and a 6% decrease in revenue at The Princeton Review, partially offset by growth at ShoeBuy. The decrease in revenue at The Princeton Review was primarily due to fewer in-person SAT test preparation courses and in-person tutoring sessions, partially offset by an increase in online and self-paced services.
Cost of revenue
|
| | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | $ Change | | % Change | | 2016 | | $ Change | | % Change | | 2015 |
| | (Dollars in thousands) |
| Cost of revenue (exclusive of depreciation shown separately below) | $651,008 | | $(104,722) | | (14)% | | $755,730 | | $(22,431) | | (3)% | | $778,161 |
| As a percentage of revenue | 20% | | | | | | 24% | | | | | | 24% |
For the year ended December 31, 2017 compared to the year ended December 31, 2016
Cost of revenue in 2017 decreased from 2016 due to decreases of $169.4$180.1 million from Emerging & Other $31.6 million from Publishing and $20.9 million from Applications, partially offset by increases of $83.9 million from Match Group, $25.9 million from Video andMTCH, $8.2 million from ANGI Homeservices.and $6.9 million from Vimeo.
The Emerging & Other decrease was due primarily to the sales of ShoeBuy and The Princeton Review.
The Publishing decrease was due primarily to reductionsReview, a reduction of $15.2$13.2 million in traffic acquisition costs driven by a decline in revenue at Ask & Other,and $8.4 million in rent expense due to vacating a data center in the fourth quarter of 2016 at Ask Media Group and $6.5 million in contentlower production costs due primarily to Dotdash due, in part, to its vertical brand strategy which launched in the second quarter of 2016.
The Applications decrease was due primarily to a reduction of $16.6 million in traffic acquisition costs drivenat College Humor Media, partially offset by a decline in revenue at Partnerships and a decrease of $2.9 million in compensation due, in part, to the reductions in workforce in 2016.
The Match Group increase was due primarily to increases of $75.4 million in in-app purchase fees and $5.9 million in hosting fees. The increases were due primarily to the growth at Tinder.
The Video increase was due primarily to an increase in production costs at IAC Films related to the sales of The Meyerowitz Stories (New and Selected) and The Legacy of a Whitetail Deer Hunter and the release of Lady Bird in 2017.
The Applications decrease was due primarily to a reduction of $16.6 million in traffic acquisition costs driven by a decline in revenue at Desktop and a decrease of $2.9 million in compensation expense due, in part, to the current year period, the contribution from Livestream, whichreductions in workforce in 2016.
The MTCH increase was acquired on October 18, 2017,due primarily to increases of $75.4 million in in-app purchase fees and an increase of $2.6$5.9 million in hosting feesfees. The increases were due primarily to the growth at Vimeo due to subscription growth, partially offset by lower production costs at Electus.
Tinder.The ANGI Homeservices increase was due primarily to the inclusion of expense of $3.7 million from Angie's List resulting from the Combination, an increase of $2.8 million in credit card processing fees due to higher revenue and an increase of $1.6 million in hosting fees, partially offset by a reduction in traffic acquisition costs of $0.4 million.
The Vimeo increase was due primarily to the expense from the inclusion of Livestream and an increase of $2.6 million in hosting fees due to subscription growth.
Selling and marketing expense
|
| | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | $ Change | | % Change | | 2017 | | $ Change | | % Change | | 2016 |
| | (Dollars in thousands) |
| Selling and marketing expense | $1,519,440 | | $138,219 | | 10% | | $1,381,221 | | $134,124 | | 11% | | $1,247,097 |
| As a percentage of revenue | 36% | | | | | | 42% | | | | | | 40% |
For the year ended December 31, 20162018 compared to the year ended December 31, 20152017
Cost of revenueSelling and marketing expense in 2016 decreased2018 increased from 20152017 due to decreasesincreases of $54.7$77.4 million from Applications and $47.0ANGI, $44.3 million from Publishing,MTCH and $26.1 million from Vimeo, partially offset by increasesa decrease of $61.3$13.2 million from Match Group, $7.7 million from Video, $7.1 million from Other and $2.9 million from ANGI Homeservices.Emerging & Other.
The ApplicationsANGI increase was due primarily to increases in advertising expense of $53.7 million, reflecting the impact from the inclusion of Angie's List, compensation expense of $12.9 million and facilities costs of $5.1 million. The increase in advertising expense was due primarily to increased investments in online marketing and television spend. Compensation expense increased due primarily to growth in the sales force, partially offset by a decrease in stock-based compensation expense of $22.4 million and the inclusion of $7.4 million in severance and retention costs in 2017 related to the Combination. The decrease in stock-based compensation expense reflects decreases of $13.3 million in expense due to the modification of previously issued HomeAdvisor equity awards, which were converted into ANGI Homeservices' equity awards ($1.6 million in 2018 compared to $14.8 million in 2017), and $9.0 million in expense related to previously issued Angie's List equity awards, including the acceleration of certain converted equity awards resulting from the termination of Angie's List employees in connection with the Combination ($0.6 million in 2018 compared to $9.6 million in 2017). Compensation expense in 2018 also reflects a reduction in sales commissions expense of $4.9 million due to the adoption of ASU No. 2014-09. As a percentage of revenue, selling
and marketing expense declined due, in part, to accelerated revenue growth driven by capacity expansion efforts combined with marketing optimization efforts at HomeAdvisor.
The MTCH increase was due primarily to higher advertising expense of $45.6 million due primarily to increased marketing expense as a result of marketing initiatives at Tinder, Pairs, PlentyOfFish, OkCupid and Meetic, and the inclusion of Hinge, acquired in 2018, partially offset by lower offline marketing spend at Match and Match Affinity brands. As a percentage of revenue, selling and marketing expense decreased due primarily to the ongoing shift towards brands with lower marketing spend.
The Vimeo increase was due primarily to increased investment in marketing of $13.2 million, $8.8 million of expense from the inclusion of Livestream and an increase in compensation expense of $3.2 million, due, in part, to an increase in the sales force.
The Emerging & Other decrease was due primarily to the transfer of Daily Burn to the Applications segment, the sale of The Princeton Review and a reductiondecrease in online marketing of $52.0$9.0 million in traffic acquisition costs driven by a decline in revenue at Partnerships.
The Publishing decrease was due primarily to reductions of $40.0 million in traffic acquisition costs and $4.6 million in content costs driven by a decline in revenue at Ask & Other,Media Group, partially offset by $9.2higher compensation expense of $6.8 million at Electus and the expense from the inclusion of BlueCrew. Selling and marketing expense was further impacted by an increase of $2.2 million in restructuring chargescompensation expense at The Daily Beast due, in 2016 related to vacating a data center facility and severance costs in connection with a reduction in workforce.
The Match Group increase was due primarily to a significant increase in in-app purchase fees across multiple brands, including Tinder, and the 2015 acquisitions of PlentyOfFish and Pairs.
The Video increase was due primarily to a net increase in production costs at our media and video businesses and an increase in hosting fees related to Vimeo's subscription growth, increased video plays and expanded On Demand catalog. These increases were partially offset by a reduction in investment in content costs at Vimeo in 2016.
The Other increase was due primarilypart, to an increase in cost of products sold at ShoeBuy due to increasedthe sales partially offset by a mix shift to higher margin online products from in-person courses at The Princeton Review and the sale of PriceRunner.
The ANGI Homeservices increase was due primarily to an increase of $1.9 million in credit card processing fees due to higher revenue and an increase of $0.6 million in traffic acquisition costs.
Selling and marketing expense
|
| | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | $ Change | | % Change | | 2016 | | $ Change | | % Change | | 2015 |
| | (Dollars in thousands) |
| Selling and marketing expense | $1,381,221 | | $134,124 | | 11% | | $1,247,097 | | $(101,196) | | (8)% | | $1,348,293 |
| As a percentage of revenue | 42% | | | | | | 40% | | | | | | 42% |
For the year ended December 31, 2017 compared to the year ended December 31, 2016
Selling and marketing expense in 2017 increased from 2016 due to increases of $157.3 million from ANGI, Homeservices, $26.5 million from Match GroupMTCH and $17.5$11.7 million from Video,Vimeo, partially offset by decreases of $37.6$53.0 million from PublishingEmerging & Other and $22.3$6.7 million from Other.Applications.
The ANGI Homeservices increase was due primarily to higher online and offline marketingadvertising expense of $78.2 million, of which $5.3 million was from the inclusion of Angie's List, an increase of $64.9 million in compensation expense, of which $24.4 million was from the inclusion of Angie's List, and $9.5 million of expense from acquisitions made prior to the Combination. The increase in marketing isadvertising expense was due primarily to increased organic investment includinginvestments in online marketing and television spend. Compensation increased due primarily to an increase of $24.9 million in stock-based compensation expense, of which $9.8 million was from the inclusion of Angie's List, an increase in the sales force and the inclusion of $7.4 million in severance and retention costs related to the Combination. The increase in stock-based compensation expense wasreflects $14.8 million of expense in 2017 due
primarily to the modification of previously issued HomeAdvisor vested and unvested equity awards, which were converted into ANGI Homeservices' equity awards theand $9.6 million of expense in 2017 related to previously issued Angie's List equity awards, andincluding the acceleration of certain Angie's Listconverted equity awards resulting from the termination of Angie's List employees in connection with the Combination.
The Match GroupMTCH increase was due primarily to higher offline and online marketingadvertising expense of $15.3 million and an increase in compensation expense of $9.1 million. The increase in marketing isadvertising expense was due primarily to an increase in strategic investments in certain international markets at the Tinder business and increased marketing related to the launch of a new brand by Meetic in Europe, partially offset by a reduction in marketing spend at Match Group'sMTCH's affinity brands. The increase in compensation isexpense was primarily related to an increase in headcount at Tinder and the employer portion of payroll taxes paid in connection with the exercise of Match GroupMTCH options. As a percentage of revenue, selling and marketing expense decreased due primarily to a continued shift towards brands with lower marketing spend and reductions in marketing spend at the affinity brands.
The VideoVimeo increase was due primarily to increases in both online and offline marketing at Vimeo and IAC Filmsexpense of $10.6 million and $6.5$2.3 million respectively,of compensation expense.
The Emerging & Other decrease was due primarily to the sales of ShoeBuy and The Princeton Review, decreases of $21.1 million and $4.5 million in online marketing and compensation expense, respectively, at VimeoAsk Media Group and Electus of $2.4 million and $1.7 million, respectively, partially offset by a decrease of $3.5 million in offline marketing at Daily Burn.
The Publishing decrease was due primarily to a reductionBurn, partially offset by increases in marketing expense at IAC Films of $26.6$6.5 million in onlineand compensation expense at Electus of $1.7 million. Online marketing and compensation expense at Ask Media Group decreased principally related to lower Ask & Other revenue resulting from changes in the Google contract and a decrease of $8.0 million in compensation due, in part, to reductions in workforce that occurred in 2016, including $3.1 million in restructuring costs in 2016.
The Other decrease was due to the sales of ShoeBuy and The Princeton Review.
For the year ended December 31, 2016 compared to the year ended December 31, 2015
Selling and marketing expense in 2016 decreased from 2015 due to decreases of $130.2 million from Publishing, $40.1 million from Applications and $11.1 million from Video, partially offset by an increase of $80.8 million from ANGI Homeservices.
The Publishing decrease was due primarily to a reduction of $132.6 million in online marketing, resulting from a decline in revenue, partially offset by $3.1 million in restructuring charges in 2016 related to severance costs in connection with a reduction in workforce.
The Applications decrease was due primarily to a decline of $37.5 million inlower online marketing principally related to lower anticipated search revenue from our downloadable desktop applicationsexpense of $10.0 million at Consumer.
The Video decrease was due primarily to a reduction of $8.9 million inDesktop, partially offset by higher online marketing driven primarily by Vimeo.expense of $6.5 million at Mosaic Group.
The ANGI Homeservices increase was due primarily to higher online and offline marketing of $51.2 million and an increase of $27.8 million in compensation due primarily to an increase in the sales force.
General and administrative expense
| | | | Years Ended December 31, | Years Ended December 31, |
| | 2017 | | $ Change | | % Change | | 2016 | | $ Change | | % Change | | 2015 | 2018 | | $ Change | | % Change | | 2017 | | $ Change | | % Change | | 2016 |
| | (Dollars in thousands) | (Dollars in thousands) |
| General and administrative expense | $719,257 | | $188,811 | | 36% | | $530,446 | | $18,391 | | 4% | | $512,055 | $774,079 | | $54,822 | | 8% | | $719,257 | | $188,811 | | 36% | | $530,446 |
| As a percentage of revenue | 22% | | | | 17% | | | | 16% | 18% | | | | 22% | | | | 17% |
For the year ended December 31, 2018 compared to the year ended December 31, 2017
General and administrative expense in 2018 increased from 2017 due to increases of $36.8 million from Corporate, $21.7 million from ANGI and $5.9 million from Vimeo, partially offset by a decrease of $14.8 million from Emerging & Other.
The Corporate increase was due primarily to higher compensation costs, including an increase in stock-based compensation expense related to a mark-to-market adjustment.
The ANGI increase was due primarily to an increase of $19.7 million in bad debt expense due, in part, to higher Marketplace Revenue, increases of $8.8 million in software license and maintenance costs and $2.9 million in facilities costs, both reflecting the impact from the inclusion of Angie's List, $2.4 million in compensation expense and an increase in customer service expense of $3.4 million, partially offset by a reduction in transaction and integration-related costs principally related to the Combination of $21.9 million. The increase in compensation expense was due primarily to an increase in headcount following the Combination and existing business growth as well as $3.8 million of expense from the inclusion of Handy, almost entirely offset by a decrease of $25.6 million in stock-based compensation expense and a decrease of $9.2 million in severance and retention costs related to the Combination ($2.7 million in 2018 compared to $11.8 million in 2017). The decrease in stock-based compensation expense reflects decreases of $12.9 million in expense due to the modification of previously issued HomeAdvisor equity awards, which were converted into ANGI Homeservices' equity awards ($52.9 million in 2018 compared to $65.7 million in 2017) and $9.6 million in expense related to previously issued Angie's List equity awards, including the acceleration of certain converted equity awards resulting from the termination of Angie's List employees in connection with the Combination ($8.1 million in 2018 compared to $17.7 million in 2017), and the inclusion in 2017 of a modification charge related to a HomeAdvisor equity award, partially offset by acceleration of expense related to certain equity awards in the fourth quarter of 2018 in connection with the chief executive officer transition and the issuance of new equity awards since 2017.
The Vimeo increase was due primarily to $4.9 million of expense from the inclusion of Livestream and an increase in legal costs in 2018.
The Emerging & Other decrease was due primarily to the sale of The Princeton Review, the transfer of Daily Burn to the Applications segment, a favorable legal settlement of $4.8 million in 2018, partially offset by $3.2 million of expense from the inclusion of BlueCrew.
For the year ended December 31, 2017 compared to the year ended December 31, 2016
General and administrative expense in 2017 increased from 2016 due to increases of $192.9 million from ANGI, Homeservices, $44.8 million from Match GroupMTCH and $20.0 million from Corporate, partially offset by decreases of $58.5$64.8 million from Emerging & Other and $10.2 million from Applications and $9.0 million from Publishing.
Applications.
The ANGI Homeservices increase was due primarily to higher compensation expense of $130.7 million, of which $38.4 million was from the inclusion of Angie's List, and $24.3 million in costs related to the Combination including transaction related costs of $14.3 million and integration related costs of $10.0 million. The increase in compensation expense was due primarily to an increase of $100.5 million in stock-based compensation expense, of which $18.0 million was from the inclusion of Angie's List, an increase in headcount from business growth and the inclusion of $11.8 million in severance and retention costs in 2017 related to the Combination. The increase in stock-based compensation expense wasreflects $65.7 million of expense in 2017 due principally to the modification of previously issued HomeAdvisor vested and unvested equity awards, which were converted into ANGI Homeservices' equity awards, theand $17.7 million of expense in 2017 related to previously issued Angie's List equity awards, andincluding the acceleration of certain Angie's Listconverted equity awards resulting from the termination of Angie's List employees in connection with the Combination as well as a modification charge
related to a HomeAdvisor equity award in 2017. General and administrative expense also includes increases of $9.2 million in bad debt expense due, in part, to higher Marketplace Revenue, $3.9 million in outsourced customer service expense and $3.2 million in software license and maintenance costs, as well as $9.8 million of expense from acquisitions made prior to the Combination.
The Match GroupMTCH increase was due primarily to an increase of $20.6 million in compensation expense, a change of $14.5 million in acquisition-related contingent consideration fair value adjustments (expense of $5.3 million in 2017 versuscompared to income of $9.2 million in 2016) and an increase of $6.8 million in professional fees. The increase in compensation expense was due to an increase of $9.1 million in stock-based compensation expense due primarily to an increase in expense related to a subsidiary denominated equity award held by a non-employee, which award was settled in the third quarter of 2017, the employer portion of payroll taxes paid in connection with the exercise of Match GroupMTCH options and an increase in headcount from business growth. The increase in professional fees was due primarily to the settlement of the Tinder Equity Plan Settlement.equity plan.
The Corporate increase was due primarily to higher compensation costs in 2017, including an increase in stock-based compensation expense due primarily to the issuance of new equity awards since 2016, and higher professional fees.
The Emerging & Other decrease was due primarily to the sales of The Princeton Review, ShoeBuy and ShoeBuy.ASKfm, and the effect of the reductions in workforce in 2016, including $2.3 million in restructuring costs included in 2016 at Ask Media Group.
The Applications decrease was due primarily to the inclusion in 2016 of $12.0 million in expense related to an acquisition-related contingent consideration fair value adjustment and a $2.9 million favorable legal settlement in 2017.
The Publishing decrease was due primarily to the effect of the reductions in workforce in 2016, $2.3 million in restructuring costs included in 2016 and the sale of ASKfm on June 30, 2016.Product development expense
|
| | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | $ Change | | % Change | | 2017 | | $ Change | | % Change | | 2016 |
| | (Dollars in thousands) |
| Product development expense | $309,329 | | $58,450 | | 23% | | $250,879 | | $38,114 | | 18% | | $212,765 |
| As a percentage of revenue | 7% | | | | | | 8% | | | | | | 7% |
For the year ended December 31, 20162018 compared to the year ended December 31, 20152017
General and administrativeProduct development expense in 20162018 increased from 20152017 due to increases of $22.1$30.9 million from MTCH, $13.2 million from ANGI, Homeservices, $12.6$9.8 million from Match GroupVimeo and $10.5$6.0 million from Applications, partially offset by decreases of $14.1 million from Publishing, $10.9 million from Other and $3.0 million from Corporate.Dotdash.
The ANGI Homeservices increase was due primarily to higher compensation of $10.8 million due, in part, to increased headcount, an increase in bad debt expense due to higher Marketplace Revenue, an increase in software license and maintenance costs and $2.1 million in transaction-related costs in 2016.
The Match GroupMTCH increase was due primarily to an increase of $7.5$28.8 million in compensation anexpense, due primarily to higher headcount at Tinder.
The ANGI increase was due primarily to increases of $4.0$4.9 million in rent due to growth in the businesscompensation expense and a decrease in income of $1.9$4.5 million in acquisition-related contingent consideration fair value adjustments.software license and maintenance costs, reflecting the impact from the inclusion of Angie's List. The increase in compensation expense was due primarily to an increase inincreased headcount, from both acquisitions and existing business growth, partially offset by a decrease of $2.1$6.1 million in stock-based compensation expense due primarily to the inclusion in 2015 of a modification charge related to certain equity awards, partially offset by the issuance of new equity awards since 2015.
The Applications increase was due primarily to a change of $13.8 million in acquisition-related contingent consideration fair value adjustments, which was due to expense of $12.0 million in 2016 versus income of $1.8 million in 2015, partially offset by a decrease in compensation due, in part, to a decrease in headcount related to a reduction in workforce that took place in the first half of 2016.
The Publishing decrease was due primarily to the sale of ASKfm and a decrease in bad debt expense, partially offset by $2.3 million in restructuring charges in 2016 primarily related to severance costs in connection with a reduction in workforce.
The Other decrease was due primarily to decreases in consulting expenses and non-income tax related items at The Princeton Review.
The Corporate decrease was due primarily to a decrease in stock-based compensation expense resulting from a lower modification charge related to the Combination.
The Vimeo increase was due primarily to $8.7 million of expense from the inclusion of Livestream.
The Dotdash increase was due primarily to an increase of $5.7 million in 2015 of a modification charge and a greater number of awards being forfeited in 2016 comparedcompensation expense, due primarily to 2015, partially offset by the issuance of new equity awards in 2016.
Product development expense
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| | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | $ Change | | % Change | | 2016 | | $ Change | | % Change | | 2015 |
| | (Dollars in thousands) |
| Product development expense | $250,879 | | $38,114 | | 18% | | $212,765 | | $16,142 | | 8% | | $196,623 |
| As a percentage of revenue | 8% | | | | | | 7% | | | | | | 6% |
For the year ended December 31, 2017 compared to the year ended December 31, 2016
Product development expense in 2017 increased from 2016 due to increases of $27.3 million from ANGI, Homeservices, $23.0 million from Match GroupMTCH and $5.2$3.6 million from Video,Vimeo, partially offset by decreases of $6.3$10.9 million from Publishing, $4.6 million fromEmerging & Other and $4.4 million from Applications.
The ANGI Homeservices increase was due primarily to an increase of $23.0 million in compensation expense, of which $6.8 million was from the inclusion of Angie's List, and $2.9 million of expense from acquisitions made prior to the Combination. The increase in compensation expense was due principally to an increase of $14.5 million in stock-based compensation expense principally due to the modification of previously issued HomeAdvisor vested and unvested equity awards, which were converted into ANGI Homeservices' equity awards in connection withcharge related to the Combination and increased headcount.
The Match GroupMTCH increase was due primarily to an increase of $20.7 million in compensation expense driven by an increase of $14.4 million related to increased headcount and the employer portion of payroll taxes paid in connection with the exercise of Match GroupMTCH options, and an increase of $6.3 million in stock-based compensation expense due primarily to new grants issued since 2016.
The VideoVimeo increase was due primarily to $2.2 million of expense from the acquisitioninclusion of Livestream.
The PublishingEmerging & Other decrease was due primarily to lowerthe sales of The Princeton Review and ASKfm and a decrease of $4.3 million in compensation and other employee-related costs of $3.8 millionexpense due, in part, to reductions in workforce in 2016, including $1.2 million in restructuring costs in 2016 and the sale of ASKfm.
The Other decrease was due primarily to the sale of The Princeton Review.at Ask Media Group.
The Applications decrease was due primarily to a decrease of $3.6 million in compensation expense due, in part, to a decrease in headcount related to reductions in workforce in 2016.
Depreciation
|
| | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | $ Change | | % Change | | 2017 | | $ Change | | % Change | | 2016 |
| | (Dollars in thousands) |
| Depreciation | $75,360 | | $1,095 | | 1% | | $74,265 | | $2,589 | | 4% | | $71,676 |
| As a percentage of revenue | 2% | | | | | | 2% | | | | | | 2% |
For the year ended December 31, 20162018 compared to the year ended December 31, 20152017
Product development expenseDepreciation in 20162018 increased from 20152017 due primarily to increases of $14.1 million from Match Group, $3.8 million fromcontinued corporate growth at ANGI, Homeservices, $3.3 million from Video and $2.3 million from Publishing, partially offset by a decrease of $6.6 million from Applications.
The Match Group increase was primarily related to an increase of $7.4 million in stock-based compensation expense, increased headcount at Tinder,certain fixed assets becoming fully depreciated and the 2015 acquisitionssale of PlentyOfFish and Pairs. The increase in stock-based compensation expense was due primarily to the issuance of new equity awards and a net increase in expense associated with the modification of certain equity awards since 2015.
The ANGI Homeservices increase was due primarily to an increase of $2.5 million in compensation and other employee-related costs due primarily to an increase in headcount.
The Video increase was due primarily to an increase in compensation at Vimeo due, in part, to increased headcount.
The Publishing increase was due primarily to $1.2 million in restructuring charges related to severance costs in connection with a reduction in workforce.
The Applications decrease was due primarily to a decrease of $4.4 million in compensation due, in part, to a decrease in headcount related to a reduction in workforce that took place in the first half of 2016.
Depreciation
|
| | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | $ Change | | % Change | | 2016 | | $ Change | | % Change | | 2015 |
| | (Dollars in thousands) |
| Depreciation | $74,265 | | $2,589 | | 4% | | $71,676 | | $9,471 | | 15% | | $62,205 |
| As a percentage of revenue | 2% | | | | | | 2% | | | | | | 2% |
For the year ended December 31, 2017 compared to the year ended December 31, 2016
Depreciation in 2017 increased from 2016 due primarily to the increased depreciation at ANGI Homeservices and Match GroupMTCH related to continued corporate growth, partially offset by the sales of The Princeton Review and ShoeBuy.
Operating income (loss)
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | $ Change | | % Change | | 2017 | | $ Change | | % Change | | 2016 |
| | (Dollars in thousands) |
| Match Group | $ | 553,294 |
| | $ | 192,777 |
| | 53 | % | | $ | 360,517 |
| | $ | 44,968 |
| | 14 | % | | $ | 315,549 |
|
| ANGI Homeservices | 63,906 |
| | 213,082 |
| | NM |
| | (149,176 | ) | | (174,539 | ) | | NM |
| | 25,363 |
|
| Vimeo | (35,594 | ) | | (8,266 | ) | | (30 | )% | | (27,328 | ) | | (1,978 | ) | | (8 | )% | | (25,350 | ) |
| Dotdash | 18,778 |
| | 34,472 |
| | NM |
| | (15,694 | ) | | 233,011 |
| | 94 | % | | (248,705 | ) |
| Applications | 94,834 |
| | (35,342 | ) | | (27 | )% | | 130,176 |
| | 20,513 |
| | 19 | % | | 109,663 |
|
| Emerging & Other | 29,964 |
| | 12,552 |
| | 72 | % | | 17,412 |
| | 117,108 |
| | NM |
| | (99,696 | ) |
| Corporate | (160,043 | ) | | (32,602 | ) | | (26 | )% | | (127,441 | ) | | (17,992 | ) | | (16 | )% | | (109,449 | ) |
| Total | $ | 565,139 |
| | $ | 376,673 |
| | 200 | % | | $ | 188,466 |
| | $ | 221,091 |
| | NM |
| | $ | (32,625 | ) |
| | | | | | | | | | | | | | |
| As a percentage of revenue | 13% | | | | | | 6% | | | | | | (1)% |
________________________
NM = Not meaningful.
For the year ended December 31, 20162018 compared to the year ended December 31, 20152017
DepreciationOperating income in 20162018 increased from 20152017 due primarily to acquisitionsan increase in Adjusted EBITDA of $413.5 million described below, a decrease of $26.2 million in stock-based compensation expense and capital expenditures,a change of $4.3 million in acquisition-related contingent consideration fair value adjustments, partially offset by increases of $66.3 million in amortization of intangibles and $1.1 million in depreciation. The decrease in stock-based compensation expense was due primarily to a decrease of $51.4 million in modification and acceleration charges related to the Combination ($70.6 million in 2018 compared to $122.1 million in 2017) and the inclusion in 2017 of a modification charge related to a HomeAdvisor equity award, partially offset by the modification of certain fixed assets becomingawards in 2018, due in part, to the sale of businesses during the fourth quarter of 2018, and the issuance of new equity awards since 2017. The increase in amortization of intangibles reflects an increase in amortization expense of $39.4 million related to the Combination, the inclusion in 2018 of an indefinite-lived intangible asset impairment charge of $27.7 million at Applications related to a trade name at the Desktop business and an increase in amortization expense of $4.0 million related to the acquisition of Livestream, partially offset by a Dotdash definite-lived trade name that became fully depreciated.amortized in 2017. The indefinite-lived intangible asset impairment charge at Desktop was due to Google’s policy changes related to its Chrome browser which became effective on September 12, 2018 and have negatively impacted the distribution of our business to consumer desktop products.
Operating income (loss)
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | $ Change | | % Change | | 2016 | | $ Change | | % Change | | 2015 |
| | (Dollars in thousands) |
| Match Group | $ | 360,517 |
| | $ | 44,968 |
| | 14 | % | | $ | 315,549 |
| | $ | 102,568 |
| | 48 | % | | $ | 212,981 |
|
| ANGI Homeservices | (149,176 | ) | | (174,539 | ) | | NM |
| | 25,363 |
| | 26,931 |
| | NM |
| | (1,568 | ) |
| Video | (35,659 | ) | | (8,003 | ) | | (29 | )% | | (27,656 | ) | | 11,100 |
| | 29 | % | | (38,756 | ) |
| Applications | 130,176 |
| | 20,513 |
| | 19 | % | | 109,663 |
| | (65,482 | ) | | (37 | )% | | 175,145 |
|
| Publishing | 15,670 |
| | 350,087 |
| | NM |
| | (334,417 | ) | | (307,725 | ) | | (1153 | )% | | (26,692 | ) |
| Other | (5,621 | ) | | 6,057 |
| | 52 | % | | (11,678 | ) | | 16,933 |
| | 59 | % | | (28,611 | ) |
| Corporate | (127,441 | ) | | (17,992 | ) | | (16 | )% | | (109,449 | ) | | 3,462 |
| | 3 | % | | (112,911 | ) |
| Total | $ | 188,466 |
| | $ | 221,091 |
| | NM |
| | $ | (32,625 | ) | | $ | (212,213 | ) | | NM |
| | $ | 179,588 |
|
| | | | | | | | | | | | | | |
| As a percentage of revenue | 6% | | | | | | (1)% | | | | | | 6% |
________________________
NM = Not meaningful.At December 31, 2018, there was $326.0 million of unrecognized compensation cost, net of estimated forfeitures, related to all equity-based awards, which is expected to be recognized over a weighted average period of approximately 2.3 years.
For the year ended December 31, 2017 compared to the year ended December 31, 2016
Operating income in 2017 increased from a loss in 2016 due primarily to the inclusion in 2016 of a $275.4 million goodwill impairment charge of $275.4 million at IAC Publishing (which in connection with the Company's realignment of its reportable segments in the fourth quarter of 2018 was allocated to the Dotdash and the Emerging & Other reportable segments based upon their relative fair values as of October 1, 2018), an increase of $74.1 million in Adjusted EBITDA described below, and a decrease of $37.3 million in amortization of intangibles, partially offset by an increase of $159.8 million in stock-based compensation expense, a change of $3.2 million in acquisition-related contingent consideration fair value adjustments and an increase of $2.6 million in depreciation expense. The goodwill impairment charge at IAC Publishing in 2016 was driven by the impact from the
Google contract, traffic trends and monetization challenges. The decrease in amortization of intangibles was due primarily to lower expense in 2017 as a result of a PublishingDotdash trade name and certain intangible assets from the PlentyOfFish acquisition now beingbecoming fully amortized and impairment charges in 2016 of $9.0 million and $2.6 million related to certain Dictionary.com and Dotdash indefinite-lived trade names, respectively, partially offset by expense in 2017 related to the Combination. Amortization of intangibles was further impacted by the inclusion of an impairment charge in 2016 of $11.6 million related to certain Publishing indefinite-lived trade names. The increase in stock-based compensation expense was due primarily to an increase of $140.3 million at ANGI Homeservices due primarily to the modification and acceleration charges related to the Combination, as well as an increase in expense related to a subsidiary denominated equity award held by a non-employee, which award was settled during the third quarter of 2017, and the issuance of new equity awards since 2016.
At December 31, 2017, there was $423.2 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.
For the year ended December 31, 2016 compared to the year ended December 31, 2015
Operating income in 2016 decreased to a loss from 2015 despite an increase of $15.4 million in Adjusted EBITDA described below, due primarily to increases of $261.3 million in goodwill impairment charges, $9.5 million in depreciation and a change of $18.0 million in acquisition-related contingent consideration fair value adjustments, partially offset by a decrease of $60.5 million in amortization of intangibles. The increase in goodwill impairment charges was due to the write-off of goodwill of $275.4 million at Publishing in 2016 compared to the write-off of goodwill of $14.1 million at ShoeBuy in 2015. The goodwill impairment charge at Publishing was driven by the impact from the new Google contract, which was effective April 1, 2016, traffic trends and monetization challenges and the corresponding impact on the then estimated fair value. The Publishing goodwill impairment charge was recorded in the second quarter of 2016. The change in acquisition-related contingent consideration fair value adjustments was primarily the result of expense in 2016 of $2.6 million versus income of $15.5 million in 2015. The decrease in amortization of intangibles was due primarily to a reduction in impairment charges during 2016, partially offset by $23.3 million in amortization related to a change in classification of a Publishing trade name from an indefinite-lived intangible asset to a definite-lived intangible asset, effective April 1, 2016. The Company recorded an impairment charge in 2016 of $11.6 million compared to an impairment charge in 2015 of $88.0 million all related to certain Publishing indefinite-lived trade names.
Adjusted EBITDA
| | | | Years Ended December 31, | Years Ended December 31, |
| | 2017 | | $ Change | | % Change | | 2016 | | $ Change | | % Change | | 2015 | 2018 | | $ Change | | % Change | | 2017 | | $ Change | | % Change | | 2016 |
| | (Dollars in thousands) | (Dollars in thousands) |
| Match Group | $ | 468,941 |
| | $ | 65,561 |
| | 16 | % | | $ | 403,380 |
| | $ | 118,826 |
| | 42 | % | | $ | 284,554 |
| $ | 653,931 |
| | $ | 184,990 |
| | 39 | % | | $ | 468,941 |
| | $ | 65,561 |
| | 16 | % | | $ | 403,380 |
|
| ANGI Homeservices | 37,858 |
| | (7,993 | ) | | (17 | )% | | 45,851 |
| | 29,138 |
| | 174 | % | | 16,713 |
| 247,506 |
| | 209,648 |
| | 554 | % | | 37,858 |
| | (7,993 | ) | | (17 | )% | | 45,851 |
|
| Video | (30,446 | ) | | (9,199 | ) | | (43 | )% | | (21,247 | ) | | 17,137 |
| | 45 | % | | (38,384 | ) | |
| Vimeo | | (28,045 | ) | | (4,438 | ) | | (19 | )% | | (23,607 | ) | | (3,326 | ) | | (16 | )% | | (20,281 | ) |
| Dotdash | | 21,384 |
| | 24,147 |
| | NM |
| | (2,763 | ) | | 14,083 |
| | 84 | % | | (16,846 | ) |
| Applications | 136,757 |
| | 4,481 |
| | 3 | % | | 132,276 |
| | (51,982 | ) | | (28 | )% | | 184,258 |
| 131,837 |
| | (4,920 | ) | | (4 | )% | | 136,757 |
| | 4,481 |
| | 3 | % | | 132,276 |
|
| Publishing | 31,470 |
| | 39,041 |
| | NM |
| | (7,571 | ) | | (95,359 | ) | | NM |
| | 87,788 |
| |
| Other | (1,532 | ) | | (3,334 | ) | | NM |
| | 1,802 |
| | (2,932 | ) | | (62 | )% | | 4,734 |
| |
| Emerging & Other | | 36,178 |
| | 10,316 |
| | 40 | % | | 25,862 |
| | 15,751 |
| | 156 | % | | 10,111 |
|
| Corporate | (67,755 | ) | | (14,483 | ) | | (27 | )% | | (53,272 | ) | | 601 |
| | 1 | % | | (53,873 | ) | (74,017 | ) | | (6,262 | ) | | (9 | )% | | (67,755 | ) | | (14,483 | ) | | (27 | )% | | (53,272 | ) |
| Total | $ | 575,293 |
| | $ | 74,074 |
| | 15 | % | | $ | 501,219 |
| | $ | 15,429 |
| | 3 | % | | $ | 485,790 |
| $ | 988,774 |
| | $ | 413,481 |
| | 72 | % | | $ | 575,293 |
| | $ | 74,074 |
| | 15 | % | | $ | 501,219 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As a percentage of revenue | 17% | | | | | | 16% | | | | | | 15% | 23% | | | | | | 17% | | | | | | 16% |
For the year ended December 31, 2018 compared to the year ended December 31, 2017
MTCH Adjusted EBITDA increased 39% to $653.9 million due primarily to the increase of $399.2 million in revenue due to growth at Tinder, and lower selling and marketing expense as a percentage of revenue due primarily to the ongoing shift towards brands with lower marketing spend, partially offset by higher in-app purchase fees as revenues are increasingly sourced through mobile app stores and higher litigation costs.
ANGI Adjusted EBITDA increased 554% to $247.5 million due primarily to the increase of $395.9 million in revenue, a reduction in transaction and integration-related costs principally related to the Combination of $39.1 million and lower selling and marketing expense as a percentage of revenue, partially offset by higher compensation expense due, in part, to increased headcount following the Combination, and increases of $21.7 million in cost of revenue, $19.7 million in bad debt expense, $15.2 million in software license and maintenance cost and $9.4 million in facilities costs. Additionally, Adjusted EBITDA in 2018 benefited from a reduction in sales commissions expense of $4.9 million due to the adoption of ASU No. 2014-09.
Vimeo Adjusted EBITDA loss increased 19% to a loss of $28.0 million, despite higher revenue, driven by investments in marketing and product development expense to continue to grow the business and an increase in legal costs.
Dotdash Adjusted EBITDA improved to a profit of $21.4 million in 2018 from a loss of $2.8 million in 2017, due primarily to higher revenue and lower operating expenses as a percentage of revenue.
Applications Adjusted EBITDA decreased 4% to $131.8 million, despite higher revenue, due primarily to higher marketing expense at Mosaic Group and losses at Daily Burn.
Emerging & Other Adjusted EBITDA increased 40% to $36.2 million due primarily to higher revenue, a favorable legal settlement of $4.8 million in the third quarter of 2018 and profits at IAC Films, partially offset by increased investments in College Humor Media and BlueCrew, and reduced profits at Electus.
Corporate Adjusted EBITDA loss increased 9% to $74.0 million due primarily to higher compensation costs.
For the year ended December 31, 2017 compared to the year ended December 31, 2016
Match GroupMTCH Adjusted EBITDA increased 16% to $468.9 million due primarily to an increase of $212.6 million in revenue and lower selling and marketing expense as a percentage of revenue due to the ongoing product mix towards brands with lower marketing spend and a reduction in marketing spend at Match Group's affinityMTCH's Affinity brands, partially offset by an increase in cost of revenue, general and administrative expense and product development expense. General and administrative expense and product development expense increased due, in part, to expense of $12.7 million associated with the employer portion of payroll taxes and professional fees resulting from the settlement of the Tinder Equity Plan Settlement.equity plan.
ANGI Homeservices Adjusted EBITDA decreased 17% to $37.9 million, despite an increase of $237.5 million in revenue, due primarily to an increase in selling and marketing expense, higher compensation expense due, in part, to increase headcount, the inclusion in 2017 of $44.1 million in costs related to the Combination (including severance, retention, transaction and integration related costs) and increases in bad debt expense due, in part, to higher Marketplace Revenue, outsourced customer service expense, and software license and maintenance costs. Thecosts, and higher losses at the European businesses were driven primarily by the Europeanits expansion strategy, including increased investment in online and offline marketing and higher compensation costs.strategy. Adjusted EBITDA in 2017 was further impacted by write-offs of deferred revenue related to the Combination of $7.8 million and the acquisition of HomeStars of $0.7 million.
VideoVimeo Adjusted EBITDA loss increased 43%,16% to a loss of $23.6 million, despite higher revenue due to declines at Electus and higher losses from Vimeo (including the impact of deferred revenue write-offs of $2.1 million related to acquisition of Livestream), partially offset by the contribution from IAC Films and reduced losses at Daily Burn. The increased Adjusted EBITDA loss at Vimeo, despite higher revenue, reflectsreflecting our investments in marketing and product development to grow the business.
Dotdash Adjusted EBITDA loss improved 84% to a loss of $2.8 million due primarily to higher revenue and lower operating expenses as a percentage of revenue.
Applications Adjusted EBITDA increased 3%, to 136.8 million, despite a 4% decrease in revenue, due primarily to lower operating costs. Adjusted EBITDA in 2016 includes $2.6 million in restructuring costs.
Publishing
Emerging & Other Adjusted EBITDA improvedincreased 156% to a profit of $31.5$25.9 million, in 2017 from a loss of $7.6 million in 2016, despite lower revenue, due primarily to lower operating costs resulting from restructuringsthe inclusion in 2016 and the sale of ASKfm. Results in 2016 included $15.6$14.5 million in restructuring charges at Ask Media Group related to vacating a data center and severance costs in an effort to reduce costs in light of significant declines in revenue from the new Google contract.contract, increased profits at Dictionary.com and the contribution from IAC Films, partially offset by increased losses at College Humor Media and reduced profits at Electus.
Corporate Adjusted EBITDA loss increased $14.527% to $67.8 million due primarily to higher compensation costs and professional fees.
For the year ended December 31, 2016 compared to the year ended December 31, 2015
Match Group Adjusted EBITDA increased 42% due primarily to higher revenue and a decrease in selling and marketing expense as a percentage of revenue as the product mix continued to shift towards brands with lower marketing spend, partially offset by an increase in cost of revenue driven by a significant increase in in-app purchase fees. Additionally, there were $11.8 million of lower costs in 2016 related to the consolidation and streamlining of technology systems and European operations ($4.9 million in 2016 compared to $16.8 million in 2015).
ANGI Homeservices Adjusted EBITDA increased 174% due primarily to higher revenue, partially offset by an increased investment in online and offline marketing and $2.1 million in transaction-related costs. Adjusted EBITDA was further impacted by higher compensation due primarily to increased headcount and an increase in bad debt expense due to higher Marketplace Revenue.
Video Adjusted EBITDA loss improved 45% due primarily to reduced losses at Vimeo and Daily Burn and increased profits at Electus.
Applications Adjusted EBITDA decreased 28% due primarily to lower revenue, partially offset by decreases in cost of revenue and selling and marketing expense. Adjusted EBITDA was further impacted by $2.6 million in restructuring charges.
Publishing Adjusted EBITDA declined to a loss in 2016 due primarily to lower revenue and $15.6 million in restructuring charges related to vacating a data center and severance costs during 2016 in an effort to reduce costs in light of significant declines in revenue from the new Google contract ($9.2 million in cost of revenue, $3.1 million in selling and marketing expense, $2.3 million in general and administrative expense and $1.2 million in product development expense). Adjusted EBITDA was further impacted by decreases in selling and marketing expense, cost of revenue and general and administrative expense exclusive of the restructuring charges.
Other Adjusted EBITDA decreased 62% due to the sale of PriceRunner in the first quarter of 2016, partially offset by profits from The Princeton Review in 2016 and improved Adjusted EBITDA at ShoeBuy resulting from increased revenue.
Corporate Adjusted EBITDA loss was essentially flat compared to 2015.
Interest expense
|
| | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | $ Change | | % Change | | 2016 | | $ Change | | % Change | | 2015 |
| | (Dollars in thousands) |
| Interest expense | $105,295 | | $(3,815) | | (3)% | | $ | 109,110 |
| | $35,474 | | 48% | | 73,636 |
|
| | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | $ Change | | % Change | | 2017 | | $ Change | | % Change | | 2016 |
| | (Dollars in thousands) |
| Interest expense | $109,327 | | $4,032 | | 4% | | $ | 105,295 |
| | $(3,815) | | (3)% | | 109,110 |
Interest expense in 2018 increased from 2017 due primarily to increases in the average outstanding long-term debt balance and interest rates on variable rate debt compared to the prior year.
Interest expense in 2017 decreased from 2016 due primarily to lower interest expense of $16.0 million related to the 2016 prepayment and 2017 repricing of the Match GroupMTCH Term Loan and $6.6 million related to the repayment of the outstanding balances of the 4.875% Senior Notes and Match Group 6.75% MTCH Senior Notes in the fourth quarter of 2017. Partially offsetting these decreases are increases of $10.9 million of interest expense associated with the Match Group 6.375% MTCH Senior Notes, $5.2 million from the issuance of the Exchangeable Notes, $1.8 million related to the Match Group 5.00% MTCH Senior Notes and $1.7 million from the ANGI Homeservices Term Loan.
Interest expense in 2016 increased from 2015 due to the $800 million of borrowings under the Match Group Term Loan in November 2015, of which $400 million was refinanced on June 1, 2016 with the Match Group 6.375% Senior Notes, and the 2% higher interest rate associated with the Match Group 6.75% Senior Notes which were issued in exchange for a substantially like amount of 4.75% Senior Notes, partially offset by lower interest expense due to repurchases and redemptions of the 4.875% and 4.75% Senior Notes during the year.
Other income (expense) income,, net
|
| | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | $ Change | | % Change | | 2016 | | $ Change | | % Change | | 2015 |
| | (Dollars in thousands) |
| Other (expense) income, net | $(16,213) | | $(76,863) | | (127)% | | $60,650 | | $23,712 | | 64% | | $36,938 |
|
| | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | $ Change | | % Change | | 2017 | | $ Change | | % Change | | 2016 |
| | (Dollars in thousands) |
| Other income (expense), net | $305,746 | | $321,959 | | NM | | $(16,213) | | $(76,863) | | NM | | $60,650 |
Other income, net in 2018 includes: $124.2 million of net unrealized gains related to certain equity investments that were adjusted to fair value in accordance with ASU No. 2016-01, which was adopted on January 1, 2018; $120.6 million in gains related to the sales of Dictionary.com, Electus, Felix and CityGrid; $30.4 million of interest income; $27.9 million in realized gains related to the sale of certain investments; and $5.3 million in net foreign currency exchange gains due primarily to the strengthening of the dollar relative to the British Pound.
Other expense, net in 2017 includesincludes: $16.8 million in net foreign currency exchange losses due primarily to the weakening of the dollar relative to the British Pound, expense ofPound; $15.4 million expense related to the extinguishment of the Match Group 6.75% MTCH Senior Notes and repricing of the Match GroupMTCH Term Loan, expense ofLoan; $13.0 million related to a mark-to-market adjustmentcharge principally pertaining to a subsidiary denominated equity award held by a non-employee,non-employee; $12.2 million in other-than-temporary impairment charges related to certain investments and expense ofinvestments; $1.2 million expense related to the write-off of deferred financing costs associated with the repayment of the 4.875% Senior Notes, partially offset byNotes; $34.9 million in realized gains related to the sale of certain investments; and $11.4 million of interest income.
Other income, net in 2016 includes: $37.5 million and $12.0 million in realized gains related to the sales of certain investments and interest income of $11.4 million.
Other income, net in 2016 includes gains of $37.5 million and $12.0 million related to the sale of ShoeBuy and PriceRunner, respectively,respectively; $34.4 million in net foreign currency exchange gains due primarily to the strengthening of the dollar relative to the British Pound and Euro, interest income ofEuro; $5.1 million and aof interest income; $3.6 million gain related to the sale of marketablecertain equity securities, partially offset by ainvestments; $12.1 million non-cash charge of $12.1 million related to the write-off of a proportionate share of original issue discount and deferred financing costs associated with the repayment of $440 million of the Match GroupMTCH Term Loan,Loan; $10.7 million in other-than-temporary impairment charges related to certain investments, a loss ofinvestments; $3.8 million loss related to the sale of ASKfm, aASKfm; $3.6 million loss on the 4.75% and 4.875% Senior Note redemptions and repurchasesrepurchases; and an expense of $2.5 million related to a mark-to-market adjustment pertaining to a subsidiary denominated equity award held by a non-employee.
Other income, net in 2015 included a gain of $34.3 million from a real estate transaction, $5.4 million in net foreign currency exchange gains due to the strengthening of the dollar relative to the Euro and $4.3 million in interest income, partially offset by $6.7 million in other-than-temporary impairment charges related to certain investments and expense of $2.3 million related to a mark-to-market adjustmentcharge principally pertaining to a subsidiary denominated equity award held by a non-employee.
Income tax (provision) benefit (provision)
| | | | Years Ended December 31, | Years Ended December 31, |
| | 2017 | | $ Change | | % Change | | 2016 | | $ Change | | % Change | | 2015 | 2018 | | $ Change | | % Change | | 2017 | | $ Change | | % Change | | 2016 |
| | (Dollars in thousands) | (Dollars in thousands) |
| Income tax benefit (provision) | $291,050 | | NM | | NM | | $64,934 | | NM | | NM | | $(29,516) | |
| Income tax (provision) benefit | | $(3,811) | | NM | | NM | | $291,050 | | $226,116 | | 348% | | $64,934 |
| Effective income tax rate | NM | | 80% | | 21% | 1% | | NM | | 80% |
In 2018, the Company recorded an income tax provision of $3.8 million, which represented an effective tax rate of 1%. The effective income tax rate was lower than the statutory rate of 21% due primarily to excess tax benefits generated by the exercise and vesting of stock-based awards and the finalized Transition Tax.
On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act subjected to U.S. taxation certain previously deferred earnings of foreign subsidiaries as of December 31, 2017 ("Transition Tax") and implemented a number of changes that took effect on January 1, 2018, including but not limited to, a reduction of the U.S. federal corporate tax rate from 35% to 21% and a new minimum tax on global intangible low-taxed income ("GILTI") earned by foreign subsidiaries. The Company was able to make a reasonable estimate of the Transition Tax and recorded a provisional tax expense in the fourth quarter of 2017. In the third quarter of 2018, the Company finalized this calculation, which resulted in a $9.2 million reduction in the Transition Tax. The net reduction in the Transition Tax was due primarily to the utilization of additional foreign tax credits and a reduction in state taxes, partially offset by additional taxable earnings and profits of our foreign subsidiaries based on recently issued Internal Revenue Service guidance. The adjustment of the Company’s provisional tax expense was recorded as a change in estimate in accordance with Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act, which was also included in ASU No. 2018-05, Income Taxes (Topic 740), Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 ("SAB 118"), whichwasadopted by the Company upon issuance in March 2018. Despite the completion of the Company’s accounting for the Tax Act under SAB 118, many aspects of the law remain unclear and we expect ongoing guidance to be issued at both the federal and state levels. We will continue to monitor and assess the impact of any new developments.
In 2017, the Company recorded an income tax benefit of $291.1 million, which was due primarily to the effect of adopting the provisions of the Financial Accounting Standards Board issued Accounting Standards Update ("ASU")ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, on January 1, 2017 and foreign income taxed at lower rates, partially offset by the effect of the Tax Cuts and Jobs Act (the “Tax Act”) discussed below.Act. Under ASU No. 2016-09, excess tax benefits generated by the exercise, purchase or settlement of stock-based awards of $361.8 million in 2017 are recognized as a reduction to the income tax provision rather than as an increase to additional paid-in capital.
On December 22, 2017, the U.S. enacted the Tax Act. The Tax Act subjects to U.S. taxation certain previously deferred earnings of foreign subsidiaries as of December 31, 2017 (“Transition Tax”) and implements a number of changes that take effect on January 1, 2018, including but not limited to, a reduction of the U.S. federal corporate tax rate from 35% to 21% and a new minimum tax on intangible income earned by foreign subsidiaries. The Company’s income tax provision for the year ended December 31, 2017 includes an expense of $63.8 million related to the Tax Act, of which, $62.7 million relates to the Transition Tax and $1.1 million relates to the remeasurement of U.S. net deferred tax assets due to the reduction in the corporate income tax rate. The Company has sufficient current year net operating losses to offset the taxable income resulting from the Transition Tax and, therefore, will not be required to pay the one-time Transition Tax.
The Transition Tax on deemed repatriated foreign earnings is a tax on previously untaxed accumulated and current earnings and profits ("E&P") of the Company's foreign subsidiaries. To determine the amount of the Transition Tax, the Company must determine, among other factors, the amount of post-1986 E&P of its foreign subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. The Company was able to make a reasonable estimate of the Transition Tax and has recorded a provisional transition tax expense of $62.7 million. Any adjustment of the Company's provisional tax expense will be reflected as a change in estimate in its results in the period in which the change in estimate is made in accordance with Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act. The Company is continuing to gather additional information to more precisely compute the amount of the Transition Tax and expects to finalize its calculation prior to the filing of its U.S. federal tax return, which is due on October 15, 2018. The additional information includes, but is not limited to, the allocation and sourcing of income and deductions in 2017 for purposes of calculating the utilization of foreign tax credits. In addition, our estimates may also be impacted and adjusted as the law is clarified and additional guidance is issued at the federal and state levels.
In 2016, the Company recorded an income tax benefit of $64.9 million, which represented an effective income tax rate of 80%. The effective income tax rate was higher than the statutory rate of 35% due primarily to foreign income taxed at lower rates and the non-taxable gain on the sale of ShoeBuy, partially offset by the non-deductible portion of the goodwill impairment charge at the Publishing segment.
In 2015, the Company recorded an income tax provision of $29.5 million, which represented an effective income tax rate of 21%. The effective income tax rate was lower than the statutory rate of 35% due primarily to the realization of certain deferred tax assets, foreign income taxed at lower rates, the non-taxable gain on contingent consideration fair value adjustments,Dotdash and a reduction in tax reserves and related interest due to the expiration of statutes of limitations, partially offset by a non-deductible goodwill impairment charge and unbenefited losses of unconsolidated subsidiaries.Emerging & Other segments.
Net (earnings) lossearnings 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 are included in our consolidated financial statements.
|
| | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | $ Change | | % Change | | 2016 | | $ Change | | % Change | | 2015 |
| | (Dollars in thousands) |
| Net (earnings) loss attributable to noncontrolling interests | $(53,084) | | $(27,955) | | 111% | | $(25,129) | | $(31,227) | | NM | | $6,098 |
|
| | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | $ Change | | % Change | | 2017 | | $ Change | | % Change | | 2016 |
| | (Dollars in thousands) |
| Net earnings attributable to noncontrolling interests | $ | 130,786 |
| | $77,702 | | 146% | | $ | 53,084 |
| | $27,955 | | 111% | | $ | 25,129 |
|
Net earnings attributable to noncontrolling interests in 2018 primarily represents the publicly-held interest in MTCH's and ANGI's earnings as well as the net earnings attributable to the noncontrolling interests in a subsidiary that holds the unrealized gains related to certain equity investments that were adjusted during the second quarter of 2018 to fair value in accordance with ASU No. 2016-01, partially offset by net losses attributable to the noncontrolling interests in certain subsidiaries within the Emerging & Other and Vimeo segments.
Net earnings attributable to noncontrolling interests in 2017 primarily represents the publicly-held interest in Match Group'sMTCH's earnings, partially offset by ANGI Homeservicesthe publicly-held interest in ANGI's losses.
Net earnings attributable to noncontrolling interests in 2016 primarily represented the proportionate share of the noncontrolling holders' ownership in Match Group.MTCH.
Net loss attributable to noncontrolling interests in 2015 primarily represented the proportionate share of the noncontrolling holders' ownership in certain subsidiaries within the Video, ANGI Homeservices and Publishing segments and Match Group.
PRINCIPLES OF FINANCIAL REPORTING
IAC reports Adjusted EBITDA as a supplemental measure to U.S. generally accepted accounting principles ("GAAP"). This measure is one of the primary metrics by which we evaluate the performance of our businesses, on which our internal budgets are based and by which management is compensated. 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. This non-GAAP measure 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. IAC endeavors to compensate for the limitations of the non-GAAP measure presented by providing the comparable GAAP measure with equal or greater prominence and descriptions of the reconciling items, including quantifying such items, to derive the non-GAAP measure. We encourage investors to examine the reconciling adjustments between the GAAP and non-GAAP measure, which we discuss below.
Definition of Non-GAAP Measure
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted 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. 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. Moreover, our management uses this measure internally to evaluate the performance of our business as a whole and our individual business segments, and this measure is one of the primary metrics by which our internal budgets are based and by which management is compensated. The above items are excluded from our Adjusted EBITDA measure because these items are non-cash in nature, and we believe that by excluding these items, Adjusted EBITDA corresponds more closely to the cash operating income generated from our business, from which capital investments are made and debt is serviced.nature. Adjusted EBITDA has certain limitations in that it does not take into account the impact to IAC'sour consolidated statement of operations of certain expenses.
The following table reconciles net earnings (loss) attributable to IAC shareholders to operating income (loss) to consolidated Adjusted EBITDA: |
| | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | (In thousands) |
| Net earnings (loss) attributable to IAC shareholders | $ | 626,961 |
| | $ | 304,924 |
| | $ | (41,280 | ) |
| Add back: | | | | | |
| Net earnings attributable to noncontrolling interests | 130,786 |
| | 53,084 |
| | 25,129 |
|
| Income tax provision (benefit) | 3,811 |
| | (291,050 | ) | | (64,934 | ) |
| Other (income) expense, net | (305,746 | ) | | 16,213 |
| | (60,650 | ) |
| Interest expense | 109,327 |
| | 105,295 |
| | 109,110 |
|
| Operating income (loss) | 565,139 |
| | 188,466 |
| | (32,625 | ) |
| Stock-based compensation expense | 238,420 |
| | 264,618 |
| | 104,820 |
|
| Depreciation | 75,360 |
| | 74,265 |
| | 71,676 |
|
| Amortization of intangibles | 108,399 |
| | 42,143 |
| | 79,426 |
|
| Acquisition-related contingent consideration fair value adjustments | 1,456 |
| | 5,801 |
| | 2,555 |
|
| Goodwill impairment | — |
| | — |
| — |
| 275,367 |
|
| Adjusted EBITDA | $ | 988,774 |
| | $ | 575,293 |
| | $ | 501,219 |
|
Non-Cash Expenses That Are Excluded From Our Non-GAAP Measure
Stock-based compensation expense consists principally of expense associated with the grants, including unvested grants assumed in acquisitions (including the Combination), of stock options, restricted stock units ("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; however, performance-basedmethod. 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). UponTo the exercise of stock options and market-based stock options, the awards are gross settled, and the vesting of RSUs, performance-based RSUs and market-based awards RSUs, theextent that stock-based awards are settled on a net basis, with the Company remittingremits the required tax-withholding amountamounts from its current funds.
Depreciation is a non-cash expense relating to our property 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 (including the Combination). At the time of an acquisition, the identifiable definite-lived intangible assets of the acquired company, such as contractor andtechnology, service professional and contractor relationships, technology, customer lists and user base, content,memberships, trade names and membership,content, 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 impairment 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 arrangements are 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.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
Financial Position
| | | | | December 31, | | December 31, |
| | | 2017 | | 2016 | | 2018 | | 2017 |
| | | (In thousands) | | (In thousands) |
| Cash and cash equivalents: | | | | | | | | |
United States(a) | | $ | 1,178,616 |
| | $ | 815,588 |
| | $ | 1,971,282 |
| | $ | 1,178,616 |
|
All other countries(b)(a) | | 452,193 |
| | 513,599 |
| | 160,350 |
| | 452,193 |
|
| Total cash and cash equivalents | | 1,630,809 |
| | 1,329,187 |
| | 2,131,632 |
| | 1,630,809 |
|
Marketable securities (United States)(c) | | 4,995 |
| | 89,342 |
| | 123,665 |
| | 4,995 |
|
Total cash and cash equivalents and marketable securities(e)(c) | | $ | 1,635,804 |
| | $ | 1,418,529 |
| | $ | 2,255,297 |
| | $ | 1,635,804 |
|
| | | | | | | | | |
| Match Group Debt: | | | | | |
| Match Group Term Loan | | $ | 425,000 |
| | $ | 350,000 |
| |
| Match Group 6.75% Senior Notes | | — |
| | 445,172 |
| |
| Match Group 6.375% Senior Notes | | 400,000 |
| | 400,000 |
| |
| Match Group 5.00% Senior Notes | | 450,000 |
| | — |
| |
| Total Match Group long-term debt | | 1,275,000 |
| | 1,195,172 |
| |
| Less: unamortized original issue discount and original issue premium, net | | 8,668 |
| | 5,245 |
| |
| MTCH Debt: | | | | | |
| MTCH Term Loan | | | $ | 425,000 |
| | $ | 425,000 |
|
| MTCH Credit Facility | | | 260,000 |
| | — |
|
| 6.375% MTCH Senior Notes | | | 400,000 |
| | 400,000 |
|
| 5.00% MTCH Senior Notes | | | 450,000 |
| | 450,000 |
|
| Total MTCH long-term debt | | | 1,535,000 |
| | 1,275,000 |
|
| Less: unamortized original issue discount | | | 7,352 |
| | 8,668 |
|
| Less: unamortized debt issuance costs | | 13,636 |
| | 13,434 |
| | 11,737 |
| | 13,636 |
|
| Total Match Group debt, net | | 1,252,696 |
| | 1,176,493 |
| |
| Total MTCH debt, net | | | 1,515,911 |
| | 1,252,696 |
|
| | | | | | | | | |
| ANGI Homeservices Debt: | | | | | |
| ANGI Homeservices Term Loan | | 275,000 |
| | — |
| |
| Less: current portion of ANGI Homeservices long-term debt | | 13,750 |
| | — |
| |
| ANGI Debt: | | | | | |
| ANGI Term Loan | | | 261,250 |
| | 275,000 |
|
| Less: current portion of ANGI Term Loan | | | 13,750 |
| | 13,750 |
|
| Less: unamortized debt issuance costs | | 2,938 |
| | — |
| | 2,529 |
| | 2,938 |
|
| Total ANGI Homeservices debt, net | | 258,312 |
| | — |
| |
| Total ANGI debt, net | | | 244,971 |
| | 258,312 |
|
| | | | | | | | | |
| IAC Debt: | | | | | | | | |
| Exchangeable Notes | | 517,500 |
| | — |
| | 517,500 |
| | 517,500 |
|
| 4.75% Senior Notes | | 34,859 |
| | 38,109 |
| | 34,489 |
| | 34,859 |
|
| 4.875% Senior Notes | | — |
| | 390,214 |
| |
| Total IAC long-term debt | | 552,359 |
| | 428,323 |
| | 551,989 |
| | 552,359 |
|
| Less: current portion of IAC long-term debt | | — |
| | 20,000 |
| |
Less: unamortized original issue discount
| | 67,158 |
| | — |
| | 54,025 |
| | 67,158 |
|
| Less: unamortized debt issuance costs | | 16,740 |
| | 2,332 |
| | 13,298 |
| | 16,740 |
|
| Total IAC debt, net | | 468,461 |
| | 405,991 |
| | 484,666 |
| | 468,461 |
|
| | | | | | | | | |
| Total long-term debt, net | | $ | 1,979,469 |
| | $ | 1,582,484 |
| | $ | 2,245,548 |
| | $ | 1,979,469 |
|
| |
(a) | Domestically, cash equivalents primarily consist of AAA rated government money market funds and commercial paper rated A1/P1 or better with maturities less than 91 days from the date of purchase, and treasury discount notes. |
| |
(b)
| Internationally, cash equivalents primarily consist of AAA rated government money market funds and time deposits with maturities of less than 91 days. Approximately $420 millionAt December 31, 2018, all of the Company’s international cash can be repatriated without any significant tax consequences as it has been substantially subjected to U.S. income taxes dueconsequences. During the year ended December 31, 2018, international cash totaling $396.2 million was repatriated to the Transition Tax imposed by the Tax Act. If needed for our U.S. operations, the remaining cash and cash equivalents held by the Company's foreign subsidiaries could be repatriated, however, under current law, would be subject to foreign, federal and state income taxes of approximately $8 million. We have not provided for any such tax because the Company currently does not anticipate a need to repatriate these funds to finance our U.S. operations and it is the Company's intent to indefinitely reinvest these funds outside of the U.S. |
| |
(c)
| At December 31, 2017, marketable securities consist of commercial paper rated A1+/P1 with an initial maturity of more than 91 days. At December 31, 2016, marketable securities consist of commercial paper rated A1/P1, treasury discount notes, and short-to-medium-term debt securities issued by investment grade corporate issuers. The Company invests in marketable debt securities with active secondary or resale markets to ensure portfolio liquidity to fund current operations or satisfy other cash requirements as needed. The Company also may invest in equity securities as part of its investment strategy. |
| |
(d)(b)
| AtCash and cash equivalents at December 31, 2018 and December 31, 2017 and 2016, cash and cash equivalents include Match Group'sincludes MTCH's domestic and international cash and cash equivalents of $83.9 million and $103.1 million; and $203.5 million and $69.2 million; and $114.0 million and $139.6 million, respectively. Match GroupMTCH 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, wethe Company cannot freely access the cash of Match GroupMTCH and its subsidiaries. Match Group generated $321.1 million and $259.6 million of operating cash flows for the years ended December 31, 2017 and 2016, respectively. In addition, agreements governing Match Group’s indebtedness limit the payment of dividends or distributions, loans or advances to stockholders, including the Company, in the event a default has occurred or Match Group's leverage ratio (as defined in the indentures) exceeds 5.0 to 1.0. |
| |
(e)(c)
| AtCash and cash equivalents at December 31, 2018 and December 31, 2017 cash and cash equivalents include ANGI Homeservices'includes ANGI's domestic and international cash and cash equivalents of $328.8 million and $8.2 million; and $214.8 million and $6.7 million, respectively. AtMarketable securities at December 31, 2016, all of2018 include $24.9 million at ANGI. ANGI Homeservices' cash and cash equivalents of $36.4 million was held internationally.no marketable securities at December 31, 2017. ANGI Homeservices 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, wethe Company cannot freely access the cash of ANGI Homeservices and its subsidiaries. ANGI Homeservices generated $41.8 million and $47.9 million of operating cash flows for the years ended December 31, 2017 and 2016, respectively. In addition, the agreement governing ANGI Homeservices’ Term Loan limits the payment of dividends or distributions in the event a default has occurred or ANGI Homeservices’ leverage ratio (as defined in the indentures) exceeds 4.0 to 1.0. |
IAC, Match GroupMTCH and ANGI Homeservices Long-term Debt
Cash Flow Information
In summary, the Company's cash flows are as follows: | | | | Years Ended December 31, | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 | 2018 | | 2017 | | 2016 |
| | (In thousands) | (In thousands) |
| Net cash provided by (used in): | | | | | | | | | | |
| Operating activities | $ | 416,690 |
| | $ | 344,141 |
| | $ | 405,671 |
| $ | 988,128 |
| | $ | 416,699 |
| | $ | 344,238 |
|
| Investing activities | 39,508 |
| | 12,862 |
| | (582,721 | ) | (173,440 | ) | | 42,049 |
| | 12,862 |
|
| Financing activities | (166,124 | ) | | (502,829 | ) | | 678,390 |
| (312,798 | ) | | (196,869 | ) | | (492,140 | ) |
Net cash provided by operating activities consists of earnings adjusted for non-cash items, the effect of changes in working capital and acquisition-related contingent consideration payments (to the extent greater than the liability initially recognized at the time of acquisition). Non-cash adjustments include goodwill impairments, stock-based compensation expense, depreciation, amortization of intangibles, goodwill impairments, deferred income taxes, acquisition-related contingent consideration fair value adjustments,net gains from the sale of businesses and investments, unrealized gains and a real estate transaction, impairmentslosses on equity securities, amortization of long-term investments andintangibles, depreciation, bad debt expense.expense, and deferred income taxes.
2018
Adjustments to earnings consist primarily of $238.4 million of stock-based compensation expense, $108.4 million of amortization of intangibles, $75.4 million of depreciation, $48.4 million of bad debt expense, partially offset by $147.8 million of net gains from the sale of businesses and investments, $124.2 million of net unrealized gains on certain equity securities, and $34.7 million of deferred income taxes. The deferred income tax benefit primarily relates to amortization of intangibles, a decrease in the valuation allowance, and an increase in credit carryforwards, partially offset by the deferred income tax provision on the net unrealized gains on certain equity securities. The increase from changes in working capital primarily consists of an increase in accounts payable and other liabilities of $53.6 million, an increase in deferred revenue of $49.5 million, and an increase in income taxes payable and receivable of $27.0 million, partially offset by an increase in other assets of $44.6 million and an increase in accounts receivable of $34.8 million. The increase in accounts payable and other liabilities is primarily due to increases in (i) accrued employee compensation due, in part, to the timing of payments of cash bonuses, (ii) payables and accruals at Ask Media Group due to growth in paid traffic, primarily in international markets, (iii) accrued advertising at MTCH and (iv) payables at Vimeo due to timing of payments. The increase in deferred revenue is due primarily to growth in subscription sales at Vimeo, MTCH and Applications. The increase in income taxes payable and receivable is due to 2018 income tax accruals in excess of 2018 income tax payments. The increase in other assets is primarily due to increases in (i) capitalized mobile app store fees at MTCH and Applications, (ii) capitalized production costs of various production deals at College Humor Media, Electus, and IAC Films, and (iii) capitalized sales commissions at ANGI. The increase in accounts receivable is primarily due to revenue growth at ANGI, Ask Media Group, and Dotdash, partially offset by decreases at MTCH and Applications due to an accelerated cash receipt from a mobile app store provider.
Net cash used in investing activities includes cash used for acquisitions and investments of $117.5 million, which includes the TelTech, iTranslate, BlueCrew, and Handy acquisitions, purchases (net of maturities and sales) of marketable debt securities of $116.1 million, capital expenditures of $85.6 million, primarily related to investments in the development of capitalized software at ANGI and MTCH to support their products and services and computer hardware, partially offset by net proceeds from the sale of businesses and investments of $136.7 million, which includes the sales of Dictionary.com and Electus, and $10.4 million in net proceeds from the sale of Angie's List's campus located in Indianapolis.
Net cash used in financing activities includes $207.7 million and $29.8 million for withholding taxes paid on behalf of
MTCH and ANGI employees, respectively, for stock-based awards that were net settled, $133.5 million for the repurchase of 3.1 million shares, on a settlement date basis, of MTCH common stock at an average price of $43.72 per share, $105.1 million for dividends paid to MTCH's noncontrolling interest holders, $82.9 million for the repurchase of 0.5 million shares, on a settlement date basis, of IAC common stock at an average price of $152.23 per share, $19.0 million for withholding taxes paid on behalf of IAC employees for stock-based awards that were net settled, $16.1 million for the purchase of noncontrolling
interests, and $13.8 million in principal payments on ANGI debt, partially offset by $260.0 million in borrowings under the MTCH Credit Facility and $41.7 million in proceeds from the exercise of IAC stock options.
2017
Adjustments to earnings consist primarily of $264.6 million of stock-based compensation expense, $74.3 million of
depreciation, $42.1 million of amortization of intangibles, $28.9 million of bad debt expense, $12.2 million of impairments on long-term investments, and $43.6$61.6 million of other adjustments, which primarily consist of losses on bond redemptions and net foreign currency exchange losses, partially offset by $285.3 million of deferred income taxes and $32.7 million of net gains from the sale of businesses and investments. The deferred income tax benefit primarily relates to the net operating loss created primarily by excess tax benefits of $361.8 million related to stock-based awards and the modification charge for the conversion and acceleration of stock-based awards in connection with the Combination, partially offset by the provisional Transition Tax. The decrease from changes in working capital consists primarily of an increase in accounts receivable of $115.2 million and a decrease in accounts payable and other current liabilities of $14.1$25.3 million, partially offset by an increase in deferred revenue of $39.2 million. The increase in accounts receivable is primarily due to (i) the timing of cash receipts and the increasing proportion of revenue increasingly sourced through mobile app stores at Match Group,MTCH, which areis settled more slowly than traditional credit cards; and (ii) revenue growth at ANGI Homeservices.ANGI. The decrease in accounts payable and other current liabilities is due to: (i) a decrease at Match GroupMTCH due to the cash settlement of former subsidiary denominated equity awards held by a non-employee, (ii) a contingent consideration payment related to a business acquisition, (iii) a decrease in accrued employee compensation mainly related to the timing of payments of cash bonuses, partially offset by (iii)(iv) an increase
in accrued advertising at Match Group.MTCH. The increase in deferred revenue is due mainly to growth in subscription sales at Match GroupMTCH and Vimeo, as well as growth in subscription sales and time-based advertising to service professionals at ANGI, Homeservices, partially offset by decreases at Electus and Notional mainly due to the delivery of programming related to various production deals.
Net cash provided by investing activities includes net proceeds from the sale of businesses and investments of $185.8 million, which is primarily related to the salesales of The Princeton Review and a Match GroupMTCH cost method investment, and proceeds from maturities and sales (net of purchases) of marketable debt securities of $84.5 million, partially offset by acquisitions and purchases of investments of $158.2$155.7 million, which includes the Livestream, MyBuilder, Angie's List and HomeStars acquisitions, and capital expenditures of $75.5 million, primarily related to investments in development of capitalized software at Match GroupMTCH and ANGI Homeservices to support their products and services, computer hardware and the Company's purchase of a 50% ownership interest in an aircraft as a replacement for ana then existing 50% interest in a previously owned aircraft, which was sold on February 13, 2018.
Net cash used in financing activities includes principal payments made on Match GroupMTCH and IAC debt of $445.2 million and $393.5 million, respectively, the payment of $272.5 million for the purchase of certain fully vested stock-based awards, the payment of $254.2 million, $93.8 million and $10.1 million for withholding taxes paid on behalf of Match Group,MTCH, IAC and ANGI Homeservices employees, respectively, onfor stock-based awards that were net settled, stock-based awards, $74.4 million for the Exchangeable Notes hedge, $56.4 million for the repurchase of 0.8 million shares, on a settlement date basis, of IAC common stock at an average price of $69.24 per share, $33.7 million of debt issuance costs primarily related to the Exchangeable Notes and the 5.00% Match GroupMTCH Senior Notes, $27.3 million in acquisition-related contingent consideration payments (included in operating activities is $11.1 million for an acquisition-related contingent consideration payment made in excess of the amount initially recognized at the time of acquisition) and $15.4 million for the purchase of noncontrolling interests, partially offset by $525.0 million in proceeds from the issuance of Match GroupMTCH debt, $517.5 million in proceeds from the issuance of the Exchangeable Notes, $275.0 million in proceeds from the ANGI Homeservices Term Loan, $82.4 million, $59.4 million and $59.4$1.7 million in proceeds from the issuanceexercise of IAC, MTCH and Match Group commonANGI stock options, respectively, pursuant to stock-based awards,and $23.7 million in proceeds from the issuance of warrants, a $20.1 million decrease in restricted cash that relates to settled IAC bond redemptions and $10.6 million of funds returned from escrow for the MyHammer tender offer.warrants.
2016
Adjustments to earnings consist primarily of $275.4$198.3 million and $77.0 million of goodwill impairment at the Publishing segment,Dotdash and the Emerging & Other segments, respectively, $104.8 million of stock-based compensation expense, $79.4 million of amortization of intangibles, $71.7 million of depreciation, and $17.7 million of bad debt expense, and $10.7 million of impairments on long-term investments, partially offset by $119.2 million of deferred income taxes and $51.0 million of net gains from the sale of businesses and investments. The deferred income tax benefit primarily relates to the PublishingDotdash and Emerging & Other goodwill impairment.impairments. The decrease from changes in working capital consists primarily of a decrease in accounts payable and other current liabilities of $52.4 million, an increase in other assets of $12.9$12.8 million, partially offset by an increase in deferred revenue of $35.8 million and an increase in income taxes payable and receivable of $9.0 million. The decrease in accounts payable and other current liabilities is due to (i) a decrease in accrued advertising and revenue share expense at PublishingAsk Media Group, Dotdash and Applications mainly due to the effect of the new Google contract, which became effective April 1, 2016, (ii) a decrease in VAT payables related mainly to decreases in international revenue at Publishing, Ask Media Group, and (iii) decreases in payables at Match GroupMTCH due to the timing of payments. The
increase in other assets is primarily related to an increase in production costs at IAC Films. The increase in deferred revenue is mainly due to growth in subscription sales at Match Group,MTCH, ANGI Homeservices and Vimeo. The increase in income taxes payable and receivable is primarily due to receipt of 2015 capital loss refund in 2016 and 2016 income tax accruals in excess of 2016 income tax payments, partially offset by payment of 2015 tax liabilities in 2016.
Net cash provided by investing activities includes net proceeds from the sale of businesses, investments and assets of $172.2 million, which mainly relate to the salesales of PriceRunner and ShoeBuy, partially offset by capital expenditures of $78.0 million, primarily related to investments in development of capitalized software at Match GroupMTCH and ANGI Homeservices to support their products and services, as well as leasehold improvements and computer hardware, purchases (net of sales and maturities) of marketable debt securities of $61.6 million, and cash used in acquisitions and purchases of investments of $31.0 million.
Net cash used in financing activities includes $450.0 million in principal payments on Match GroupMTCH debt, $308.9 million for the repurchase of 6.2 million shares, on a settlement date basis, of IAC common stock at an average price of $49.74 per share, $126.4 million in principal payments on IAC debt and $29.8 million and $26.7 million for the payment of withholding taxes paid on behalf of Match GroupMTCH and IAC employees, respectively, onfor stock-based awards that were net settled, stock-based awards, partially offset by $400.0 million in
proceeds from the issuance of Match GroupMTCH debt and $39.4 million and $25.8 million in proceeds from the issuanceexercise of Match GroupMTCH and IAC common stock respectively, pursuant to stock-based awards.options, respectively.
2015
Adjustments to earnings consist primarily of $140.0 million of amortization of intangibles, $105.5 million of stock-based compensation expense, $62.2 million of depreciation, $16.6 million of bad debt expense and $14.1 million of goodwill impairment, partially offset by $59.8 million of deferred income taxes, $34.3 million of gain on a real estate transaction, and $15.5 million in acquisition-related contingent consideration fair value adjustments. The deferred income tax benefit primarily relates to amortization of intangibles and stock-based compensation. The increase from changes in working capital consists primarily of an increase in deferred revenue of $66.9 million and an increase in income taxes payable and receivable of $24.2 million, partially offset by an increase in accounts receivable of $29.7 million and an increase in other assets of $21.2 million. The increase in deferred revenue was due mainly to growth in subscription sales at Match Group, Vimeo and ANGI Homeservices, increases related to acquisitions, and increases at Electus, CollegeHumor and Notional mainly due to the timing of various production deals. The increase in income taxes payable and receivable was due to 2015 income tax accruals in excess of 2015 income tax payments. The increase in accounts receivable was primarily due to growth in Match Group's in-app purchases sold through their mobile products and revenue growth at ANGI Homeservices. The increase in other assets was primarily due to Match Group, relating to an increase in prepaid expenses, primarily from growth and the signing of longer-term contracts, as well as an increase in VAT refund receivables in the Publishing segment.
Net cash used in investing activities includes acquisitions and purchases of investments of $651.9 million, which includes PlentyOfFish, and capital expenditures of $62.0 million, primarily related to investments in development of capitalized software to support our products and services, and computer hardware, partially offset by proceeds from sales and maturities (net of purchases) of marketable securities of $125.3 million, and net proceeds from the sale of long-term investments and an asset of $9.4 million.
Net cash provided by financing activities includes $788.0 million in borrowings from the Match Group Term Loan, $428.8 million in net proceeds received from Match Group's initial public offering and $27.3 million in proceeds from the issuance of IAC common stock pursuant to stock-based awards, partially offset by $200.0 million used for the repurchase of 3.0 million shares of common stock at an average price of $67.68 per share, $113.2 million related to the payment of cash dividends to IAC shareholders, $80.0 million for the early redemption of the Liberty Bonds, $65.7 million for the payment of withholding taxes paid on behalf of IAC employees on net settled stock-based awards, $32.2 million for the purchase of noncontrolling interests, $23.4 million for the purchase of certain fully vested stock-based awards and $19.1 million of debt issuance costs primarily associated with the Match Group Term Loan and revolving credit facility.
Liquidity and Capital Resources
The Company's principal sources of liquidity are its cash and cash equivalents as well asand marketable securities, cash flows generated from operations.operations and available borrowings under the IAC Credit Facility. IAC's consolidated cash and cash equivalents and marketable securities at December 31, 20172018 were $1.6$2.3 billion, of which $272.6$186.9 million was held by Match GroupMTCH and $221.5$361.9 million was held by ANGI Homeservices.ANGI. The Company generated $416.7$988.1 million of operating cash flows for the year ended December 31, 2017,2018, of which $321.1$603.5 million was generated by Match GroupMTCH and $41.8$223.7 million was generated by ANGI Homeservices.ANGI. Each of Match GroupMTCH and ANGI Homeservices 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, wethe Company cannot freely access the cash of Match GroupMTCH and ANGI Homeservices and their respective subsidiaries. In addition, agreements governing Match Group'sMTCH 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 Match Group'sin the case of MTCH, its secured net leverage ratio (as defined in the Match Group Indentures)MTCH Term Loan) exceeds 5.02.0 to 1.0. In addition, the agreement governing ANGI Homeservices’ Term Loan limits the payment of dividends1.0 or distributions in the event a default has occurred or ANGI Homeservices’its consolidated leverage ratio (as defined in the 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 facility)Loan) exceeds 4.04.5 to 1.0. As ofThere were no such limitations at December 31, 2017, there are no restrictions on Match Group's or ANGI Homeservices' ability to pay dividends under these debt agreements.2018.
IAC has a $300 million revolving credit facility that expires on OctoberOn December 7, 2020. Match Group has a2018, the MTCH $500 million revolving credit facility thatwas amended and restated, and now expires on OctoberDecember 7, 2020.2023. At December 31, 2017,2018, the outstanding borrowings under the MTCH Credit Facility were $260.0 million which bear interest at LIBOR plus 1.50%, or approximately 4.00%. Borrowings under the MTCH Credit Facility were repaid with a portion of the net proceeds from the 5.625% MTCH Senior Notes issued on February 15, 2019. On November 5, 2018, ANGI entered into a five-year $250 million revolving credit facility. The annual commitment fee on undrawn funds is currently 25 basis points and is based on the consolidated net leverage ratio most recently reported. Borrowings under the ANGI Credit Facility bear interest, at ANGI's option, at either a base rate or LIBOR, in each case plus an applicable margin, which is determined by reference to a pricing grid based on ANGI's consolidated net leverage ratio. At December 31, 2018, there were no outstanding borrowings under the ANGI Credit Facility. On November 5, 2018, the ANGI Term Loan was amended and restated, and is now due on November 5, 2023. On November 5, 2018, the IAC Credit Facility was amended and restated, reducing the facility size from $300 million to $250 million, and now expires on November 5, 2023. There were no outstanding borrowings under the IAC Credit Facility or the Match Group Credit Facility.at December 31, 2018.
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's 20182019 capital expenditures are expected to be higher than 20172018 by approximately 20%25% to 25%30%, driven, in part, by higher capital expenditures for ANGI Homeservices and Match Group related to the
development of capitalized software to support ourits products and services, and for ANGI Homeservices' new corporate headquarters, partially offset by lower capital expendituresleasehold improvements related to the expansion of office space at Corporate.MTCH's Tinder business.
AtDuring the year ended December 31, 2017,2018, IAC had 8.6repurchased 0.5 million shares, on a trade date basis, of its common stock at an average price of $152.23 per share, or $82.9 million in aggregate. IAC has 8.0 million shares remaining in its share repurchase authorization. IAC may purchase shares over an indefinite period of time on the open market and in privately negotiated transactions, depending on those factors IAC management deems relevant at any particular time, including, without limitation, market conditions, share price and future outlook.
In May 2017,
During the year ended December 31, 2018, MTCH repurchased 3.1 million shares, on a trade date basis, of its common stock at an average price of $43.72 per share, or $133.5 million in aggregate. MTCH has 2.9 million shares remaining in its share repurchase authorization.
On February 6, 2019, the Board of Directors of Match GroupANGI authorized Match GroupANGI to repurchase up to 615 million shares of its common stock. Match Group has not repurchased any shares related to this repurchase authorization.
The Company has granted stock options and 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 vest over a period of years or upon the occurrence of certain prescribed events. The value of the stock options and stock settled stock appreciation rights is tied to the value of the common stock of these subsidiaries. Accordingly, these interests only have value to the extent the relevant business appreciates in value above the initial value utilized to determine the exercise price. These interests can have significant value in the event of significant appreciation. The interests are ultimately settled in IAC common stock with fair market value generally determined by negotiation or arbitration. 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. The number of shares ultimately needed to settle these awards may vary significantly as a result of both movements in our stock price and a determination of fair value of the relevant subsidiary that is different than our estimate. The number of IAC common shares that would be required to settle these vested and unvested interests, other than for Match GroupMTCH, ANGI and ANGI Homeservicestheir subsidiaries, at current estimated fair values, including vested and unvested interests, at December 31, 2017February 1, 2019, is 0.1 million shares. Withholding taxes, which will be paid by the Company on behalf of the employees upon exercise, would have been $15.2$16.0 million at December 31, 2017,February 1, 2019, assuming a 50% withholding rate. 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'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 settle these awards at February 1, 2019 is 0.2 million shares. Withholding taxes, which will be paid by the Company on behalf of the employees upon vest, would have been $43.1 million at February 1, 2019, assuming a 50% withholding rate.
In July 2017, Tinder, Inc. (“Tinder”) was merged into Match GroupThe Company has historically settled its stock options on a gross basis. Assuming all stock options outstanding on February 1, 2019 were net settled on that date, the Company would have remitted $428.9 million (of which $270.3 million is related to vested stock options and as$158.6 million is related to unvested stock options) in cash for withholding taxes (assuming a result, all Tinder denominated50% withholding rate).
The Company's publicly traded subsidiaries have also granted equity awards denominated in the shares of those subsidiaries, some of which may be settled using IAC shares.
MTCH currently settles substantially all equity awards on a net basis. Assuming all MTCH equity awards outstanding on February 1, 2019 were converted into Match Group tandemnet settled on that date, MTCH would have issued 10.2 million common shares (of which 2.0 million is related to vested shares and 8.1 million is related to unvested shares) and would have remitted $556.2 million (of which $110.7 million is related to vested shares and $445.4 million is related to unvested shares) in cash for withholding taxes (assuming a 50% withholding rate). If MTCH decided to issue a sufficient number of shares to cover the $556.2 million employee withholding tax obligation, 10.2 million additional shares would be issued by MTCH. Certain MTCH stock options ("Tandem Awards"). All of the Tandem Awards exercised during 2017 were exercised on a net basis and can be settled in MTCH or IAC common shares.stock at the Company's election. Assuming all vested and unvested Match Group Tandem Awards outstanding on December 31, 2017February 1, 2019 were exercised on a net basis on that date and settled using IAC stock, 0.80.4 million IAC common shares would have been issued in settlement. Match Groupsettlement and MTCH would have remitted $102.4issued 1.5 million shares, which is included in cash in withholding taxes (assuming a 50% withholding rate) on behalf of the employees and issued 3.3 million of its common sharesamount above, to IAC as reimbursement.
In connection with the Combination, previously issued stock appreciation rights that 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. In addition, at IAC's option, these awards can be settled in either Class A shares of ANGI Homeservices. IAC has the right to settle these awards usingor shares of IAC common stock. If settled in IAC common stock, ANGI reimburses IAC in either cash or through the issuance of Class A shares to IAC. Assuming all vested and unvestedof the stock appreciation rights outstanding on December 31, 2017February 1, 2019 were exercised on a net basissettled on that date and settled using IAC stock, 1.41.0 million IAC common shares would have been issued in settlement.settlement and IAC would have been issued 13.0 million shares of ANGI HomeservicesClass A stock and ANGI would have remitted $171.3$219.6 million in cash infor withholding taxes (assuming a 50% withholding rate). If ANGI decided to issue a sufficient number of shares to cover the $219.6 million employee withholding tax obligation, 13.0 million additional Class A shares would be issued by ANGI. ANGI's cash withholding obligation on behalfall other ANGI net settled awards outstanding on February 1, 2019 is $38.5 million (assuming a 50% withholding rate), which is the equivalent of 2.3 million shares.
Prior to the Combination in 2017, the Company issued a number of IAC denominated PSUs to certain ANGI employees. Vesting of the employees and issued 16.4PSUs is contingent upon ANGI's performance. Assuming all of the PSUs outstanding on February 1, 2019 were net settled on that date using IAC stock, 0.1 million of itsIAC common shares towould have been issued in settlement, IAC as reimbursement.would have been issued 0.7 million shares of ANGI Class A stock and ANGI would have remitted $12.0 million in cash for withholding taxes (assuming a 50% withholding rate).
As of December 31, 2017,2018, IAC's economic and voting interest in Match GroupMTCH is 81.2%81.1% and 97.6%, respectively, and in ANGI Homeservices is 86.9%83.9% and 98.5%98.1%, respectively. Certain Match GroupAs described above, certain MTCH and ANGI Homeservices equity awards can be settled either in IAC common shares or the common shares of these subsidiaries at IAC's election. The Company currently expects to settle a sufficient number of awards in IAC shares to maintain an economic interest in both Match GroupMTCH and ANGI Homeservicesof at least 80% and to otherwise take such other steps as necessary to maintain an economic interest in each of MTCH and ANGI of at least 80%.
The Company will not be required to pay the one-time Transition Tax under the Tax Act because of its net operating loss position. The Company does not expect to be a full U.S. federal cash income tax payer until 2021, which2022. The ultimate timing is in line with previous estimates. We expectdependent primarily on the Tax Actperformance of the Company and the amount and timing of tax deductions related to favorably impact our future liquidity, primarily as a resultstock-based awards.
At December 31, 2018, all of a reduction inthe Company’s international cash can be repatriated without significant tax consequences. During the year ended December 31, 2018, international cash totaling $396.2 million was repatriated to the U.S. corporate income tax rate from 35% to 21%, which will lower our effective tax rate and annual tax liability.
The Company believes its existing cash, cash equivalents, marketable securities, available borrowings under the IAC Credit Facility and expected positive cash flows generated from operations will be sufficient to fund ourits 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 ourits products and services. The Company’s indebtedness could limit ourits ability to: (i) obtain additional financing to fund working capital needs, acquisitions, capital expenditure orexpenditures, debt service or other requirements; and (ii) use operating cash flow to make acquisitions
or capital expenditures, or invest in other areas, such as developing business opportunities. The Company may make additional acquisitions and investments and, as a result, the Company may need to raise additional capital through future debt or equity financing to make additional acquisitions and investments or to provide for greater financial flexibility. Additional financing may not be available on terms favorable to usthe Company or at all.
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
| | | | Payments Due by Period | Payments Due by Period |
Contractual Obligations(a) | Less Than 1 Year | | 1–3 Years | | 3–5 Years | | More Than 5 Years | | Total | Less Than 1 Year | | 1–3 Years | | 3–5 Years | | More Than 5 Years | | Total |
| | (In thousands) | (In thousands) |
Long-term debt(b) | $ | 95,023 |
| | $ | 190,758 |
| | $ | 1,372,671 |
| | $ | 1,000,750 |
| | $ | 2,659,202 |
| |
Long-term debt(b) (c) | | $ | 109,608 |
| | $ | 224,974 |
| | $ | 1,622,736 |
| | $ | 952,750 |
| | $ | 2,910,068 |
|
Operating leases(c)(d) | 38,339 |
| | 67,590 |
| | 42,941 |
| | 211,649 |
| | 360,519 |
| 38,770 |
| | 87,438 |
| | 64,633 |
| | 255,563 |
| | 446,404 |
|
Purchase obligations(d)(e) | 21,994 |
| | 10,816 |
| | — |
| | — |
| | 32,810 |
| 40,428 |
| | 23,897 |
| | — |
| | — |
| | 64,325 |
|
| Total contractual obligations | $ | 155,356 |
| | $ | 269,164 |
| | $ | 1,415,612 |
| | $ | 1,212,399 |
| | $ | 3,052,531 |
| $ | 188,806 |
| | $ | 336,309 |
| | $ | 1,687,369 |
| | $ | 1,208,313 |
| | $ | 3,420,797 |
|
| |
(a) | The Company has excluded $37.2$49.1 million in unrecognized tax benefits and related interest from the table above as we are unable to make a reasonably reliable estimate of the period in which these liabilities might be paid. For additional information on income taxes, see "Note 3—Income Taxes" to the consolidated financial statements included in "Item 8—Consolidated Financial Statements and Supplementary Data." |
| |
(b) | Represents contractual amounts due including interest on both fixed and variable rate instruments. Long-term debt at December 31, 20172018 consists of $1.4 billion bearing interest at fixed rates and a $425.0 million Match Group Term Loan and a $275.0 million ANGI Homeservices Term Loan$0.9 billion bearing interest at variable rates. The Match Groupvariable rate instruments consist of a $425.0 million MTCH Term Loan, a $261.3 million ANGI Term Loan and $260.0 million of outstanding borrowings under the MTCH Credit Facility. The MTCH Term Loan bears interest at LIBOR plus 2.50%, or 3.85%5.09%, at December 31, 2017.2018. The ANGI Homeservices Term Loan bears interest at LIBOR plus 2.00%1.50%, or 3.38%approximately 4.00% at December 31, 2017.2018. The outstanding borrowings under the MTCH Credit Facility bear interest at LIBOR plus 1.50%, or approximately 4.00% at December 31, 2018. The amount of interest ultimately paid on the Match GroupMTCH and ANGI Homeservices term loans, and the MTCH Credit Facility may differ based on changes in interest rates. For additional information on long-term debt arrangements, see "Note 9—7—Long-term Debt" to the consolidated financial statements included in "Item 8—Consolidated Financial Statements and Supplementary Data." |
| |
(c) | Subsequent to December 31, 2018, the outstanding borrowings under the MTCH Credit Facility were repaid in full with a portion of the net proceeds from the 5.625% MTCH Senior Notes issued on February 15, 2019. The principal and interest related to the 5.625% MTCH Senior Notes are not included in the table above. |
| |
(d) | The Company leases land, office space, data center facilities and equipment used in connection with operations under various operating leases, many of which contain escalation clauses. The Company is also committed to pay a portion of the related operating expenses under a data centercertain lease agreement.agreements. These operating expenses are not included in the table above. For additional information on operating leases, see "Note 15—13—Commitments and Contingencies" to the consolidated financial statements included in "Item 8—Consolidated Financial Statements and Supplementary Data." |
| |
(d)(e)
| The purchase obligations principally include web hosting commitments. |
| | | | Amount of Commitment Expiration Per Period | Amount of Commitment Expiration Per Period |
Other Commercial Commitments(e)(f) | Less Than 1 Year | | 1–3 Years | | 3–5 Years | | More Than 5 Years | | Total | Less Than 1 Year | | 1–3 Years | | 3–5 Years | | More Than 5 Years | | Total |
| | (In thousands) | (In thousands) |
| Letters of credit and surety bonds | $ | 576 |
| | $ | 71 |
| | $ | — |
| | $ | 1,939 |
| | $ | 2,586 |
| $ | 449 |
| | $ | — |
| | $ | — |
| | $ | 2,272 |
| | $ | 2,721 |
|
| |
(e)(f) | Commercial commitments are funding commitments that could potentially require registrant performancethe Company to perform in the event of demands by third parties or contingent events. |
Off-Balance Sheet Arrangements
Other than the items described above, the Company does not have any off-balance sheet arrangements as of December 31, 2017.2018.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The following disclosure is provided to supplement the descriptions of IAC's accounting policies contained in "Note 2—Summary of Significant Accounting Policies" to the consolidated financial statements included in "Item 8—Consolidated Financial Statements and Supplementary Data" in regard to significant areas of judgment. Management of the Company is required to make certain estimates, judgments and assumptions during the preparation of its consolidated financial statements in accordance with U.S. generally accepted accounting principles. These estimates, judgments and assumptions impact the reported amount of assets, liabilities, revenue and expenses and the related disclosure of contingent assets and liabilities. Actual results could differ from these estimates. Because of the size of the financial statement elements to which they relate, some of our accounting policies and estimates have a more significant impact on our consolidated financial statements than others. What follows is a discussion of some of our more significant accounting policies and estimates. Business Combinations and Contingent Consideration Arrangements
Acquisitions are an important part of the Company's growth strategy. The Company invested $912.1$243.3 million (including the value of ANGI Homeservices Class A common stock issued in connection with the Combination)acquisition of Handy), $36.1$912.1 million (including the value of ANGI Class A common stock issued in connection with the Combination) and $650.7$36.1 million in acquisitions in the years ended December 31, 2018, 2017 2016 and 2015,2016, respectively. The purchase price of each acquisition is attributed to the assets acquired and liabilities assumed based on their fair values at the date of acquisition, including identifiable intangible assets that either arise from a contractual or legal right or are separable from goodwill. The fair value of these intangible assets is based on detailed valuations that use information and assumptions provided by management. The excess purchase price over the net tangible and identifiable intangible assets is recorded as goodwill and is assigned to the reporting unit(s) that is expected to benefit from the combination as of the acquisition date.
In connection with certain business combinations, the Company has entered into contingent consideration arrangements that are determined to be part of the purchase price. Each of these arrangements areis initially recorded at its fair value at the time of the acquisition and reflected at current fair value for each subsequent reporting period thereafter until settled. The contingent consideration arrangements are generally based upon earnings performance and/or operating metrics. The Company determines the fair value of the contingent consideration arrangements by using probability-weighted analyses to determine the amounts of the gross liability, and, if the arrangement is long-term in nature, applying a discount rate that appropriately captures the risk associated with the obligation to determine the net amount reflected in the consolidated financial statements. Significant changes in forecasted earnings or operating metrics would result in a significantly higher or lower fair value measurement. The changes in the estimatedremeasured fair value of the contingent consideration arrangements during each reporting period, including the accretion of the discount, if applicable, are recognized in “General"General and administrative expense”expense" in the accompanying consolidated statement of operations.
Recoverability of Goodwill and Indefinite-Lived Intangible Assets
Goodwill is the Company's largest asset with a carrying value of $2.6$2.7 billion and $1.9$2.6 billion at December 31, 20172018 and 2016,2017, respectively. Indefinite-lived intangible assets, which consist of the Company's acquired trade names and trademarks, have a carrying value of $459.1$458.1 million and $320.6$459.1 million at December 31, 20172018 and 2016,2017, respectively.
Goodwill and indefinite-lived intangible assets are assessed annually for impairment as of October 1, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit or the fair value of an indefinite-lived intangible asset below its carrying value. In performing its annual assessment, the Company has the option to qualitatively assess whether it is more likely than not that the fair value of a reporting unit is less than its carrying value.
For the Company's annual goodwill test at October 1, 2017,2018, a qualitative assessment of the Match Group,MTCH, ANGI, Homeservices, Vimeo, College Humor Media and ApplicationsBlueCrew reporting units' goodwill was performed because the Company concluded it was more likely than not that the fair value of these reporting units was in excess of their respective carrying values. ThThe primary facte primary factorsors that the Company considered in its qualitative assessment for each of these reporting units are described below:
Match Group'sMTCH's October 1, 20172018 market capitalization of $6.3$15.7 billion exceeded its carrying value by more than 1100%approximately $15.1 billion and Match Group'sMTCH's strong operating performance.
ANGI Homeservices'ANGI's October 1, 20172018 market capitalization of $5.9$10.7 billion exceeded its carrying value by more than 450%approximately $9.6 billion and ANGI Homeservices'ANGI's strong operating performance.
The Company performed valuations of the Vimeo, College Humor Media and ApplicationsBlueCrew reporting units during 2017.2018. These valuations were prepared primarily in connection with the issuance and/or settlement of equity grantsawards that are denominated in the equity of these businesses. The valuations were prepared time proximate to, however, not as of, October 1, 2017.2018. The fair value of each of these businesses was in excess of its October 1, 20172018 carrying value.
The Company foregoes a qualitative assessment and tests the goodwill for impairment when it concludes that it is more likely than not that there may be an impairment. For the Company's annual goodwill test at October 1, 2017,2018, the Company
quantitatively tested the Daily BurnDesktop and ElectusMosaic Group reporting units.units (included in the Applications segment). The Company's quantitative test indicated that the fair value of each of these reporting units is in excess of itstheir respective carrying value;values; therefore, the goodwill of these reporting units is not impaired. The Company's PublishingDotdash, Ask Media Group and The Daily Beast reporting unit hasunits have no goodwill.
The aggregate goodwill balance for the reporting units for which the most recent estimate of fair value is less than 120%110% of their carrying values is approximately $450$265.1 million.
The annual or interim quantitative test of the recovery of goodwill involves a comparison of the estimated fair value of each of the Company's reporting unitsunit that is being tested to its carrying value, including goodwill. If the estimated fair value of a reporting unit exceeds its carrying value, goodwill of the reporting unit is not impaired. If the carrying value of a reporting unit exceeds its estimated fair value, an impairment loss equal to the excess is recorded.
The fair value of the Company's reporting units (except for MTCH and ANGI described above) is determined using both an income approach based on discounted cash flows ("DCF") and a market approach when it tests goodwill for impairment, either on an interim basis or annual basis as of October 1 each year. The Company uses the same approach in determining the fair value of its businesses in connection with its non-public subsidiary denominated stock basedstock-based compensation plans, which can be a significant factor in the decision to apply the qualitative screen. Determining fair value using a DCF analysis requires the exercise of significant judgment with respect to several items, including the amount and timing of expected future cash flows and appropriate discount rates. The expected cash flows used in the DCF analyses are based on the Company's most recent forecast and budget and, for years beyond the budget, the Company's estimates, which are based, in part, on forecasted growth rates. The discount rates used in the DCF analyses are intended to reflect the risks inherent in the expected future cash flows of the respective reporting units. Assumptions used in the DCF analyses, including the discount rate, are assessed based on theeach reporting units'unit's current results and forecasted future performance, as well as macroeconomic and industry specific factors. The discount rates used in the quantitative test for determining the fair value of the Company's reporting units ranged from 12.5% to 17.5%15% in 20172018 and 10%12.5% to 17.5% in 2016.2017. Determining fair value using a market approach considers multiples of financial metrics based on both acquisitions and trading multiples of a selected peer groupgroup of companies. From the comparable companies, a representative market multiple is determined which is applied to financial metrics to estimate the fair value of a reporting unit. To determine a peer group of companies for our respective reporting units, we considered companies relevant in terms of consumer use, monetization model, margin and growth characteristics, and brand strength operating in their respective sectors. While a primary driver in the determination of the fair values of the Company's reporting units is the estimate of future revenue and profitability, the determination of fair value is based, in part, upon the Company's assessment of macroeconomic factors, industry and competitive dynamics and the strategies of its businesses in response to these factors.
While the Company has the option to qualitatively assess whether it is more likely than not that the fair values of its indefinite-lived intangible assets are less than their carrying values, the Company's policy is to determine the fair value of each of its indefinite-lived intangible assets annually as of October 1. In 2017, the Company did not quantitatively assess the Angie's List indefinite-lived intangible assets acquired through the Combination given the proximity of the September 29, 2017 transaction date to the October 1, 2017 annual test date. The Company determines the fair value of indefinite-lived intangible assets using an avoided royalty DCF valuation analysis. Significant judgments inherent in this analysis include the selection of appropriate royalty and discount rates and estimating the amount and timing of expected future cash flows. The discount rates used in the DCF analyses are intended to reflect the risks inherent in the expected future cash flows generated by the respective intangible assets. The royalty rates used in the DCF analyses are based upon an estimate of the royalty rates that a market participant would pay to license the Company's trade names and trademarks. Assumptions used in the avoided royalty DCF analyses, including the discount rate and royalty rate, are assessed annually based on the actual and projected cash flows related to the asset, as well as macroeconomic and industry specific factors. The discount rates used in the Company's annual indefinite-lived impairment assessment ranged from 10.5% to 35% in 2018 and 11% to 16% in both 2017, and 2016, and the royalty rates used ranged from 0.75% to 8.0% in 2018 and 2% to 7% in both 2017 and 2016.2017.
The 2017aggregate indefinite-lived intangible asset balance for which the most recent estimate of fair value is less than 110% of their carrying values is approximately $131.3 million.
The 2018 annual assessment of goodwill did not identify any impairments. The 2018 annual assessment of indefinite-lived intangible assets identified impairment charges of $27.7 million and $1.1 million related to certain Desktop and College Humor Media indefinite-lived trade names, respectively. The indefinite-lived intangible asset impairment charge at Desktop was due to Google’s policy changes related to its Chrome browser which became effective on September 12, 2018 and have negatively impacted the distribution of our B2C downloadable desktop products. The impairment charge related to the B2C trade name was identified in our annual impairment assessment as of October 1, 2018 and reflects the projected reduction in profits and revenues and the resultant reduction in the assumed royalty rate from these policy changes. The impairment charges are included in "Amortization of intangibles" in the accompanying consolidated statement of operations.
The 2017 annual assessments did not identify any impairments.
While the 2016 annual assessment did not identify any material impairments, during the second quarter of 2016, the Company recorded an impairment chargescharge equal to the entire $275.4 million balanceat IAC Publishing. In connection with the Company's realignment of its reportable segments in the Publishing reporting unit goodwillfourth quarter of 2018, $198.3 million and $11.6$77.0 million was allocated to the Dotdash and the Emerging & Other reportable segments, respectively, based upon their relative fair values as of October 1, 2018. In addition, amortization of intangibles was further impacted by the inclusion of impairment charges in 2016 of $9.0 million and $2.6 million related to certain PublishingDictionary.com and Dotdash indefinite-lived intangible assets. The 2015 annual assessment identified impairment charges related to certain intangible assets of the Publishing reporting unit and the goodwill on the ShoeBuy reporting unit of $88.0 million and $14.1 million, respectively.trade names, respectively.
Recoverability and Estimated Useful Lives of Long-Lived Assets
We review the carrying value of all long-lived assets, comprising property and equipment and definite-lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The carrying value of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If the carrying value is deemed not to be recoverable, an impairment loss is recorded equal to the amount by which the carrying value of the long-lived asset exceeds its fair value. In addition, the Company reviews the useful lives of its long-lived assets whenever events or changes in circumstances indicate
that these lives may be changed. The carrying value of property and equipment and definite-lived intangible assets is $519.8$492.1 million and $341.1$519.8 million at December 31, 2018 and 2017, and 2016, respectively.
Income Taxes
The Company accounts for income taxes under the liability method, and deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying values of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided on deferred tax assets if it is determined that it is more likely than not that the deferred tax asset will not be realized. As ofAt December 31, 20172018 and 2016,2017, the balance of the Company's net deferred tax assets (liabilities), net,asset is $31.3$41.2 million and $(226.3)$31.3 million, respectively.
The Company evaluates and accounts for uncertain tax positions using a two-step approach. Recognition (step one) occurs when the Company concludes that a tax position, based solely on its technical merits, is more-likely-than-not to be sustainable upon examination. Measurement (step two) determines the amount of benefit that is greater than 50% likely to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. De-recognition of a tax position that was previously recognized would occur when the Company subsequently determines that a tax position no longer meets the more-likely-than-not threshold of being sustained. This measurement step is inherently difficult and requires subjective estimations of such amounts to determine the probability of various possible outcomes. At December 31, 20172018 and 2016,2017, the Company has unrecognized tax benefits, of $39.7 million and $41.0 million, including interest and penalties, of $52.3 million and $39.7 million, respectively. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustmentsadjustment and which may not accurately anticipate actual outcomes. Although management currently believes changes to reserves from period to period and differences between amounts paid, if any, upon resolution of issues raised in audits and amounts previously provided will not have a material impact on the liquidity, results of operations, or financial condition of the Company, these matters are subject to inherent uncertainties and management’s view of these matters may change in the future.
The ultimate amount of deferred income tax assets realized and the amounts paid for deferred income tax liabilities and uncertain tax positions may vary from our estimates due to future changes in income tax law, state income tax apportionment or the outcome of any review of our tax returns by the various tax authorities, as well as actual operating results of the Company that vary significantly from anticipated results.
No incomeAt December 31, 2018, all of the Company’s international cash can be repatriated without significant tax consequences. The Company has not provided for approximately $1.0 million of foreign deferred taxes have been provided onfor the $103.1 million of the foreign cash earnings that is indefinitely reinvested outside the U.S. The Company reassesses its intention to remit or permanently reinvest these cash earnings of certaineach reporting period; any required adjustment to the income tax provision would be reflected in the period that the Company changes this intention. During the year ended December 31, 2018, international cash totaling $396.2 million was repatriated to the U.S.
On December 22, 2017, the U.S. enacted the Tax Act. The Tax Act imposes a new minimum tax on GILTI earned by foreign subsidiaries of $101.2 million at December 31, 2017.beginning in 2018. The estimated amount ofFinancial Accounting Standards Board ("FASB") Staff Q&A, Topic 740 No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity may make an accounting policy election to either recognize deferred taxes for temporary differences expected to reverse as GILTI in future years or provide for the unrecognized deferred income tax liability with respectexpense related to such cash earnings would be $7.9 million.GILTI in the year the tax is incurred. The Company elects to recognize the tax on GILTI as a period expense in the period the tax is incurred.
Stock-Based Compensation
The Company recorded stock-based compensation expense of $238.4 million, $264.6 million $104.8 million and $105.4$104.8 million for the years ended December 31, 2018, 2017 2016 and 2015,2016, respectively. Included in stock-based compensation expense in 2018 and 2017 is $70.6 million and $122.1 million, respectively, related to the modification of previously issued HomeAdvisor vestedequity awards and unvestedpreviously issued Angie's List equity awards, both of which were converted into ANGI Homeservices' equity awards in the expense related to previously issued Angie's List equity awardsCombination, and the acceleration of certain Angie's Listconverted equity awards resulting from the termination of Angie's List employees in connection with the Combination. The Company estimated the fair value of stock options issued (including those modified in connection with the Combination) in 2018, 2017 2016 and 20152016 using a Black-Scholes option pricing model and, for those with a market condition, a lattice model. For stock options, including subsidiary denominated equity, the value of the stock option is measured at the grant date at fair value and expensed over the vesting term. The impact on stock-based compensation expense for the year ended December 31, 2017,2018, assuming a 1% increase in the risk-free interest rate, a 10% increase in the volatility factor and a one-year increase in the weighted average expected term of the outstanding options would be an increase of $5.3$3.8 million, $20.3$17.5 million and $8.5$6.1 million, respectively. The Company also issues RSUs and performance-based RSUs. For RSUs, the value of the instrument is measured at the grant date as the fair value of the underlying IAC common stock and expensed as stock-based compensation expense over the vesting term. For performance-based RSUs, the value of the instrument is measured at the grant date as the fair value of the underlying IAC common stock and expensed as stock-based compensation over the vesting term when the performance targets are considered probable of being achieved.
MarketableInvestments in Debt and Equity Securities and Long-term Investments
At December 31, 2017, marketable securities of $5.0 million consist of commercial paper rated A1+/P1. Long-term investments at December 31, 2017 of $65.0 million include equity securities accounted for under the cost and equity methods.Debt Securities
The Company invests in marketable debt securities with active secondary or resale markets to ensure portfolio liquidity to fund current operations or satisfy other cash requirements as needed. Marketable debt securities are adjusted to fair value each
quarter, and the unrealized gains and losses, net of tax, are included in accumulated other comprehensive income (loss) as a separate component of shareholders' equity. The specific-identification method is used to determine the cost of debt securities sold and the amount of unrealized gains and losses reclassified out of accumulated other comprehensive income (loss) into earnings. The Company also invests in non-marketable debt securities as part of its investment strategy. We review our debt securities for impairment each reporting period. The Company recognizes an unrealized lossesloss on marketabledebt securities in net earnings when the losses are determined to be other-than-temporary. Additionally, the Company evaluates each cost and equity method investment for indicators of impairment on a quarterly basis, and recognizes an impairment loss if the decline in value is deemed to be other-than-temporary. Future events may result in reconsideration of the nature of losses as other-than-temporary and market and other factors may cause the value of the Company's investments to decline.
The Company employs a methodology that considers available evidence in evaluating potential other-than-temporary impairments of its investments. Investments are considered to be impaired when a decline in fair value below the amortized cost basis is determined to be other-than-temporary. SuchFactors we consider in making this determination include the duration, severity and reason for the decline in value and the potential recovery and our intent to sell the debt security. We also consider whether we will be required to sell the security before recovery of its amortized cost basis and whether the amortized cost basis cannot be recovered because of credit losses. If an impairment evaluations include, but are not limited to:is considered to be other-than-temporary, the length of time and extentdebt security will be written down to whichits fair value has been less than the cost basis, the current business environment, including competition; going concern considerations such as financial condition, the rate at which the investee utilizes cash and the investee's ability to obtain additional financing to achieveloss will be recognized within other income (expense), net. The carrying value of marketable debt securities at December 31, 2018 is $123.7 million and consist of treasury discount notes and commercial paper rated A1/P1 or better.
Equity Securities
The Company invests in equity securities as part of its business plan;investment strategy. Our equity securities, other than those of our consolidated subsidiaries and those accounted for under the needequity method, are accounted for at fair value or under the measurement alternative of ASU No. 2016-01, following its adoption on January 1, 2018, with changes recognized within other income (expense), net each reporting period. Under the measurement alternative, equity investments without readily determinable fair values are carried at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer; value is generally determined based on a market approach as of the transaction date. An investment will be considered identical or similar if it has identical or similar rights to the investee's existingequity investments held by the Company. The Company reviews its equity securities for impairment each reporting period when there are qualitative factors or events that indicate possible impairment. Factors we consider in making this determination include negative changes in industry and market conditions, financial performance, business model dueprospects, and other relevant events and factors. Once the qualitative indicators are identified and the fair value of the security is below the carrying value, the Company writes down the security to changing businessits fair value and regulatory environmentsrecords the corresponding charge within other income (expense), net. The carrying value of the Company’s equity securities without readily determinable fair values at December 31, 2018, is $235.1 million and its abilityis included in long-term investments in the accompanying consolidated balance sheet. During 2018, the Company recognized gross unrealized gains of $129.0 million related to successfully implement necessary changes;the remeasurement of certain investments resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. In addition, during 2018, the Company recognized other-than-temporary impairments of $4.9 million related to equity securities without readily determinable fair values and comparable valuations.$0.6 million related to an equity method investment. During 2017 2016 and 2015,2016, the Company recognized other-than-temporary impairments of $12.2 million $10.7 million and $6.7$10.7 million, respectively, related to cost and equity method investments.
Recent Accounting Pronouncements
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
The Company's exposure to market risk for changes in interest rates relates primarily to the Company's cash equivalents, marketable debt securities and long-term debt, including current maturities.
The Company invests its excess cash in certain cash equivalents and marketable debt securities, which may consist of money market funds, commercial paper, treasury discount notes, commercial paper and time deposits, and short-to-medium-term debt securities issued by investment grade corporate issuers.
Based on the Company's total investment in marketable debt securities at December 31, 2017,2018, a 100 basis point increase or decrease in the level of interest rates would, respectively, decrease or increase the fair value of these securities by less than $0.1 million. Such potential increase or decrease in fair value is based on certain simplifying assumptions, including a constant level and rate of debt securities and an immediate across-the-board increase or decrease in the level of interest rates with no other subsequent changes for the remainder of the period. However, since almost all of the Company's cash and cash equivalents balance of $1.6$2.1 billion was invested in short-term fixed or variable rate money market instruments, the Company would also earn more (less) interest income due to such an increase (decrease) in interest rates.
At December 31, 2017,2018, the Company's outstanding debt was $2.1$2.3 billion, of which $1.4 billion bears interest at fixed rates. If market rates decline, the Company runs the risk that the related required payments on the fixed rate debt will exceed those based on market rates. A 100 basis point increase or decrease in the level of interest rates would, respectively, decrease or increase the fair value of the fixed-rate debt by $72.7$58.2 million. Such potential increase or decrease in fair value is based on certain 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 remainder of the period. The $425 million Match GroupMTCH Term Loan, the $261.3 million outstanding balance on the ANGI Term Loan, and the $275$260 million ANGI Homeservices Term Loanof outstanding borrowings under the MTCH Credit Facility bear interest at variable rates. The Match GroupMTCH Term Loan bears interest at LIBOR plus 2.50%. As of December 31, 2017,2018, the rate in effect was 3.85%5.09%. If LIBOR were to increase or decrease by 100 basis points, then the annual interest expense on the Match GroupMTCH Term Loan would increase or decrease by $4.3 million. The ANGI Homeservices Term Loan bears interest at LIBOR plus 2.00%1.50%. As of December 31, 2017,2018, the rate in effect was 3.38%approximately 4.00%. If LIBOR were to increase or decrease by 100 basis points, then the annual interest expense on the ANGI Homeservices Term Loan would increase or decrease by $2.8$2.6 million. The MTCH Credit Facility bears interest at LIBOR plus 1.50%. As of December 31, 2018, the rate in effect was approximately 4.00%. If LIBOR were to increase or decrease by 100 basis points, then the annual interest expense on the MTCH Credit Facility would increase or decrease by $2.6 million.
Foreign Currency Exchange Risk
The Company conducts business in certain foreign markets, primarily in various jurisdictions within the European Union, and, as a result, is exposed to foreign exchange risk for both the Euro and British Pound ("GBP").
For the years ended December 31, 2018, 2017 2016 and 2015,2016, international revenue accounted for 30%34%, 26%30% and 26%, respectively, of our consolidated revenue. The Company's primaryCompany has exposure to foreign currency exchange risk relates to investments in foreign subsidiaries that transact business in a functional currency other than the U.S. dollar. As a result, as foreign currency exchange rates fluctuate, the translation of the statement of operations of the Company's international businesses into U.S. dollars affects year-over-year comparability of operating results. The average GBP and Euro versusexchange rates strengthened against the U.S. dollar exchange rate wasby approximately 5% higher4% and 2% lower,5%, respectively, in 20172018 compared to 2016.2017.
The Company is also exposed to foreign currency transaction gains and losses to the extent it or its subsidiaries conduct transactions in and/or have assets and/or liabilities that are denominated in a currency other than the entity's functional currency. The Company recorded foreign exchange gains of $5.3 million, losses of $16.8 million and gains of $34.4 million for the years ended December 31, 2018, 2017 and 2016, respectively. The increase in GBP versus the U.S. dollar during 2018 and 2017 and the decrease in the GBP versus the U.S. dollar during 2016, following the Brexit vote on June 23, 2016, generated the majority of the Company's foreign currency exchange lossesgains and gainslosses in these years. The 2017foreign exchange gains and losses and 2016 gains are primarily related to (i)a U.S. dollar denominated intercompany loan related to a 2016 acquisition in which the receivable is held by a foreign subsidiary with a GBP functional currency. The foreign exchange losses in 2017 and gains in 2016 were further impacted by U.S. dollar denominated cash, the majority of which is from the proceeds received in the PriceRunner sale in March 2016, held by a foreign subsidiary with a GBP functional currency and (ii) a U.S. dollar denominated intercompany loan related to a 2016 acquisition in which the receivable is held by a foreign subsidiary with a GBP functional currency. Subsequent to December 31, 2017, the Company moved this U.S. dollar denominated cash to a U.S. dollar functional currency entity, which will reduce the impact of foreign currency volatility on the Company's future results of operations.entity.
Foreign currency exchange gains or losses historically have not been material to the Company. As a result, historically, the Company has not hedged foreign currency exposures. The continued growth and expansion of our international operations into new countries increases our exposure to foreign exchange rate fluctuations. Significant foreign exchange rate fluctuations, in the case of one currency or collectively with other currencies, could have a significant impact on our future results of operations.
Item 8. Consolidated Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of IAC/InterActiveCorp
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of IAC/InterActiveCorp and subsidiaries (the Company) as of December 31, 20172018 and 2016,2017, and the related consolidated statements of operations, comprehensive operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2017,2018, and the related notes and the financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated"consolidated financial statements”statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 20172018 and 2016,2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2018, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2017,2018, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 1, 20182019 expressed an unqualified opinion thereon.
Adoption of Accounting Standards Updates
As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for the recognition, measurement, presentation and disclosure of certain equity securities due to the adoption of ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. Additionally, as discussed in Note 11 to the consolidated financial statements, the Company changed its method of accounting for stock compensation in 2017 due to the adoption of ASU No. 2016-09, Compensation— - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ ERNST & YOUNG LLP
We have served as the Company’s auditor since 1996.
New York, New York
March 1, 20182019
IAC/INTERACTIVECORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET | | | | December 31, | December 31, |
| | 2017 | | 2016 | 2018 | | 2017 |
| | (In thousands, except par value amounts) | (In thousands, except par value amounts) |
| ASSETS | | | | | | |
| Cash and cash equivalents | $ | 1,630,809 |
| | $ | 1,329,187 |
| $ | 2,131,632 |
| | $ | 1,630,809 |
|
| Marketable securities | 4,995 |
| | 89,342 |
| 123,665 |
| | 4,995 |
|
| Accounts receivable, net of allowance of $11,489 and $16,405, respectively | 304,027 |
| | 220,138 |
| |
| Accounts receivable, net of allowance and reserves of $18,860 and $11,489, respectively | | 279,189 |
| | 304,027 |
|
| Other current assets | 185,374 |
| | 204,068 |
| 228,253 |
| | 185,374 |
|
| Total current assets | 2,125,205 |
| | 1,842,735 |
| 2,762,739 |
| | 2,125,205 |
|
| | | | |
|
| |
|
|
| Property and equipment, net of accumulated depreciation and amortization | 315,170 |
| | 306,248 |
| 318,800 |
| | 315,170 |
|
| Goodwill | 2,559,066 |
| | 1,924,052 |
| 2,726,859 |
| | 2,559,066 |
|
| Intangible assets, net of accumulated amortization | 663,737 |
| | 355,451 |
| 631,422 |
| | 663,737 |
|
| Long-term investments | 64,977 |
| | 122,810 |
| 235,055 |
| | 64,977 |
|
| Deferred income taxes | 66,321 |
| | 2,511 |
| 64,786 |
| | 66,321 |
|
| Other non-current assets | 73,334 |
| | 92,066 |
| 134,924 |
| | 73,334 |
|
| TOTAL ASSETS | $ | 5,867,810 |
| | $ | 4,645,873 |
| $ | 6,874,585 |
| | $ | 5,867,810 |
|
| |
| |
|
| LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | |
| LIABILITIES: | | | | | | |
| Current portion of long-term debt | $ | 13,750 |
| | $ | 20,000 |
| $ | 13,750 |
| | $ | 13,750 |
|
| Accounts payable, trade | 76,571 |
| | 62,863 |
| 74,907 |
| | 76,571 |
|
| Deferred revenue | 342,483 |
| | 285,615 |
| 360,015 |
| | 342,483 |
|
| Accrued expenses and other current liabilities | 366,924 |
| | 344,910 |
| 434,886 |
| | 366,924 |
|
| Total current liabilities | 799,728 |
| | 713,388 |
| 883,558 |
| | 799,728 |
|
| | | | |
|
| |
|
|
| Long-term debt, net | 1,979,469 |
| | 1,582,484 |
| 2,245,548 |
| | 1,979,469 |
|
| Income taxes payable | 25,624 |
| | 33,528 |
| 37,584 |
| | 25,624 |
|
| Deferred income taxes | 35,070 |
| | 228,798 |
| 23,600 |
| | 35,070 |
|
| Other long-term liabilities | 38,229 |
| | 44,178 |
| 66,807 |
| | 38,229 |
|
| | | | |
|
| |
|
|
| Redeemable noncontrolling interests | 42,867 |
| | 32,827 |
| 65,687 |
| | 42,867 |
|
| | | | |
| |
|
| Commitments and contingencies |
| |
|
| |
|
| | | | |
| |
|
| SHAREHOLDERS' EQUITY: | | | |
| |
|
| Common stock $.001 par value; authorized 1,600,000 shares; issued 260,624 and 255,672 shares, respectively, and outstanding 76,829 and 72,595 shares, respectively | 261 |
| | 256 |
| |
| Common stock $.001 par value; authorized 1,600,000 shares; issued 262,303 and 260,624 shares, respectively, and outstanding 77,963 and 76,829 shares, respectively | | 262 |
| | 261 |
|
| Class B convertible common stock $.001 par value; authorized 400,000 shares; issued 16,157 shares and outstanding 5,789 shares | 16 |
| | 16 |
| 16 |
| | 16 |
|
| Additional paid-in capital | 12,165,002 |
| | 11,921,559 |
| 12,022,387 |
| | 12,165,002 |
|
| Retained earnings | 595,038 |
| | 290,114 |
| 1,258,794 |
| | 595,038 |
|
| Accumulated other comprehensive loss | (103,568 | ) | | (166,123 | ) | (128,722 | ) | | (103,568 | ) |
| Treasury stock 194,163 and 193,445 shares, respectively | (10,226,721 | ) | | (10,176,600 | ) | |
| Treasury stock 194,708 and 194,163 shares, respectively | | (10,309,612 | ) | | (10,226,721 | ) |
| Total IAC shareholders' equity | 2,430,028 |
| | 1,869,222 |
| 2,843,125 |
| | 2,430,028 |
|
| Noncontrolling interests | 516,795 |
| | 141,448 |
| 708,676 |
| | 516,795 |
|
| Total shareholders' equity | 2,946,823 |
| | 2,010,670 |
| 3,551,801 |
| | 2,946,823 |
|
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 5,867,810 |
| | $ | 4,645,873 |
| $ | 6,874,585 |
| | $ | 5,867,810 |
|
IAC/INTERACTIVECORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
| | | | Years Ended December 31, | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 | 2018 | | 2017 | | 2016 |
| | (In thousands, except per share data) | (In thousands, except per share data) |
| Revenue | $ | 3,307,239 |
| | $ | 3,139,882 |
| | $ | 3,230,933 |
| $ | 4,262,892 |
| | $ | 3,307,239 |
| | $ | 3,139,882 |
|
| Operating costs and expenses: | | | | | | | | | | |
| Cost of revenue (exclusive of depreciation shown separately below) | 651,008 |
| | 755,730 |
| | 778,161 |
| 911,146 |
| | 651,008 |
| | 755,730 |
|
| Selling and marketing expense | 1,381,221 |
| | 1,247,097 |
| | 1,348,293 |
| 1,519,440 |
| | 1,381,221 |
| | 1,247,097 |
|
| General and administrative expense | 719,257 |
| | 530,446 |
| | 512,055 |
| 774,079 |
| | 719,257 |
| | 530,446 |
|
| Product development expense | 250,879 |
| | 212,765 |
| | 196,623 |
| 309,329 |
| | 250,879 |
| | 212,765 |
|
| Depreciation | 74,265 |
| | 71,676 |
| | 62,205 |
| 75,360 |
| | 74,265 |
| | 71,676 |
|
| Amortization of intangibles | 42,143 |
| | 79,426 |
| | 139,952 |
| 108,399 |
| | 42,143 |
| | 79,426 |
|
| Goodwill impairment | — |
| | 275,367 |
| | 14,056 |
| — |
| | — |
| | 275,367 |
|
| Total operating costs and expenses | 3,118,773 |
| | 3,172,507 |
| | 3,051,345 |
| 3,697,753 |
| | 3,118,773 |
| | 3,172,507 |
|
| Operating income (loss) | 188,466 |
| | (32,625 | ) | | 179,588 |
| 565,139 |
| | 188,466 |
| | (32,625 | ) |
| Interest expense | (105,295 | ) | | (109,110 | ) | | (73,636 | ) | (109,327 | ) | | (105,295 | ) | | (109,110 | ) |
| Other (expense) income, net | (16,213 | ) | | 60,650 |
| | 36,938 |
| |
| Other income (expense), net | | 305,746 |
| | (16,213 | ) | | 60,650 |
|
| Earnings (loss) before income taxes | 66,958 |
| | (81,085 | ) | | 142,890 |
| 761,558 |
| | 66,958 |
| | (81,085 | ) |
| Income tax benefit (provision) | 291,050 |
| | 64,934 |
| | (29,516 | ) | |
| Income tax (provision) benefit | | (3,811 | ) | | 291,050 |
| | 64,934 |
|
| Net earnings (loss) | 358,008 |
| | (16,151 | ) | | 113,374 |
| 757,747 |
| | 358,008 |
| | (16,151 | ) |
| Net (earnings) loss attributable to noncontrolling interests | (53,084 | ) | | (25,129 | ) | | 6,098 |
| |
| Net earnings attributable to noncontrolling interests | | (130,786 | ) | | (53,084 | ) | | (25,129 | ) |
| Net earnings (loss) attributable to IAC shareholders | $ | 304,924 |
| | $ | (41,280 | ) | | $ | 119,472 |
| $ | 626,961 |
| | $ | 304,924 |
| | $ | (41,280 | ) |
| | | | | | | | | | | |
| Per share information attributable to IAC shareholders: | | | | | | | | | | |
| Basic earnings (loss) per share | $ | 3.81 |
| | $ | (0.52 | ) | | $ | 1.44 |
| $ | 7.52 |
| | $ | 3.81 |
| | $ | (0.52 | ) |
| Diluted earnings (loss) per share | $ | 3.18 |
| | $ | (0.52 | ) | | $ | 1.33 |
| $ | 6.59 |
| | $ | 3.18 |
| | $ | (0.52 | ) |
| | | | | | | |
| Dividends declared per share | $ | — |
| | $ | — |
| | $ | 1.36 |
| |
| | | | | | | | | | | |
| Stock-based compensation expense by function: | | | | | | | | | | |
| Cost of revenue | $ | 1,881 |
| | $ | 2,305 |
| | $ | 1,210 |
| $ | 2,482 |
| | $ | 1,881 |
| | $ | 2,305 |
|
| Selling and marketing expense | 31,318 |
| | 6,000 |
| | 10,186 |
| 7,943 |
| | 31,318 |
| | 6,000 |
|
| General and administrative expense | 192,957 |
| | 77,151 |
| | 82,798 |
| 188,510 |
| | 192,957 |
| | 77,151 |
|
| Product development expense | 38,462 |
| | 19,364 |
| | 11,256 |
| 39,485 |
| | 38,462 |
| | 19,364 |
|
| Total stock-based compensation expense | $ | 264,618 |
| | $ | 104,820 |
| | $ | 105,450 |
| $ | 238,420 |
| | $ | 264,618 |
| | $ | 104,820 |
|
IAC/INTERACTIVECORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE OPERATIONS
| | | | Years Ended December 31, | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 | 2018 | | 2017 | | 2016 |
| | (In thousands) | (In thousands) |
| Net earnings (loss) | $ | 358,008 |
| | $ | (16,151 | ) | | $ | 113,374 |
| $ | 757,747 |
| | $ | 358,008 |
| | $ | (16,151 | ) |
| Other comprehensive income (loss), net of tax: | | | | | | |
| Other comprehensive (loss) income, net of tax: | | | | | | |
| Change in foreign currency translation adjustment | 80,269 |
| | (43,126 | ) | | (68,844 | ) | (31,411 | ) | | 80,269 |
| | (43,126 | ) |
| Change in unrealized gains and losses of available-for-sale securities (net of tax benefits of $3,846 and $884 in 2017 and 2016, respectively, and tax provision of $576 in 2015) | (4,026 | ) | | 1,484 |
| | 3,140 |
| |
| Total other comprehensive income (loss) | 76,243 |
| | (41,642 | ) | | (65,704 | ) | |
| Change in unrealized gains and losses on available-for-sale securities (net of tax benefit of $3,846 and $884 in 2017 and 2016, respectively) | | 5 |
| | (4,026 | ) | | 1,484 |
|
| Total other comprehensive (loss) income | | (31,406 | ) | | 76,243 |
| | (41,642 | ) |
| Comprehensive income (loss), net of tax | 434,251 |
| | (57,793 | ) | | 47,670 |
| 726,341 |
| | 434,251 |
| | (57,793 | ) |
| Components of comprehensive (income) loss attributable to noncontrolling interests: | | | | | | | | | | |
| Net (earnings) loss attributable to noncontrolling interests | (53,084 | ) | | (25,129 | ) | | 6,098 |
| |
| Net earnings attributable to noncontrolling interests | | (130,786 | ) | | (53,084 | ) | | (25,129 | ) |
| Change in foreign currency translation adjustment attributable to noncontrolling interests | (13,797 | ) | | 6,033 |
| | 1,047 |
| 6,129 |
| | (13,797 | ) | | 6,033 |
|
| Change in unrealized gain and losses of available-for-sale securities attributable to noncontrolling interests | — |
| | 458 |
| | 254 |
| (1 | ) | | — |
| | 458 |
|
| Comprehensive (income) loss attributable to noncontrolling interests | (66,881 | ) | | (18,638 | ) | | 7,399 |
| |
| Comprehensive income attributable to noncontrolling interests | | (124,658 | ) | | (66,881 | ) | | (18,638 | ) |
| Comprehensive income (loss) attributable to IAC shareholders | $ | 367,370 |
| | $ | (76,431 | ) | | $ | 55,069 |
| $ | 601,683 |
| | $ | 367,370 |
| | $ | (76,431 | ) |
IAC/INTERACTIVECORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Years Ended December 31, 2018, 2017 2016 and 20152016
| | | | | | | IAC Shareholders' Equity | | | | | | | | IAC Shareholders' Equity | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Common Stock $.001 Par Value | | Class B Convertible Common Stock $.001 Par Value | | Additional Paid-in Capital | | | | Accumulated Other Comprehensive (Loss) Income | | Treasury Stock | | | | | | | | | | Common Stock $.001 Par Value | | Class B Convertible Common Stock $.001 Par Value | | Additional Paid-in Capital | | | | Accumulated Other Comprehensive (Loss) Income | | Treasury Stock | | | | | | |
| | Redeemable Noncontrolling Interests | | | $ | | Shares | | $ | | Shares | | Retained Earnings | | Total IAC Shareholders' Equity | | Noncontrolling Interests | | Total Shareholders' Equity | Redeemable Noncontrolling Interests | | | $ | | Shares | | $ | | Shares | | Retained Earnings | | Total IAC Shareholders' Equity | | Noncontrolling Interests | | Total Shareholders' Equity |
| | | | | (In thousands) | | | | (In thousands) |
| Balance as of December 31, 2014 | $ | 40,427 |
| | | $ | 252 |
| | 252,170 |
| | $ | 16 |
| | 16,157 |
| | $ | 11,415,617 |
| | $ | 325,118 |
| | $ | (87,700 | ) | | $ | (9,661,350 | ) | | $ | 1,991,953 |
| | $ | 1,189 |
| | $ | 1,993,142 |
| |
| Net (loss) earnings | (7,737 | ) | | | — |
| | — |
| | — |
| | — |
| | — |
| | 119,472 |
| | — |
| | — |
| | 119,472 |
| | 1,639 |
| | 121,111 |
| |
| Other comprehensive loss, net of tax | (1,301 | ) | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (64,403 | ) | | — |
| | (64,403 | ) | | — |
| | (64,403 | ) | |
| Stock-based compensation expense | 6,725 |
| | | — |
| | — |
| | — |
| | — |
| | 87,685 |
| | — |
| | — |
| | — |
| | 87,685 |
| | 4,808 |
| | 92,493 |
| |
| Issuance of common stock pursuant to stock-based awards, net of withholding taxes | — |
| | | 2 |
| | 1,845 |
| | — |
| | — |
| | (37,733 | ) | | — |
| | — |
| | — |
| | (37,731 | ) | | — |
| | (37,731 | ) | |
| Income tax benefit related to stock-based awards | — |
| | | — |
| | — |
| | — |
| | — |
| | 44,577 |
| | — |
| | — |
| | — |
| | 44,577 |
| | — |
| | 44,577 |
| |
| Dividends | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | (113,196 | ) | | — |
| | — |
| | (113,196 | ) | | — |
| | (113,196 | ) | |
| Purchase of treasury stock | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (200,000 | ) | | (200,000 | ) | | — |
| | (200,000 | ) | |
| Purchase of redeemable noncontrolling interests | (32,207 | ) | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
| Adjustment of redeemable noncontrolling interests to fair value | 23,155 |
| | | — |
| | — |
| | — |
| | — |
| | (23,155 | ) | | — |
| | — |
| | — |
| | (23,155 | ) | | — |
| | (23,155 | ) | |
| Noncontrolling interests related to Match Group IPO, net of fees and expenses | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 428,283 |
| | 428,283 |
| |
| Purchase of Match Group stock-based awards | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (23,431 | ) | | (23,431 | ) | |
| Transfer from noncontrolling interests to redeemable noncontrolling interests | 1,189 |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1,189 | ) | | (1,189 | ) | |
| Other | 140 |
| | | — |
| | — |
| | — |
| | — |
| | (676 | ) | | — |
| | — |
| | — |
| | (676 | ) | | — |
| | (676 | ) | |
| Balance as of December 31, 2015 | $ | 30,391 |
| | | $ | 254 |
| | 254,015 |
| | $ | 16 |
| | 16,157 |
| | $ | 11,486,315 |
| | $ | 331,394 |
| | $ | (152,103 | ) | | $ | (9,861,350 | ) | | $ | 1,804,526 |
| | $ | 411,299 |
| | $ | 2,215,825 |
| $ | 30,391 |
| | | $ | 254 |
| | 254,015 |
| | $ | 16 |
| | 16,157 |
| | $ | 11,486,315 |
| | $ | 331,394 |
| | $ | (152,103 | ) | | $ | (9,861,350 | ) | | $ | 1,804,526 |
| | $ | 411,299 |
| | $ | 2,215,825 |
|
| Net (loss) earnings | (3,849 | ) | | | — |
| | — |
| | — |
| | — |
| | — |
| | (41,280 | ) | | — |
| | — |
| | (41,280 | ) | | 28,978 |
| | (12,302 | ) | (3,849 | ) | | | — |
| | — |
| | — |
| | — |
| | — |
| | (41,280 | ) | | — |
| | — |
| | (41,280 | ) | | 28,978 |
| | (12,302 | ) |
| Other comprehensive income (loss), net of tax | 385 |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (35,151 | ) | | — |
| | (35,151 | ) | | (6,876 | ) | | (42,027 | ) | 385 |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (35,151 | ) | | — |
| | (35,151 | ) | | (6,876 | ) | | (42,027 | ) |
| Stock-based compensation expense | 1,632 |
| | | — |
| | — |
| | — |
| | — |
| | 50,201 |
| | — |
| | — |
| | — |
| | 50,201 |
| | 44,523 |
| | 94,724 |
| 1,632 |
| | | — |
| | — |
| | — |
| | — |
| | 50,201 |
| | — |
| | — |
| | — |
| | 50,201 |
| | 44,523 |
| | 94,724 |
|
| Issuance of common stock pursuant to stock-based awards, net of withholding taxes | — |
| | | 2 |
| | 1,657 |
| | — |
| | — |
| | (772 | ) | | — |
| | — |
| | — |
| | (770 | ) | | — |
| | (770 | ) | — |
| | | 2 |
| | 1,657 |
| | — |
| | — |
| | (772 | ) | | — |
| | — |
| | — |
| | (770 | ) | | — |
| | (770 | ) |
| Income tax benefit related to stock-based awards | — |
| | | — |
| | — |
| | — |
| | — |
| | 49,406 |
| | — |
| | — |
| | — |
| | 49,406 |
| | — |
| | 49,406 |
| — |
| | | — |
| | — |
| | — |
| | — |
| | 49,406 |
| | — |
| | — |
| | — |
| | 49,406 |
| | — |
| | 49,406 |
|
| Purchase of treasury stock | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (315,250 | ) | | (315,250 | ) | | — |
| | (315,250 | ) | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (315,250 | ) | | (315,250 | ) | | — |
| | (315,250 | ) |
| Purchase of redeemable noncontrolling interests | (2,529 | ) | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| (2,529 | ) | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Adjustment of redeemable noncontrolling interests to fair value | 7,921 |
| | | — |
| | — |
| | — |
| | — |
| | (7,560 | ) | | — |
| | — |
| | — |
| | (7,560 | ) | | — |
| | (7,560 | ) | 7,921 |
| | | — |
| | — |
| | — |
| | — |
| | (7,560 | ) | | — |
| | — |
| | — |
| | (7,560 | ) | | — |
| | (7,560 | ) |
| Purchase of noncontrolling interests | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (211 | ) | | (211 | ) | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (211 | ) | | (211 | ) |
| Issuance of Match Group common stock pursuant to stock-based awards, net of withholding taxes | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 10,224 |
| | 10,224 |
| — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 10,224 |
| | 10,224 |
|
| Reallocation of shareholders' equity balances related to the noncontrolling interests created in the Match Group IPO | — |
| | | — |
| | — |
| | — |
| | — |
| | 342,507 |
| | — |
| | 21,131 |
| | — |
| | 363,638 |
| | (363,638 | ) | | — |
| — |
| | | — |
| | — |
| | — |
| | — |
| | 342,507 |
| | — |
| | 21,131 |
| | — |
| | 363,638 |
| | (363,638 | ) | | — |
|
| Changes in noncontrolling interests of Match Group due to the issuance of its common stock | — |
| | | — |
| | — |
| | — |
| | — |
| | (7,691 | ) | | — |
| | — |
| | — |
| | (7,691 | ) | | 7,691 |
| | — |
| — |
| | | — |
| | — |
| | — |
| | — |
| | (7,691 | ) | | — |
| | — |
| | — |
| | (7,691 | ) | | 7,691 |
| | — |
|
| Noncontrolling interests created in an acquisition | | — |
| | | — |
| | — |
| | — |
| | — |
| | 12,222 |
| | — |
| | — |
| | — |
| | 12,222 |
| | 9,811 |
| | 22,033 |
|
| Other | | (1,124 | ) | | | — |
| | — |
| | — |
| | — |
| | (3,069 | ) | | — |
| | — |
| | — |
| | (3,069 | ) | | (353 | ) | | (3,422 | ) |
| Balance as of December 31, 2016 | | $ | 32,827 |
| | | $ | 256 |
| | 255,672 |
| | $ | 16 |
| | 16,157 |
| | $ | 11,921,559 |
| | $ | 290,114 |
| | $ | (166,123 | ) | | $ | (10,176,600 | ) | | $ | 1,869,222 |
| | $ | 141,448 |
| | $ | 2,010,670 |
|
| Net earnings | | 3,620 |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | 304,924 |
| | — |
| | — |
| | 304,924 |
| | 49,464 |
| | 354,388 |
|
| Other comprehensive income, net of tax | | 1,291 |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 62,446 |
| | — |
| | 62,446 |
| | 12,506 |
| | 74,952 |
|
| Stock-based compensation expense | | 2,017 |
| | | — |
| | — |
| | — |
| | — |
| | 66,333 |
| | — |
| | — |
| | — |
| | 66,333 |
| | 180,055 |
| | 246,388 |
|
| Issuance of common stock pursuant to stock-based awards, net of withholding taxes | | — |
| | | 5 |
| | 4,952 |
| | — |
| | — |
| | (10,509 | ) | | — |
| | — |
| | — |
| | (10,504 | ) | | — |
| | (10,504 | ) |
| Purchase of treasury stock | | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (50,121 | ) | | (50,121 | ) | | — |
| | (50,121 | ) |
| Purchase of redeemable noncontrolling interests | | (14,641 | ) | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Purchase of noncontrolling interests | | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (848 | ) | | (848 | ) |
| Adjustment of redeemable noncontrolling interests to fair value | | 6,341 |
| | | — |
| | — |
| | — |
| | — |
| | (6,341 | ) | | — |
| | — |
| | — |
| | (6,341 | ) | | — |
| | (6,341 | ) |
| Issuance of Match Group common stock pursuant to stock-based awards, net of withholding taxes, and impact to noncontrolling interests in Match Group | | — |
| | | — |
| | — |
| | — |
| | — |
| | (460,890 | ) | | — |
| | 116 |
| | — |
| | (460,774 | ) | | (3,435 | ) | | (464,209 | ) |
| Acquisition of Angie's List and creation of noncontrolling interests in ANGI Homeservices | | — |
| | | — |
| | — |
| | — |
| | — |
| | 645,475 |
| | — |
| | — |
| | — |
| | 645,475 |
| | 133,996 |
| | 779,471 |
|
| Noncontrolling interests created in acquisitions | | 17,758 |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
IAC/INTERACTIVECORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Continued)
Years Ended December 31, 2018, 2017 2016 and 20152016
| | | | | | | IAC Shareholders' Equity | | | | | | | | IAC Shareholders' Equity | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Common Stock $.001 Par Value | | Class B Convertible Common Stock $.001 Par Value | | Additional Paid-in Capital | | | | Accumulated Other Comprehensive (Loss) Income | | Treasury Stock | | | | | | | | | | Common Stock $.001 Par Value | | Class B Convertible Common Stock $.001 Par Value | | Additional Paid-in Capital | | | | Accumulated Other Comprehensive (Loss) Income | | Treasury Stock | | | | | | |
| | Redeemable Noncontrolling Interests | | | $ | | Shares | | $ | | Shares | | Retained Earnings | | Total IAC Shareholders' Equity | | Noncontrolling Interests | | Total Shareholders' Equity | Redeemable Noncontrolling Interests | | | $ | | Shares | | $ | | Shares | | Retained Earnings | | Total IAC Shareholders' Equity | | Noncontrolling Interests | | Total Shareholders' Equity |
| | | | | (In thousands) | | | | (In thousands) |
| Noncontrolling interests created in an acquisition | — |
| | | — |
| | — |
| | — |
| | — |
| | 12,222 |
| | — |
| | — |
| | — |
| | 12,222 |
| | 9,811 |
| | 22,033 |
| |
| Issuance of ANGI Homeservices common stock pursuant to stock-based awards, net of withholding taxes, and impact to noncontrolling interests in ANGI Homeservices | | — |
| | | — |
| | — |
| | — |
| | — |
| | (11,216 | ) | | — |
| | (7 | ) | | — |
| | (11,223 | ) | | 2,730 |
| | (8,493 | ) |
| Purchase of exchangeable note hedge | | — |
| | | — |
| | — |
| | — |
| | — |
| | (74,365 | ) | | — |
| | — |
| | — |
| | (74,365 | ) | | — |
| | (74,365 | ) |
| Equity component of exchangeable debt issuance, net of deferred financing costs and deferred tax asset | | — |
| | | — |
| | — |
| | — |
| | — |
| | 71,158 |
| | — |
| | — |
| | — |
| | 71,158 |
| | — |
| | 71,158 |
|
| Issuance of warrants | | — |
| | | — |
| | — |
| | — |
| | — |
| | 23,650 |
| | — |
| | — |
| | — |
| | 23,650 |
| | — |
| | 23,650 |
|
| Other | (1,124 | ) | | | — |
| | — |
| | — |
| | — |
| | (3,069 | ) | | — |
| | — |
| | — |
| | (3,069 | ) | | (353 | ) | | (3,422 | ) | (6,346 | ) | | | — |
| | — |
| | — |
| | — |
| | 148 |
| | — |
| | — |
| | — |
| | 148 |
| | 879 |
| | 1,027 |
|
| Balance as of December 31, 2016 | $ | 32,827 |
| | | $ | 256 |
| | 255,672 |
| | $ | 16 |
| | 16,157 |
| | $ | 11,921,559 |
| | $ | 290,114 |
| | $ | (166,123 | ) | | $ | (10,176,600 | ) | | $ | 1,869,222 |
| | $ | 141,448 |
| | $ | 2,010,670 |
| |
| Balance at December 31, 2017 | | $ | 42,867 |
| | | $ | 261 |
| | 260,624 |
| | $ | 16 |
| | 16,157 |
| | $ | 12,165,002 |
| | $ | 595,038 |
| | $ | (103,568 | ) | | $ | (10,226,721 | ) | | $ | 2,430,028 |
| | $ | 516,795 |
| | $ | 2,946,823 |
|
| Cumulative effect of adoption of ASU No. 2014-09 | | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | 36,795 |
| | — |
| | — |
| | 36,795 |
| | 3,410 |
| | 40,205 |
|
| Net earnings | 3,620 |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | 304,924 |
| | — |
| | — |
| | 304,924 |
| | 49,464 |
| | 354,388 |
| 33,897 |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | 626,961 |
| | — |
| | — |
| | 626,961 |
| | 96,889 |
| | 723,850 |
|
| Other comprehensive income, net of tax | 1,291 |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 62,446 |
| | — |
| | 62,446 |
| | 12,506 |
| | 74,952 |
| |
| Other comprehensive loss, net of tax | | (702 | ) | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (25,278 | ) | | — |
| | (25,278 | ) | | (5,426 | ) | | (30,704 | ) |
| Stock-based compensation expense | 2,017 |
| | | — |
| | — |
| | — |
| | — |
| | 66,333 |
| | — |
| | — |
| | — |
| | 66,333 |
| | 180,055 |
| | 246,388 |
| 1,138 |
| | | — |
| | — |
| | — |
| | — |
| | 75,311 |
| | — |
| | — |
| | — |
| | 75,311 |
| | 161,971 |
| | 237,282 |
|
| Issuance of common stock pursuant to stock-based awards, net of withholding taxes | — |
| | | 5 |
| | 4,952 |
| | — |
| | — |
| | (10,509 | ) | | — |
| | — |
| | — |
| | (10,504 | ) | | — |
| | (10,504 | ) | — |
| | | 1 |
| | 1,679 |
| | — |
| | — |
| | 21,785 |
| | — |
| | — |
| | — |
| | 21,786 |
| | — |
| | 21,786 |
|
| Purchase of treasury stock | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (50,121 | ) | | (50,121 | ) | | — |
| | (50,121 | ) | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (82,891 | ) | | (82,891 | ) | | — |
| | (82,891 | ) |
| Purchase of redeemable noncontrolling interests | (14,641 | ) | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
| Purchase of noncontrolling interests | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (848 | ) | | (848 | ) | (8,350 | ) | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (9,364 | ) | | (9,364 | ) |
| Adjustment of redeemable noncontrolling interests to fair value | 6,341 |
| | | — |
| | — |
| | — |
| | — |
| | (6,341 | ) | | — |
| | — |
| | — |
| | (6,341 | ) | | — |
| | (6,341 | ) | 4,098 |
| | | — |
| | — |
| | — |
| | — |
| | (4,098 | ) | | — |
| | — |
| | — |
| | (4,098 | ) | | — |
| | (4,098 | ) |
| Issuance of Match Group common stock pursuant to stock-based awards, net of withholding taxes, and impact to noncontrolling interests in Match Group | — |
| | | — |
| | — |
| | — |
| | — |
| | (460,890 | ) | | — |
| | 116 |
| | — |
| | (460,774 | ) | | (3,435 | ) | | (464,209 | ) | — |
| | | — |
| | — |
| | — |
| | — |
| | (342,592 | ) | | — |
| | 135 |
| | — |
| | (342,457 | ) | | 1,057 |
| | (341,400 | ) |
| Acquisition of Angie's List and creation of noncontrolling interests in ANGI Homeservices | — |
| | | — |
| | — |
| | — |
| | — |
| | 645,475 |
| | — |
| | — |
| | — |
| | 645,475 |
| | 133,996 |
| | 779,471 |
| |
| Issuance of ANGI Homeservices common stock pursuant to an acquisition, stock-based awards, net of withholding taxes, and impact to noncontrolling interests in ANGI Homeservices | | — |
| | | — |
| | — |
| | — |
| | — |
| | 106,215 |
| | — |
| | (11 | ) | | — |
| | 106,204 |
| | 34,502 |
| | 140,706 |
|
| Dividends paid to Match Group noncontrolling interests | | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (105,126 | ) | | (105,126 | ) |
| Noncontrolling interests created in acquisitions | 17,758 |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| 2,261 |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 14,307 |
| | 14,307 |
|
| Issuance of ANGI Homeservices common stock pursuant to stock-based awards, net of withholding taxes, and impact to noncontrolling interests in ANGI Homeservices | — |
| | | — |
| | — |
| | — |
| | — |
| | (11,216 | ) | | — |
| | (7 | ) | | — |
| | (11,223 | ) | | 2,730 |
| | (8,493 | ) | |
| Purchase of exchangeable note hedge | — |
| | | — |
| | — |
| | — |
| | — |
| | (74,365 | ) | | — |
| | — |
| | — |
| | (74,365 | ) | | — |
| | (74,365 | ) | |
| Equity component of Exchangeable Notes, net of deferred financing costs and deferred tax asset | — |
| | | — |
| | — |
| | — |
| | — |
| | 71,158 |
| | — |
| | — |
| | — |
| | 71,158 |
| | — |
| | 71,158 |
| |
| Issuance of warrants | — |
| | | — |
| | — |
| | — |
| | — |
| | 23,650 |
| | — |
| | — |
| | — |
| | 23,650 |
| | — |
| | 23,650 |
| |
| Other | (6,346 | ) | | | — |
| | — |
| | — |
| | — |
| | 148 |
| | — |
| | — |
| | — |
| | 148 |
| | 879 |
| | 1,027 |
| (9,522 | ) | | | — |
| | — |
| | — |
| | — |
| | 764 |
| | — |
| | — |
| | — |
| | 764 |
| | (339 | ) | | 425 |
|
| Balance at December 31, 2017 | $ | 42,867 |
| | | $ | 261 |
| | 260,624 |
| | $ | 16 |
| | 16,157 |
| | $ | 12,165,002 |
| | $ | 595,038 |
| | $ | (103,568 | ) | | $ | (10,226,721 | ) | | $ | 2,430,028 |
| | $ | 516,795 |
| | $ | 2,946,823 |
| |
| Balance at December 31, 2018 | | $ | 65,687 |
| | | $ | 262 |
| | 262,303 |
| | $ | 16 |
| | 16,157 |
| | $ | 12,022,387 |
| | $ | 1,258,794 |
| | $ | (128,722 | ) | | $ | (10,309,612 | ) | | $ | 2,843,125 |
| | $ | 708,676 |
| | $ | 3,551,801 |
|
IAC/INTERACTIVECORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (In thousands) |
| Cash flows from operating activities: | | | | | |
| Net earnings (loss) | $ | 358,008 |
| | $ | (16,151 | ) | | $ | 113,374 |
|
| Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: | | | | | |
| Stock-based compensation expense | 264,618 |
| | 104,820 |
| | 105,450 |
|
| Depreciation | 74,265 |
| | 71,676 |
| | 62,205 |
|
| Amortization of intangibles | 42,143 |
| | 79,426 |
| | 139,952 |
|
| Goodwill impairment | — |
| | 275,367 |
| | 14,056 |
|
| Deferred income taxes | (285,278 | ) | | (119,181 | ) | | (59,786 | ) |
| Acquisition-related contingent consideration fair value adjustments | 5,801 |
| | 2,555 |
| | (15,461 | ) |
| Gain from the sale of businesses and investments, net | (32,673 | ) | | (50,965 | ) | | (1,005 | ) |
| Impairment of long-term investments | 12,214 |
| | 10,680 |
| | 6,689 |
|
| Acquisition-related contingent consideration payment | (11,140 | ) | | — |
| | — |
|
| Bad debt expense | 28,930 |
| | 17,733 |
| | 16,648 |
|
| Gain on real estate transaction | — |
| | — |
| | (34,341 | ) |
| Other adjustments, net | 43,633 |
| | (12,639 | ) | | 8,907 |
|
| Changes in assets and liabilities, net of effects of acquisitions and dispositions: | | | | | |
| Accounts receivable | (115,169 | ) | | 1,283 |
| | (29,680 | ) |
| Other assets | 5,671 |
| | (12,905 | ) | | (21,174 | ) |
| Accounts payable and other current liabilities | (14,142 | ) | | (52,359 | ) | | 8,756 |
|
| Income taxes payable and receivable | 655 |
| | 8,998 |
| | 24,167 |
|
| Deferred revenue | 39,154 |
| | 35,803 |
| | 66,914 |
|
| Net cash provided by operating activities | 416,690 |
| | 344,141 |
| | 405,671 |
|
| Cash flows from investing activities: | | | | | |
| Acquisitions, net of cash acquired | (149,094 | ) | | (18,403 | ) | | (617,402 | ) |
| Capital expenditures | (75,523 | ) | | (78,039 | ) | | (62,049 | ) |
| Investments in time deposits | — |
| | (87,500 | ) | | — |
|
| Proceeds from maturities of time deposits | — |
| | 87,500 |
| | — |
|
| Proceeds from maturities and sales of marketable debt securities | 114,350 |
| | 252,369 |
| | 218,462 |
|
| Purchases of marketable debt securities | (29,891 | ) | | (313,943 | ) | | (93,134 | ) |
| Purchases of investments | (9,106 | ) | | (12,565 | ) | | (34,470 | ) |
| Net proceeds from the sale of businesses and investments | 185,778 |
| | 172,228 |
| | 9,413 |
|
| Other, net | 2,994 |
| | 11,215 |
| | (3,541 | ) |
| Net cash provided by (used in) investing activities | 39,508 |
| | 12,862 |
| | (582,721 | ) |
| Cash flows from financing activities: | | | | | |
| Proceeds from issuance of IAC debt | 517,500 |
| | — |
| | — |
|
| Principal payments on IAC debt | (393,464 | ) | | (126,409 | ) | | (80,000 | ) |
| Proceeds from issuance of Match Group debt | 525,000 |
| | 400,000 |
| | 788,000 |
|
| Principal payments on Match Group debt | (445,172 | ) | | (450,000 | ) | | — |
|
| Borrowing under ANGI Homeservices Term Loan | 275,000 |
| | — |
| | — |
|
| Purchase of exchangeable note hedge | (74,365 | ) | | — |
| | — |
|
| Proceeds from issuance of warrants | 23,650 |
| | — |
| | — |
|
| Debt issuance costs | (33,744 | ) | | (7,811 | ) | | (19,050 | ) |
| Fees and expenses related to note exchange | — |
| | — |
| | (6,954 | ) |
| Proceeds from Match Group initial public offering, net of fees and expenses | — |
| | — |
| | 428,789 |
|
| Purchase of IAC treasury stock | (56,424 | ) | | (308,948 | ) | | (200,000 | ) |
| Dividends | — |
| | — |
| | (113,196 | ) |
Proceeds from the exercise of IAC stock options
| 82,397 |
| | 25,821 |
| | 27,325 |
|
Withholding taxes paid on behalf of IAC employees on net settled stock-based awards
| (93,832 | ) | | (26,716 | ) | | (65,743 | ) |
Proceeds from the exercise of Match Group stock options
| 59,442 |
| | 39,378 |
| | — |
|
| Withholding taxes paid on behalf of Match Group employees on net settled stock-based awards | (254,210 | ) | | (29,830 | ) | | — |
|
Proceeds from the exercise of ANGI Homeservices stock options
| 1,653 |
| | — |
| | — |
|
Withholding taxes paid on behalf of ANGI Homeservices employees on net settled stock-based awards
| (10,113 | ) | | — |
| | — |
|
| Purchase of Match Group stock-based awards | (272,459 | ) | | — |
| | (23,431 | ) |
| Purchase of noncontrolling interests | (15,439 | ) | | (2,740 | ) | | (32,207 | ) |
| Acquisition-related contingent consideration payments | (27,289 | ) | | (2,180 | ) | | (5,750 | ) |
| Funds returned from (held in) escrow for MyHammer tender offer | 10,604 |
| | (10,548 | ) | | — |
|
| Decrease (increase) in restricted cash related to bond redemptions | 20,141 |
| | (141 | ) | | (20,000 | ) |
| Other, net | (5,000 | ) | | (2,705 | ) | | 607 |
|
| Net cash (used in) provided by financing activities | (166,124 | ) | | (502,829 | ) | | 678,390 |
|
| Total cash provided (used) | 290,074 |
| | (145,826 | ) | | 501,340 |
|
| Effect of exchange rate changes on cash and cash equivalents | 11,548 |
| | (6,434 | ) | | (10,298 | ) |
| Net increase (decrease) in cash and cash equivalents | 301,622 |
| | (152,260 | ) | | 491,042 |
|
| Cash and cash equivalents at beginning of period | 1,329,187 |
| | 1,481,447 |
| | 990,405 |
|
| Cash and cash equivalents at end of period | $ | 1,630,809 |
| | $ | 1,329,187 |
| | $ | 1,481,447 |
|
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | (In thousands) |
| Cash flows from operating activities: | | | | | |
| Net earnings (loss) | $ | 757,747 |
| | $ | 358,008 |
| | $ | (16,151 | ) |
| Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: | | | | | |
| Stock-based compensation expense | 238,420 |
| | 264,618 |
| | 104,820 |
|
| Amortization of intangibles | 108,399 |
| | 42,143 |
| | 79,426 |
|
| Depreciation | 75,360 |
| | 74,265 |
| | 71,676 |
|
| Bad debt expense | 48,445 |
| | 28,930 |
| | 17,733 |
|
| Goodwill impairment | — |
| | — |
| | 275,367 |
|
| Deferred income taxes | (34,679 | ) | | (285,278 | ) | | (119,181 | ) |
| Unrealized gains on equity securities, net | (124,170 | ) | | — |
| | — |
|
| Gains from the sale of businesses and investments, net | (147,829 | ) | | (32,673 | ) | | (50,965 | ) |
| Other adjustments, net | 15,763 |
| | 61,647 |
| | 596 |
|
| Changes in assets and liabilities, net of effects of acquisitions and dispositions: | | | | | |
| Accounts receivable | (34,828 | ) | | (115,169 | ) | | 1,283 |
|
| Other assets | (44,557 | ) | | 5,688 |
| | (12,808 | ) |
| Accounts payable and other liabilities | 53,555 |
| | (25,289 | ) | | (52,359 | ) |
| Income taxes payable and receivable | 27,034 |
| | 655 |
| | 8,998 |
|
| Deferred revenue | 49,468 |
| | 39,154 |
| | 35,803 |
|
| Net cash provided by operating activities | 988,128 |
| | 416,699 |
| | 344,238 |
|
| Cash flows from investing activities: | | | | | |
| Acquisitions, net of cash acquired | (64,496 | ) | | (146,553 | ) | | (18,403 | ) |
| Capital expenditures | (85,634 | ) | | (75,523 | ) | | (78,039 | ) |
| Proceeds from maturities and sales of marketable debt securities | 333,600 |
| | 114,350 |
| | 252,369 |
|
| Purchases of marketable debt securities | (449,676 | ) | | (29,891 | ) | | (313,943 | ) |
| Investments in time deposits | — |
| | — |
| | (87,500 | ) |
| Proceeds from maturities of time deposits | — |
| | — |
| | 87,500 |
|
| Net proceeds from the sale of businesses and investments | 136,719 |
| | 185,778 |
| | 172,228 |
|
| Purchases of investments | (52,980 | ) | | (9,106 | ) | | (12,565 | ) |
| Other, net | 9,027 |
| | 2,994 |
| | 11,215 |
|
| Net cash (used in) provided by investing activities | (173,440 | ) | | 42,049 |
| | 12,862 |
|
| Cash flows from financing activities: | | | | | |
| Proceeds from issuance of IAC debt | — |
| | 517,500 |
| | — |
|
| Repurchases of IAC debt | (363 | ) | | (393,464 | ) | | (126,409 | ) |
| Proceeds from issuance of Match Group debt | 260,000 |
| | 525,000 |
| | 400,000 |
|
| Principal payments on Match Group debt | — |
| | (445,172 | ) | | (450,000 | ) |
| Borrowing under ANGI Homeservices Term Loan | — |
| | 275,000 |
| | — |
|
| Principal payments on ANGI Homeservices Term Loan | (13,750 | ) | | — |
| | — |
|
| Purchase of exchangeable note hedge | — |
| | (74,365 | ) | | — |
|
| Proceeds from issuance of warrants | — |
| | 23,650 |
| | — |
|
| Debt issuance costs | (5,449 | ) | | (33,744 | ) | | (7,811 | ) |
| Purchase of IAC treasury stock | (82,891 | ) | | (56,424 | ) | | (308,948 | ) |
| Purchase of Match Group treasury stock | (133,455 | ) | | — |
| | — |
|
Proceeds from the exercise of IAC stock options
| 41,700 |
| | 82,397 |
| | 25,821 |
|
| Proceeds from the exercise of Match Group and ANGI Homeservices stock options | 4,705 |
| | 61,095 |
| | 39,378 |
|
Withholding taxes paid on behalf of IAC employees on net settled stock-based awards
| (18,982 | ) | | (93,832 | ) | | (26,716 | ) |
| Withholding taxes paid on behalf of Match Group and ANGI Homeservices employees on net settled stock-based awards | (237,564 | ) | | (264,323 | ) | | (29,830 | ) |
Purchase of Match Group stock-based awards
| — |
| | (272,459 | ) | | — |
|
| Dividends paid to Match Group noncontrolling interests | (105,126 | ) | | — |
| | — |
|
| Purchase of noncontrolling interests | (16,063 | ) | | (15,439 | ) | | (2,740 | ) |
| Acquisition-related contingent consideration payments | (185 | ) | | (27,289 | ) | | (2,180 | ) |
| Other, net | (5,375 | ) | | (5,000 | ) | | (2,705 | ) |
| Net cash used in financing activities | (312,798 | ) | | (196,869 | ) | | (492,140 | ) |
| Total cash provided (used) | 501,890 |
| | 261,879 |
| | (135,040 | ) |
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | (1,887 | ) | | 11,604 |
| | (6,434 | ) |
| Net increase (decrease) in cash, cash equivalents, and restricted cash | 500,003 |
| | 273,483 |
| | (141,474 | ) |
| Cash, cash equivalents, and restricted cash at beginning of period | 1,633,682 |
| | 1,360,199 |
| | 1,501,673 |
|
| Cash, cash equivalents, and restricted cash at end of period | $ | 2,133,685 |
| | $ | 1,633,682 |
| | $ | 1,360,199 |
|
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1—ORGANIZATION
IAC is a leading media and Internet company composedhas majority ownership of widely known consumer brands, such asboth Match Group, which includes Tinder, Match, PlentyOfFish and OkCupid, which are part of Match Group's online dating portfolio, HomeAdvisor and Angie's List, which are operated by ANGI Homeservices, as well aswhich includes HomeAdvisor, Angie’s List and Handy, and also operates Vimeo, Dotdash Dictionary.com,and The Daily Beast, and Investopedia.among many other online businesses.
All references toAs used herein, "IAC," the "Company," "we," "our" or "us" in this report areand similar terms refer to IAC/InterActiveCorp.InterActiveCorp and its subsidiaries (unless the context requires otherwise).
TheDuring the fourth quarter of 2018, the Company has sixrealigned its reportable segments as follows:
the Match Group, ANGI Homeservices and Applications segments remain unchanged;
Vimeo is now reported as its own segment (it was previously included in the Video segment, which has been eliminated);
Dotdash is now reported as its own segment (it was previously included in the Publishing segment, which has been eliminated); and
the Company's Other segment has been renamed, Emerging & Other, and the businesses previously included in the Video segment (other than Vimeo) and the Publishing segment (other than Dotdash) are described below.now included in the Emerging & Other segment.
Match Group
Our Match Group segment consists of the businesses and operations of Match Group, Inc. (“("Match Group”Group" or "MTCH").
Match GroupMTCH completed its initial public offering ("IPO") on November 24, 2015. As ofAt December 31, 2017,2018, IAC’s economic and voting interest in Match GroupMTCH were 81.2%81.1% and 97.6%, respectively.
Through Match Group,MTCH is a leading provider of dating products available in over 40 languages to our users all over the world through applications and websites that we operate a dating business that consists ofown and operate. MTCH operates a portfolio of dating brands, available in 42 languages across more than 190 countries, including the following key brands: Tinder, Match, PlentyOfFish, Meetic, OkCupid, OurTime, Pairs and Hinge, as well as a number of other brands.
brands, each designed to increase users likelihood of finding a meaningful connection. Through theour portfolio of trusted brands, within Match Group, we are a leading providerprovide tailored products to meet the varying preferences of subscription dating products servicing North America, Western Europe, Asia and many other regions around the world. We provide these services through websites and applications that we own and operate.our users.
ANGI Homeservices
Our ANGI Homeservices segment includes the North AmericaAmerican (United States and Canada) and European businesses and operations of ANGI Homeservices Inc. ("ANGI"). On September 29, 2017, the Company completed the combination (the "Combination") of the businesses in the Company's HomeAdvisor segmentbusiness and Angie's List Inc. ("Angie's List") combined under a new publicly traded company called ANGI Homeservices. As ofHomeservices Inc. (the "Combination"). At December 31, 2017,2018, IAC’s economic and voting interest in ANGI Homeservices were 86.9%83.9% and 98.5%98.1%, respectively. In connection with the transaction, the Company changed the name of the HomeAdvisor segment to ANGI Homeservices and year-over-year comparisons for financial results for this segment are to the historical results of the HomeAdvisor segment (adjusted to reflect corporate allocations from IAC).
ANGI Homeservices is the world's largest digital marketplace for home services, connectingconnects millions of homeowners across the globe withto home service professionals. ANGI Homeservices operatesprofessionals through its portfolio of digital home service brands, including HomeAdvisor®, Angie’s List® and Handy Technologies, Inc. ("Handy"). Combined, these leading brands in eight countries, including HomeAdvisor®marketplaces have collected more than 15 million reviews over the course of 20 years, allowing homeowners to research, match and Angie's List® (United States), HomeStars (Canada), Travaux.com (France), MyHammer (Germany and Austria), MyBuilder (UK), Werkspot (Netherlands) and Instapro (Italy).connect on-demand to the largest network of service professionals online, through our mobile apps or by voice assistants.
HomeAdvisor acquired controlling interests in MyBuilder Limited ("MyBuilder") on March 24, 2017, and HomeStars Inc. ("HomeStars") on February 8, 2017, leading home services platforms in the United Kingdom and Canada, respectively.
Video
Our Video segment consists of Vimeo, Electus, IAC Films and Daily Burn.
Vimeo operates a global video sharing platform for creators and their audiences. We provide creators with professional tools to host, manage, review, distribute and monetize videos online, while offering audiences a high quality, ad-free viewing experience across devices. On October 18, 2017, Vimeo19, 2018, ANGI acquired Livestream,Handy, a leading live video solution that powers millions of events a year.
Electus provides production and producer services for both unscripted and scripted television and digital content, primarily for initial sale and distributionplatform in the United States for connecting people looking for household services (primarily cleaning and internationally. Our content is distributedhandyman services) with top-quality, pre-screened independent service professionals. ANGI also owns and operates mHelpDesk, a provider of cloud-based field service software for small to mid-size businesses, primarily sold today to HomeAdvisor service professionals, and CraftJack. Prior to its sale on December 31, 2018, ANGI also operated Felix, a wide range of platforms, including broadcast television, premium and basic cable television, subscription-based and ad-supported video-on-pay-per-call advertising service business. In addition to its market-leading U.S. operations, ANGI owns leading home services online marketplaces in France (Travaux), Germany (MyHammer), Netherlands (Werkspot), United
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
demandKingdom (MyBuilder Limited or "MyBuilder," acquired a controlling interest on March 24, 2017), Canada (HomeStars Inc. or "HomeStars," acquired a controlling interest on February 8, 2017) and Italy (Instapro), as well as operations in Austria (MyHammer).
Vimeo
Vimeo operates a global video platform for creative professionals, marketers and enterprises to connect with their audiences, customers and employees. Vimeo provides cloud-based software products to stream, host, distribute and monetize videos online and across devices, as well as premium video tools on a subscription basis. Vimeo also sells live streaming accessories.
Dotdash
Dotdash is a portfolio of digital brands providing expert information and inspiration in select vertical content categories.
Applications
Our Applications segment consists of our Desktop business and Mosaic Group (previously referred to as Mobile), our mobile business. Through these businesses, we are a leading provider of global, advertising-driven desktop and subscription-based mobile applications.
Through our Desktop business, we own and operate a portfolio of desktop browser applications that provide users with access to a wide variety of online content, tools and services. We provide users who download our desktop browser applications with new tab search services, as well as the option of default browser search services. We distribute our desktop browser applications to consumers free of charge on an opt-in basis directly through direct to consumer (primarily Chrome Web Store) and other outlets. Electus also operates Electus Digital, whichpartnership distribution channels.
Through Mosaic Group, we are a leading provider of global subscription mobile applications. Mosaic Group consists of the following websitesbusinesses that we own and properties: CollegeHumor.com, Dorkly.comoperate: Apalon, iTranslate, acquired in March 2018, TelTech, acquired in October 2018, and Drawfee.com; YouTube channels WatchLOUD, NuevonDaily Burn, transferred from the Emerging & Other segment effective April 1, 2018.
Apalon is a leading mobile development company with one of the largest and Hungry;most popular application portfolios worldwide. iTranslate develops and Big Breakfast (a production company). Through Electus, we also operate Notional.
IAC Films provides productiondistributes applications that enable users to read, write, speak and producer services for feature films, primarily for initial sale and distributionlearn foreign languages anywhere in the United Statesworld. TelTech develops and internationally. Our content is distributed through theatrical releasesdistributes unique and video-on-demand services.
innovative mobile communications applications that help protect consumer privacy. Daily Burn is a health and fitness property that provides streaming fitness and workout videos across a variety of platforms including(including iOS, Android, Roku and other Internet-enabled television platforms.platforms).
Applications
Our Applications segment includes Consumer, which develops and distributes downloadable desktop and mobile applications, including Apalon, which houses our mobile applications operations, and SlimWare, which houses our downloadable desktop software and service operations; and Partnerships, which includes our business-to-business partnership operations.
Through our Consumer business, we develop, market and distribute a variety of applications, primarily browser extensions, which consist of a browser tab page and related technology that together enable users to run search queries directly from their web browsers. Apalon is a mobile development company with one of the largest and most popular portfolios of mobile applications worldwide. SlimWare is a provider of community-powered software and services that clean, repair, update, secure and optimize computers, mobile phones and digital devices.
Through our Partnerships business, we work closely with partners in the software, media and other industries to design and develop customized browser-based search applications to be bundled and distributed with these partners’ products and services.
Publishing
The Publishing segment includes our Premium Brands business, which is composed of Dotdash, Dictionary.com, Investopedia and The Daily Beast; and our Ask & Other business, which primarily includes Ask Media Group, CityGrid and, for periods prior to its sale on June 30, 2016, ASKfm.
Premium Brands
Our Premium Brands business primarily consists of the following destination websites:
Dotdash, a network of digital brands providing reliable information and inspiration in select vertical categories, including The Spruce (home), The Balance (money), Verywell (health), Lifewire (tech), TripSavvy (travel) and ThoughtCo (lifelong learning);
Dictionary.com, which primarily provides online and mobile dictionary, thesaurus and reference services;
Investopedia, a resource for investment and personal finance education and information, as well as online courses through Investopedia Academy for a fee; and
The Daily Beast, a website dedicated to news, commentary, culture and entertainment that curates and publishes existing and original online content from its own roster of contributors in the United States.
AskEmerging & Other
Our AskEmerging & Other businesssegment primarily includes:
Ask Media Group, a collection of websites providing general search services and information;
CityGrid,BlueCrew, an advertising networkon-demand staffing platform that integrates localconnects temporary workers with traditional blue-collar jobs in areas like warehouse, delivery and moving, data entry and customer service;
The Daily Beast, a website dedicated to news, commentary, culture and entertainment that publishes original reporting and opinion from its roster of full-time journalists and contributors;
College Humor Media, a provider of digital content, and advertising for distribution to affiliated and third party publishers across web and mobile platforms;including its recently launched subscription only property, Dropout.tv; and
IAC Films, a provider of production and producer services for feature films, primarily for initial sale and distribution through theatrical releases and video-on-demand services in the United States and internationally.
For periods prior to their sales:
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| |
| ◦ | CityGrid, an advertising network that integrated local content and advertising for distribution to affiliated and third-party publishers across web and mobile platforms, sold December 31, 2018. |
| |
| ◦ | Dictionary.com, an online and mobile dictionary and thesaurus service, sold November 13, 2018. |
| |
| ◦ | Electus, including Notional, a provider of production and producer services for both unscripted and scripted television and digital content, primarily for initial sale and distribution in the United States, sold October 29, 2018. |
| |
| ◦ | The Princeton Review, a provider of educational test preparation, academic tutoring and college counseling services, sold on March 31, 2017. |
| |
| ◦ | ShoeBuy, an Internet retailer of footwear and related apparel and accessories, sold December 30, 2016. |
| |
| ◦ | ASKfm, a questions and answers social network, sold June 30, 2016. |
| |
| ◦ | PriceRunner, a shopping comparison website, sold March 18, 2016. |
For periods prior to its sale on June 30, 2016, ASKfm, a questions and answers social network.
Other
The Other segment consists of the results of The Princeton Review, ShoeBuy and PriceRunner for periods prior to the sales of these businesses, which occurred on March 31, 2017, December 30, 2016 and March 18, 2016, respectively. The Princeton Review provided a variety of educational test preparation, academic tutoring and college counseling services; ShoeBuy was an Internet retailer of footwear and related apparel and accessories; and PriceRunner was a shopping comparison website.
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Consolidation
The Company prepares its consolidated financial statements in accordance with U.S. generally accepted accounting principles ("GAAP").
Basis of Consolidation and Accounting for Investments
The consolidated financial statements include the accounts of the Company, all entities that are wholly-owned by the Company and all entities in which the Company has a controlling financial interest. Intercompany transactions and accounts have been eliminated.
Accounting for Investments and Equity Securities
Investments in the common stock or in-substance common stock of entities in which the Company has the ability to exercise significant influence over the operating and financial matters of the investee, but does not have a controlling financial interest, are accounted for using the equity method. Investmentsmethod and are included in "Long-term investments" in the common stock or in-substance common stock of entities in whichaccompanying consolidated balance sheet. At December 31, 2018, the Company doesdid not have the ability to exercise significant influence over the operating and financial matters of the investee areany investments accounted for using the costequity method.
Investments in companies that IAC does not control, which are not in the formequity securities, other than those of common stock or in-substance common stock, are alsoour consolidated subsidiaries and those accounted for usingunder the equity method, are accounted for at fair value or under the measurement alternative of Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, following its adoption on January 1, 2018, with any changes to fair value recognized within other income (expense), net each reporting period. Under the measurement alternative, equity investments without readily determinable fair values are carried at cost method.minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer; value is generally determined based on a market approach as of the transaction date. An investment will be considered identical or similar if it has identical or similar rights to the equity investments held by the Company. The Company evaluates each cost andreviews its equity method investmentsecurities for impairment on a quarterly basiseach reporting period when there are qualitative factors or events that indicate possible impairment. Factors we consider in making this determination include negative changes in industry and recognizes anmarket conditions, financial performance, business prospects, and other relevant events and factors. When indicators of impairment loss if a decline in value is determined to be other-than-temporary. Such impairment evaluations include, but are not limited to: the current business environment, including competition; going concern considerations such as financial condition, the rate at which the investee utilizes cash and the investee's ability to obtain additional financing to achieve its business plan; the need for changes to the investee's existing business model due to changing business and regulatory environments and its ability to successfully implement necessary changes; and comparable valuations. Ifexist, the Company has not identified events or changes in circumstances that may have a significant adverse effect onprepares quantitative assessments of the fair value of a cost method investment, thenour equity securities, which require judgment and the use of estimates. When our assessment indicates that the fair value of such cost method investmentthe security is not estimated, as it is impracticablebelow the carrying value, the Company writes down the security to do so.its fair value and records the corresponding charge within other income (expense), net. See "Accounting Pronouncements adopted by the Company" below for further information.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Accounting Estimates
Management of the Company is required to make certain estimates, judgments and assumptions during the preparation of its consolidated financial statements in accordance with GAAP. These estimates, judgments and assumptions impact the reported amounts of assets, liabilities, revenue and expenses and the related disclosure of contingent assets and liabilities. Actual results could differ from these estimates.
On an ongoing basis, the Company evaluates its estimates and judgments, including those related to: the recoverability of goodwill and indefinite-lived intangible assets; the useful lives and recoverability of definite-lived intangible assets and property and equipment; the fair values of marketable debt securities and long-term investments;equity securities without readily determinable fair values; the carrying value of accounts receivable, including the determination of the allowance for doubtful accounts; the determination of revenue reserves; the fair value of acquisition-related contingent consideration arrangements; the liabilities for uncertainunrecognized tax positions;benefits; the valuation allowance for deferred income tax assets; and the fair value of and forfeiture rates for stock-based awards, among others. The Company bases its estimates and judgments on historical experience, its forecasts and budgets and other factors that the Company considers relevant.
Revenue Recognition
The Company adopted the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, effective January 1, 2018 using the modified retrospective transition method for open contracts as of the date of initial application. See "Accounting Pronouncements adopted by the Company" below for further information.
The Company accounts for a contract with a customer when it has approval and commitment from all parties, the rights of the parties and payment terms are identified, the contract has commercial substance and collectability of consideration is probable. Revenue is recognized when control of the promised services or goods is transferred to our customers, and in an amount that reflects the consideration the Company is contractually due in exchange for those services or goods.
Transaction Price
The objective of determining the transaction price is to estimate the amount of consideration the Company is due in exchange for its services or goods, including amounts that are variable. The Company determines the total transaction price, including an estimate of any variable consideration, at contract inception and reassesses this estimate each reporting period.
The Company excludes from the measurement of transaction price all taxes assessed by governmental authorities that are both (i) imposed on and concurrent with a specific revenue-producing transaction and (ii) collected from customers. Accordingly, such tax amounts are not included as a component of revenue or cost of revenue.
For contracts that have an original duration of one year or less, the Company uses the practical expedient available under ASU No. 2014-09 applicable to such contracts and does not consider the time value of money.
Arrangements with Multiple Performance Obligations
The Company’s contracts with customers may include multiple performance obligations. For such arrangements, the Company allocates revenue to each performance obligation based on its relative standalone selling price. The Company generally determines standalone selling prices based on the prices charged to customers, which are directly observable or based on an estimate if not directly observable. For our multiple performance obligation arrangements that include functional intellectual property ("IP"), which comprise the downloadable apps and software of the Applications segment, the Company uses a residual approach to determine standalone selling prices for the functional IP.
Assets Recognized from the Costs to Obtain a Contract with a Customer
The Company has determined that certain costs, primarily commissions paid to employees pursuant to certain sales incentive programs and mobile app store fees, meet the requirements to be capitalized as a cost of obtaining a contract. Commissions paid to employees pursuant to certain sales incentive programs are amortized over the estimated customer relationship period. The Company calculates the estimated customer relationship period as the average customer life, which is
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Revenue Recognitionbased on historical data. When customer renewals are expected and the renewal commission is not commensurate with the initial commission, the average customer life includes renewal periods. For sales incentive programs where the customer relationship period is one year or less, the Company has elected the practical expedient to expense the costs as incurred. The Company generally capitalizes and amortizes mobile app store fees over the term of the applicable subscription.
During the year ended December 31, 2018, the Company recognized expense of $355.3 million related to the amortization of these costs. The current and non-current contract asset balances at December 31, 2018 are $69.8 million and $4.5 million, respectively. The current and non-current contract assets are included in "Other current assets" and "Other non-current assets," respectively, in the accompanying consolidated balance sheet.
Performance Obligations
As permitted under the practical expedient available under ASU No. 2014-09, the Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less, (ii) contracts with variable consideration that is allocated entirely to unsatisfied performance obligations or to a wholly unsatisfied promise accounted for under the series guidance, and (iii) contracts for which the Company recognizes revenue when persuasive evidence of an arrangement exists,at the amount which we have the right to invoice for services are rendered or merchandise is delivered to customers, the fee or price charged is fixed or determinable and collectability is reasonably assured. Deferred revenue is recorded when payments are received, or contractually due, in advance of the Company's rendering of services, availability of media content (films, television, or digital content) for broadcast or exhibition or delivery of merchandise.performed.
Match Group
Match Group'sGroup revenue is primarily derived directly from users in the form of recurring subscriptions. Subscription revenue is presented net of credits and credit card chargebacks. Subscribers pay in advance, primarily by using a credit card or through mobile app stores, and, subject to certain conditions identified in our terms and conditions, generally all purchases are final and nonrefundable. Fees collected, or contractually due, in advance for subscriptions areRevenue is initially deferred and is recognized using the straight-line method over the termsterm of the applicable subscription period, which primarily rangegenerally ranges from one to six months, and corresponding mobile app store fees incurred on such transactions, if any, are deferred and expensed over the same period. Deferred revenue at Match Group is $198.3 million and $161.1 million at December 31, 2017 and 2016, respectively.months. Revenue is also earned from online advertising, the purchase of à la carte features and offline events. Online advertising revenue is recognized every timewhen an advertisement is displayed. Revenue from the purchase of à la carte features is recognized based on usage. Revenue and the related expenses associated with offline events areis recognized when each event occurs.
ANGI Homeservices
ANGI Homeservices revenue is primarily derived from (i) consumer connection revenue, which comprises fees paid by HomeAdvisor service professionals for consumer matches (regardless of whether the service professional ultimately provides the requested service), and booking fees from completed jobs sourced through the Handy platform, and (ii) membership subscriptionssubscription fees paid by HomeAdvisor service professionals. Consumer connection revenue varies based upon certainseveral factors, including the service requested, type of match (such as Instant Booking, Instant Connect, same day service or next day service)product experience offered and geographic location of service. EffectiveThe Company’s consumer connection revenue is generated and recognized when an in-network service professional is delivered a consumer match or when a job sourced through the Handy platform is completed. Membership subscription revenue from service professionals is initially deferred and is recognized using the straight-line method over the applicable subscription period, which is typically one year. Consumer connection revenue is generally billed one week following a consumer match, with payment due upon receipt of invoice or collected when a consumer schedules a job through the Combination,Handy platform. The Company maintains revenue reserves for potential credits for services provided by Handy service professionals to consumers.
ANGI revenue is also derived from Angie's List (i) sales of time-based website, mobile and call center advertising to service professionals and (ii) membership subscription fees from consumers.
ANGI Homeservices consumer connection revenue is generated and recognized when an in‑network service professional is delivered a consumer match. Membership subscription revenue is generated through subscription sales to service professionals and is deferred and recognized over the term of the applicable membership. Membership agreements can be one month, three months, or one year. Angie's List service professionals generally pay for advertisements in advance on a monthly or annual basis at the option of the service professional, with the average advertising contract term being approximately one year. These contracts include an early termination penalty. Angie's List revenue from the sale of website, mobile and call center advertising revenue is recognized ratably over the period during which the advertisements run.contract term. Revenue from the sale of advertising in the Angie’s ListMagazine is recognized in the period in which the publication is published and distributed. Angie's List prepaid consumer membership subscription fees are recognized as revenue ratablyusing the straight-line method over the term of the associatedapplicable subscription period, which is typically one year.
Deferred revenue at ANGI Homeservices is $64.1 million and $18.8 million at December 31, 2017 and 2016, respectively. The balance at December 31, 2017 includes Angie's List deferred revenue
Video
Revenue of businesses included in this segment is generated primarily through subscriptions, media production and distribution, and advertising. Production revenue is recognized when the production is available for the customer to broadcast or exhibit, subscription fee revenue is recognized over the terms of the applicable subscriptions, which are one month or one year, and advertising revenue is recognized when an ad is displayed or over the period earned. Deferred revenue at Vimeo is $49.4 million and $36.7 million at December 31, 2017 and 2016, respectively. Deferred revenue at Electus totals $12.8 million and $23.1 million at December 31, 2017 and 2016, respectively.
Contents
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Vimeo
Vimeo revenue is derived primarily from annual and monthly SaaS subscription fees paid by creators for premium capabilities and, to a lesser extent, sales of live streaming hardware, software and professional services. Subscription revenue is recognized over the terms of the applicable subscription period, which are typically one month or one year.
Dotdash
Dotdash revenue consists principally of digital advertising revenue and affiliate commerce commission revenue. Digital advertising revenue is generated primarily through digital display advertisements sold directly and through programmatic advertising networks. Affiliate commerce commission revenue is generated when Dotdash refers users to commerce partner websites resulting in a purchase or transaction.
Applications
Substantially all of Applications'Desktop revenue largely consists of advertising revenue generated principally through the display of paid listings in response to search queries. The substantial majority of the paid listings displayed by our ApplicationsDesktop businesses areis supplied to us by Google Inc. ("Google") pursuant to our services agreement with Google.
Pursuant to this agreement, those of our ApplicationsDesktop businesses that provide search services transmit search queries to Google, which in turn transmits a set of relevant and responsive paid listings back to these businesses for display in search results. This ad-serving process occurs independently of, but concurrently with, the generation of algorithmic search results for the same search queries. Google paid listings are displayed separately from algorithmic search results and are identified as sponsored listings on search results pages. Paid listings are priced on a price per click basis and when a user submits a search query through one of our ApplicationsDesktop businesses and then clicks on a Google paid listing displayed in response to the query, Google bills the advertiser that purchased the paid listing directly and shares a portion of the fee charged to the advertiser with us. We recognizeThe Company recognizes paid listing revenue from Google when it delivers the user's click. In cases where the user’s click is generated due to the efforts of a third partythird-party distributor, we recognize the amount due from Google as revenue and record a revenue share or other payment obligation to the third partythird-party distributor as traffic acquisition costs.
To a significantly lesser extent, Applications'Desktop revenue also includes fees related to subscription downloadable desktop applications as well as display advertisements. Fees related to subscription downloadable desktop applications are generally recognized over the term of the applicable subscription period, which is primarily one or two years. Fees related to display advertisements are recognized when an advertisement is displayed.
Mosaic Group revenue consists primarily of fees related to subscription downloadable mobile applications which are recognized overdistributed through the terms of the applicable subscriptions, primarily one to two years,Apple App and feesGoogle Play stores, as well as display advertisements. Fees related to paidsubscription downloadable mobile downloadable applications and display advertisements, which are generally recognized at the time of the sale and when the adsoftware license is displayed, respectively. Deferreddelivered. To the extent updates or maintenance is required or expected, revenue at Applications is $23.6 million and $26.1 million at December 31, 2017 and 2016, respectively.recognized over the term of the applicable subscription period, which is primarily one or two years. Fees related to display advertisements are recognized when an advertisement is displayed.
PublishingEmerging & Other
Publishing's revenueRevenue of Ask Media Group consists principally of advertising revenue, which is generated primarily through the display of paid listings in response to search queries and display advertisements (sold directly and through programmatic ad sales) and fees related to paid mobile downloadable applications.. The substantial majority of the paid listings that our Publishing businesses displaydisplayed are supplied to us by Google in the manner, and pursuant to the services agreement with Google, which is described above under "Applications."Applications."
Other
The Princeton Review'sDaily Beast revenue consistedconsists of advertising revenue, which is generated primarily through display advertisements (sold directly and through programmatic ad sales).
BlueCrew revenue consists of fees received directly from students for in-personservice revenue, which is generated through staffing temporary workers and online test preparation classes, access to online test preparation materials and individual tutoring services. Fees from classes and access to online materials were recognized over the periodas control of the coursepromised services is transferred to our customers.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Revenue of College Humor Media and the period of the online access, respectively. Tutoring fees were recognized based on usage.
ShoeBuy'sIAC Films is generated primarily through media production and distribution and advertising. Production revenue consisted of merchandise sales, reduced by incentive discounts and sales returns, and wasis recognized when deliverycontrol is transferred to the customer had occurred. Delivery was considered to have occurredbroadcast or exhibit, and advertising revenue is recognized when an advertisement is displayed or over the advertising period.
Accounts Receivables, Net of Allowance for Doubtful Accounts and Revenue Reserves
Accounts receivable include amounts billed and currently due from customers. The Company maintains an allowance for doubtful accounts to provide for the estimated amount of accounts receivable that will not be collected. The allowance for doubtful accounts is based upon a number of factors, including the length of time accounts receivable are past due, the Company’s previous loss history and the specific customer’s ability to pay its obligation. The time between the Company issuance of an invoice and payment due date is not significant; customer payments that are not collected in advance of the transfer of promised services or goods are generally due no later than 30 days from invoice date. The Company also maintains allowances to reserve for potential credits issued to consumers or other revenue adjustments. The amounts of these reserves are based primarily upon historical experience.
Deferred Revenue
Deferred revenue consists of advance payments that are received or are contractually due in advance of the Company's performance. The Company’s deferred revenue is reported on a contract by contract basis at the end of each reporting period. The Company classifies deferred revenue as current when the customer took title and assumedterm of the risks and rewardsapplicable subscription period or expected completion of ownership, which was onour performance obligation is one year or less. The deferred revenue balance at January 1, 2018 is $332.2 million. During the dateyear ended December 31, 2018, the Company recognized $330.2 million of shipment. Accruals for returned merchandise were based on historical experience. Shipping and handling fees billed to customers was recorded as revenue. The costs associated with shipping goods to customers were recorded as cost of revenue.
PriceRunner's revenue consisted principally of advertising revenue that depending onwas included in the termsdeferred revenue balance as of January 1, 2018. The current and non-current deferred revenue balances at December 31, 2018 are $360.0 million and $1.7 million, respectively. Non-current deferred revenue is included in "Other long-term liabilities" in the arrangement, was recognized when a user clicked on an ad, or when a user clicked-through on the ad and took a specified action on the destination site.accompanying consolidated balance sheet.
Cash and Cash Equivalents
Cash and cash equivalents include cash and short-term investments, with maturities of less than 91 days from the date of purchase. Domestically, cash equivalents primarily consist of AAA rated government money market funds, treasury discount notes, commercial paper rated A1/P1 or better, time deposits and treasury discount notes.certificates of deposit. Internationally, cash equivalents primarily consist of AAA rated government money market funds and time deposits.
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MarketableInvestments in Debt Securities
At December 31, 2017, marketable securities consist of commercial paper rated A1+/P1. The Company invests in marketable debt securities with active secondary or resale markets to ensure portfolio liquidity to fund current operations or satisfy other cash requirements as needed. The Company also invests in marketable equity securities as part of its investment strategy. All marketableMarketable debt securities are classified as available-for-saleadjusted to fair value each quarter, and are reported at fair value. Thethe unrealized gains and losses, on marketable securities, net of tax, are included in accumulated other comprehensive income (loss) as a separate component of shareholders' equity. The specific-identification method is used to determine the cost of debt securities sold and the amount of unrealized gains and losses reclassified out of accumulated other comprehensive income (loss) into earnings.
The Company employs a methodology that considers available evidencealso invests in evaluating potential other-than-temporary impairmentsnon-marketable debt securities as part of its investments. Investments are considered to be impairedinvestment strategy. We review our debt securities for impairment each reporting period. The Company recognizes an unrealized loss on debt securities in net earnings when a decline in fair value below the amortized cost basisimpairment is determined to be other-than-temporary. Factors consideredwe consider in determining whether a loss is other-than-temporarymaking such determination include the length of timeduration, severity and extentreason for the decline in value and the potential recovery and our intent to which fair value has been less thansell the amortized cost basis, the financial condition and near-term prospects of the issuer, anddebt security. We also consider whether it is not more likely than not that the Companywe will be required to sell the security before the recovery of its amortized cost basis and whether the amortized cost basis which maycannot be maturity.recovered because of credit losses. If a decline in fair valuean impairment is determinedconsidered to be other-than-temporary, an impairment charge is recorded in current earningsthe debt security will be written down to its fair value and a new cost basis in the investment is established.loss will be recognized within other income (expense), net. At December 31, 2018, marketable debt securities consist of treasury discount notes and commercial paper rated A1/P1 or better.
Certain Risks and Concentrations
A meaningful portion of the Company's revenue is derived from online advertising, the market for which is highly competitive and rapidly changing. Significant changes in this industry or changes in advertising spending behavior or in customer buying behavior could adversely affect our operating results. Most of the Company's online advertising revenue is attributable to a services agreement with Google. Google Inc. ("Google").
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For the years ended December 31, 2018, 2017 and 2016, consolidated revenue earned from Google was $825.2 million, $740.7 million and 2015, revenue from Google represents$824.4 million, representing 19%, 22%, 26% and 40%26%, respectively, of the Company's consolidated revenue. A meaningful portion of this revenue is attributable to the service agreement with Google and earned by the Desktop business within the Applications segment and the Ask Media Group within the Emerging & Other segment. For the years ended December 31, 2018, 2017 and 2016, revenue earned from Google represents 73%, 83% and 87% of Applications revenue and 94%, 96% and 96% of Ask Media Group revenue (and 68%, 48% and 35% of Emerging & Other revenue), respectively. Accounts receivable related to revenue earned from Google totaled $69.1 million and $72.4 million at December 31, 2018 and 2017, respectively.
The services agreement became effective on April 1, 2016, following the expiration of the previous services agreement, and expires on March 31, 2020; however, the Company may choose to terminate the agreement effective March 31, 2019.2020. 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, which 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 business, financial condition and results of operations.
For Google’s policy changes related to its Chrome browser became effective on September 12, 2018 and negatively impacted the
years ended December 31, 2017, 2016 and 2015, revenue earned from Google was $740.7 million, $824.4 million and $1.3 billion, respectively. This revenue is earned by the businesses comprising the Applications and Publishing segments. For the years ended December 31, 2017, 2016 and 2015, revenue earned from Google represents 83%, 87% and 94%distribution of
Applicationsour business-to-consumer ("B2C") desktop products. The impact of these changes on revenue and
71%, 73%profits in 2018 were modest as the Company optimized marketing spend in anticipation of the changes. However, we expect these changes to reduce revenue and
83%profits of
Publishing revenue, respectively. Accounts receivablethe Desktop business in the future, which among other reasons led to a $27.7 million impairment of the related
to revenue earned fromindefinite-lived intangible asset in the fourth quarter of 2018. See "Note 21—Subsequent Events (Unaudited)" for a discussion of the Company's amended services agreement with Google totaled $72.4 million and $65.8 million at December 31, 2017 and 2016, respectively.entered into on February 11, 2019.The Company's business is subject to certain risks and concentrations including dependence on third-party technology providers, exposure to risks associated with online commerce security and credit card fraud.
Financial instruments, which potentially subject the Company to concentration of credit risk, consist primarily of cash and cash equivalents and marketable securities. Cash and cash equivalents are maintained with financial institutions and are in excess of Federal Deposit Insurance Corporation insurance limits.
Accounts Receivable, net of allowance for doubtful accounts and revenue reserves
Accounts receivable are stated at amounts due from customers, net of an allowance for doubtful accounts and revenue reserves. Accounts receivable outstanding longer than the contractual payment terms are considered past due. The Company determines its allowance by considering a number of factors, including the length of time accounts receivable are past due, the Company's previous loss history, the specific customer's ability to pay its obligation to the Company and the condition of the general economy and the customer's industry. The Company writes off accounts receivable when they become uncollectible.
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The Company also maintains allowances to reserve for potential credits issued to customers or other revenue adjustments. The amounts of these reserves are based, in part, on historical experience.
Property and Equipment
Property and equipment, including significant improvements, are recorded at cost. Repairs and maintenance costs are expensed as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, or, in the case of leasehold improvements, the lease term, if shorter.
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| Asset Category | Estimated Useful Lives |
| Buildings and leasehold improvements | 3 to 39 Years |
| Computer equipment and capitalized software | 2 to 3 Years |
| Furniture and other equipment | 3 to 12 Years |
The Company capitalizes certain internal use software costs including external direct costs utilized in developing or obtaining the software and compensation for personnel directly associated with the development of the software. Capitalization of such costs begins when the preliminary project stage is complete and ceases when the project is substantially complete and ready for its intended purpose. The net book value of capitalized internal use software is $46.4$58.1 million and $46.9$46.4 million at December 31, 20172018 and 2016,2017, respectively.
Business Combinations
The purchase price of each acquisition is attributed to the assets acquired and liabilities assumed based on their fair values at the date of acquisition, including identifiable intangible assets that either arise from a contractual or legal right or are separable from goodwill. The fair value of these intangible assets is based on detailed valuations that use information and assumptions
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provided by management. The excess purchase price over the net tangible and identifiable intangible assets is recorded as goodwill and is assigned to the reporting unit(s) that is expected to benefit from the combination as of the acquisition date.
In connection with certain business combinations, the Company has entered into contingent consideration arrangements that are determined to be part of the purchase price. Each of these arrangements areis initially recorded at its fair value at the time of the acquisition and reflected at current fair value for each subsequent reporting period thereafter until settled. The contingent consideration arrangements are generally based upon earnings performance and/or operating metrics. The Company determines the fair value of the contingent consideration arrangements using probability-weighted analyses to determine the amounts of the gross liability, and, if the arrangement is long-term in nature, applying a discount rate that appropriately captures the risk associated with the obligation to determine the net amount reflected in the consolidated financial statements. Significant changes in forecasted earnings or operating metrics would result in a significantly higher or lower fair value measurement. The changes in the remeasured fair value of the contingent consideration arrangements during each reporting period, including the accretion of the discount, if applicable, are recognized in “General"General and administrative expense”expense" in the accompanying consolidated statement of operations. See "Note 8—Fair Value Measurements and 6—Financial Instruments" for a discussion of contingent consideration arrangements. Goodwill and Indefinite-Lived Intangible Assets
The Company assesses goodwill and indefinite-lived intangible assets for impairment annually as of October 1, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit or the fair value of an indefinite-lived intangible asset below its carrying value.
When the Company elects to perform a qualitative assessment and concludes it is not more likely than not that the fair value of the reporting unit is less than its carrying value, no further assessment of that reporting unit's goodwill is necessary; otherwise, a quantitative assessment is performed and the fair value of the reporting unit is determined. If the carrying value of the reporting unit exceeds its fair value, an impairment loss equal to the excess is recorded.
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For the Company's annual goodwill test at October 1, 2017,2018, a qualitative assessment of the Match Group,MTCH, ANGI, Homeservices, Vimeo, College Humor Media and ApplicationsBlueCrew reporting units' goodwill was performed because the Company concluded it was more likely than not that the fair value of these reporting units was in excess of their respective carrying values. The primary factors that the Company considered in its qualitative assessment for each of these reporting units isare described below:
Match Group'sMTCH's October 1, 20172018 market capitalization of $6.3$15.7 billion exceeded its carrying value by more than 1100%approximately $15.1 billion and Match Group'sMTCH's strong operating performance.
ANGI Homeservices'ANGI's October 1, 20172018 market capitalization of $5.9$10.7 billion exceeded its carrying value by more than 450%approximately $9.6 billion and ANGI Homeservices'ANGI's strong operating performance.
The Company performed valuations of the Vimeo, College Humor Media and ApplicationsBlueCrew reporting units during 2017.2018. These valuations were prepared primarily in connection with the issuance and/or settlement of equity grants that are denominated in the equity of these businesses. The valuations were prepared time proximate to, however, not as of, October 1, 2017.2018. The fair value of each of these businesses was in excess of its October 1, 20172018 carrying value.
The Company tests goodwill for impairment when it concludes that it is more likely than not that there may be an impairment. For the Company's annual goodwill test at October 1, 2017,2018, the Company quantitatively tested the Daily BurnDesktop and ElectusMosaic Group reporting units.units (included in the Applications segment). The Company's quantitative test indicated that the fair value of each of these reporting units isare in excess of itstheir respective carrying value;values; therefore, the goodwill of these reporting units isare not impaired. The Company's PublishingDotdash, Ask Media Group and The Daily Beast reporting unit hasunits have no goodwill.
The aggregate goodwill balance for the reporting units for which the most recent estimate of fair value is less than 120%110% of their carrying values is approximately $450$265.1 million.
The fair value of the Company's reporting units (except for MTCH and ANGI described above) is determined using both an income approach based on discounted cash flows ("DCF") and a market approach when it tests goodwill for impairment, either on an interim basis or annual basis as of October 1 each year. The Company uses the same approach in determining the fair value of its businesses in connection with its non-public subsidiary denominated stock basedstock-based compensation plans, which
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can be a significant factor in the decision to apply the qualitative screen. Determining fair value using a DCF analysis requires the exercise of significant judgment with respect to several items, including the amount and timing of expected future cash flows and appropriate discount rates. The expected cash flows used in the DCF analyses are based on the Company's most recent forecast and budget and, for years beyond the budget, the Company's estimates, which are based, in part, on forecasted growth rates. The discount rates used in the DCF analyses are intended to reflect the risks inherent in the expected future cash flows of the respective reporting units. Assumptions used in the DCF analyses, including the discount rate, are assessed based on each reporting unit's current results and forecasted future performance, as well as macroeconomic and industry specific factors. The discount rates used in the quantitative test for determining the fair value of the Company's reporting units ranged from 12.5% to 17.5%15% in 20172018 and 10%12.5% to 17.5% in 2016.2017. Determining fair value using a market approach considers multiples of financial metrics based on both acquisitions and trading multiples of a selected peer group of companies. From the comparable companies, a representative market multiple is determined which is applied to financial metrics to estimate the fair value of a reporting unit. To determine a peer group of companies for our respective reporting units, we considered companies relevant in terms of consumer use, monetization model, margin and growth characteristics, and brand strength operating in their respective sectors. While a primary driver in the determination of the fair values of the Company's reporting units is the estimate of future revenue and profitability, the determination of fair value is based, in part, upon the Company's assessment of macroeconomic factors, industry and competitive dynamics and the strategies of its businesses in response to these factors.
While the Company has the option to qualitatively assess whether it is more likely than not that the fair values of its indefinite-lived intangible assets are less than their carrying values, the Company's policy is to determine the fair value of each of its indefinite-lived intangible assets annually as of October 1. In 2017, the Company did not quantitatively assess the Angie's List indefinite-lived intangible assets acquired through the Combination given the proximity of the September 29, 2017 transaction date to the October 1, 2017 annual test date. The Company determines the fair valuesvalue of its indefinite-lived intangible assets using an avoided royalty DCF analyses.valuation analysis. Significant judgments inherent in these analysesthis analysis include the selection of appropriate royalty and discount rates and estimating the amount and timing of expected future cash flows. The discount rates used in the DCF analyses are intended to reflect the risks inherent in the expected future cash flows generated by the respective intangible assets. The royalty rates used in the DCF analyses are based upon an estimate of the royalty rates that a market participant would pay to license the Company's trade names and trademarks. Assumptions used in the avoided royalty DCF analyses, including the discount rate and royalty rate, are assessed annually based on the actual and projected cash flows related to the
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asset, as well as macroeconomic and industry specific factors. The discount rates used in the Company's annual indefinite-lived impairment assessment ranged from 10.5% to 35% in 2018 and 11% to 16% in both 2017, and 2016, and the royalty rates used ranged from 0.75% to 8.0% in 2018 and 2% andto 7% in both 20172017.
The aggregate indefinite-lived intangible asset balance for which the most recent estimate of fair value is less than 110% of their carrying values is approximately $131.3 million.
The 2018 annual assessment of goodwill did not identify any impairments. The 2018 annual assessment of indefinite-lived intangible assets identified impairment charges of $27.7 million and 2016.$1.1 million related to certain Desktop and College Humor Media indefinite-lived trade names, respectively. The indefinite-lived intangible asset impairment charge at Desktop was due to Google’s policy changes related to its Chrome browser which became effective on September 12, 2018 and have negatively impacted the distribution of our B2C downloadable desktop products. The impairment charge related to the B2C trade name was identified in our annual impairment assessment as of October 1, 2018 and reflects the projected reduction in profits and revenues and the resultant reduction in the assumed royalty rate from these policy changes. The impairment charges are included in "Amortization of intangibles" in the accompanying consolidated statement of operations.
The 2017 annual assessmentassessments of goodwill and indefinite-lived intangible assets did not identify any impairments.
While the 2016 annual assessment did not identify any material impairments, during the second quarter of 2016, the Company recorded an impairment charges relatedcharge equal to the entire $275.4 million balanceat IAC Publishing. In connection with the Company's realignment of its reportable segments in the Publishing reporting unit goodwillfourth quarter of 2018, $198.3 million and $11.6$77.0 million was allocated to the Dotdash and the Emerging & Other reportable segments, respectively, based upon their relative fair values as of October 1, 2018. In addition, amortization of intangibles was further impacted by the inclusion of impairment charges in 2016 of $9.0 million and $2.6 million related to certain PublishingDictionary.com and Dotdash indefinite-lived intangible assets.trade names, respectively. The goodwill impairment chargecharges at IAC Publishing was driven by the impact from the new Google contract, traffic trends and monetization challenges and the corresponding impact on the then estimate of fair value. The expected cash flows used in the IAC Publishing DCF analysis were based on the Company's most recent forecast for the second half of 2016 and each of the years in the forecast period, which were updated to include the effects of the Google contract, traffic trends and monetization challenges and the cost savings from our restructuring efforts. For years beyond the forecast period, the Company's estimated cash flows
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were based on forecasted growth rates. The discount rate used in the DCF analysis reflected the risks inherent in the expected future cash flows of the IAC Publishing reporting unit. Determining fair value using a market approach considers multiples of financial metrics based on both acquisitions and trading multiples of a selected peer group of companies. From the comparable companies, a representative market multiple was determined which was applied to financial metrics to estimate the fair value of the IAC Publishing reporting unit. To determine a peer group of companies for IAC Publishing, we considered companies relevant in terms of business model, revenue profile, margin and growth characteristics and brand strength. The indefinite-lived intangible asset impairment chargecharges related to certain trade names and trademarks and were due to reduced level of revenue and profits, which, in turn, also led to a reduction in the assumed royalty rates for these assets. The royalty rates used to value the trade names that were impaired ranged from 2% to 6% and the discount rate that was used reflected the risks inherent in the expected future cash flows of the trade names and trademarks. The impairment charge is included in "Amortization of intangibles" in the accompanying consolidated statement of operations.
In 2015, the Company identifiedThe Company’s operating segments are MTCH, ANGI, Vimeo, Dotdash and recorded impairment charges of $88.0 million related to certain indefinite-lived intangible assets at the Publishing segmentApplications, which are also reportable segments, and $14.1 million at the Other segment related to goodwill at ShoeBuy. The indefinite-lived intangible asset impairment charge at Publishing related to certain trade names of certain Askwithin its Emerging & Other direct marketing brands, includingreportable segment, Ask Media Group.Group, BlueCrew, The impairment charge reflected the impact of Google ecosystem changes that impacted our ability to market, the effect of the reduced revenue share on mobile under the terms of the services agreement with Google,Daily Beast, College Humor Media and the shift in focus to higher margin businesses in Publishing's Premium Brands.IAC Films. The combined impact of these factors reduced the forecasted revenue and profits for these brands and the impairment charge reflected the resultant reduction in fair value. The goodwill impairment charge at ShoeBuy was due to increased investment and the seasonal effect of high inventory levels as of October 1, 2015.
The Company'sCompany’s reporting units are consistent with its determinationoperating segments, with the exception of itsDesktop and Mosaic Group, which are separate reporting units within the Applications operating segments.segment. Goodwill is tested for impairment at the reporting unit level. See "Note 14—12—Segment Information" for additional information regarding the Company's method of determining operating and reportable segments.Long-Lived Assets and Intangible Assets with Definite Lives
Long-lived assets, which consist of property and equipment and intangible assets with definite lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The carrying value of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If the carrying value is deemed not to be recoverable, an impairment loss is recorded equal to the amount by which the carrying value of the long-lived asset exceeds its fair value. Amortization of definite-lived intangible assets is computed either on a straight-line basis or based on the pattern in which the economic benefits of the asset will be realized.
Fair Value Measurements
The Company categorizes its financial instruments measured at fair value into a fair value hierarchy that prioritizes the inputs used in pricing the asset or liability. The three levels of the fair value hierarchy are:
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Level 1: Observable inputs obtained from independent sources, such as quoted market prices for identical assets and liabilities in active markets.
Level 2: Other inputs, which are observable directly or indirectly, such as quoted market prices for similar assets or liabilities in active markets, quoted market prices for identical or similar assets or liabilities in markets that are not active and inputs that are derived principally from or corroborated by observable market data. The fair values of the Company's Level 2 financial assets are primarily obtained from observable market prices for identical underlying securities that may not be actively traded. Certain of these securities may have different market prices from multiple market data sources, in which case an average market price is used.
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| • | Level 3: Unobservable inputs for which there is little or no market data and require the Company to develop its own assumptions, based on the best information available in the circumstances, about the assumptions market participants would use in pricing the assets or liabilities. See "Note 8—Fair Value Measurements and 6—Financial Instruments" for a discussion of fair value measurements made using Level 3 inputs. |
The Company's non-financial assets, such as goodwill, intangible assets and property and equipment as well as cost and equity method investments, are adjusted to fair value only when an impairment chargeis recognized. The Company's financial assets, comprising equity securities without readily determinable fair values, are adjusted to fair value when observable price changes are identified or an impairment is recognized. Such fair value measurements are based predominantly on Level 3 inputs.
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Traffic Acquisition Costs
Traffic acquisition costs consist of (i) the amortization of fees paid to Apple and Google related to the distribution and the facilitation of in-app purchases and (ii) payments made to partners who distribute our Partnershipsbusiness-to-business customized browser-based applications and who integrate our paid listings into their websites and (ii) fees related to the distribution and facilitation of in-app purchase of product features.websites. These payments include amounts based on revenue share and other arrangements. The Company expenses these payments in the period incurred as a component of cost of revenue.
Advertising Costs
Advertising costs are expensed in the period incurred (when the advertisement first runs for production costs that are initially capitalized) and represent online marketing, including fees paid to search engines, social media sites and third parties that distribute our ConsumerB2C downloadable applications, offline marketing, which is primarily television advertising, and partner-related payments to those who direct traffic to the Match Group brands.brands within our MTCH and ANGI segments. Advertising expense is $1.2 billion, $1.1 billion $1.0 billion and $1.2$1.0 billion for the years ended December 31, 2018, 2017 2016 and 2015,2016, respectively.
The Company capitalizes and amortizes the costs associated with certain distribution arrangements that require it to pay a fee per access point delivered. These access points are generally in the form of downloadable applications associated with our Consumerdirect-to consumer operations. These fees are amortized over the estimated useful lives of the access points to the extent the Company can reasonably estimate a probable future economic benefit and the period over which such benefit will be realized (generally 18 months). Otherwise, the fees are charged to expense as incurred.
Legal Costs
Legal costs are expensed as incurred.
Income Taxes
The Company accounts for income taxes under the liability method, and deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying values of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided on deferred tax assets if it is determined that it is more likely than not that the deferred tax asset will not be realized. The Company records interest, net of any applicable related income tax benefit, on potential income tax contingencies as a component of income tax expense.
The Company evaluates and accounts for uncertain tax positions using a two-step approach. Recognition (step one) occurs when the Company concludes that a tax position, based solely on its technical merits, is more-likely-than-not to be
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sustainable upon examination. Measurement (step two) determines the amount of benefit that is greater than 50% likely to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. De-recognition of a tax position that was previously recognized would occur when the Company subsequently determines that a tax position no longer meets the more-likely-than-not threshold of being sustained.
On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Tax Act”"Tax Act"). The Tax Act imposes a new minimum tax on global intangible low-taxed income (“GILTI”("GILTI") earned by foreign subsidiaries beginning in 2018. The Financial Accounting Standards Board ("FASB")FASB Staff Q&A, Topic 740 No. 5, Accounting for Global Intangible Low-Taxed Income,, states that an entity canmay make an accounting policy election to either recognize deferred taxes for temporary differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred. The Company intends to electelects to recognize the tax on GILTI as a period expense in the period the tax is incurred.
Earnings Per Share
Basic earnings per share is computed by dividing net earnings attributable to IAC shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if stock options and other commitments to issue common stock were exercised or equity awards vested resulting in the issuance of common stock that could share in the earnings of the Company.
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Foreign Currency Translation and Transaction Gains and Losses
The financial position and operating results of foreign entities whose primary economic environment is based on their local currency are consolidated using the local currency as the functional currency. These local currency assets and liabilities are translated at the rates of exchange as of the balance sheet date, and local currency revenue and expenses of these operations are translated at average rates of exchange during the period. Translation gains and losses are included in accumulated other comprehensive income as a component of shareholders' equity. Transaction gains and losses resulting from assets and liabilities denominated in a currency other than the functional currency are included in the consolidated statement of operations as a component of other income (expense) income,, net. See "Note 19—17—Consolidated Financial Statement Details" for additional information regarding foreign currency exchange gains and losses. Translation gains and losses relating to foreign entities that are liquidated or substantially liquidated are reclassified out of accumulated other comprehensive income (loss) into earnings. Such losses totaled $0.1 million and gains totaled $0.7 million and $9.9 million and $2.2 million, respectively, during the years ended December 31, 2018, 2017 and 2016, respectively, and 2015, and waswere included in "Other income (expense) income,, net" in the accompanying consolidated statement of operations.
Stock-Based Compensation
Stock-based compensation is measured at the grant date based on the fair value of the award and is generally expensed over the requisite service period. See "Note 13—11—Stock-based Compensation" for a discussion of the Company's stock-based compensation plans. Redeemable Noncontrolling Interests
Noncontrolling interests in the consolidated subsidiaries of the Company are ordinarily reported on the consolidated balance sheet within shareholders' equity, separately from the Company's equity. However, securities that are redeemable at the option of the holder and not solely within the control of the issuer must be classified outside of shareholders' equity. Accordingly, all noncontrolling interests that are redeemable at the option of the holder are presented outside of shareholders' equity in the accompanying consolidated balance sheet.
In connection with the acquisition of certain subsidiaries, management of these businesses has retained an ownership interest. The Company is party to fair value put and call arrangements with respect to these interests. These put and call arrangements allow management of these businesses to require the Company to purchase their interests or allow the Company to acquire such interests at fair value, respectively. The put arrangements do not meet the definition of a derivative instrument as the put agreements do not provide for net settlement. These put and call arrangements become exercisable by the Company and the counter-party at various dates in the future. DuringTwo of these arrangements were exercised during both the years ended December 31, 2018 and 2017 2016 and 2015, two, one and
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two of these arrangements respectively, were exercised.was exercised during the year ended December 31, 2016. These put arrangements are exercisable by the counter-party outside the control of the Company. Accordingly, to the extent that the fair value of these interests exceeds the value determined by normal noncontrolling interest accounting, the value of such interests is adjusted to fair value with a corresponding adjustment to additional paid-in capital. During the years ended December 31, 2018, 2017 2016 and 2015,2016, the Company recorded adjustments of $4.1 million, $6.3 million $7.9 million and $23.2$7.9 million, respectively, to increase these interests to fair value. Fair value determinations require high levels of judgment and are based on various valuation techniques, including market comparables and discounted cash flow projections.
Recent Accounting Pronouncements
Accounting Pronouncements not yet adopted by the Company
In May 2014, the FASB issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers, which clarifies the principles for recognizing revenue and develops a common standard for all industries. ASU No. 2014-09 was subsequently amended during 2015, 2016 and 2017; these amendments provide further revenue recognition guidance related to principal versus agent considerations, performance obligations and licensing, narrow-scope improvements and practical expedients.
ASU No. 2014-09 is a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under GAAP. The new standard provides a single principles-based, five-step model to be applied to all contracts with customers. This five-step model includes (1) identifying the contract(s) with the customer, (2) identifying the performance obligations in the contract, (3) determining the transaction price, (4) allocating the transaction price to the performance obligations in the contract and (5) recognizing revenue when each performance obligation is satisfied. More specifically, revenue will be recognized when promised goods or services are transferred to the customer in an amount that reflects the consideration expected in exchange for those goods or services. ASU No. 2014-09 is effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted for interim and annual reporting periods beginning after December 15, 2016. Upon adoption, ASU No. 2014-09 may either be applied retrospectively to each prior period presented or using the modified retrospective approach with the cumulative effect recognized as of the date of initial application.
The Company’s evaluation of the impact of the adoption of ASU No. 2014-09 on its consolidated financial statements is substantially complete. The principal remaining work is a confirmation of the calculation of the cumulative effect of ASU No. 2014-09 as of January 1, 2018, which will be completed during the financial close process for the first quarter of 2018. The adoption of ASU No. 2014-09 is not expected to have a material effect on the Company's consolidated financial statements.
The Company has reached the following determinations.
The Company has adopted ASU No. 2014-09 using the modified retrospective approach effective January 1, 2018. Therefore, the cumulative effect of adoption will be reflected as an adjustment to beginning retained earnings in the Form 10-Q for the period ending March 31, 2018.
Within ANGI Homeservices, the effect of the adoption of ASU No. 2014-09 on HomeAdvisor will be that sales commissions, which represent the incremental direct costs of obtaining a service professional contract, will be capitalized and amortized over the average life of a service professional. These costs were expensed as incurred prior to January 1, 2018. Prior to the Combination, Angie's List capitalized sales commissions and amortized the cost over the term of the applicable advertising contract. Following the Combination, Angie's List accounting policies were conformed to the HomeAdvisor's accounting policies and these costs are expensed as incurred. Following the adoption of ASU No. 2014-09, these costs will be capitalized and amortized over the average life of a service professional.
Within Applications, the primary effect of the adoption of ASU No. 2014-09 will be to accelerate the recognition of the portion of the revenue of certain desktop applications sold by SlimWare that qualify as functional intellectual property under ASU No. 2014-09. This revenue is currently deferred and recognized over the applicable subscription term.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments, which updates certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Under ASU No. 2016-01, certain equity investments will
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
be measured at fair value with changes recognized in net income. ASU No. 2016-01 is effective for reporting periods beginning after December 15, 2017. The Company will adopt ASU No. 2016-01 effective January 1, 2018 and its adoption will not have a material effect on the consolidated financial statements upon adoption. The adoption of ASU No. 2016-01 may increase the volatility of our results of operations as a result of the remeasurement of our cost method investments.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which supersedes existing guidance on accounting for leases in "Leases (Topic 840)" and generally requires all leases to be recognized in the statement of financial position. The provisions of ASU No. 2016-02 are effective for reporting periods beginning after December 15, 2018; early adoption is permitted. The provisions of ASU No. 2016-02 are to be applied using a modified retrospective approach. The Company will adopt ASU No. 2016-02 effective January 1, 2019.
The Company is not a lessor and has no capitalized leases and does not expect to enter into any capitalized leases prior to the adoption of ASU No. 2016-02. Accordingly, the Company does not expect the amount or classification of rent expense in its statement of operations to be affected by ASU No. 2016-02. The primary effect of the adoption of ASU No. 2016-02 will be the recognition of a right of use asset and related liability to reflect the Company's rights and obligations under its operating leases. The Company will also be required to provide the additional disclosures stipulated in ASU No. 2016-02.
The adoption of ASU No. 2016-02 will not have an impact on the leverage calculation set forth in any of the Company's outstanding debt, or the debt of our Match Group and ANGI Homeservices subsidiaries, or our credit agreement or the credit agreement of Match Group because, in each circumstance, the leverage calculations are not affected by the liability that will be recorded upon adoption of the new standard.
While the Company's evaluation of the impact of the adoption of ASU No. 2016-02 on its consolidated financial statements continues, outlined below is a summary of the status of the Company's progress:
the Company has selected a software package to assist in the determination of the right of use asset and related liability as of January 1, 2019 and to provide the required information following the adoption;
the Company has prepared summaries of its leases for input into the software package;
the Company is assessing the other inputs required in connection with the adoption of ASU No. 2016-02; and
the Company is developing its accounting policy, procedures and controls related to the new standard.
The Company does not expect to have a preliminary estimate of the right of use asset and related liability as of the adoption date until the third quarter of 2018.
Accounting Pronouncements adopted by the Company
ASU No. 2014-09, Revenue from Contracts with Customers
In May 2017,2014, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting,2014-09, which provides guidance about the changes to the terms and conditions of a share-based payment award that require an entity to apply modification accounting in "Stock Compensation (Topic 718)."superseded nearly all previous revenue recognition guidance. The provisions ofCompany adopted ASU No. 2017-09 are2014-09 effective January 1, 2018 using the modified retrospective transition method for reporting periods beginning after December 15, 2017; early adoption is permitted. The provisions of ASU No. 2017-09 are to be applied prospectively to an award modified on or after the adoption date. The Company early adopted the provisions of ASU No. 2017-09 during the third quarter of 2017 and the adoption of this standard update did not have a material impact on its consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which clarifies how cash receipts and cash payments in certain transactions are presented and classified on the statement of cash flows. The provisions of ASU No. 2016-15 are effective for reporting periods beginning after December 15, 2017, including interim periods, and will require adoption on a retrospective basis unless it is impracticable to apply, in which case we would be required to apply the amendments prospectivelyopen contracts as of the earliest date practicable; early adoption is permitted. Upon adoption, cash payments made soon after the acquisition date of a business to settle a contingent consideration liability are classified as cash outflows for investing activities. Cash payments which are not made soon after the acquisition date of a business to settle a contingent consideration liability are separated and classified as cash outflows for financing activities upinitial application. The cumulative effect to the amountCompany's retained earnings at January 1, 2018 was an increase of $40.2 million, of which $3.4 million was related to the contingent consideration liability recognized atnoncontrolling interest in ANGI; the acquisition dateadjustment to retained earnings was principally related to the Company’s ANGI and as cashApplications segments.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
outflowsWithin ANGI, the effect of the adoption of ASU No. 2014-09 is that commissions paid to employees pursuant to certain sales incentive programs, which represent the incremental direct costs of obtaining a service professional contract, are now capitalized and amortized over the estimated life of a service professional (also referred to as the estimated customer relationship period). These costs were expensed as incurred prior to January 1, 2018. The cumulative effect of the adoption of ASU No. 2014-09 was the establishment of a current and non-current asset for capitalized sales commissions of $29.7 million and $4.2 million, respectively, and a related deferred tax liability of $8.0 million, resulting in a net increase to retained earnings of $25.9 million on January 1, 2018.
Within Applications, the primary effect of the adoption of ASU No. 2014-09 is to accelerate the recognition of the portion of the revenue of certain desktop applications sold by SlimWare that qualifies as functional intellectual property ("functional IP") under ASU No. 2014-09. This revenue was previously deferred and recognized over the applicable subscription term. The cumulative effect of the adoption of ASU No. 2014-09 for SlimWare was a reduction in deferred revenue of $20.3 million and the establishment of a deferred tax liability of $4.9 million, resulting in a net increase to retained earnings of $15.5 million on January 1, 2018.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table presents the impact of the adoption of ASU No. 2014-09 by segment under Accounting Standards Codification ("ASC") 606, Revenue from operating activitiesContracts with Customers, as reported, and ASC 605, Revenue Recognition, for the year ended December 31, 2018.
|
| | | | | | | | | | | |
| | Under ASC 606
(as reported) | | Under ASC 605 | | Effect of adoption of ASU No. 2014-09 |
| | (In thousands) |
| Revenue by segment: | | | | | |
| Match Group | $ | 1,729,850 |
| | $ | 1,729,850 |
| | $ | — |
|
| ANGI Homeservices | 1,132,241 |
| | 1,132,241 |
| | — |
|
| Vimeo | 159,641 |
| | 160,931 |
| | (1,290 | ) |
| Dotdash | 130,991 |
| | 130,991 |
| | — |
|
| Applications | 582,287 |
| | 581,492 |
| | 795 |
|
| Emerging & Other | 528,250 |
| | 528,250 |
| | — |
|
| Inter-segment eliminations | (368 | ) | | (368 | ) | | — |
|
| Total | $ | 4,262,892 |
| | $ | 4,263,387 |
| | $ | (495 | ) |
| | | | | | |
| Operating costs and expenses by segment: |
| Match Group | $ | 1,176,556 |
| | $ | 1,176,556 |
| | $ | — |
|
| ANGI Homeservices | 1,068,335 |
| | 1,073,275 |
| | (4,940 | ) |
| Vimeo | 195,235 |
| | 196,212 |
| | (977 | ) |
| Dotdash | 112,213 |
| | 112,213 |
| | — |
|
| Applications | 487,453 |
| | 484,644 |
| | 2,809 |
|
| Emerging & Other | 498,286 |
| | 498,286 |
| | — |
|
| Corporate | 159,675 |
| | 159,675 |
| | — |
|
| Total | $ | 3,697,753 |
| | $ | 3,700,861 |
| | $ | (3,108 | ) |
| | | | | | |
| Operating income (loss) by segment: |
| Match Group | $ | 553,294 |
| | $ | 553,294 |
| | $ | — |
|
| ANGI Homeservices | 63,906 |
| | 58,966 |
| | 4,940 |
|
| Vimeo | (35,594 | ) | | (35,281 | ) | | (313 | ) |
| Dotdash | 18,778 |
| | 18,778 |
| | — |
|
| Applications | 94,834 |
| | 96,848 |
| | (2,014 | ) |
| Emerging & Other | 29,964 |
| | 29,964 |
| | — |
|
| Corporate | (160,043 | ) | | (160,043 | ) | | — |
|
| Total | $ | 565,139 |
| | $ | 562,526 |
| | $ | 2,613 |
|
| | | | | | |
| Net earnings | $ | 757,747 |
| | $ | 755,741 |
| | $ | 2,006 |
|
ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities
In January 2016, the FASB issued ASU No. 2016-01, which updates certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Under ASU No. 2016-01, equity securities, other than those of our consolidated subsidiaries and those accounted for under the equity method, will be measured at fair value with changes in fair
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
value recognized in the statement of operations each reporting period. ASU No. 2016-01 is effective for reporting periods beginning after December 15, 2017. There was no cumulative impact to the Company's consolidated financial statements upon adoption of ASU No. 2016-01 on January 1, 2018. The adoption of ASU No. 2016-01 increases the volatility of the Company's other income (expense), net as a result of the remeasurement of these instruments. For the year ended December 31, 2018, other income (expense), net includes net unrealized gains related to certain equity securities that were adjusted to fair value in the second quarter of 2018 in accordance with ASU No. 2016-01 of $126.4 million. See "Note 6—Financial Instruments" for additional information. ASU No. 2016-18, Restricted Cash
In November 2016, the FASB issued ASU No. 2016-18, which requires companies to explain the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. Therefore, amounts generally described as restricted cash or restricted cash equivalents are combined with unrestricted cash and cash equivalents when reconciling the beginning and end of period balances on the statement of cash flows. ASU No. 2016-18 also requires companies to disclose the nature of their restricted cash and restricted cash equivalents balances. Additionally, when cash, cash equivalents, restricted cash, and restricted cash equivalents are presented within different captions on the balance sheet, a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet is required. ASU No. 2016-18 is effective for reporting periods beginning after December 15, 2017. The Company's adoption of ASU No. 2016-18 effective January 1, 2018, on a retrospective basis, did not have a material effect on its consolidated financial statements.
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheet to the total amounts shown in the consolidated statement of cash flows:
|
| | | | | | | | | | | | | | | |
| | December 31, 2018 | | December 31, 2017 | | December 31, 2016 | | December 31, 2015 |
| | (In thousands) |
| Cash and cash equivalents | $ | 2,131,632 |
| | $ | 1,630,809 |
| | $ | 1,329,187 |
| | $ | 1,481,447 |
|
| Restricted cash included in other current assets | 1,633 |
| | 2,873 |
| | 20,464 |
| | 126 |
|
| Restricted cash included in other assets | 420 |
| | — |
| | 10,548 |
| | 20,100 |
|
| Total cash, cash equivalents and restricted cash as shown on the consolidated statement of cash flows | $ | 2,133,685 |
| | $ | 1,633,682 |
| | $ | 1,360,199 |
| | $ | 1,501,673 |
|
Restricted cash at December 31, 2018 primarily consists of a cash collateralized letter of credit and a deposit related to corporate credit cards.
Restricted cash at December 31, 2017 primarily supports a letter of credit to a supplier, which was released to the Company in the second quarter of 2018.
Restricted cash at December 31, 2016 primarily included funds held in escrow for the redemption and repurchase of IAC Senior Notes and the MyHammer tender offer. In the first quarter of 2017, the Senior Notes were redeemed and repurchased and the funds held in escrow for the MyHammer tender offer were returned to the Company.
Restricted cash at December 31, 2015 primarily includes the repurchase of IAC Senior Notes.
ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
In August 2018, the FASB issued ASU No. 2018-15, which clarifies the accounting for implementation costs in a cloud computing arrangement that is a services contract to follow the internal-use software guidance of ASC 350-40, Intangibles - Goodwill and Other, Internal-use Software. The provisions of ASU No. 2018-15 are effective for reporting periods beginning after December 15, 2019, including interim periods and early adoption is permitted, including adoption in any excess.interim period. The provisions of ASU No. 2018-15 may be adopted prospectively to all implementation costs incurred after the date of
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
adoption or retrospectively. The Company early adopted the provisions of ASU No. 2016-152018-15 on JanuaryOctober 1, 2017. As2018 prospectively and the adoption of this standard did not have material impact on its consolidated financial statements.
ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting
In June 2018, the FASB issued ASU No. 2018-07, which largely aligns the measurement and classification guidance for share-based payments granted to non-employees with the guidance for share-based payments granted to employees. The new guidance supersedes Subtopic 505-50, Equity - Equity-Based payments to Nonemployees. ASU No. 2018-07 is effective for reporting periods beginning after December 15, 2018, with early adoption permitted. The Company adopted ASU No. 2018-07 effective April 1, 2018 and its adoption did not have a result, $11.1 million of an acquisition-related contingent consideration payment of $15.0 million, which was in excessmaterial effect on its consolidated financial statements. The effect of the liability initially recognized atadoption of ASU No. 2018-07 will be to minimize the acquisition date, has been classified as a cash outflow within net cash provided by operating activitiesvolatility of expense related to stock-based awards to non-employees in the accompanying consolidated statement of cash flows forfuture.
Accounting Pronouncement not yet adopted by the year ended December 31, 2017.Company
ASU No. 2016-02, Leases (Topic 842)
In MarchFebruary 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements2016-02, which supersedes existing guidance on accounting for leases and generally requires all leases to Employee Share-Based Payment Accounting.be recognized in the statement of financial position. The Company adopted the provisions of ASU No. 2016-09 on2016-02 are effective for reporting periods beginning after December 15, 2018. The Company will adopt the new lease guidance effective January 1, 2017. Excess tax benefits or deficiencies related to equity awards to employees upon the exercise of stock options and the vesting of restricted stock units after January 1, 2017 are (i) reflected in the consolidated statement of operations as a component of the provision for income taxes, rather than recognized in equity (adopted on a prospective basis), and (ii) reflected as operating, rather than financing, cash flows in our consolidated statement of cash flows (adopted on a retrospective basis). Upon adoption, the calculation of fully diluted shares excludes excess tax benefits from the assumed proceeds in applying the treasury stock method; previously such benefits were included in the calculation. This change increased fully diluted shares by approximately 2.4 million shares for the year ended December 31, 2017. The Company continues to account for forfeitures using an estimated forfeiture rate.
2019. In January 2017,July 2018, the FASB issued ASU No. 2017-04,2018-11, IntangiblesLeases (Topic 842): Targeted Improvements, —Goodwillwhich provides the option of an additional transition method that allows entities to initially apply the new lease guidance at the adoption date and Other (Topic 350): Simplifyingrecognize a cumulative-effect adjustment to the Test for Goodwill Impairment, which is intended to simplifyopening balance of retained earnings in the accounting for goodwill impairment. The guidance eliminates the requirement to calculate the implied fair valueperiod of goodwill under the two-step impairment test to measure a goodwill impairment charge.adoption. The Company early adoptedexpects to implement the provisionstransition method option provided by ASU No. 2018-11.
The Company is not a lessor, has no capitalized leases and does not expect to enter into any capitalized leases prior to the adoption of ASU No. 2017-04 on January 1, 2017 and2016-02. Accordingly, the Company does not expect the amount or classification of rent expense in its statement of operations to be affected by the adoption of this standard update didASU No. 2016-02. The primary effect of the adoption of ASU No. 2016-02 will be the recognition of a right of use asset and related lease liability to reflect the Company's rights and obligations under its operating leases. The Company will also be required to provide the additional disclosures stipulated in ASU No. 2016-02.
The adoption of ASU No. 2016-02 will not have an impact on the leverage calculation set forth in any of the agreements governing the outstanding debt of the Company or its MTCH and ANGI subsidiaries, or our credit agreement or the credit agreement of MTCH and ANGI because, in each circumstance, the leverage calculations are not affected by the lease liability that will be recorded upon adoption of the new standard.
While the Company's evaluation of the impact of the adoption of ASU No. 2016-02 on its consolidated financial statements continues, outlined below is a summary of the status of the Company's progress:
the Company has selected a software solution to implement ASU No. 2016-02;
the Company has input lease summaries into the software solution;
the Company is assessing the other inputs required in connection with the adoption of ASU No. 2016-02; and
the Company is developing its accounting policy, procedures and internal controls related to the new standard.
Development of the selected software solution by the third-party vendor is ongoing. While significant progress has been made, certain key deliverables remain, which the Company expects to be delivered in March 2019. The Company's ability to adopt ASU No. 2016-02 in an efficient and effective manner is contingent upon the delivery and testing of these remaining deliverables. The Company has been able to develop a preliminary estimate of the impact of the adoption of ASU No. 2016-02 through the use of the third-party software solution, supplemented by our user acceptance testing. This preliminary estimate is that a $160 million right of use asset and related lease liability will be recognized on the Company's consolidated balance sheet upon adoption. The Company does not expect a material impact on its consolidated financial statements.results of operations or cash flows.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 3—INCOME TAXES
U.S. and foreign earnings (loss) before income taxes and noncontrolling interests are as follows:
| | | | Years Ended December 31, | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 | 2018 | | 2017 | | 2016 |
| | (In thousands) | (In thousands) |
| U.S. | $ | (52,606 | ) | | $ | (248,433 | ) | | $ | 79,656 |
| $ | 630,417 |
| | $ | (52,606 | ) | | $ | (248,433 | ) |
| Foreign | 119,564 |
| | 167,348 |
| | 63,234 |
| 131,141 |
| | 119,564 |
| | 167,348 |
|
| Total | $ | 66,958 |
| | $ | (81,085 | ) | | $ | 142,890 |
| $ | 761,558 |
| | $ | 66,958 |
| | $ | (81,085 | ) |
The components of the (benefit)income tax provision for income taxes(benefit) are as follows:
| | | | Years Ended December 31, | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 | 2018 | | 2017 | | 2016 |
| | (In thousands) | (In thousands) |
| Current income tax (benefit) provision: | | | | | | |
| Current income tax provision (benefit): | | | | | | |
| Federal | $ | (31,844 | ) | | $ | 23,343 |
| | $ | 67,505 |
| $ | (2,849 | ) | | $ | (31,844 | ) | | $ | 23,343 |
|
| State | 1,964 |
| | 3,662 |
| | 7,785 |
| 2,569 |
| | 1,964 |
| | 3,662 |
|
| Foreign | 24,108 |
| | 27,242 |
| | 14,012 |
| 38,770 |
| | 24,108 |
| | 27,242 |
|
| Current income tax (benefit) provision | (5,772 | ) | | 54,247 |
| | 89,302 |
| |
| Deferred income tax (benefit) provision: | | | | | | |
| Current income tax provision (benefit) | | 38,490 |
| | (5,772 | ) | | 54,247 |
|
| | | | | | | |
| Deferred income tax provision (benefit): | | | | | | |
| Federal | (255,477 | ) | | (100,798 | ) | | (50,254 | ) | (21,792 | ) | | (255,477 | ) | | (100,798 | ) |
| State | (28,364 | ) | | (9,518 | ) | | (3,727 | ) | 172 |
| | (28,364 | ) | | (9,518 | ) |
| Foreign | (1,437 | ) | | (8,865 | ) | | (5,805 | ) | (13,059 | ) | | (1,437 | ) | | (8,865 | ) |
| Deferred income tax (benefit) provision | (285,278 | ) | | (119,181 | ) | | (59,786 | ) | |
| Income tax (benefit) provision | $ | (291,050 | ) | | $ | (64,934 | ) | | $ | 29,516 |
| |
| Deferred income tax benefit | | (34,679 | ) | | (285,278 | ) | | (119,181 | ) |
| Income tax provision (benefit) | | $ | 3,811 |
| | $ | (291,050 | ) | | $ | (64,934 | ) |
The tax provision for the year ended December 31, 2018 includes a $143.3 million benefit for excess tax deductions attributable to stock-based compensation. Of this amount, $142.2 million reduced income taxes payable and $1.1 million increased the deferred tax asset for net operating losses ("NOLs"). The deferred tax asset for NOLs was increased by $361.8 million for the year ended December 31, 2017 for excess tax deductions attributable to stock-based compensation. The related income tax benefit was recorded as a component of the deferred income tax benefit.The current income tax payable was reduced by $51.8 million and $56.4 million for the yearsyear ended December 31, 2016 and 2015, respectively, for excess tax deductions attributable to stock-based compensation. For the yearsyear ended December 31, 2016, and 2015, the related income tax benefits were recorded as increases to additional paid-in capital.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Income taxes receivable (payable) and deferred tax assets (liabilities) are included in the following captions in the accompanying consolidated balance sheet at December 31, 20172018 and 2016:2017:
| | | | December 31, | December 31, |
| | 2017 | | 2016 | 2018 | | 2017 |
| | (In thousands) | (In thousands) |
| Income taxes receivable (payable): | | | | | | |
| Other current assets | $ | 33,239 |
| | $ | 41,352 |
| $ | 10,132 |
| | $ | 33,239 |
|
| Other non-current assets | 1,949 |
| | 1,615 |
| 11,401 |
| | 1,949 |
|
| Accrued expenses and other current liabilities | (11,798 | ) | | (5,788 | ) | (12,745 | ) | | (11,798 | ) |
| Income taxes payable | (25,624 | ) | | (33,528 | ) | (37,584 | ) | | (25,624 | ) |
| Net income taxes (payable) receivable | $ | (2,234 | ) | | $ | 3,651 |
| |
| Net income taxes payable | | $ | (28,796 | ) | | $ | (2,234 | ) |
| | | | | | | |
| Deferred tax assets (liabilities): | | | | | | |
| Other non-current assets | $ | 66,321 |
| | $ | 2,511 |
| $ | 64,786 |
| | $ | 66,321 |
|
| Deferred income taxes | (35,070 | ) | | (228,798 | ) | (23,600 | ) | | (35,070 | ) |
| Net deferred tax assets (liabilities) | $ | 31,251 |
| | $ | (226,287 | ) | |
| Net deferred tax assets | | $ | 41,186 |
| | $ | 31,251 |
|
The tax effects of cumulative temporary differences that give rise to significant deferred tax assets and deferred tax liabilities are presented below. The valuation allowance relates to deferred tax assets for which it is more likely than not that the tax benefit will not be realized.
| | | | December 31, | December 31, |
| | 2017 | | 2016 | 2018 | | 2017 |
| | (In thousands) | (In thousands) |
| Deferred tax assets: | | | | | | |
| Accrued expenses | $ | 22,234 |
| | $ | 40,273 |
| $ | 23,525 |
| | $ | 22,234 |
|
| NOL carryforwards | 292,812 |
| | 63,948 |
| 291,639 |
| | 292,812 |
|
| Tax credit carryforwards | 78,715 |
| | 11,570 |
| 89,397 |
| | 78,715 |
|
| Stock-based compensation | 77,976 |
| | 87,914 |
| 82,698 |
| | 77,976 |
|
| Equity method investments | 12,066 |
| | 17,455 |
| |
| Intangible and other assets | — |
| | 13,708 |
| |
| Other | 30,265 |
| | 30,044 |
| 30,106 |
| | 42,331 |
|
| Total deferred tax assets | 514,068 |
| | 264,912 |
| 517,365 |
| | 514,068 |
|
| Less valuation allowance | (132,598 | ) | | (88,170 | ) | (115,853 | ) | | (132,598 | ) |
| Net deferred tax assets | 381,470 |
| | 176,742 |
| 401,512 |
| | 381,470 |
|
| | | | | |
| Deferred tax liabilities: | | | | | | |
| Investment in subsidiaries | (247,167 | ) | | (385,474 | ) | (238,650 | ) | | (247,167 | ) |
| Intangible and other assets | (87,811 | ) | | — |
| |
| Intangibles | | (77,669 | ) | | (87,811 | ) |
| Fair value investment | | (22,927 | ) | | — |
|
| Other | (15,241 | ) | | (17,555 | ) | (21,080 | ) | | (15,241 | ) |
| Total deferred tax liabilities | (350,219 | ) | | (403,029 | ) | (360,326 | ) | | (350,219 | ) |
| Net deferred tax assets (liabilities) | $ | 31,251 |
| | $ | (226,287 | ) | |
| Net deferred tax assets | | $ | 41,186 |
| | $ | 31,251 |
|
At December 31, 2017,2018, the Company has federal and state NOLs of $850.2$856.0 million and $859.4$698.7 million, respectively. TheIf not utilized, $13.9 million of federal NOLs if not utilized,can be carried forward indefinitely, and the remainder will expire at various times primarily between 2023 and 2037, and the state NOLs, if not utilized, will expire at various times between 20182019 and 2037. Federal and state NOLs2038.
Contents
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Federal and state NOLs of $569.9 million and $350.4 million, respectively, can be used against future taxable income without restriction and the remaining NOLs will be subject to limitations under Section 382 of the Internal Revenue Code, separate return limitations, and applicable state law. At December 31, 2017,2018, the Company has foreign NOLs of $378.2$383.4 million available to offset future income. Of these foreign NOLs, $355.4$352.0 million can be carried forward indefinitely and $22.8$31.4 million will expire at various times between 20182019 and 2037.2038. During 2017,2018, the Company recognized tax benefits related to NOLs of $257.7$9.5 million. Included in this amount is $79.2 million of tax benefits of acquired attributes which was recorded as a reduction in goodwill. At December 31, 2017, the Company has federal and state capital losses of $11.3 million and $30.9 million, respectively. If not utilized, the capital losses will expire between 2020 and 2021. Utilization of capital losses will be limited to the Company's ability to generate future capital gains.
At December 31, 2017,2018, the Company has tax credit carryforwards of $87.6$105.4 million. Of this amount, $49.3$53.2 million relates to credits for foreign taxes, of which $41.8 million was generated from the provisional Transition Tax calculation (described below), $31.1$48.3 million relates to credits for research activities and $7.2$3.9 million relates to various other credits. Of these credit carryforwards, $15.2$24.2 million can be carried forward indefinitely and $72.4$81.2 million will expire between 20182019 and 2037.2038.
The Company regularly assesses the realizability of deferred tax assets considering all available evidence including, to the extent applicable, the nature, frequency and severity of prior cumulative losses, forecasts of future taxable income, tax filing status, the duration of statutory carryforward periods, available tax planning and historical experience. As of December 31, 2017, the Company has a gross deferred tax asset of $130.0 million that the Company expects to fully utilize on a more likely than not basis.
During 2017,2018, the Company's valuation allowance increaseddecreased by $44.4$16.7 million primarily due to a decrease in foreign tax credits subject to valuation allowance and the establishmentrealization of foreign NOLs related to a recent acquisition.previously unbenefited capital losses. At December 31, 2017,2018, the Company has a valuation allowance of $132.6$115.9 million related to the portion of tax loss carryforwards, foreign tax credits and other items for which it is more likely than not that the tax benefit will not be realized.
A reconciliation of the income tax provision (benefit) provision to the amounts computed by applying the statutory federal income tax rate to earnings before income taxes is shown as follows:
| | | | Years Ended December 31, | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 | 2018 | | 2017 | | 2016 |
| | (In thousands) | (In thousands) |
| Income tax (benefit) provision at the federal statutory rate of 35% | $ | 23,435 |
| | $ | (28,446 | ) | | $ | 50,006 |
| |
| Income tax provision (benefit) at the federal statutory rate of 21% (35% for 2017 and 2016) | | $ | 159,927 |
| | $ | 23,435 |
| | $ | (28,446 | ) |
| State income taxes, net of effect of federal tax benefit | | 14,887 |
| | 86 |
| | (3,880 | ) |
| Stock-based compensation | | (129,654 | ) | | (358,901 | ) | | 3,998 |
|
| Realization of certain deferred tax assets | | (13,200 | ) | | (3,133 | ) | | — |
|
| Transition tax | 62,667 |
| | — |
| | — |
| (9,190 | ) | | 62,667 |
| | — |
|
| Stock-based compensation | (358,901 | ) | | 3,998 |
| | 1,787 |
| |
| Deferred tax adjustment for enacted changes in tax laws and rates | | (7,488 | ) | | 705 |
| | (4,594 | ) |
| Research credit | | (4,023 | ) | | (5,304 | ) | | (2,231 | ) |
| Foreign income taxed at a different statutory tax rate | (14,725 | ) | | (27,115 | ) | | (10,382 | ) | (3,206 | ) | | (14,725 | ) | | (27,115 | ) |
| State income taxes, net of effect of federal tax benefit | 86 |
| | (3,880 | ) | | 2,208 |
| |
| Realization of certain deferred tax assets | (3,133 | ) | | — |
| | (22,440 | ) | |
| Non-taxable sale and non-deductible goodwill associated with ShoeBuy | — |
| | (13,142 | ) | | 4,920 |
| — |
| | — |
| | (13,142 | ) |
| Goodwill impairment of Publishing | — |
| | 10,649 |
| | — |
| |
| Research credit | (5,304 | ) | | (2,231 | ) | | (2,354 | ) | |
| Goodwill impairment of Dotdash and Emerging & Other | | — |
| | — |
| | 10,649 |
|
| Non-deductible impairments for certain cost method investments | 2,669 |
| | 3,489 |
| | 2,341 |
| — |
| | 2,669 |
| | 3,489 |
|
| Deferred tax adjustment for enacted changes in tax laws and rates | 705 |
| | (4,594 | ) | | — |
| |
| Other, net | 1,451 |
| | (3,662 | ) | | 3,430 |
| (4,242 | ) | | 1,451 |
| | (3,662 | ) |
| Income tax (benefit) provision | $ | (291,050 | ) | | $ | (64,934 | ) | | $ | 29,516 |
| |
| Income tax provision (benefit) | | $ | 3,811 |
| | $ | (291,050 | ) | | $ | (64,934 | ) |
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A reconciliation of the beginning and ending amount of unrecognized tax benefits, including penalties but excluding interest, is as follows:
| | | | December 31, | December 31, |
| | 2017 | | 2016 | | 2015 | 2018 | | 2017 | | 2016 |
| | (In thousands) | (In thousands) |
| Balance at January 1 | $ | 38,372 |
| | $ | 40,808 |
| | $ | 30,386 |
| $ | 36,732 |
| | $ | 38,372 |
| | $ | 40,808 |
|
| Additions based on tax positions related to the current year | 2,050 |
| | 2,033 |
| | 4,227 |
| 10,334 |
| | 2,050 |
| | 2,033 |
|
| Additions for tax positions of prior years | 1,994 |
| | 2,676 |
| | 14,467 |
| 4,716 |
| | 1,994 |
| | 2,676 |
|
| Reductions for tax positions of prior years | (3,761 | ) | | (743 | ) | | (1,556 | ) | (400 | ) | | (3,761 | ) | | (743 | ) |
| Settlements | — |
| | (5,107 | ) | | — |
| — |
| | — |
| | (5,107 | ) |
| Expiration of applicable statutes of limitations | (1,923 | ) | | (1,295 | ) | | (6,716 | ) | (2,507 | ) | | (1,923 | ) | | (1,295 | ) |
| Balance at December 31 | $ | 36,732 |
| | $ | 38,372 |
| | $ | 40,808 |
| $ | 48,875 |
| | $ | 36,732 |
| | $ | 38,372 |
|
The Company recognizes interest and, if applicable, penalties related to unrecognized tax benefits in the income tax provision. Included in the income tax provision for the years ended December 31, 2018, 2017 2016 and 20152016 is a $0.3 million expense, $0.1 million benefit $0.4 million expense and $0.1$0.4 million expense, respectively, net of related deferred taxes of $0.1 million, less than $0.1 million $0.2 million and less than $0.1$0.2 million, respectively, for interest on unrecognized tax benefits. At December 31, 20172018 and 2016,2017, the Company has accrued $3.0$3.4 million and $2.6$3.0 million, respectively, for the payment of interest. At both December 31, 20172018 and 2016,2017, the Company has accrued $1.4 million and $1.7 million, respectively, for penalties.
The Company is routinely under audit by federal, state, local and foreign authorities in the area of income tax. These audits include questioning the timing and the amount of income and deductions and the allocation of income and deductions among various tax jurisdictions. The Internal Revenue Service ("IRS") is currently auditing the Company’s federal income tax returns for the years ended December 31, 2010 through 2012.2016. The statute of limitations for the years 2010 through 20122015 has been extended to June 30, 2019, and the statute of limitations for the year 2013 has been extended to June 30, 2018.December 31, 2019. Various other jurisdictions are open to examination for tax years beginning with 2009. Income taxes payable include reservesunrecognized tax benefits considered sufficient to pay assessments that may result from examination of prior year tax returns. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and which may not accurately anticipate actual outcomes.outcomes and, therefore, may require periodic adjustment. Although management currently believes changes to reservesin unrecognized tax benefits from period to period and differences between amounts paid, if any, upon resolution of issues raised in audits and amounts previously provided will not have a material impact on the liquidity, results of operations, or financial condition of the Company, these matters are subject to inherent uncertainties and management’s view of these matters may change in the future.
At December 31, 20172018 and 2016,2017, unrecognized tax benefits, including interest and penalties, were $39.7$52.3 million and $41.0$39.7 million, respectively. If unrecognized tax benefits at December 31, 20172018 are subsequently recognized, $37.2$49.1 million, net of related deferred tax assets and interest, would reduce income tax expense. The comparable amount as of December 31, 20162017 was $37.7$37.2 million. The Company believes that it is reasonably possible that its unrecognized tax benefits could decrease by $13.2$21.6 million by December 31, 2018,2019, due to expirations of statutes of limitations; $12.9limitations or other settlements; $21.6 million of which would reduce the income tax provision.
On December 22, 2017, the U.S. enacted the Tax Act. The Tax Act subjectssubjected to U.S. taxation certain previously deferred earnings of foreign subsidiaries as of December 31, 2017 (“("Transition Tax”Tax") and implementsimplemented a number of changes that taketook effect on January 1, 2018, including but not limited to, a reduction of the U.S. federal corporate tax rate from 35% to 21% and a new minimum tax on GILTI earned by foreign subsidiaries. The Company’s income tax provision for the year ended December 31, 2017 includes an expense of $63.8 million related to the Tax Act, of which, $62.7 million relates to the Transition Tax and $1.1 million relates to the remeasurement of U.S. net deferred tax assets due to the reduction in the corporate income tax rate. The Company has sufficient current year NOLs to offset the taxable income resulting from the Transition Tax and, therefore, will not be required to pay the one-time Transition Tax.
The Transition Tax on deemed repatriated foreign earnings is a tax on previously untaxed accumulated and current earnings and profits ("E&P") of the Company's foreign subsidiaries. To determine the amount of the Transition Tax, the
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Company must determine, among other factors, the amount of post-1986 E&P of its foreign subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. The Company was able to make a reasonable estimate of the Transition Tax and has recorded a provisional tax expense in the fourth quarter of 2017. In the third quarter of 2018, the Company finalized this calculation, which resulted in a $9.2 million reduction in the Transition Tax. The net reduction in the Transition Tax expensewas due primarily to the utilization of $62.7 million. Anyadditional foreign tax credits and a reduction in state taxes, partially offset by additional taxable earnings and profits of our foreign subsidiaries based on recently issued IRS guidance. The adjustment of the Company'sCompany’s provisional tax expense will be reflectedwas recorded as a change in estimate in its results in the period in which the change in estimate is made in accordance with Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act. The, which is also included in the FASB issued ASU No. 2018-05, Income Taxes (Topic 740), Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 ("SAB
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
118"), whichwasissued and adopted by the Company is continuing to gather additional information to more precisely computein March 2018. Despite the amountcompletion of the TransitionCompany’s accounting for the Tax and expects to finalize its calculation prior to the filingAct under SAB 118, many aspects of its U.S. federal tax return, which is due on October 15, 2018. The additional information includes, but is not limited to, the allocation and sourcing of income and deductions in 2017 for purposes of calculating the utilization of foreign tax credits. In addition, our estimates may also be impacted and adjusted as the law is clarifiedremain unclear and additionalwe expect ongoing guidance isto be issued at both the federal and state levels. We will continue to monitor and assess the impact of any new developments.
As ofAt December 31, 2017,2018, all of the Company has $452.2 million in foreignCompany’s international cash of which approximately $420.2 million can be repatriated without any significant tax consequences as it has been substantially subjected to U.S. income tax under the Transition Tax imposed by the Tax Act.consequences. The Company has not provided for approximately $7.9$1.0 million of foreign deferred taxes for the $101.2$103.1 million of the foreign cash earnings that is indefinitely reinvested outside the U.S. The Company reassessreassesses its intention to remit or permanently reinvest these cash earnings each reporting period; any required adjustment to the income tax provision would be reflected in the period that the Company changes this judgment.
intention.
NOTE 4—BUSINESS COMBINATION
On September 29, 2017, the Company completed the combination of the businesses in the Company's HomeAdvisor segment and Angie's List under a new publicly traded company called ANGI Homeservices. Through the Combination, ANGI Homeservices acquired 100% of the common stock of Angie's List on September 29, 2017 for a total purchase price valued at $781.4 million. Angie’s List is a nationwide marketplace for local services where consumers can research, hire, rate and review the providers of these services. Ratings and reviews assist members in identifying and hiring a provider for their local service needs. Angie’s List's services are provided in markets located across the continental United States.
The purchase price of $781.4 million was determined based on the sum of (i) the fair value of the 61.3 million shares of Angie's List common stock outstanding immediately prior to the Combination based on the closing stock price of Angie's List common stock on the NASDAQ on September 29, 2017 of $12.46 per share; (ii) the cash consideration of $1.9 million paid to holders of Angie's List common stock who elected to receive $8.50 in cash per share; and (iii) the fair value of vested equity awards (including the pro rata portion of unvested awards attributable to pre-combination services) outstanding under Angie's List stock plans on September 29, 2017. Each stock option to purchase shares of Angie's List common stock that was outstanding immediately prior to the effective time of the Combination was, as of the effective time of the Combination, converted into an option to purchase (i) that number of Class A shares of ANGI Homeservices equal to the total number of shares of Angie's List common stock subject to such Angie's List option immediately prior to the effective time of the Combination, (ii) at a per-share exercise price equal to the exercise price per share of Angie's List common stock at which such Angie's List option was exercisable immediately prior to the effective time of the Combination. Each award of Angie's List restricted stock units that was outstanding immediately prior to the effective time of the Combination was, as of the effective time of the Combination, converted into an ANGI Homeservices restricted stock unit award with respect to a number of Class A shares of ANGI Homeservices equal to the total number of shares of Angie's List common stock subject to such Angie's List restricted stock unit award immediately prior to the effective time of the Combination.
The table below summarizes the purchase price:
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
| | | |
| | Angie's List |
| | (In thousands) |
| Class A common stock | $ | 763,684 |
|
| Cash consideration for holders who elected to receive $8.50 in cash per share of Angie's List common stock | 1,913 |
|
| Fair value of vested and pro rata portion of unvested stock options attributable to pre-combination services | 11,749 |
|
| Fair value of the pro rata portion of unvested restricted stock units attributable to pre-combination services | 4,038 |
|
| Total purchase price | $ | 781,384 |
|
The financial results of Angie's List are included in the Company's consolidated financial statements, within the ANGI Homeservices segment, beginning September 29, 2017. For the year ended December 31, 2017, the Company included $58.9 million of revenue and $21.8 million of net loss in its consolidated statement of operations related to Angie's List. The net loss of Angie's List reflects $28.7 million in stock-based compensation expense related to (i) the acceleration of previously issued Angie's List equity awards held by employees terminated in connection with the Combination and (ii) the expense related to previously issued Angie's List equity awards, severance and retention costs of $19.8 million related to the Combination and a reduction in revenue of $7.8 million due to the write-off of deferred revenue related to the Combination.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The table below summarizes the fair values of the assets acquired and liabilities assumed at the date of combination:
|
| | | |
| | Angie's List |
| | (In thousands) |
| Cash and cash equivalents | $ | 44,270 |
|
| Other current assets | 11,280 |
|
| Property and equipment | 16,341 |
|
| Goodwill | 543,674 |
|
| Intangible assets | 317,300 |
|
| Total assets | 932,865 |
|
| Deferred revenue | (32,595 | ) |
| Other current liabilities | (46,150 | ) |
| Long-term debt—related party | (61,498 | ) |
| Deferred income taxes | (9,833 | ) |
| Other long-term liabilities | (1,405 | ) |
| Net assets acquired | $ | 781,384 |
|
The purchase price was based on the expected financial performance of Angie's List, not on the value of the net identifiable assets at the time of combination. This resulted in a significant portion of the purchase price being attributed to goodwill because Angie's List is complementary and synergistic to the other North America businesses of ANGI Homeservices.
The fair values of the identifiable intangible assets acquired at the date of combination are as follows:
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | Angie's List | Angie's List |
| | (In thousands) | | Weighted-average useful life (years) | (In thousands) | | Weighted-Average Useful Life (Years) |
| Indefinite-lived trade name and trademarks | $ | 137,000 |
| | Indefinite | $ | 137,000 |
| | Indefinite |
| Service professionals | 90,500 |
| | 3 | 90,500 |
| | 3 |
| Developed technology | 63,900 |
| | 6 | 63,900 |
| | 6 |
| Memberships | 15,900 |
| | 3 | 15,900 |
| | 3 |
| User base | 10,000 |
| | 1 | 10,000 |
| | 1 |
| Total identifiable intangible assets acquired | $ | 317,300 |
| | $ | 317,300 |
| |
Other current assets, current liabilities and other long-term liabilities of Angie's List were reviewed and adjusted to their fair values at the date of combination, as necessary. The fair value of deferred revenue was determined using an income approach that utilized a cost to fulfill analysis. The fair value of the trade name and trademarks was determined using an income approach that utilized the relief from royalty methodology. The fair values of developed technology and user base were determined using a cost approach that utilized the cost to replace methodology. The fair values of the service professionals and memberships were determined using an income approach that utilized the excess earnings methodology. The valuations of deferred revenue and intangible assets incorporate significant unobservable inputs and require significant judgment and estimates, including the amount and timing of future cash flows, cost and profit margins related to deferred revenue and the determination of royalty and discount rates. The amount attributed to goodwill is not tax deductible.
Unaudited Pro forma financial informationForma Financial Information
The unaudited pro forma financial information in the table below presents the combined results of the Company and Angie's List as if the Combination had occurred on January 1, 2016. The unaudited pro forma financial information includes
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
adjustments required under the acquisition method of accounting and is presented for informational purposes only and is not necessarily indicative of the results that would have been achieved had the Combination actually occurred on January 1, 2016. For the year ended December 31, 2017, pro forma adjustments include (i) reductions in stock-based compensation expense of $78.0$77.1 million and transaction related costs of $34.1 million because they are one-time in nature and will not have a continuing impact on operations; and (ii) an increase in amortization of intangibles of $31.9 million. The stock-based compensation expense is related to the modification of previously issued HomeAdvisor vested equity awards and previously issued Angie's List equity awards, both of which were converted into ANGI Homeservices' equity awards in the Combination, and the acceleration of previously issuedcertain converted equity awards resulting from the termination of Angie's List equity awards held by employees terminated in connection with the Combination. The transaction related costs include severance and retention costs of $19.8 million related to the Combination. For the year ended December 31, 2016, pro forma adjustments include a reduction in revenue of $34.1 million due to the write-off of deferred revenue at the assumed date of acquisition as well as increases in stock-based compensation expense of $81.4 million and amortization of intangibles of $56.1 million.
|
| | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
| | (In thousands) |
| Revenue | $ | 3,529,600 |
| | $ | 3,429,105 |
|
| Net earnings (loss) attributable to IAC shareholders | $ | 364,496 |
| | $ | (143,133 | ) |
| Basic earnings (loss) per share attributable to IAC shareholders | $ | 4.55 |
| | $ | (1.79 | ) |
| Diluted earnings (loss) per share attributable to IAC shareholders | $ | 4.27 |
| | $ | (1.79 | ) |
|
| | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 |
| | (In thousands, except per share data) |
| Revenue | $ | 3,529,600 |
| | $ | 3,429,105 |
|
| Net earnings (loss) attributable to ANGI Homeservices Inc. shareholders | $ | 364,496 |
| | $ | (143,133 | ) |
| Basic earnings (loss) per share attributable to ANGI Homeservices Inc. shareholders | $ | 4.55 |
| | $ | (1.79 | ) |
| Diluted earnings (loss) per share attributable to ANGI Homeservices Inc. shareholders | $ | 4.27 |
| | $ | (1.79 | ) |
NOTE 5—GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets, net are as follows:
|
| | | | | | | |
| | December 31, |
| | 2018 | | 2017 |
| | (In thousands) |
| Goodwill | $ | 2,726,859 |
| | $ | 2,559,066 |
|
| Intangible assets with indefinite lives | 458,104 |
| | 459,143 |
|
| Intangible assets with definite lives, net of accumulated amortization | 173,318 |
| | 204,594 |
|
| Total goodwill and intangible assets, net | $ | 3,358,281 |
| | $ | 3,222,803 |
|
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table presents the balance of goodwill by reportable segment, including the changes in the carrying value of goodwill, for the year ended December 31, 2018:
|
| | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
| | (In thousands) |
| Goodwill | $ | 2,559,066 |
| | $ | 1,924,052 |
|
| Intangible assets with indefinite lives | 459,143 |
| | 320,645 |
|
| Intangible assets with definite lives, net of accumulated amortization | 204,594 |
| | 34,806 |
|
| Total goodwill and intangible assets, net | $ | 3,222,803 |
| | $ | 2,279,503 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Balance at
December 31, 2017 | | Additions | | (Deductions) | | Transfers In/(Out) | | Foreign
Exchange
Translation | | Balance at
December 31, 2018 |
| | (In thousands) |
| Match Group | $ | 1,247,899 |
| | $ | 11,187 |
| | $ | — |
| | $ | — |
| | $ | (14,073 | ) | | $ | 1,245,013 |
|
| ANGI Homeservices | 768,317 |
| | 142,768 |
| | (14,373 | ) | | — |
| | (3,912 | ) | | 892,800 |
|
| Vimeo | 77,303 |
| | — |
| | (151 | ) | | — |
| | — |
| | 77,152 |
|
| Applications: | | | | | | | | | | | |
| Desktop | 265,146 |
| | — |
| | — |
| | — |
| | — |
| | 265,146 |
|
| Mosaic Group | 182,096 |
| | 50,784 |
| | — |
| | 7,323 |
| | (457 | ) | | 239,746 |
|
| Total Applications | 447,242 |
| | 50,784 |
| | — |
| | 7,323 |
| | (457 | ) | | 504,892 |
|
| Emerging & Other | 18,305 |
| | 3,684 |
| | (7,664 | ) | | (7,323 | ) | | — |
| | 7,002 |
|
| Total | $ | 2,559,066 |
| | $ | 208,423 |
| | $ | (22,188 | ) | | $ | — |
| | $ | (18,442 | ) | | $ | 2,726,859 |
|
Additions primarily relate to the acquisitions of Handy (included in the ANGI Homeservices segment), TelTech and iTranslate (included in the Applications segment), Hinge (included in the Match Group segment), and BlueCrew (included in the Emerging & Other segment). Deductions relate to the sales of Felix (included in the ANGI Homeservices segment) and Electus (included in the Emerging & Other segment).
The following table presents the balance of goodwill by reportable segment, including the changes in the carrying value of goodwill, for the year ended December 31, 2017:
| | | | Balance at
December 31, 2016 | | Additions | | (Deductions) | | Foreign
Exchange
Translation | | Balance at
December 31, 2017 | Balance at
December 31, 2016 | | Additions | | (Deductions) | | Foreign
Exchange
Translation | | Balance at
December 31, 2017 |
| | (In thousands) | (In thousands) |
| Match Group | $ | 1,206,538 |
| | $ | 255 |
| | $ | — |
| | $ | 41,106 |
| | $ | 1,247,899 |
| $ | 1,206,538 |
| | $ | 255 |
| | $ | — |
| | $ | 41,106 |
| | $ | 1,247,899 |
|
| ANGI Homeservices | 170,611 |
| | 590,772 |
| | — |
| | 6,934 |
| | 768,317 |
| 170,611 |
| | 590,772 |
| | — |
| | 6,934 |
| | 768,317 |
|
| Video | 25,239 |
| | 70,369 |
| | — |
| | — |
| | 95,608 |
| |
| Applications | 447,242 |
| | — |
| | — |
| | — |
| | 447,242 |
| |
| Other | 74,422 |
| | — |
| | (74,430 | ) | | 8 |
| | — |
| |
| Vimeo | | 9,649 |
| | 67,654 |
| | — |
| | — |
| | 77,303 |
|
| Applications: | | | | | | | | | | |
| Desktop | | 265,146 |
| | — |
| | — |
| | — |
| | 265,146 |
|
| Mosaic Group | | 182,096 |
| | — |
| | — |
| | — |
| | 182,096 |
|
| Total Applications | | 447,242 |
| | — |
| | — |
| | — |
| | 447,242 |
|
| Emerging & Other | | 90,012 |
| | 2,715 |
| | (74,430 | ) | | 8 |
| | 18,305 |
|
| Total | $ | 1,924,052 |
| | $ | 661,396 |
| | $ | (74,430 | ) | | $ | 48,048 |
| | $ | 2,559,066 |
| $ | 1,924,052 |
| | $ | 661,396 |
| | $ | (74,430 | ) | | $ | 48,048 |
| | $ | 2,559,066 |
|
The additionsAdditions primarily relate to the acquisitions of Angie's List, MyBuilder and HomeStars (included in the ANGI Homeservices segment), and Livestream (included in the VideoVimeo segment). The deductionsDeductions relate to the sale of The Princeton Review (included in the Emerging & Other segment).
The following table presentsPrior to the balancefourth quarter of goodwill by2018, IAC Publishing was a reportable segment includingconsisting of one operating segment and one reporting unit. In the changes infourth quarter of 2018, IAC Publishing was split into the carrying value of goodwill, forDotdash and the year ended December 31, 2016:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Balance at
December 31, 2015 | | Additions | | Deductions | | Impairment | | Foreign
Exchange
Translation | | Balance at
December 31, 2016 |
| | (In thousands) |
| Match Group | $ | 1,218,607 |
| | $ | 603 |
| | $ | (2,983 | ) | | $ | — |
| | $ | (9,689 | ) | | $ | 1,206,538 |
|
| ANGI Homeservices | 150,251 |
| | 21,985 |
| | — |
| | — |
| | (1,625 | ) | | 170,611 |
|
| Video | 15,590 |
| | 9,649 |
| | — |
| | — |
| | — |
| | 25,239 |
|
| Applications | 447,242 |
| | — |
| | — |
| | — |
| | — |
| | 447,242 |
|
| Publishing | 277,192 |
| | — |
| | (1,968 | ) | | (275,367 | ) | | 143 |
| | — |
|
| Other | 136,482 |
| | — |
| | (62,860 | ) | | — |
| | 800 |
| | 74,422 |
|
| Total | $ | 2,245,364 |
| | $ | 32,237 |
| | $ | (67,811 | ) | | $ | (275,367 | ) | | $ | (10,371 | ) | | $ | 1,924,052 |
|
The additions primarily relateEmerging & Other segments (related to the acquisitions of MyHammer Holding AG (included in the ANGI Homeservices segment) and VHX (included in the Video segment). The deductions primarily relate to the sales of PriceRunner and ShoeBuy (bothremaining businesses previously included in the OtherIAC Publishing segment). During the second quarter of 2016, the Company recorded impairment charges related to the entire $275.4 million balance of the Publishing reporting unit goodwill. The accumulated goodwill impairment charge atof IAC Publishing was driven byallocated to these businesses based upon their relative fair values as of October 1, 2018. The December 31, 2018 and 2017 goodwill balance reflects accumulated impairment losses of $529.1 million, $399.7 million, $198.3 million and $11.6 million at Applications, the impact frombusinesses previously included in the new Google contract, traffic trends and monetization challenges and the corresponding impact on the then estimated fair value.IAC Publishing segment, excluding
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The December 31, 2017 and 2016 goodwill balance reflects accumulated impairment losses of $598.0 million, $529.1 million and $11.6 million at Publishing, Applications and ElectusDotdash (included in the VideoEmerging & Other segment), Dotdash and College Humor Media (included in the Emerging & Other segment), respectively.
Intangible assets with indefinite lives are trade names and trademarks acquired in various acquisitions. During the second quarter of 2016, the Company changed the classification of certain intangibles from indefinite-lived to definite-lived at Publishing. At December 31, 20172018 and 2016,2017, intangible assets with definite lives are as follows:
| | | | December 31, 2017 | December 31, 2018 |
| | Gross
Carrying
Amount | | Accumulated
Amortization | | Net | | Weighted-Average
Useful Life
(Years) | Gross
Carrying
Amount | | Accumulated
Amortization | | Net | | Weighted-Average
Useful Life
(Years) |
| | (In thousands) | | | (In thousands) | | |
| Contractor and service professional relationships and other | $ | 102,997 |
| | $ | (13,252 | ) | | $ | 89,745 |
| | 3.0 | |
| Technology | 115,200 |
| | (37,357 | ) | | 77,843 |
| | 4.8 | $ | 143,303 |
| | $ | (53,199 | ) | | $ | 90,104 |
| | 4.7 |
| Service professional and contractor relationships | | 99,528 |
| | (44,674 | ) | | 54,854 |
| | 2.9 |
| Customer lists and user base | 23,468 |
| | (5,401 | ) | | 18,067 |
| | 2.2 | 30,099 |
| | (15,126 | ) | | 14,973 |
| | 2.9 |
| Content | 5,000 |
| | (3,973 | ) | | 1,027 |
| | 5.0 | |
| Memberships | | 15,900 |
| | (6,640 | ) | | 9,260 |
| | 3.0 |
| Trade names | 16,986 |
| | (13,634 | ) | | 3,352 |
| | 2.6 | 12,393 |
| | (9,393 | ) | | 3,000 |
| | 3.3 |
| Memberships | 15,900 |
| | (1,340 | ) | | 14,560 |
| | 3.0 | |
| Other | | 8,500 |
| | (7,373 | ) | | 1,127 |
| | 4.8 |
| Total | $ | 279,551 |
| | $ | (74,957 | ) | | $ | 204,594 |
| | 3.7 | $ | 309,723 |
| | $ | (136,405 | ) | | $ | 173,318 |
| | 3.8 |
| | | | December 31, 2016 | December 31, 2017 |
| | Gross
Carrying
Amount | | Accumulated
Amortization | | Net | | Weighted-Average
Useful Life
(Years) | Gross
Carrying
Amount | | Accumulated
Amortization | | Net | | Weighted-Average
Useful Life
(Years) |
| | (In thousands) | | | (In thousands) | | |
| Contractor relationships and other | $ | 7,230 |
| | $ | (2,612 | ) | | $ | 4,618 |
| | 4.5 | |
| Technology | 38,602 |
| | (27,667 | ) | | 10,935 |
| | 3.4 | $ | 115,200 |
| | $ | (37,357 | ) | | $ | 77,843 |
| | 4.8 |
| Service professional and contractor relationships | | 99,497 |
| | (11,452 | ) | | 88,045 |
| | 3.0 |
| Customer lists and user base | 12,485 |
| | (9,997 | ) | | 2,488 |
| | 3.7 | 23,468 |
| | (5,401 | ) | | 18,067 |
| | 2.2 |
| Content | 14,802 |
| | (8,965 | ) | | 5,837 |
| | 4.3 | |
| Memberships | | 15,900 |
| | (1,340 | ) | | 14,560 |
| | 3.0 |
| Trade names | 63,855 |
| | (52,927 | ) | | 10,928 |
| | 1.8 | 16,986 |
| | (13,634 | ) | | 3,352 |
| | 2.6 |
| Other | | 8,500 |
| | (5,773 | ) | | 2,727 |
| | 4.8 |
| Total | $ | 136,974 |
| | $ | (102,168 | ) | | $ | 34,806 |
| | 2.8 | $ | 279,551 |
| | $ | (74,957 | ) | | $ | 204,594 |
| | 3.7 |
At December 31, 2017,2018, amortization of intangible assets with definite lives for each of the next five years and thereafter is estimated to be as follows:
| | | Years Ending December 31, | (In thousands) | (In thousands) |
| 2018 | $ | 72,395 |
| |
| 2019 | 56,624 |
| $ | 71,155 |
|
| 2020 | 44,438 |
| 51,916 |
|
| 2021 | 12,529 |
| 19,433 |
|
| 2022 | 10,650 |
| 16,310 |
|
| 2023 | | 10,239 |
|
| Thereafter | 7,958 |
| 4,265 |
|
| Total | $ | 204,594 |
| $ | 173,318 |
|
NOTE 6—MARKETABLE SECURITIES
At December 31, 2017, current available-for-sale marketable securities are as follows:
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 6—FINANCIAL INSTRUMENTS
Marketable Securities
At December 31, 2018 and 2017, the fair value of marketable securities are as follows:
| | | | Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair Value | December 31, |
| | (In thousands) | 2018 | | 2017 |
| Commercial paper | $ | 4,995 |
| | $ | — |
| | $ | — |
| | $ | 4,995 |
| |
| | | (In thousands) |
| Available-for-sale marketable debt securities | | $ | 123,246 |
| | $ | 4,995 |
|
| Marketable equity security | | 419 |
| | — |
|
| Total marketable securities | $ | 4,995 |
| | $ | — |
| | $ | — |
| | $ | 4,995 |
| $ | 123,665 |
| | $ | 4,995 |
|
At December 31, 2018, current available-for-sale marketable debt securities are as follows:
|
| | | | | | | | | | | | | | | |
| | Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair Value |
| | (In thousands) |
| Treasury discount notes | $ | 112,291 |
| | $ | 3 |
| | $ | (3 | ) | | $ | 112,291 |
|
| Commercial paper | 10,955 |
| | — |
| | — |
| | 10,955 |
|
| Total available-for-sale marketable debt securities | $ | 123,246 |
| | $ | 3 |
| | $ | (3 | ) | | $ | 123,246 |
|
The contractual maturities of debt securities classified as current available-for-sale at December 31, 20172018 are due within one year. There are no investments in available-for-sale marketable debt securities that are in an unrealized loss position as of December 31, 2017.
At December 31, 2016, current available-for-sale marketable securities are as follows:
|
| | | | | | | | | | | | | | | |
| | Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair Value |
| | (In thousands) |
| Commercial paper | $ | 49,797 |
| | $ | — |
| | $ | — |
| | $ | 49,797 |
|
| Treasury discount notes | 34,978 |
| | — |
| | (4 | ) | | 34,974 |
|
| Corporate debt securities | 4,575 |
| | 2 |
| | (6 | ) | | 4,571 |
|
| Total marketable securities | $ | 89,350 |
| | $ | 2 |
| | $ | (10 | ) | | $ | 89,342 |
|
The aggregate fair value of available-for-sale marketable debt securities with unrealized losses is $37.0 million as of December 31, 2016. There are no investments in available-for-sale marketable debt securities that have been in a continuous unrealized loss position for longer than twelve months as of December 31, 2016.2018.
The unrealized gains and losses in the above table atAt December 31, 20162017, current available-for-sale marketable debt securities are included in "Accumulated other comprehensive loss" in the accompanying consolidated balance sheet.as follows:
|
| | | | | | | | | | | | | | | |
| | Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair Value |
| | (In thousands) |
| Commercial paper | $ | 4,995 |
| | $ | — |
| | $ | — |
| | $ | 4,995 |
|
| Total available-for-sale marketable debt securities | $ | 4,995 |
| | $ | — |
| | $ | — |
| | $ | 4,995 |
|
The following table presents the proceeds from maturities and sales of available-for-sale marketable debt securities and the related gross realized gains:
| | | | December 31, | December 31, |
| | 2017 | | 2016 | | 2015 | 2018 | | 2017 | | 2016 |
| | (In thousands) | (In thousands) |
| Proceeds from maturities and sales of available-for-sale marketable securities | $ | 114,350 |
| | $ | 279,485 |
| | $ | 218,976 |
| |
| Proceeds from maturities and sales of available-for-sale marketable debt securities | | $ | 333,600 |
| | $ | 114,350 |
| | $ | 279,485 |
|
| Gross realized gains | — |
| | 3,556 |
| | 443 |
| — |
| | — |
| | 3,556 |
|
Gross realized gains from the maturities and sales of available-for-sale marketable debt securities for the year ended December 31, 2016 are included in "Other income (expense) income,, net" in the accompanying consolidated statement of operations. There were no gross realized losses from the maturities and sales
NOTE 7—LONG-TERM INVESTMENTS
Long-term investments consist of:
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
There were no gross realized losses from the maturities and sales of available-for-sale marketable debt securities for the years ended December 31, 2018, 2017, and 2016.
Long-term investments
Long-term investments consist of:
| | | | December 31, | December 31, |
| | 2017 | | 2016 | 2018 | | 2017 |
| | (In thousands) | (In thousands) |
| Equity securities without readily determinable fair values | | $ | 235,055 |
| | $ | — |
|
| Equity method investments | | — |
| | 1,559 |
|
| Cost method investments | $ | 63,418 |
| | $ | 116,133 |
| — |
| | 63,418 |
|
| Equity method investments | 1,559 |
| | 6,677 |
| |
| Total long-term investments | $ | 64,977 |
| | $ | 122,810 |
| $ | 235,055 |
| | $ | 64,977 |
|
Equity securities without readily determinable fair values
The following table presents a summary of realized and unrealized gains and losses recorded in other income (expense), net, as adjustments to the carrying value of equity securities without readily determinable fair values held as of December 31, 2018. The gross unrealized gains principally relate to the Company's remaining investments in an investee following the sale of a portion of the Company's investment during the second quarter of 2018.
|
| | | | |
| | | Year Ended December 31, 2018 |
| | | (In thousands) |
| Upward adjustments (gross unrealized gains) | | $ | 128,986 |
|
| Downward adjustments including impairments (gross unrealized losses) | | (4,931 | ) |
| Total | | $ | 124,055 |
|
Realized and unrealized gains and losses for the Company's marketable equity security and investments without readily determinable fair values for the year ended December 31, 2018 are as follows:
|
| | | | |
| | | Year Ended December 31, 2018 |
| | | (In thousands) |
| Realized gains, net, for equity securities sold | | $ | 27,874 |
|
| Unrealized gains, net, on equity securities held | | 124,170 |
|
| Total gains recognized, net, in other income (expense), net | | $ | 152,044 |
|
Equity method investments
In 2018 and 2017, the Company recorded other-than-temporary impairment charges on certain of its investments of $0.6 million and $2.7 million, respectively. These charges are included in "Other income (expense), net" in the accompanying consolidated statement of operations.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Cost method investments (prior to the adoption of ASU No. 2016-01)
In 2017 2016 and 2015,2016, the Company recorded $9.5 million $10.0 million and $4.5$10.0 million, respectively, of other-than-temporary impairment charges for certain cost methodof its investments as a result of our assessment of the near-term prospects and financial condition of the investees. These charges are included in "Other income (expense) income,, net" in the accompanying consolidated statement of operations.
On October 23, 2017, Match Group sold a cost method investment for net proceeds of $60.2 million. The gain on sale of $9.1 million is included in "Other income (expense) income,, net" in the accompanying consolidated statement of operations.
Equity method investments
In 2017 and 2016, the Company recorded other-than-temporary impairment charges on certain of its investments of $2.7 million and $0.6 million, respectively. These charges are included in "Other (expense) income, net" in the accompanying consolidated statement of operations.
NOTE 8—FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTSFair Value Measurements
The following tables present the Company's financial instruments that are measured at fair value on a recurring basis:
| | | | December 31, 2017 | December 31, 2018 |
| | Quoted Market Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total Fair Value Measurements | Quoted Market
Prices in Active
Markets for
Identical Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) | | Total
Fair Value
Measurements |
| | (In thousands) | (In thousands) |
| Assets: | | | | | | | | | | | | | | |
| Cash equivalents: | | | | | | | | | | | | | | |
| Money market funds | $ | 780,425 |
| | $ | — |
| | $ | — |
| | $ | 780,425 |
| $ | 880,815 |
| | $ | — |
| | $ | — |
| | $ | 880,815 |
|
| Time deposits | — |
| | 60,000 |
| | — |
| | 60,000 |
| |
| Treasury discount notes | 100,457 |
| | — |
| | — |
| | 100,457 |
| — |
| | 561,733 |
| | — |
| | 561,733 |
|
| Commercial paper | — |
| | 215,325 |
| | — |
| | 215,325 |
| — |
| | 162,417 |
| | — |
| | 162,417 |
|
| Certificates of deposit | — |
| | 6,195 |
| | — |
| | 6,195 |
| |
| Time deposits | | — |
| | 90,036 |
| | — |
| | 90,036 |
|
| Marketable securities: | | | | | | | | | | | | | | |
| Treasury discount notes | | — |
| | 112,291 |
| | — |
| | 112,291 |
|
| Commercial paper | — |
| | 4,995 |
| | — |
| | 4,995 |
| — |
| | 10,955 |
| | — |
| | 10,955 |
|
| Marketable equity security | | 419 |
| | — |
| | — |
| | 419 |
|
| Total | $ | 880,882 |
| | $ | 286,515 |
| | $ | — |
| | $ | 1,167,397 |
| $ | 881,234 |
| | $ | 937,432 |
| | $ | — |
| | $ | 1,818,666 |
|
| | | | | | | | | | | | | | | |
| Liabilities: | | | | | | | | | | | | | | |
| Contingent consideration arrangements | $ | — |
| | $ | — |
| | $ | (2,647 | ) | | $ | (2,647 | ) | $ | — |
| | $ | — |
| | $ | (28,631 | ) | | $ | (28,631 | ) |
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | December 31, 2016 | December 31, 2017 |
| | Quoted Market
Prices in Active
Markets for
Identical Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) | | Total
Fair Value
Measurements | Quoted Market
Prices in Active
Markets for
Identical Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) | | Total
Fair Value
Measurements |
| | (In thousands) | (In thousands) |
| Assets: | | | | | | | | | | | | | | |
| Cash equivalents: | | | | | | | | | | | | | | |
| Money market funds | $ | 667,662 |
| | $ | — |
| | $ | — |
| | $ | 667,662 |
| $ | 780,425 |
| | $ | — |
| | $ | — |
| | $ | 780,425 |
|
| Commercial paper | | — |
| | 215,325 |
| | — |
| | 215,325 |
|
| Treasury discount notes | | — |
| | 100,457 |
| | — |
| | 100,457 |
|
| Time deposits | — |
| | 79,000 |
| | — |
| | 79,000 |
| — |
| | 60,000 |
| | — |
| | 60,000 |
|
| Treasury discount notes | 24,991 |
| | — |
| | — |
| | 24,991 |
| |
| Commercial paper | — |
| | 123,640 |
| | |
| | 123,640 |
| |
| Certificates of deposit | | — |
| | 6,195 |
| | — |
| | 6,195 |
|
| Marketable securities: | | | | | | | | | | | | | | |
| Commercial paper | — |
| | 49,797 |
| | |
| | 49,797 |
| — |
| | 4,995 |
| | — |
| | 4,995 |
|
| Treasury discount notes | 34,974 |
| | — |
| | — |
| | 34,974 |
| |
| Corporate debt securities | — |
| | 4,571 |
| | — |
| | 4,571 |
| |
| Total | $ | 727,627 |
| | $ | 257,008 |
| | $ | — |
| | $ | 984,635 |
| $ | 780,425 |
| | $ | 386,972 |
| | $ | — |
| | $ | 1,167,397 |
|
| | | | | | | | | | | | | | | |
| Liabilities: | | | | | | | | | | | | | | |
| Contingent consideration arrangements | $ | — |
| | $ | — |
| | $ | (33,871 | ) | | $ | (33,871 | ) | $ | — |
| | $ | — |
| | $ | (2,647 | ) | | $ | (2,647 | ) |
The following table presents the changes in the Company's financial instruments that are measured at fair value on a recurring basis using significant unobservable inputs (Level 3): are its contingent consideration arrangements.
| | | | For the Year Ended December 31, | Contingent Consideration Arrangements |
| | 2017 | | 2016 | Years Ended December 31, |
| | Contingent
Consideration
Arrangements | | Auction Rate
Security | | Contingent Consideration Arrangements | 2018 | | 2017 |
| | (In thousands) | (In thousands) |
| Balance at January 1 | $ | (33,871 | ) | | $ | 4,050 |
| | $ | (33,873 | ) | $ | (2,647 | ) | | $ | (33,871 | ) |
| Total net (losses) gains: | | | | | | | | |
| Included in earnings: | | | | | | | | |
| Fair value adjustments | (5,801 | ) | | — |
| | (2,555 | ) | (1,456 | ) | | (5,801 | ) |
| Included in other comprehensive (loss) income | (1,404 | ) | | 5,950 |
| | (1,571 | ) | |
| Included in other comprehensive income (loss) | | 45 |
| | (1,404 | ) |
| Fair value at date of acquisition | — |
| | — |
| | (185 | ) | (25,521 | ) | | — |
|
| Settlements | 38,429 |
| | — |
| | 2,180 |
| 948 |
| | 38,429 |
|
| Proceeds from sale | — |
| | (10,000 | ) | | — |
| |
| Other | — |
| | — |
| | 2,133 |
| |
| Balance at December 31 | $ | (2,647 | ) | | $ | — |
| | $ | (33,871 | ) | $ | (28,631 | ) | | $ | (2,647 | ) |
Contingent consideration arrangements
As ofAt December 31, 2017, there are three2018, the Company has two contingent consideration arrangements outstanding related to business acquisitions. Two of the contingent consideration arrangements have limits as to the maximum amount that can be paid. TheOne arrangement has a $2.0 million maximum contingent payments related to these arrangements is $33.0 millionpayment that has been earned and will be paid by the Companyin the first quarter of 2019. The second arrangement has a total maximum contingent payment of $45.0 million. At December 31, 2018, the gross fair value of these arrangements,this arrangement, before the unamortized discount, at December 31, 2017 is $3.0$44.0 million. No payment is expected for the one contingent consideration arrangement without a limit on the maximum earnout.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The contingent consideration arrangements are based upon earnings performance and/or operating metrics. The Company generally determineddetermines the fair value of the contingent consideration arrangements by using probability-weighted analyses to determine the amounts of the gross liability, and, because the arrangements were initially long-term in nature, applying a discount rate that appropriately captures the risks associated with the obligation to determine the net amount reflected in the consolidated financial statements. The fair values of the contingent consideration arrangements at bothDecember 31, 2018 reflect
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
discount rates ranging from 12% to 25%. The fair values of the contingent consideration arrangements at December 31, 2017 and 2016 reflect discount rates of 12%.
The fair value of the contingent consideration arrangements is sensitive to changes in the forecasts of earnings and/or the relevant operating metrics and changes in discount rates. The Company remeasures the fair value of the contingent consideration arrangements each reporting period, including the accretion of the discount, if applicable, and changes are recognized in “General"General and administrative expense”expense" in the accompanying consolidated statement of operations. The contingent consideration arrangement liability at December 31, 20172018 and 20162017 includes a current portion of $0.6$2.0 million and $33.4$0.6 million, respectively, and non-current portion of $26.6 million and $2.0 million at December 31, 2018 and $0.4 million, respectively,2017, which are included in “Accrued"Accrued expenses and other current liabilities”liabilities" and “Other"Other long-term liabilities,”" respectively, in the accompanying consolidated balance sheet.
Financial instruments measured at fair value only for disclosure purposes
The following table presents the carrying value and the fair value of financial instruments measured at fair value only for disclosure purposes:
| | | | December 31, 2017 | | December 31, 2016 | December 31, 2018 | | December 31, 2017 |
| | Carrying
Value | | Fair
Value | | Carrying
Value | | Fair
Value | Carrying
Value | | Fair
Value | | Carrying
Value | | Fair
Value |
| | (In thousands) | (In thousands) |
| Current portion of long-term debt | $ | (13,750 | ) | | $ | (13,802 | ) | | $ | (20,000 | ) | | $ | (20,311 | ) | $ | (13,750 | ) | | $ | (12,753 | ) | | $ | (13,750 | ) | | $ | (13,802 | ) |
Long-term debt, net | (1,979,469 | ) | | (2,168,108 | ) | | (1,582,484 | ) | | (1,657,861 | ) | (2,245,548 | ) | | (2,460,204 | ) | | (1,979,469 | ) | | (2,168,108 | ) |
The_________________
| |
(a) | At December 31, 2018 and 2017, the carrying value of long-term debt, net includes unamortized original issue discount and debt issuance costs of $88.9 million and $109.1 million, respectively. |
Excluding the MTCH Credit Facility, the fair value of long-term debt, including the current portion, is estimated using observable market prices or indices for similar liabilities, and takes into consideration other factors such as credit quality and maturity, which are Level 32 inputs. The Company considers the outstanding borrowings under the MTCH Credit Facility, which has a variable interest rate, to have a fair value equal to its carrying value.
NOTE 9—LONG-TERM DEBT
Long-term debt consists of:
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 7—LONG-TERM DEBT
Long-term debt consists of:
|
| | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
| | (In thousands) |
| Match Group Debt: | | | |
| Match Group Term Loan due November 16, 2022 | $ | 425,000 |
| | $ | 350,000 |
|
| 6.75% Senior Notes due December 15, 2022 (the "Match Group 6.75% Senior Notes"); interest payable each June 15 and December 15 | — |
| | 445,172 |
|
| 6.375% Senior Notes due June 1, 2024 (the "Match Group 6.375% Senior Notes"); interest payable each June 1 and December 1 | 400,000 |
| | 400,000 |
|
| 5.00% Senior Notes due December 15, 2027 (the "Match Group 5.00% Senior Notes"); interest payable each June 15 and December 15, which commences on June 15, 2018 | 450,000 |
| | — |
|
| Total Match Group long-term debt | 1,275,000 |
| | 1,195,172 |
|
| Less: unamortized original issue discount and original issue premium, net | 8,668 |
| | 5,245 |
|
| Less: unamortized debt issuance costs | 13,636 |
| | 13,434 |
|
| Total Match Group debt, net | 1,252,696 |
| | 1,176,493 |
|
| | | | |
| ANGI Homeservices Debt: | | | |
| ANGI Homeservices Term Loan due November 1, 2022 | 275,000 |
| | — |
|
| Less: current portion of ANGI Homeservices long-term debt | 13,750 |
| | — |
|
| Less: unamortized debt issuance costs | 2,938 |
| | — |
|
| Total ANGI Homeservices debt | 258,312 |
| | — |
|
| | | | |
| IAC Debt: | | | |
| 0.875% Exchangeable Senior Notes due October 1, 2022 (the "Exchangeable Notes"); interest payable each April 1 and October 1, which commences on April 1, 2018 | 517,500 |
| | — |
|
| 4.75% Senior Notes due December 15, 2022 (the "4.75% Senior Notes"); interest payable each June 15 and December 15 | 34,859 |
| | 38,109 |
|
| 4.875% Senior Notes due November 30, 2018 (the "4.875% Senior Notes"); interest payable each May 30 and November 30 | — |
| | 390,214 |
|
| Total IAC long-term debt | 552,359 |
| | 428,323 |
|
| Less: current portion of IAC long-term debt | — |
| | 20,000 |
|
| Less: unamortized original issue discount | 67,158 |
| | — |
|
| Less: unamortized debt issuance costs | 16,740 |
| | 2,332 |
|
| Total IAC debt, net | 468,461 |
| | 405,991 |
|
| | | | |
| Total long-term debt, net | $ | 1,979,469 |
| | $ | 1,582,484 |
|
|
| | | | | | | |
| | December 31, |
| | 2018 | | 2017 |
| | (In thousands) |
| MTCH Debt: | | | |
| MTCH Term Loan due November 16, 2022 | $ | 425,000 |
| | $ | 425,000 |
|
| MTCH Credit Facility due December 7, 2023 | 260,000 |
| | — |
|
| 6.375% Senior Notes due June 1, 2024 (the "6.375% MTCH Senior Notes"); interest payable each June 1 and December 1 | 400,000 |
| | 400,000 |
|
| 5.00% Senior Notes due December 15, 2027 (the "5.00% MTCH Senior Notes"); interest payable each June 15 and December 15 | 450,000 |
| | 450,000 |
|
| Total MTCH long-term debt | 1,535,000 |
| | 1,275,000 |
|
| Less: unamortized original issue discount | 7,352 |
| | 8,668 |
|
| Less: unamortized debt issuance costs | 11,737 |
| | 13,636 |
|
| Total MTCH debt, net | 1,515,911 |
| | 1,252,696 |
|
| | | | |
| ANGI Debt: | | | |
| ANGI Term Loan due November 5, 2023 | 261,250 |
| | 275,000 |
|
| Less: current portion of ANGI Term Loan | 13,750 |
| | 13,750 |
|
| Less: unamortized debt issuance costs | 2,529 |
| | 2,938 |
|
| Total ANGI debt, net | 244,971 |
| | 258,312 |
|
| | | | |
| IAC Debt: | | | |
| 0.875% Exchangeable Senior Notes due October 1, 2022 (the "Exchangeable Notes"); interest payable each April 1 and October 1 | 517,500 |
| | 517,500 |
|
| 4.75% Senior Notes due December 15, 2022 (the "4.75% Senior Notes"); interest payable each June 15 and December 15 | 34,489 |
| | 34,859 |
|
| Total IAC long-term debt | 551,989 |
| | 552,359 |
|
| Less: unamortized original issue discount | 54,025 |
| | 67,158 |
|
| Less: unamortized debt issuance costs | 13,298 |
| | 16,740 |
|
| Total IAC debt, net | 484,666 |
| | 468,461 |
|
| | | | |
| Total long-term debt, net | $ | 2,245,548 |
| | $ | 1,979,469 |
|
Match Group
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MTCH Senior Notes:
The outstanding balance of the Match Group 6.75% Senior Notes of $445.2 million was redeemed on December 17, 2017 with the proceeds from the issuance of the Match Group 5.00% Senior Notes and cash on hand.
The Match Group 6.375% MTCH Senior Notes were issued on June 1, 2016. The proceeds of $400 million were used to prepay a portion of indebtedness outstanding under the Match GroupMTCH Term Loan. At any time prior to June 1, 2019, these notes may be redeemed at a redemption price equal to the sum of the principal amount thereof, plus accrued and unpaid interest and a make-whole premium.premium set forth in the indenture governing the notes. Thereafter, these notes may be redeemed at the redemption prices set forth below, together with accrued and unpaid interest thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on June 1 of the years indicated below:
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
| | |
| Year | Percentage |
| 2019 | 104.781 | % |
| 2020 | 103.188 | % |
| 2021 | 101.594 | % |
| 2022 and thereafter | 100.000 | % |
On December 4, 2017, Match Group completed a private offering ofMTCH issued $450 million aggregate principal amount of its 5.00% Senior Notes due December 15, 2027.Notes. The proceeds from these notes, along with cash on hand, were used to redeem the $445.2 million outstanding balance of the Match Group 6.75% MTCH Senior Notes.Notes, which were due on December 15, 2022, and pay the related call premium. At any time prior to December 15, 2022, the Match Group 5.00% MTCH Senior Notes may be redeemed at a redemption price equal to the sum of the principal amount thereof, plus accrued and unpaid interest and a make-whole premium.premium set forth in the indenture governing the notes. Thereafter, these notes may be redeemed at the redemption prices set forth below, together with accrued and unpaid interest thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on December 15 of the years indicated below:
|
| | |
| Year | Percentage |
| 2022 | 102.500 | % |
| 2023 | 101.667 | % |
| 2024 | 100.833 | % |
| 2025 and thereafter | 100.000 | % |
The indentures governing the Match Group 6.375% and 5.00% MTCH Senior Notes (i) contain covenants that would limit Match Group'sMTCH's ability to pay dividends, or to make distributions andor repurchase or redeem Match GroupMTCH stock in the event a default has occurred or Match Group'sMTCH's consolidated leverage ratio (as defined in the indentures) exceeds 5.0 to 1.0 and (ii) are ranked equally with each other. At December 31, 2017,2018, there were no limitations pursuant thereto. There are additional covenants that limit Match Group'sMTCH's ability and the ability of its subsidiaries to, among other things, (i) incur indebtedness, make investments, or sell assets in the event Match GroupMTCH is not in compliance with certain ratios set forth in the indenture,indentures, and (ii) incur liens, enter into agreements restricting Match GroupMTCH subsidiaries' ability to pay dividends, enter into transactions with affiliates and consolidate, merge or sell substantially all of their assets.
Match GroupMTCH Term Loan and Match GroupMTCH Credit Facility:
On November 16, 2015, under a credit agreement (the "Match Group Credit Agreement"), Match Group borrowed $800 million in the form of a term loan (the "Match Group Term Loan"). During 2016, Match Group made $450 million of principal payments, $400 million of which was funded from proceeds of the 6.375% Senior Notes (described above). On August 14,At both December 31, 2018 and 2017, Match Group increased its Term Loan by $75 million to $425 million, repriced the outstanding balance on the MTCH Term Loan was $425 million. The MTCH Term Loan bears interest at LIBOR plus 2.50% and reduced the LIBOR floor to 0.00%.was 5.09% and 3.85% at December 31, 2018 and 2017, respectively. The Match GroupMTCH Term Loan provides for additional annual principal payments as part of an excess cash flow sweep provision, the amount of which, if any, is governed by the secured net leverage ratio contained in the Match Group Credit Agreement. The interest rate on the Match Group Term Loan at December 31, 2017 is 3.85%.credit agreement. Interest payments are due at least quarterly through the term of the loan.
Match Group has aOn December 7, 2018, the MTCH $500 million revolving credit facility (the "Match Group"MTCH Credit Facility") that expireswas amended and restated, and is due on OctoberDecember 7, 2020.2023. At December 31, 2018, the outstanding borrowings under the MTCH Credit Facility were $260.0 million which bear interest at LIBOR plus 1.50%, or approximately 4.00%. At December 31, 2017, and 2016, there were no
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
outstanding borrowings under the Match GroupMTCH Credit Facility. The annual commitment fee on undrawn funds based on the current consolidated net leverage ratio is 25 basis points and 30 basis points.points at December 31, 2018 and 2017, respectively. Borrowings under the Match GroupMTCH Credit Facility bear interest, at Match Group'sMTCH's option, at a base rate or LIBOR, in each case plus an applicable margin, which is determined by reference to a pricing grid based on Match Group'sMTCH's consolidated net leverage ratio. The terms of the Match GroupMTCH Credit Facility require Match GroupMTCH to maintain a consolidated net leverage ratio of not more than 5.0 to 1.0 and a minimum interest coverage ratio of not less than 2.52.0 to 1.0 (in each case as defined in the agreement).
The MTCH Term Loan and MTCH Credit Facility contain covenants that would limit MTCH’s ability to pay dividends, make distributions or repurchase MTCH stock in the event MTCH’s secured net leverage ratio exceeds 2.0 to 1.0, while the MTCH Term Loan remains outstanding and, thereafter, if the consolidated net leverage ratio exceeds 4.0 to 1.0, or in the event a default has occurred. There are additional covenants under the Match Group Credit Facility and the Match Group Term Loanthese MTCH debt agreements that limit the ability of Match GroupMTCH and its subsidiaries to, among other things, incur indebtedness, pay dividends or make distributions. While the Match Group Term Loan remains outstanding, these same covenants under the Match Group Credit Agreement are
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
more restrictive than the covenants that are applicable to the Match Group Credit Facility. Obligations under the Match GroupMTCH Credit Facility and Match GroupMTCH Term Loan are unconditionally guaranteed by certain Match GroupMTCH wholly-owned domestic subsidiaries, and are also secured by the stock of certain Match GroupMTCH domestic and foreign subsidiaries. The Match GroupMTCH Term Loan and outstanding borrowings, if any, under the Match GroupMTCH Credit Facility rank equally with each other, and have priority over the Match Group 6.375% and 5.00% MTCH Senior Notes to the extent of the value of the assets securing the borrowings under the Match Group Credit Agreement.MTCH credit agreement.
ANGI Homeservices Term Loan:Loan and ANGI Credit Facility
On November 1, 2017, ANGI Homeservices borrowed $275 million under a five-year term loan facility ("ANGI Homeservices Term Loan"). TheOn November 5, 2018, the ANGI Homeservices Term Loan is guaranteed by ANGI Homeservices' wholly-owned material domestic subsidiarieswas amended and restated, and is secured by substantially all assets of ANGI Homeservices and the guarantors, subject to certain exceptions. The ANGI Homeservices Term Loan currently bears interest at LIBOR plus 2.00%, or 3.38% at December 31, 2017, which is subject to change basednow due on ANGI Homeservices' consolidated net leverage ratio.November 5, 2023. Interest payments are due at least quarterly through the term of the loan and quarterly principal payments of 1.25% of the original principal amount in the first three years 2.5%from the amendment date, 2.50% in the fourth year and 3.75% in the fifth year are required. A portionThe ANGI Term Loan bears interest at LIBOR plus 1.50%, or approximately 4.00% at December 31, 2018, which is subject to change in future periods based on ANGI's consolidated net leverage ratio. The ANGI Term Loan bore interest at LIBOR plus 2.00%, or 3.38%, at December 31, 2017.
The terms of the
proceedsANGI Term Loan require ANGI to maintain a consolidated net leverage ratio of
not more than 4.5 to 1.0 and a minimum interest coverage ratio of not less than 2.0 to 1.0 (in each case as defined in the
loan were usedcredit agreement). The ANGI Term Loan also contains covenants that would limit ANGI’s ability to
repay two intercompany notes outstandingpay dividends, make distributions or repurchase ANGI stock in the event a default has occurred or ANGI’s consolidated net leverage ratio exceeds 4.25 to
IAC and its subsidiaries and the remaining proceeds will be used for general corporate purposes. See "Note 17—Related Party Transactions" for further information on the intercompany notes. 1.0. There are additional covenants under the ANGI Homeservices Term Loan that limit the ability of ANGI Homeservices and its subsidiaries to, among other things, incur indebtedness, pay dividends or make distributions. Obligations
On November 5, 2018, ANGI entered into a five-year $250 million revolving credit facility (the "ANGI Credit Facility"). At December 31, 2018, there were no outstanding borrowings under the ANGI HomeservicesCredit Facility. The annual commitment fee on undrawn funds is currently 25 basis points, and is based on the consolidated net leverage ratio most recently reported. Borrowings under the ANGI Credit Facility bear interest, at ANGI's option, at either a base rate or LIBOR, in each case plus an applicable margin, which is determined by reference to a pricing grid based on ANGI's consolidated net leverage ratio. The financial and other covenants are the same as those for the ANGI Term Loan.
The ANGI Term Loan and ANGI Credit Facility are unconditionally guaranteed by certain ANGI HomeservicesANGI's wholly-owned material domestic subsidiaries and are also secured by substantially all assets of ANGI and the stock ofguarantors, subject to certain ANGI Homeservices domestic and foreign subsidiaries.exceptions.
IAC Exchangeable Notes:Notes
On October 2, 2017, IAC FinanceCo, Inc., a direct, wholly-owned subsidiary of the Company, completed a private offering ofissued $517.5 million aggregate principal amount of its 0.875% Exchangeable Senior Notes due October 1, 2022 (the “Exchangeable Notes”"Exchangeable Notes"). The Exchangeable Notes are guaranteed by the Company. Each $1,000 of principal of the Exchangeable Notes is exchangeable for 6.5713 shares of the Company's common stock, which is equivalent to an exchange price of approximately $152.18 per share, subject to adjustment upon the occurrence of specified events. Upon conversion,exchange, the Company has the right to settle the conversion of each $1,000 principal amount of Exchangeable Notes with any of the three following alternatives: (1) shares of our common stock, (2) cash or (3) a combination of cash and shares of our common stock.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Exchangeable Notes are exchangeable at any time prior to the close of business on the business day immediately preceding July 1, 2022 only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on December 31, 2017 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days during the period of 30 consecutive trading days during the immediately preceding calendar quarter is greater than or equal to 130% of the exchange price on each applicable trading day;day, which occurred in the third quarter of 2018; (2) during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the exchange rate on each such trading day; (3) if the issuer calls the notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events as further described under the Indenture.indenture governing the Exchangeable Notes. On or after July 1, 2022 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may exchange all or any portion of their Exchangeable Notes regardless of the foregoing conditions.
TheA portion of the net proceeds from the sale of the Exchangeable Notes were approximatelyof $499.5 million, after deducting fees and expenses. The net proceeds from the offering were:
expenses, was used to pay the net premium of $50.7 million on the Exchangeable Note Hedge and WarrantWarrants (defined below); and
loaned to IAC, which repaid the outstanding balance of the 4.875% Senior Notes of $361.9 million, plus accrued interest of $8.8 million. The 4.875% Senior Notes were redeemed on November 30, 2017.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
.
We separately account for the debt and the equity components of the Exchangeable Notes. Accordingly, the Company recorded a debt discount and corresponding increase to additional paid-in capital of $70.4 million, which is the fair value attributed to the exchange feature or equity component of the debt, on the date of issuance. The Company is amortizing the debt discount utilizing the effective interest method over the life of the Exchangeable Notes which increases the effective interest rate from its coupon rate of 0.875% to 3.88%. Transaction costs of $18.0 million were allocated between the liability and equity components.
In connection with the debt offering, the Company purchased call options allowing the Company to purchase initially (subject to adjustment upon the occurrence of specified events) the entire 3.4 million shares that would be issuable upon the exchange of the Exchangeable Notes at approximately $152.18 per share (the "Exchangeable Note Hedge"), and sold warrants allowing the holder to purchase initially (subject to adjustment upon the occurrence of specified events) 3.4 million shares at $229.70 per share (the "Warrant""Warrants"). The if-converted value of the Exchangeable Notes exceeds its principal amount by $105.0 million based on the Company's stock price on December 31, 2018. The Exchangeable Note Hedge is expected to reduce the potential dilutive effect ofon the Company's common stock upon any exchange of notes and/or offset any cash payment IAC FinanceCo, Inc. is required to make in excess of the principal amount of the exchanged notes. The Warrants would separately have a dilutive effect on the Company's common stock to the extent that the market price per share of the Company common stock exceeds the applicable strike price of the Warrants. The cost of the Exchangeable Note Hedge was $74.4 million, which was recorded as a reduction to additional paid-in capital. The aggregate proceeds from the issuance of the Warrant were $23.6 million, which was recorded as an increase to additional paid-in capital.
TheFor the years ended December 31, 2018 and 2017, the Company incurred cash and non-cash interest expense of $4.3$21.2 million in 2017 for the Exchangeable Notes.and $5.2 million, which includes amortization of original issue discount of $13.1 million and $3.2 million, and debt issuance costs of $3.5 million and $0.9 million, respectively. As of December 31, 2018 and 2017, the unamortized discount amount totaledis $54.0 million and $67.2 million, resulting in a net carrying value of the liability component of $463.5 million and $450.3 million.million, respectively.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
IAC Senior Notes:
The 4.75% Senior Notes were issued by IAC on December 21, 2012. These Notes are unconditionally guaranteed by certain of our wholly-owned domestic subsidiaries, which are designated as guarantor subsidiaries. See "Note 21—19—Guarantor and Non-Guarantor Financial Information" for financial information relating to guarantorsguarantor and non-guarantors. non-guarantor subsidiaries. The indenture governing the 4.75% Senior Notes was amended to eliminate substantially all of the restrictive covenants contained therein in connection with the Match Exchange Offer.
We may redeem the 4.75% Senior Notesbe redeemed at the redemption prices set forth below, together with accrued and unpaid interest thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on December 15 of the years indicated below:
|
| | |
| Year | Percentage |
| 2018 | 101.583 | % |
| 2019 | 100.792 | % |
| 2020 and thereafter | 100.000 | % |
IAC Credit Facility:
On November 5, 2018, the IAC hasCredit Facility, under which IAC Group, LLC, a direct, wholly-owned subsidiary of the Company is the borrower, was amended and restated, reducing the facility size from $300 million revolving credit facility (the "IAC Credit Facility") thatto $250 million, and now expires October 7, 2020.on November 5, 2023. At December 31, 20172018 and 2016,2017, there were no outstanding borrowings under the IAC Credit Facility. The annual commitment fee on undrawn funds is currently 25 basis points, and is based on the consolidated net leverage ratio (as defined in the agreement) most recently reported.reported, and is 20 basis points and 25 basis points at December 31, 2018 and 2017, respectively. Borrowings under the IAC Credit Facility bear interest, at the Company's option, at a base rate or LIBOR, in each case, plus an applicable margin, which is determined by reference to a pricing grid based on the Company's consolidated net leverage ratio. The terms of the IAC Credit Facility require that the Company maintains a consolidated net leverage ratio of not more than 3.25 to 1.0 before the date on which the Company no longer holds majority of the outstanding voting stock of each of ANGI and MTCH ("Trigger Date") and no greater than 2.75 to 1.0 on or after the Trigger Date. The terms of the IAC Credit Facility also restrict our ability to incur additional indebtedness. Borrowings under the IAC Credit Facility are unconditionally guaranteed by substantially the same domestic subsidiaries that guarantee the 4.75% Senior Notes and are also secured by the stock of certain of our domestic and foreign subsidiaries.subsidiaries, which includes MTCH and ANGI. The 4.75% Senior Notes are subordinate to the outstanding borrowings under the IAC Credit Facility to the extent of the value of the assets securing such borrowings.
Long-term debt maturities:
|
| | | |
| Years Ending December 31, | (In thousands) |
| 2019 | $ | 13,750 |
|
| 2020 | 13,750 |
|
| 2021 | 13,750 |
|
| 2022 | 1,004,489 |
|
| 2023 | 452,500 |
|
| 2024 | 400,000 |
|
| 2027 | 450,000 |
|
| Total | 2,348,239 |
|
| Less: current portion of long-term debt | 13,750 |
|
| Less: unamortized original issue discount | 61,377 |
|
| Less: unamortized debt issuance costs | 27,564 |
|
| Total long-term debt, net | $ | 2,245,548 |
|
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On October 2, 2017, IAC Group, LLC ("IAC Group"), a wholly-owned subsidiary of the Company, entered into a joinder agreement by and among IAC Group, the Company, and each of the other loan parties party to the IAC Credit Facility. Pursuant to the joinder agreement, IAC Group became the successor borrower under the IAC Credit Facility and IAC's obligations under the credit agreement were terminated. Borrowings under the IAC Credit Facility are still unconditionally guaranteed by the same domestic subsidiaries that guarantee the 4.75% Senior Notes and is still secured by the stock of certain of our domestic and foreign subsidiaries.
Long-term debt maturities:
|
| | | |
| Years Ending December 31, | (In thousands) |
| 2018 | $ | 13,750 |
|
| 2019 | 13,750 |
|
| 2020 | 13,750 |
|
| 2021 | 27,500 |
|
| 2022 | 1,183,609 |
|
| 2024 | 400,000 |
|
| 2027 | 450,000 |
|
| Total | 2,102,359 |
|
| Less: current portion of long-term debt | 13,750 |
|
| Less: unamortized original issue discount | 75,826 |
|
| Less: unamortized debt issuance costs | 33,314 |
|
| Total long-term debt, net | $ | 1,979,469 |
|
NOTE 10—8—SHAREHOLDERS' EQUITY
Description of Common Stock and Class B Convertible Common Stock
Except as described herein, shares of IAC common stock and IAC Class B common stock are identical.
Each holder of shares of IAC common stock and IAC Class B common stock vote together as a single class with respect to matters that may be submitted to a vote or for the consent of IAC's shareholders generally, including the election of directors. In connection with any such vote, each holder of IAC common stock is entitled to one vote for each share of IAC common stock held and each holder of IAC Class B common stock is entitled to ten votes for each share of IAC Class B common stock held. Notwithstanding the foregoing, the holders of shares of IAC common stock, acting as a single class, are entitled to elect 25% of the total number of IAC's directors, and, in the event that 25% of the total number of directors shall result in a fraction of a director, then the holders of shares of IAC common stock, acting as a single class, are entitled to elect the next higher whole number of IAC's directors. In addition, Delaware law requires that certain matters be approved by the holders of shares of IAC common stock or holders of IAC Class B common stock voting as a separate class.
Shares of IAC Class B common stock are convertible into shares of IAC common stock at the option of the holder thereof, at any time, on a share-for-share basis. Such conversion ratio will in all events be equitably preserved in the event of any recapitalization of IAC by means of a stock dividend on, or a stock split or combination of, outstanding shares of IAC common stock or IAC Class B common stock, or in the event of any merger, consolidation or other reorganization of IAC with another corporation. Upon the conversion of shares of IAC Class B common stock into shares of IAC common stock, those shares of IAC Class B common stock will be retired and will not be subject to reissue. Shares of IAC common stock are not convertible into shares of IAC Class B common stock.
Except as described herein, shares of IAC common stock and IAC Class B common stock are identical. The holders of shares of IAC common stock and the holders of shares of IAC Class B common stock are entitled to receive, share for share, such dividends as may be declared by IAC's Board of Directors out of funds legally available therefore.therefor. In the event of a liquidation, dissolution, distribution of assets or winding-up of IAC, the holders of shares of IAC common stock and the holders
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
of shares of IAC Class B common stock are entitled to receive, share for share, all the assets of IAC available for distribution to its stockholders, after the rights of the holders of any IAC preferred stock have been satisfied.
Reserved Common Shares
In connection with equity compensation plans, the Exchangeable Notes and warrants, 19.128.0 million shares of IAC common stock are reserved at December 31, 2017.2018.
Warrants and Exchangeable Notes
At December 31, 2018 and 2017, warrants to acquire initially (subject to adjustment upon the occurrence of specified events) 3.4 million shares of IAC common stock at $229.70 per share were outstanding. The warrants were issued in connection with the issuance of the Exchangeable Notes.Notes on October 2, 2017 for aggregate proceeds of $23.6 million. During the yearyears ended December 31, 2018 and 2017, there were no warrants exercised. No warrants were outstanding at December 31, 2016exercised and 2015.no Exchangeable Notes were exchanged. See "Note 9—7—Long-term Debt" for additional information on the Company's Exchangeable Notes. Common Stock Repurchases
During the years ended December 31, 2018, 2017 2016 and 2015,2016, the Company repurchased 0.5 million, 0.7 million 6.3 million and 3.06.3 million shares of IAC common stock for aggregate consideration, on a trade date basis, of $82.9 million, $50.1 million $315.3 million and $200.0$315.3 million, respectively.
On May 3, 2016, IAC's Board of Directors authorized the repurchase of an additional 10.0 million shares of IAC common stock. At December 31, 2017,2018, the Company has approximately 8.68.0 million shares remaining in its share repurchase authorization.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 11—9—ACCUMULATED OTHER COMPREHENSIVE LOSS
The following tables present the components of accumulated other comprehensive (loss) income and items reclassified out of accumulated other comprehensive loss into earnings:
|
| | | | | | | | | | | |
| | Year Ended December 31, 2017 |
| | Foreign Currency Translation Adjustment | | Unrealized Gains On Available-For-Sale Securities | | Accumulated Other Comprehensive (Loss) Income |
| | (In thousands) |
| Balance at January 1 | $ | (170,149 | ) | | $ | 4,026 |
| | $ | (166,123 | ) |
| Other comprehensive income before reclassifications | 65,908 |
| | 7 |
| | 65,915 |
|
| Amounts reclassified to earnings | 673 |
| | (4,033 | ) | (a) | (3,360 | ) |
| Net current period other comprehensive income (loss) | 66,581 |
| | (4,026 | ) | | 62,555 |
|
| Balance at December 31 | $ | (103,568 | ) | | $ | — |
| | $ | (103,568 | ) |
_________________________ | |
(a) | Amount includes a tax benefit of $3.8 million. |
At |
| | | | | | | | | | | |
| | Year Ended December 31, 2018 |
| | Foreign Currency Translation Adjustment | | Unrealized Gains On Available-For-Sale Securities | | Accumulated Other Comprehensive Loss |
| | (In thousands) |
| Balance at January 1 | $ | (103,568 | ) | | $ | — |
| | $ | (103,568 | ) |
| Other comprehensive (loss) income before reclassifications | (25,106 | ) | | 4 |
| | (25,102 | ) |
| Amounts reclassified to earnings | (52 | ) | | — |
| | (52 | ) |
| Net current period other comprehensive (loss) income | (25,158 | ) | | 4 |
| | (25,154 | ) |
| Balance at December 31 | $ | (128,726 | ) | | $ | 4 |
| | $ | (128,722 | ) |
|
| | | | | | | | | | | |
| | Year Ended December 31, 2017 |
| | Foreign Currency Translation Adjustment | | Unrealized Gains On Available-For-Sale Securities | | Accumulated Other Comprehensive (Loss) Income |
| | (In thousands) |
| Balance at January 1 | $ | (170,149 | ) | | $ | 4,026 |
| | $ | (166,123 | ) |
| Other comprehensive income before reclassifications | 65,908 |
| | 7 |
| | 65,915 |
|
| Amounts reclassified to earnings | 673 |
| | (4,033 | ) | | (3,360 | ) |
| Net current period other comprehensive income (loss) | 66,581 |
| | (4,026 | ) | | 62,555 |
|
| Balance at December 31 | $ | (103,568 | ) | | $ | — |
| | $ | (103,568 | ) |
|
| | | | | | | | | | | |
| | Year Ended December 31, 2016 |
| | Foreign Currency Translation Adjustment | | Unrealized Gains On Available-For-Sale Securities | | Accumulated Other Comprehensive (Loss) Income |
| | (In thousands) |
| Balance at January 1 | $ | (154,645 | ) | | $ | 2,542 |
| | $ | (152,103 | ) |
| Other comprehensive (loss) income before reclassifications, net of tax benefit of $0.7 million related to unrealized losses on available-for-sale securities | (46,943 | ) | | 4,855 |
| | (42,088 | ) |
| Amounts reclassified to earnings | 9,850 |
| | (2,913 | ) | | 6,937 |
|
| Net current period other comprehensive (loss) income | (37,093 | ) | | 1,942 |
| | (35,151 | ) |
| Reallocation of accumulated other comprehensive loss (income) related to the noncontrolling interests created in the Match Group IPO | 21,589 |
| | (458 | ) | | 21,131 |
|
| Balance at December 31 | $ | (170,149 | ) | | $ | 4,026 |
| | $ | (166,123 | ) |
The amounts reclassified out of foreign currency translation adjustment into earnings for the years ended December 31, 2018, 2017 and 2016 relate to the liquidation of international subsidiaries. The amounts reclassified out of unrealized gains on available-for-sale securities into earnings for the years ended December 31, 2017 there was noand 2016, include a tax benefit orof $3.8 million and a tax provision on the accumulated other comprehensive loss.of $0.2 million, respectively.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
| | | | | | | | | | | |
| | Year Ended December 31, 2016 |
| | Foreign Currency Translation Adjustment | | Unrealized Gains On Available-For-Sale Securities | | Accumulated Other Comprehensive (Loss) Income |
| | (In thousands) |
| Balance at January 1 | $ | (154,645 | ) | | $ | 2,542 |
| | $ | (152,103 | ) |
| Other comprehensive (loss) income before reclassifications, net of tax benefit of $0.7 million related to unrealized losses on available-for-sale securities | (46,943 | ) | | 4,855 |
| | (42,088 | ) |
| Amounts reclassified to earnings | 9,850 |
| | (2,913 | ) | (b) | 6,937 |
|
| Net current period other comprehensive (loss) income | (37,093 | ) | | 1,942 |
| | (35,151 | ) |
| Reallocation of accumulated other comprehensive loss (income) related to the noncontrolling interests created in the Match Group IPO | 21,589 |
| | (458 | ) | | 21,131 |
|
| Balance at December 31 | $ | (170,149 | ) | | $ | 4,026 |
| | $ | (166,123 | ) |
_________________________(b) Amount is net of a tax provision of $0.2 million.
|
| | | | | | | | | | | |
| | Year Ended December 31, 2015 |
| | Foreign Currency Translation Adjustment | | Unrealized (Losses) Gain On Available-For-Sale Securities | | Accumulated Other Comprehensive Loss |
| | (In thousands) |
| Balance at January 1 | $ | (86,848 | ) | | $ | (852 | ) | | $ | (87,700 | ) |
| Other comprehensive (loss) income before reclassifications, net of tax provision of $0.6 million related to unrealized gains on available-for-sale securities | (65,606 | ) | | 3,537 |
| | (62,069 | ) |
| Amounts reclassified to earnings | (2,191 | ) | | (143 | ) | (c) | (2,334 | ) |
| Net current period other comprehensive (loss) income | (67,797 | ) | | 3,394 |
| | (64,403 | ) |
| Balance at December 31 | $ | (154,645 | ) | | $ | 2,542 |
| | $ | (152,103 | ) |
_________________________(c) Amount is net of a tax provision of $0.1 million.
NOTE 12—10—EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted earnings (loss) per share attributable to IAC shareholders:
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | Years Ended December 31, | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 | 2018 | | 2017 | | 2016 |
| | Basic | | Diluted | | Basic | | Diluted | | Basic | | Diluted | Basic | | Diluted | | Basic | | Diluted | | Basic | | Diluted |
| | (In thousands, except per share data) | (In thousands, except per share data) |
| Numerator: | | | | | | | | | | | | | | | | | | | | | | |
| Net earnings (loss) | $ | 358,008 |
| | $ | 358,008 |
| | $ | (16,151 | ) | | $ | (16,151 | ) | | $ | 113,374 |
| | $ | 113,374 |
| $ | 757,747 |
| | $ | 757,747 |
| | $ | 358,008 |
| | $ | 358,008 |
| | $ | (16,151 | ) | | $ | (16,151 | ) |
| Net (earnings) loss attributable to noncontrolling interests | (53,084 | ) | | (53,084 | ) | | (25,129 | ) | | (25,129 | ) | | 6,098 |
| | 6,098 |
| |
| Net earnings attributable to noncontrolling interests | | (130,786 | ) | | (130,786 | ) | | (53,084 | ) | | (53,084 | ) | | (25,129 | ) | | (25,129 | ) |
Impact from public subsidiaries' dilutive securities (a)(b) | — |
| | (33,531 | ) | | — |
| | — |
| | — |
| | (1,799 | ) | — |
| | (25,228 | ) | | — |
| | (33,531 | ) | | — |
| | — |
|
| Net earnings (loss) attributable to IAC shareholders | $ | 304,924 |
| | $ | 271,393 |
| | $ | (41,280 | ) | | $ | (41,280 | ) | | $ | 119,472 |
| | $ | 117,673 |
| $ | 626,961 |
| | $ | 601,733 |
| | $ | 304,924 |
| | $ | 271,393 |
| | $ | (41,280 | ) | | $ | (41,280 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
| Denominator: | | | | | | | | | | | | | | | | | | | | | | |
| Weighted average basic shares outstanding | 80,089 |
| | 80,089 |
| | 80,045 |
| | 80,045 |
| | 82,944 |
| | 82,944 |
| 83,407 |
| | 83,407 |
| | 80,089 |
| | 80,089 |
| | 80,045 |
| | 80,045 |
|
Dilutive securities (b) (c) (d) (e) (f) (g) | — |
| | 5,221 |
| | — |
| | — |
| | — |
| | 5,323 |
| |
Denominator for earnings per share—weighted average shares(b) (c) (d) (e) (f) (g) | 80,089 |
| | 85,310 |
| | 80,045 |
| | 80,045 |
| | 82,944 |
| | 88,267 |
| |
Dilutive securities (a) (b) (c) (d) (e) (f) (g) | | — |
| | 7,915 |
| | — |
| | 5,221 |
| | — |
| | — |
|
Denominator for earnings per share—weighted average shares(a) (b) (c) (d) (e) (f) (g) | | 83,407 |
| | 91,322 |
| | 80,089 |
| | 85,310 |
| | 80,045 |
| | 80,045 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
Earnings (loss) per share attributable to IAC shareholders: | | Earnings (loss) per share | $ | 3.81 |
| | $ | 3.18 |
| | $ | (0.52 | ) | | $ | (0.52 | ) | | $ | 1.44 |
| | $ | 1.33 |
| $ | 7.52 |
| | $ | 6.59 |
| | $ | 3.81 |
| | $ | 3.18 |
| | $ | (0.52 | ) | | $ | (0.52 | ) |
| |
| (a) | The amountFor the year ended December 31, 2018, it is more dilutive for IAC to settle certain MTCH equity awards. For the years ended December 31, 2017 and 2015 reflects the reduction in Match Group's earnings (after its IPO on November 24, 2015) attributable2016, it is more dilutive for MTCH to IAC from the assumed exercise of Match Group dilutive securities under the if-converted method. For the year ended December 31, 2016, the impact on earnings related to Match Group's dilutive securities under the if-converted method is excluded because it would have been anti-dilutive due to the Company's net loss.settle certain MTCH equity awards. |
| |
| (b) | Dilutive securities forFor the yearyears ended December 31, 2018 and 2017, include the impact from the assumed exercise of ANGI Homeservices dilutive securities under the if-converted method, as it is more dilutive for IAC to settle certain ANGI Homeservices equity awards. The impact on earnings of ANGI Homeservices dilutive securities is not applicable for periods prior to the Combination. |
| |
| (c) | If the effect is dilutive, weighted average common shares outstanding include the incremental shares that would be issued upon the assumed exercise of stock options, warrants and subsidiary denominated equity, conversionexchange of the Company's Exchangeable Notes and vesting of restricted stock units ("RSUs"). For the years ended December 31, 2018 and 2017, and 2015, 6.93.5 million and 1.26.9 million potentially dilutive securities, respectively, are excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive. |
| |
| (d) | For the year ended December 31, 2016, the Company had a loss from operations; therefore, approximately 11.3 million potentially dilutive securities were excluded from computing dilutive earnings per share because the impact would have been anti-dilutive. Accordingly, the weighted average basic shares outstanding were used to compute all earnings per share amounts. |
| |
| (e) | Market-based awards and performance-based stock units (“PSUs”("PSUs") are considered contingently issuable shares. Shares issuable upon exercise or vesting of market-based awards and PSUs are included in the denominator for earnings per share if (i) the applicable market or performance condition(s) has been met and (ii) the inclusion of the market-based awards and PSUs is dilutive for the respective reporting periods. For both the years ended December 31, 20172018 and 2015,2017, 0.1 million and 0.6 million shares respectively, underlying market-based awards and PSUs were excluded from the calculation of diluted earnings per share because the market or performance conditions had not been met. |
| |
| (f) | It is the Company's intention to settle the Exchangeable Notes through a combination of cash, equal to the face amount of the notes, and shares; therefore, the Exchangeable Notes willare only become dilutive oncefor periods during which the average price of IAC common stock exceeds the approximate $152.18 per share exchange price per $1,000 principal amount of the Exchangeable Notes. For the year ended December 31, 2018, the average price of IAC common stock exceeded $152.18 and the dilutive impact of the Exchangeable Notes was 0.3 million shares. For the year ended December 31, 2017, the Exchangeable Notes were anti-dilutive. |
NOTE 13—11—STOCK-BASED COMPENSATION
IAC currently has two active plans under which awards have been granted. These plans cover stock options to acquire shares of IAC common stock, RSUs PSUs and restricted stock,PSUs, as well as provide for the future grant of these and other equity awards. These
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
plans authorize the Company to grant awards to its employees, officers, directors and consultants. At December 31, 2017,2018, there are 2.511.5 million shares available for grant under the plans.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The plans were adopted in 20082013 and 2013,2018, have a stated term of ten years, and provide that the exercise price of stock options granted will not be less than the market price of the Company's common stock on the grant date. The plans do not specify grant dates or vesting schedules of awards as those determinations have been delegated to the Compensation and Human Resources Committee of IAC's Board of Directors (the "Committee"). Each grant agreement reflects the vesting schedule for that particular grant as determined by the Committee. Broad-based stock option awards issued to date have generally vested in equal annual installments over a four-year period and RSU awards currently outstanding generally vest in three 33% installments over a three-year period, in each case, from the grant date. PSU awards currently outstanding cliff-vest after a three-year period from the date of grant.
The amount of stock-based compensation expense recognized in the consolidated statement of operations is net of estimated forfeitures, as the expense recorded is based on awards that are ultimately expected to vest. The forfeiture rate is estimated at the grant date based on historical experience and revised, if necessary, in subsequent periods if actual forfeitures differ from the estimated rate. At December 31, 2017,2018, there is $423.2$326.0 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 2.52.3 years.
The total income tax benefit recognized in the accompanying consolidated statement of operations for the years ended December 31, 2018, 2017 2016 and 20152016 related to all stock-based compensation is $189.0 million, $423.0 million $34.8 million and $36.6$34.8 million, respectively. The increase in total income tax benefit recognized in the consolidated statement of operations during 2017 relative to 2016 is due to the adoption of ASU 2019-06 and2016-09, effective January 1, 2017, which required the recognition of excess tax benefits attributable to stock-based compensation to be included as a component of the current year provision for income taxes rather than recognized in equity.
The Company will recognize a corporateaggregate income tax deduction based on the intrinsic value of thebenefit recognized related solely to stock options exercisedfor the years ended December 31, 2018, 2017 and 2016, including the portion recognized as a component of equity in 2017, however,2016 is $169.0 million, $411.6 million, and $63.4 million, respectively.
As the Company is currently in an NOL position, there will be some delay in the timing of the realization of the cash benefit of the income tax deductiondeductions related to stock-based compensation because it will be dependent upon the amount and timing of future taxable income and the timing of estimated income tax payments. The income tax benefit to be realized on stock option deductions, including those net settled, for the year ended December 31, 2017, is $411.6 million. The income tax benefit realized on stock option deductions, including those net settled, for the years ended December 31, 2016 and 2015 are $63.4 million and $69.3 million, respectively.
IAC Stock Options
Stock options outstanding at December 31, 20172018 and changes during the year ended December 31, 20172018 are as follows:
| | | | December 31, 2017 | December 31, 2018 |
| | Shares | | Weighted
Average
Exercise
Price | | Weighted
Average
Remaining
Contractual
Term (In Years) | | Aggregate
Intrinsic
Value | Shares | | Weighted
Average
Exercise
Price | | Weighted
Average
Remaining
Contractual
Term (In Years) | | Aggregate
Intrinsic
Value |
| | (Shares and intrinsic value in thousands) | (Shares and intrinsic value in thousands) |
| Options outstanding at January 1, 2017 | 8,058 |
| | $ | 52.41 |
| | | | |
| |
| Options outstanding at January 1, 2018 | | 6,586 |
| | $ | 60.57 |
| | | | |
|
| Granted | 1,153 |
| | 76.62 |
| | | | |
| 80 |
| | 152.53 |
| | | | |
|
| Exercised | (2,443 | ) | | 41.30 |
| | | | |
| (774 | ) | | 52.56 |
| | | | |
|
| Forfeited | (179 | ) | | 59.34 |
| | | | |
| (72 | ) | | 57.52 |
| | | | |
|
| Expired | (3 | ) | | 56.31 |
| | | | |
| (6 | ) | | 19.51 |
| | | | |
|
| Options outstanding at December 31, 2017 | 6,586 |
| | $ | 60.57 |
| | 7.0 | | $ | 406,527 |
| |
| Options outstanding at December 31, 2018 | | 5,814 |
| | $ | 62.97 |
| | 6.1 | | $ | 698,128 |
|
| Options exercisable | 2,920 |
| | $ | 55.28 |
| | 5.6 | | $ | 195,677 |
| 3,592 |
| | $ | 59.64 |
| | 5.3 | | $ | 443,293 |
|
The aggregate intrinsic value in the table above represents the difference between IAC's closing stock price on the last trading day of 20172018 and the exercise price, multiplied by the number of in-the-money options that would have been exercised
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
had all option holders exercised their options on December 31, 2017.2018. The total intrinsic value of stock options exercised during the years ended December 31, 2018, 2017 and 2016 and 2015 is $83.7 million, $164.6 million and $17.1 million, and $53.0 million, respectively.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes the information about stock options outstanding and exercisable at December 31, 20172018:
| | | | Options Outstanding | | Options Exercisable | Options Outstanding | | Options Exercisable |
| Range of Exercise Prices | Outstanding at
December 31,
2017 | | Weighted-
Average
Remaining
Contractual
Life in Years | | Weighted-
Average
Exercise
Price | | Exercisable at
December 31,
2017 | | Weighted-
Average
Remaining
Contractual
Life in Years | | Weighted-
Average
Exercise
Price | Outstanding at
December 31,
2018 | | Weighted-
Average
Remaining
Contractual
Life in Years | | Weighted-
Average
Exercise
Price | | Exercisable at
December 31,
2018 | | Weighted-
Average
Remaining
Contractual
Life in Years | | Weighted-
Average
Exercise
Price |
| | (Shares in thousands) | (Shares in thousands) |
| $10.01 to $20.00 | 38 |
| | 0.9 | | $ | 16.67 |
| | 38 |
| | 0.9 |
| | $ | 16.67 |
| |
| $20.01 to $30.00 | 66 |
| | 1.5 | | 21.15 |
| | 66 |
| | 1.5 |
| | 21.15 |
| 30 |
| | 1.1 | | $ | 21.60 |
| | 30 |
| | 1.1 | | $ | 21.60 |
|
| $30.01 to $40.00 | 415 |
| | 3.3 | | 32.31 |
| | 415 |
| | 3.3 |
| | 32.31 |
| 389 |
| | 2.3 | | 32.30 |
| | 389 |
| | 2.3 | | 32.30 |
|
| $40.01 to $50.00 | 1,862 |
| | 6.8 | | 43.42 |
| | 870 |
| | 5.3 |
| | 44.86 |
| 1,541 |
| | 5.8 | | 43.35 |
| | 961 |
| | 5.0 | | 44.26 |
|
| $50.01 to $60.00 | 263 |
| | 4.0 | | 59.47 |
| | 259 |
| | 4.0 |
| | 59.48 |
| 246 |
| | 3.2 | | 59.85 |
| | 244 |
| | 3.2 | | 59.86 |
|
| $60.01 to $70.00 | 1,474 |
| | 7.2 | | 65.00 |
| | 615 |
| | 6.9 |
| | 65.49 |
| 1,173 |
| | 6.3 | | 65.27 |
| | 767 |
| | 6.0 | | 65.62 |
|
| $70.01 to $80.00 | 1,952 |
| | 8.4 | | 75.30 |
| | 407 |
| | 7.3 |
| | 74.16 |
| 1,840 |
| | 7.4 | | 75.33 |
| | 822 |
| | 6.8 | | 74.72 |
|
| $80.01 to $90.00 | 500 |
| | 7.3 | | 84.31 |
| | 250 |
| | 7.3 |
| | 84.31 |
| 500 |
| | 6.3 | | 84.31 |
| | 375 |
| | 6.3 | | 84.31 |
|
| Greater than $90.01 | 16 |
| | 9.9 | | 125.06 |
| | — |
| | — |
| | — |
| 95 |
| | 9.1 | | 148.30 |
| | 4 |
| | 8.9 | | 125.08 |
|
| | 6,586 |
| | 7.0 | | $ | 60.57 |
| | 2,920 |
| | 5.6 |
| | $ | 55.28 |
| 5,814 |
| | 6.1 | | 62.97 |
| | 3,592 |
| | 5.3 | | 59.64 |
|
The fair value of stock option awards, with the exception of market-based awards, is estimated on the grant date using the Black-Scholes option pricing model. The Black-Scholes option pricing model incorporates various assumptions, including expected volatility and expected term. During 2018, 2017 2016 and 2015,2016, expected stock price volatilities were estimated based on the Company's historical volatility. The risk-free interest rates are based on U.S. Treasuries with comparable terms as the awards, in effect at the grant date. Expected term is based upon the historical exercise behavior of our employees and the dividend yields are based on IAC's historical dividend payments. The following are the weighted average assumptions used in the Black-Scholes option pricing model: | | | | Years Ended December 31, | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 | 2018 | | 2017 | | 2016 |
| Expected volatility | 29 | % | | 29 | % | | 28 | % | 27 | % | | 29 | % | | 29 | % |
| Risk-free interest rate | 2.0 | % | | 1.2 | % | | 1.6 | % | 2.7 | % | | 2.0 | % | | 1.2 | % |
| Expected term | 5.2 years |
| | 4.8 years |
| | 5.3 years |
| 6.2 years |
| | 5.2 years |
| | 4.8 years |
|
| Dividend yield | — | % | | — | % | | 2.0 | % | — | % | | — | % | | — | % |
During 2015,2018, the Company granted market-based stock options to certain employees. These awardsthat only vest if the price of IAC common stock exceeds the relevant price threshold for a twenty-day consecutive period and the service requirement is met. The market-based vesting condition was achieved in 2017.the fourth quarter of 2018. The service requirement provides that these awards vestthis award vests in four equal annualtwo installments, beginning on the first anniversary of50% in 2021 and the grant date.second 50% in 2022. The grant date fair value of eachthe market-based award was estimated using a lattice model that incorporates a Monte Carlo simulation of IAC's stock price. The inputs used to fair value these awardsthis award included a weighted averagean expected volatility of 27%29%, risk-free interest rate of 2.3%2.8% and a 1.8% dividendzero-dividend yield. The expected term of these awards1.8 years for this award was derived from the output of the option valuation model. Expense is recognized over the longer of the vesting period of each of the fourtwo installments or the expected term. The weighted average expected term of these awards is 4 years.
Approximately less than 0.1 million, 1.2 million 1.7 million and 2.51.7 million stock options were granted by the Company during the years ended December 31, 2018, 2017 2016 and 2015,2016, respectively. The weighted average fair value of stock options granted during the years ended December 31, 2018, 2017 and 2016 are $53.94, $22.94 and 2015 with exercise prices equal to the market prices of IAC's common stock on the date of grant are $22.94, $12.34, and $15.24, respectively. During the year ended December 31, 2015, the weighted average exercise price and weighted average fair value of stock options granted with exercise prices greater than the market value of IAC's common stock on the date of grant are $84.31 and $12.00, respectively.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Cash received from stock option exercises for the years ended December 31, 2018, 2017 and 2016 and 2015 arewas $41.7 million, $82.4 million and $25.8 million, respectively.
The Company has historically settled its stock options on a gross basis. Assuming all stock options outstanding on December 31, 2018 were net settled on that date, the Company would have remitted $349.1 million (of which $221.6 million is related to vested stock options and $27.3$127.4 million respectively.is related to unvested stock options) in cash for withholding taxes (assuming a 50% withholding rate).
IAC Restricted Stock Units and Performance-based Stock Units
RSUs and PSUs are awards in the form of phantom shares or units denominated in a hypothetical equivalent number of shares of IAC common stock and with the value of each RSU and PSU equal to the fair value of IAC common stock at the date of grant. Each RSU and PSU grant is subject to service-based vesting, where a specific period of continued employment must pass before an award vests. PSUs also include performance-based vesting, where certain performance targets set at the time of grant must be achieved before an award vests. For RSU grants, the expense is measured at the grant date as the fair value of IAC common stock and expensed as stock-based compensation over the vesting term. For PSU grants, the expense is measured at the grant date as the fair value of IAC common stock and expensed as stock-based compensation over the vesting term if the performance targets are considered probable of being achieved.
Unvested RSUs and PSUs outstanding at December 31, 20172018 and changes during the year ended December 31, 20172018 are as follows:
| | | | RSUs | | PSUs | RSUs | | PSUs |
| | Number
of shares | | Weighted
Average
Grant Date
Fair Value | | Number
of shares | | Weighted
Average
Grant Date
Fair Value | Number
of shares | | Weighted
Average
Grant Date
Fair Value | | Number
of shares | | Weighted
Average
Grant Date
Fair Value |
| | (Shares in thousands) | (Shares in thousands) |
| Unvested at January 1, 2017 | 526 |
| | $ | 57.41 |
| | — |
| | $ | — |
| |
| Unvested at January 1, 2018 | | 360 |
| | $ | 80.81 |
| | 130 |
| | $ | 76.00 |
|
| Granted | 174 |
| | 100.54 |
| | 130 |
| | 76.00 |
| 153 |
| | 183.33 |
| | 30 |
| | 152.53 |
|
| Vested | (340 | ) | | 54.66 |
| | — |
| | — |
| (49 | ) | | 78.54 |
| | — |
| | — |
|
| Forfeited | — |
| | — |
| | — |
| | — |
| (5 | ) | | 98.81 |
| | (17 | ) | | 76.00 |
|
| Unvested at December 31, 2017 | 360 |
| | $ | 80.81 |
| | 130 |
| | $ | 76.00 |
| |
| Unvested at December 31, 2018 | | 459 |
| | $ | 115.12 |
| | 143 |
| | $ | 92.02 |
|
The weighted average fair value of RSUs and PSUs granted during the years ended December 31, 2018, 2017 2016 and 20152016 based on market prices of IAC's common stock on the grant date was $178.29, $90.04 $46.92 and $67.71,$46.92, respectively. The total fair value of RSUs and PSUs that vested during the years ended December 31, 2018, 2017 and 2016 and 2015 was $8.9 million, $32.5 million $13.5 million and $16.8$13.5 million, respectively.
Equity Instruments Denominated in the Shares of Certain Subsidiaries
Non-publicly-traded Subsidiaries
The following description excludes awards denominated in the shares of the Company's publicly-traded subsidiaries, Match GroupMTCH and ANGI Homeservices. Match GroupANGI. MTCH and ANGI Homeservices stock-based awards are issued pursuant to their respective stock incentive plans.
IACThe Company has granted stock options and 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 vest over a period of years or upon the occurrence of certain prescribed events. The value of the stock options and stock settled stock appreciation rights is tied to the value of the common stock of these subsidiaries. Accordingly, these interests only have value to the extent the relevant business appreciates in value above the initial value utilized to determine the exercise price. These interests can have significant value in the event of significant appreciation. The interests are ultimately settled in IAC common stock with fair market value of these interest is generally determined by negotiation or arbitration, when settled; which will occur at various dates through 2027.2025. These equity awards are settled on a net basis, with the award holder entitled to
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
receive a payment in IAC common shares equal to the intrinsic value of the award at exercise less an amount equal to the required cash tax withholding payment. The number of IAC common shares ultimately needed to settle these awards may vary significantly from the estimated numbersnumber below as a result of both movements in our stock price and a determination of fair value of the relevant subsidiary that is different than our estimate. The expense associated with these equity awards is initially measured at fair value at the grant date and is expensed as stock-based compensation over the vesting
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
term. The number of IAC common shares that would be required to settle these interests at current estimated fair values, including vested and unvested interests, at December 31, 20172018 is 0.1 million shares. Withholding taxes, which will be paid by the Company on behalf of the employees upon exercise, would have been $15.2$16.0 million at December 31, 2017,2018, assuming a 50% withholding rate.
Match GroupMTCH
MTCH currently settles substantially all equity awards on a net basis. Assuming all MTCH equity awards outstanding on December 31, 2018 were net settled on that date, MTCH would have issued 9.7 million common shares (of which 1.7 million is related to vested shares and 8.0 million is related to unvested shares) and would have remitted $416.2 million (of which $75.0 million is related to vested shares and $341.2 million is related to unvested shares) in cash for withholding taxes (assuming a 50% withholding rate). If MTCH decided to issue a sufficient number of shares to cover the $416.2 million employee withholding tax obligation, 9.7 million additional shares would be issued by MTCH.
Following the completion of the Match GroupMTCH IPO, equity awards that related to certain subsidiaries (principally Tinder, Inc.) of Match GroupMTCH were settleable, at IAC's election, in shares of IAC common stock or Match GroupMTCH common stock. Pursuant to the Employee Matters Agreement between IAC and Match Group,MTCH, to the extent shares of IAC common stock are issued in settlement of these awards, Match GroupMTCH reimburses IAC for the cost of those shares in cash or by issuing IAC shares of Match GroupMTCH common stock. In July 2017, Tinder was merged into Match GroupMTCH and as a result, all Tinder denominated equity awards were converted into Match GroupMTCH tandem stock options ("Tandem Awards"). All of the Match GroupMTCH Tandem Awards exercised during 2018 and 2017 were exercised on a net basis and were settled in IAC common shares; the Company issued 0.7 million and 2.0 million shares, respectively, of its common stock to settle these awards and Match GroupMTCH issued 2.5 million and 11.3 million shares, respectively, of its common stock to IAC as reimbursement. Assuming all vested and unvested Tandem Awards outstanding on December 31, 2018 were exercised on that date and settled using IAC stock, 0.3 million IAC common shares would have been issued in settlement and MTCH would have issued 1.4 million shares, which is included in the amount above, to IAC as reimbursement.
During 2017, Match GroupMTCH also purchased certain fully vested Tandem Awards. During 2017, Match GroupAwards, and made cash payments of approximately $520 million to cover both the withholding taxes paid on behalf of employees exercising these converted awards and the purchase of certain fully vested awards. Assuming all vested and unvested Match Group Tandem Awards outstanding on December 31, 2017 were exercised on a net basis on that date and settled with IAC stock, 0.8 million IAC common shares would have been issued in settlement. Match Group would have remitted $102.4 million in cash in withholding taxes (assuming a 50% withholding rate) on behalf of the employees and issued 3.3 million of its common shares to IAC as reimbursement.
During 2016, and 2015, the Company granted a nominal amount of IAC denominated market-based awards to certain Match GroupMTCH employees. The number of awards that ultimately vest is dependent upon Match Group'sMTCH's stock price. The grant date fair value of each market-based award is estimated using a lattice model that incorporates a Monte Carlo simulation of Match Group'sMTCH's stock price. Each market-based award is subject to service-based vesting, where a specific period of continued employment must pass before an award vests. Some of the market-based awards contain performance targets set at the time of grant that must be achieved before an award vests.
ANGI Homeservices
In connection with the Combination, previously issued stock appreciation rights that related to the common stock of HomeAdvisor (US) were converted into ANGI stock appreciation rights that are exercisable forsettleable, 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. In addition, at IAC's option, these awards can be settled in either Class A shares of ANGI Homeservices. IAC has the right to settle these awards usingor shares of IAC common stock. To the extent shares ofIf settled in IAC common stock, are issuedANGI reimburses IAC in settlementeither cash or through the issuance of these awards, ANGI Homeservices will reimburse IAC by issuing to IAC additional Class A shares of ANGI Homeservices common stock pursuant to the Employee Matters Agreement between IAC and ANGI Homeservices. These equity awards are settled on a net basis, with the award holder entitled to receive a payment in shares equal to the intrinsic valueIAC. Assuming all of the award at exercise less an amount equal to the required cash tax withholding payment. Assuming all vested and unvested stock appreciation rights outstanding on December 31, 20172018 were exercisednet settled on a net basis and settledthat date using IAC stock, 1.41.1 million IAC common shares would have been issued in settlement.settlement and IAC would have been issued 12.8 million shares of ANGI HomeservicesClass A stock and ANGI would have remitted $171.3$205.9 million in cash infor withholding taxes (assuming a 50% withholding rate). If ANGI decided to issue a sufficient number of shares to cover the $205.9 million employee withholding tax obligation, 12.8 million additional Class A shares would be issued by ANGI. ANGI's
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
cash withholding obligation on behalfall other ANGI net settled awards outstanding on December 31, 2018 is $36.5 million (assuming a 50% withholding rate), which is the equivalent of 2.3 million shares.
Prior to the Combination in 2017, the Company issued a number of IAC denominated PSUs to certain ANGI employees. Vesting of the employees and issued 16.4PSUs is contingent upon ANGI's performance. Assuming all of the PSUs outstanding on December 31, 2018 were net settled on that date using IAC stock, 0.1 million of itsIAC common shares towould have been issued in settlement and IAC as reimbursement.would have been issued 0.6 million shares of ANGI Class A stock and ANGI would have remitted $10.4 million in cash for withholding taxes (assuming a 50% withholding rate).
Modification of awards
During 2018, the Company modified certain equity awards and recognized modification charges of $7.9 million. In addition, in connection with the ANGI chief executive officer transition during the fourth quarter of 2018, ANGI accelerated $3.9 million of expense into 2018 from 2019.
In connection with the Combination, the previously issued HomeAdvisor (US) stock appreciation rights were converted into ANGI Homeservices' equity awards resulting in a modification charge of $217.7 million of which $56.9 million and $93.4 million waswere recognized as stock-based compensation expense in the yearyears ended December 31, 2018 and 2017, respectively, and the remaining charge will be recognized over the vesting period of the modified awards.
During the second quarter of 2017, the Company modified certain subsidiaryHomeAdvisor (US) denominated equity awards and recognized a modification charge of $6.6 million.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During 2016, the Company modified certain subsidiary denominated equity awards resulting in a modification charge of $7.3 million (subsequently reduced to $7.1 million due to forfeitures) of which $0.1 million, $0.7 million and $6.3 million were recognized as stock-based compensation in the years ended December 31, 2018, 2017 and 2016, respectively, and $0.1 million will be recognized over the remaining vesting period of the modified awards.
During the first quarter of 2015, the Company modified certain subsidiary denominated equity awards resulting in a modification charge of $5.8 million of which $0.2 million, $0.6 million and $3.5 million was recognized in 2017, 2016 and 2015, respectively, and the remaining charge will be recognized over the remaining vesting period of the modified awards. During the third quarter of 2015, the Company modified certain subsidiary denominated vested equity awards and recognized a modification charge of $6.8 million. During the fourth quarter of 2015, the Company repurchased certain subsidiary denominated vested equity awards in exchange for $23.4 million in cash and fully vested modified equity awards and recognized a modification charge of $7.7 million. These modification charges are included in stock-based compensation in the year ended December 31, 2015.respectively.
During 2014, the Company granted an equity award denominated in shares of a subsidiary of the Company to a non-employee, which was marked to market each reporting period. In the third quarter of 2016, Match GroupMTCH settled the vested portion of the award for cash of $13.4 million. In the third quarter of 2017, the award was modified and Match GroupMTCH settled the remaining portion of the award for cash of $33.9 million.
NOTE 14—12—SEGMENT INFORMATION.
The overall concept that IAC employs in determining its operating segments is to present the financial information in a manner consistent with: how the chief operating decision maker views the businesses; how the businesses are organized as to segment management; and the focus of the businesses with regards to the types of services or products offered or the target market. Operating segments are combined for reporting purposes if they meet certain aggregation criteria, which principally relate to the similarity of their economic characteristics or, in the case of the Emerging & Other reportable segment, do not meet the quantitative thresholds that require presentation as separate reportable segments.
The following table presents revenue by reportable segment:
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (In thousands) |
| Revenue: | | | | | |
| Match Group | $ | 1,330,661 |
| | $ | 1,118,110 |
| | $ | 909,705 |
|
| ANGI Homeservices | 736,386 |
| | 498,890 |
| | 361,201 |
|
| Video | 276,994 |
| | 228,649 |
| | 213,317 |
|
| Applications | 577,998 |
| | 604,140 |
| | 760,748 |
|
| Publishing | 361,837 |
| | 407,313 |
| | 691,686 |
|
Other(a) | 23,980 |
| | 283,365 |
| | 294,821 |
|
| Inter-segment elimination | (617 | ) | | (585 | ) | | (545 | ) |
| Total | $ | 3,307,239 |
| | $ | 3,139,882 |
| | $ | 3,230,933 |
|
___________________ | |
(a) | The Other segment consists of the results of PriceRunner, ShoeBuy and The Princeton Review for periods prior to the sales of these businesses, which occurred on March 18, 2016, December 30, 2016 and March 31, 2017, respectively. Beginning in the second quarter of 2017, as a result of the sales of these businesses, the Other segment does not include any financial results. |
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (In thousands) |
| Operating Income (Loss): | | | | | |
| Match Group | $ | 360,517 |
| | $ | 315,549 |
| | $ | 212,981 |
|
| ANGI Homeservices | (149,176 | ) | | 25,363 |
| | (1,568 | ) |
| Video | (35,659 | ) | | (27,656 | ) | | (38,756 | ) |
| Applications | 130,176 |
| | 109,663 |
| | 175,145 |
|
| Publishing | 15,670 |
| | (334,417 | ) | | (26,692 | ) |
| Other | (5,621 | ) | | (11,678 | ) | | (28,611 | ) |
| Corporate | (127,441 | ) | | (109,449 | ) | | (112,911 | ) |
| Total | $ | 188,466 |
| | $ | (32,625 | ) | | $ | 179,588 |
|
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | (In thousands) |
| Revenue: | | | | | |
| Match Group | $ | 1,729,850 |
| | $ | 1,330,661 |
| | $ | 1,118,110 |
|
| ANGI Homeservices | 1,132,241 |
| | 736,386 |
| | 498,890 |
|
| Vimeo | 159,641 |
| | 103,332 |
| | 78,805 |
|
| Dotdash | 130,991 |
| | 90,890 |
| | 77,913 |
|
| Applications | 582,287 |
| | 577,998 |
| | 604,140 |
|
| Emerging & Other | 528,250 |
| | 468,589 |
| | 762,609 |
|
| Inter-segment elimination | (368 | ) | | (617 | ) | | (585 | ) |
| Total | $ | 4,262,892 |
| | $ | 3,307,239 |
| | $ | 3,139,882 |
|
The following table presents the revenue of the Company's segments disaggregated by type of service:
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (In thousands) |
Adjusted EBITDA:(b) | | | | | |
| Match Group | $ | 468,941 |
| | $ | 403,380 |
| | $ | 284,554 |
|
| ANGI Homeservices | 37,858 |
| | 45,851 |
| | 16,713 |
|
| Video | (30,446 | ) | | (21,247 | ) | | (38,384 | ) |
| Applications | 136,757 |
| | 132,276 |
| | 184,258 |
|
| Publishing | 31,470 |
| | (7,571 | ) | | 87,788 |
|
| Other | (1,532 | ) | | 1,802 |
| | 4,734 |
|
| Corporate | (67,755 | ) | | (53,272 | ) | | (53,873 | ) |
| Total | $ | 575,293 |
| | $ | 501,219 |
| | $ | 485,790 |
|
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | (In thousands) |
| Match Group | | | | | |
| Direct revenue: | | | | | |
| North America | $ | 902,478 |
| | $ | 741,334 |
| | $ | 673,944 |
|
| International | 774,693 |
| | 539,915 |
| | 393,420 |
|
| Direct revenue | 1,677,171 |
| | 1,281,249 |
| | 1,067,364 |
|
| Indirect revenue (principally advertising revenue) | 52,679 |
| | 49,412 |
| | 50,746 |
|
| Total Match Group revenue | $ | 1,729,850 |
| | $ | 1,330,661 |
| | $ | 1,118,110 |
|
| | | | | | |
| Supplemental information on Direct revenue | | | | | |
| Tinder | $ | 805,316 |
| | $ | 403,216 |
| | $ | 168,522 |
|
| Other brands | 871,855 |
| | 878,033 |
| | 898,842 |
|
| Total Direct revenue | $ | 1,677,171 |
| | $ | 1,281,249 |
| | $ | 1,067,364 |
|
| | | | | | |
| ANGI Homeservices | | | | | |
| Marketplace: | | | | | |
| Consumer connection revenue | $ | 704,341 |
| | $ | 521,481 |
| | $ | 382,466 |
|
| Membership subscription revenue | 66,214 |
| | 56,135 |
| | 43,573 |
|
| Other revenue | 3,940 |
| | 3,798 |
| | 2,827 |
|
| Marketplace revenue | 774,495 |
| | 581,414 |
| | 428,866 |
|
| Advertising and other revenue | 287,676 |
| | 97,483 |
| | 32,981 |
|
| North America | 1,062,171 |
| | 678,897 |
| | 461,847 |
|
| Consumer connection revenue | 50,913 |
| | 40,009 |
| | 28,124 |
|
| Membership subscription revenue | 17,362 |
| | 16,596 |
| | 7,936 |
|
| Advertising and other revenue | 1,795 |
| | 884 |
| | 983 |
|
| Europe | 70,070 |
| | 57,489 |
| | 37,043 |
|
| Total ANGI Homeservices revenue | $ | 1,132,241 |
| | $ | 736,386 |
| | $ | 498,890 |
|
| | | | | | |
| Vimeo | | | | | |
| Platform revenue | $ | 146,665 |
| | $ | 99,650 |
| | $ | 78,805 |
|
| Hardware revenue | 12,976 |
| | 3,682 |
| | — |
|
|
| | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
| | (In thousands) |
Segment Assets:(c) | | | |
| Match Group | $ | 467,338 |
| | $ | 422,509 |
|
| ANGI Homeservices | 264,450 |
| | 74,106 |
|
| Video | 129,855 |
| | 225,519 |
|
| Applications | 345,532 |
| | 98,460 |
|
| Publishing | 182,949 |
| | 398,958 |
|
| Other | — |
| | 15,372 |
|
| Corporate | 873,392 |
| | 822,687 |
|
| Total | $ | 2,263,516 |
| | $ | 2,057,611 |
|
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (In thousands) |
| Capital expenditures: | | | | | |
| Match Group | $ | 28,833 |
| | $ | 46,098 |
| | $ | 25,246 |
|
| ANGI Homeservices | 26,837 |
| | 16,660 |
| | 10,170 |
|
| Video | 400 |
| | 2,508 |
| | 2,466 |
|
| Applications | 227 |
| | 1,196 |
| | 4,681 |
|
| Publishing | 850 |
| | 2,093 |
| | 6,283 |
|
| Other | 536 |
| | 5,712 |
| | 7,085 |
|
| Corporate | 17,840 |
| | 3,772 |
| | 6,118 |
|
| Total | $ | 75,523 |
| | $ | 78,039 |
| | $ | 62,049 |
|
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | (In thousands) |
| Total Vimeo revenue | $ | 159,641 |
| | $ | 103,332 |
| | $ | 78,805 |
|
| | | | | | |
| Dotdash | | | | | |
| Advertising revenue | $ | 113,014 |
| | $ | 81,948 |
| | $ | 76,099 |
|
| Affiliate commerce commission revenue | 14,458 |
| | 7,372 |
| | 1,685 |
|
| Other revenue | 3,519 |
| | 1,570 |
| | 129 |
|
| Total Dotdash revenue | $ | 130,991 |
| | $ | 90,890 |
| | $ | 77,913 |
|
| | | | | | |
| Applications | | | | | |
| Desktop | | | | | |
| Advertising revenue: | | | | | |
| Google advertising revenue | $ | 426,964 |
| | $ | 480,774 |
| | $ | 523,335 |
|
| Other | 10,992 |
| | 6,762 |
| | 10,037 |
|
| Advertising revenue | 437,956 |
| | 487,536 |
| | 533,372 |
|
| Subscription and other revenue | 20,815 |
| | 34,613 |
| | 29,943 |
|
| Total Desktop | 458,771 |
| | 522,149 |
| | 563,315 |
|
| Mosaic Group | | | | | |
| Subscription and other revenue | 104,975 |
| | 27,980 |
| | 21,787 |
|
| Advertising revenue | 18,541 |
| | 27,869 |
| | 19,038 |
|
| Total Mosaic Group | 123,516 |
| | 55,849 |
| | 40,825 |
|
| Total Applications revenue | $ | 582,287 |
| | $ | 577,998 |
| | $ | 604,140 |
|
| | | | | | |
| Emerging & Other | | | | | |
| Advertising revenue: | | | | | |
| Google advertising revenue | $ | 357,752 |
| | $ | 225,576 |
| | $ | 269,192 |
|
| Other | 66,733 |
| | 53,911 |
| | 75,008 |
|
| Advertising revenue | 424,485 |
| | 279,487 |
| | 344,200 |
|
| Other revenue | 103,765 |
| | 169,497 |
| | 160,329 |
|
| Test preparation revenue | — |
| | 19,605 |
| | 86,517 |
|
| Product revenue | — |
| | — |
| | 171,563 |
|
| Total Emerging & Other revenue | $ | 528,250 |
| | $ | 468,589 |
| | $ | 762,609 |
|
| |
(b) | The Company's primary financial measure is Adjusted EBITDA, which 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. The Company believes this measure is useful for analysts and investors as this measure allows a more meaningful comparison between our performance and that of our competitors. Moreover, our management uses this measure internally to evaluate the performance of our business as a whole and our individual business segments, and this measure is one of the primary metrics by which our internal budgets are based and by which management is compensated. The above items are excluded from our Adjusted EBITDA measure because these items are non-cash in nature, and we believe that by excluding these items, Adjusted EBITDA corresponds more closely to the cash operating income generated from our business, from which capital investments are made and debt is serviced. Adjusted EBITDA has certain limitations in that it does not take into account the impact to IAC's statement of operations of certain expenses. |
| |
(c) | Consistent with the Company's primary metric (described in (a) above), the Company excludes, if applicable, property and equipment, goodwill and intangible assets from the measure of segment assets presented above. |
The following table presents the revenue of the Company's principal segments disaggregated by type of service:
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (In thousands) |
| Match Group | | | | | |
| Direct revenue | $ | 1,281,249 |
| | $ | 1,067,364 |
| | $ | 866,583 |
|
| Indirect revenue (principally advertising revenue) | 49,412 |
| | 50,746 |
| | 43,122 |
|
| Total Match Group revenue | $ | 1,330,661 |
| | $ | 1,118,110 |
| | $ | 909,705 |
|
| | | | | | |
| ANGI Homeservices | | | | | |
| Marketplace: | | | | | |
Consumer connection revenue (d) | $ | 521,481 |
| | $ | 382,466 |
| | $ | 269,309 |
|
| Membership subscription revenue | 56,135 |
| | 43,573 |
| | 24,164 |
|
| Other revenue | 3,798 |
| | 2,827 |
| | 3,423 |
|
| Marketplace revenue | 581,414 |
| | 428,866 |
| | 296,896 |
|
Advertising & Other revenue (e) | 97,483 |
| | 32,981 |
| | 32,971 |
|
| North America | 678,897 |
| | 461,847 |
| | 329,867 |
|
Consumer connection revenue (d) | 40,009 |
| | 28,124 |
| | 23,298 |
|
| Membership subscription revenue | 16,596 |
| | 7,936 |
| | 6,921 |
|
| Advertising and other revenue | 884 |
| | 983 |
| | 1,115 |
|
| Europe | 57,489 |
| | 37,043 |
| | 31,334 |
|
| Total ANGI Homeservices revenue | $ | 736,386 |
| | $ | 498,890 |
| | $ | 361,201 |
|
| | | | | | |
| Applications | | | | | |
| Advertising | $ | 515,405 |
| | $ | 552,410 |
| | $ | 728,501 |
|
| Subscription (including downloadable app fees) and Other | 62,593 |
| | 51,730 |
| | 32,247 |
|
| Total Applications revenue | $ | 577,998 |
| | $ | 604,140 |
| | $ | 760,748 |
|
| | | | | | |
| Publishing | | | | | |
| Advertising | $ | 358,472 |
| | $ | 405,031 |
| | $ | 685,440 |
|
| Other | 3,365 |
| | 2,282 |
| | 6,246 |
|
| Total Publishing revenue | $ | 361,837 |
| | $ | 407,313 |
| | $ | 691,686 |
|
| |
(d) | Fees paid by service professionals for consumer matches. |
| |
(e) | Includes Angie's List revenue from service professionals under contract for advertising and Angie's List membership subscription fees from consumers, as well as revenue from mHelpDesk, HomeStars and Felix. |
Revenue by geography is based on where the customer is located. Geographic information about revenue and long-lived assets is presented below:
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | (In thousands) |
| Revenue | | | | | |
| United States | $ | 2,824,928 |
| | $ | 2,323,050 |
| | $ | 2,318,976 |
|
| All other countries | 1,437,964 |
| | 984,189 |
| | 820,906 |
|
| Total | $ | 4,262,892 |
| | $ | 3,307,239 |
| | $ | 3,139,882 |
|
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | Years Ended December 31, | December 31, |
| | 2017 | | 2016 | | 2015 | 2018 | | 2017 |
| | (In thousands) | (In thousands) |
| Revenue | | | | | | |
| Long-lived assets (excluding goodwill and intangible assets) | | | | |
| United States | $ | 2,323,050 |
| | $ | 2,318,976 |
| | $ | 2,376,035 |
| $ | 289,756 |
| | $ | 286,541 |
|
| All other countries | 984,189 |
| | 820,906 |
| | 854,898 |
| 29,044 |
| | 28,629 |
|
| Total | $ | 3,307,239 |
| | $ | 3,139,882 |
| | $ | 3,230,933 |
| $ | 318,800 |
| | $ | 315,170 |
|
The following tables present operating income (loss) and Adjusted EBITDA by reportable segment:
|
| | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
| | (In thousands) |
| Long-lived assets (excluding goodwill and intangible assets) | | | |
| United States | $ | 286,541 |
| | $ | 281,725 |
|
| All other countries | 28,629 |
| | 24,523 |
|
| Total | $ | 315,170 |
| | $ | 306,248 |
|
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | (In thousands) |
| Operating Income (Loss): | | | | | |
| Match Group | $ | 553,294 |
| | $ | 360,517 |
| | $ | 315,549 |
|
| ANGI Homeservices | 63,906 |
| | (149,176 | ) | | 25,363 |
|
| Vimeo | (35,594 | ) | | (27,328 | ) | | (25,350 | ) |
| Dotdash | 18,778 |
| | (15,694 | ) | | (248,705 | ) |
| Applications | 94,834 |
| | 130,176 |
| | 109,663 |
|
| Emerging & Other | 29,964 |
| | 17,412 |
| | (99,696 | ) |
| Corporate | (160,043 | ) | | (127,441 | ) | | (109,449 | ) |
| Total | $ | 565,139 |
| | $ | 188,466 |
| | $ | (32,625 | ) |
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | (In thousands) |
Adjusted EBITDA:(a) | | | | | |
| Match Group | $ | 653,931 |
| | $ | 468,941 |
| | $ | 403,380 |
|
| ANGI Homeservices | $ | 247,506 |
| | $ | 37,858 |
| | $ | 45,851 |
|
| Vimeo | $ | (28,045 | ) | | $ | (23,607 | ) | | $ | (20,281 | ) |
| Dotdash | $ | 21,384 |
| | $ | (2,763 | ) | | $ | (16,846 | ) |
| Applications | $ | 131,837 |
| | $ | 136,757 |
| | $ | 132,276 |
|
| Emerging & Other | $ | 36,178 |
| | $ | 25,862 |
| | $ | 10,111 |
|
| Corporate | $ | (74,017 | ) | | $ | (67,755 | ) | | $ | (53,272 | ) |
(a) The Company's primary financial measure is Adjusted EBITDA, which 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. The Company believes this measure is useful for analysts and investors as this measure allows a more meaningful comparison between our performance and that of our competitors. Moreover, our management uses this measure internally to evaluate the performance of our businesses, and this measure is one of the primary metrics on which our internal budgets are based and by which management is compensated. The above items are excluded from our Adjusted EBITDA measure because these items are non-cash in nature. Adjusted EBITDA has certain limitations in that it does not take into account the impact to IAC's statement of operations of certain expenses.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following tables reconcile operating income (loss) for the Company's reportable segments and net earnings (loss) attributable to IAC shareholders to Adjusted EBITDA:
| | | | Year Ended December 31, 2017 | Year Ended December 31, 2018 |
| | Operating
Income
(Loss) | | Stock-Based
Compensation
Expense | | Depreciation | | Amortization
of Intangibles | | Acquisition-related Contingent Consideration Fair Value Adjustments | | Adjusted EBITDA | Operating
Income
(Loss) | | Stock-Based
Compensation
Expense | | Depreciation | | Amortization
of Intangibles | | Acquisition-related Contingent Consideration Fair Value Adjustments | | Adjusted EBITDA |
| | (In thousands) | | | | | | | | | | | (In thousands) |
| Match Group | $ | 360,517 |
| | $ | 69,090 |
| | $ | 32,613 |
| | $ | 1,468 |
| | $ | 5,253 |
| | $ | 468,941 |
| $ | 553,294 |
| | $ | 66,031 |
| | $ | 32,968 |
| | $ | 1,318 |
| | $ | 320 |
| | $ | 653,931 |
|
| ANGI Homeservices | (149,176 | ) | | 149,230 |
| | 14,543 |
| | 23,261 |
| | — |
| | 37,858 |
| 63,906 |
| | $ | 97,078 |
| | $ | 24,310 |
| | $ | 62,212 |
| | $ | — |
| | $ | 247,506 |
|
| Video | (35,659 | ) | | 401 |
| | 2,167 |
| | 2,645 |
| | — |
| | (30,446 | ) | |
| Vimeo | | (35,594 | ) | | $ | — |
| | $ | 1,200 |
| | $ | 6,349 |
| | $ | — |
| | $ | (28,045 | ) |
| Dotdash | | 18,778 |
| | $ | — |
| | $ | 969 |
| | $ | 1,637 |
| | $ | — |
| | $ | 21,384 |
|
| Applications | 130,176 |
| | — |
| | 3,863 |
| | 2,170 |
| | 548 |
| | 136,757 |
| 94,834 |
| | $ | — |
| | $ | 2,601 |
| | $ | 33,266 |
| | $ | 1,136 |
| | $ | 131,837 |
|
| Publishing | 15,670 |
| | — |
| | 4,725 |
| | 11,075 |
| | — |
| | 31,470 |
| |
| Other | (5,621 | ) | | 1,729 |
| | 836 |
| | 1,524 |
| | — |
| | (1,532 | ) | |
| Emerging & Other | | 29,964 |
| | $ | 919 |
| | $ | 1,678 |
| | $ | 3,617 |
| | $ | — |
| | $ | 36,178 |
|
| Corporate | (127,441 | ) | | 44,168 |
| | 15,518 |
| | — |
| | — |
| | (67,755 | ) | (160,043 | ) | | $ | 74,392 |
| | $ | 11,634 |
| | $ | — |
| | $ | — |
| | $ | (74,017 | ) |
| Total | $ | 188,466 |
| | $ | 264,618 |
| | $ | 74,265 |
| | $ | 42,143 |
| | $ | 5,801 |
| | $ | 575,293 |
| 565,139 |
| | | | | | | | | | |
| Interest expense | (105,295 | ) | | | | | | | | | | | (109,327 | ) | | | | | | | | | | |
| Other expense, net | (16,213 | ) | | | | | | | | | | | |
| Other income, net | | 305,746 |
| | | | | | | | | | |
| Earnings before income taxes | 66,958 |
| | | | | | | | | | | 761,558 |
| | | | | | | | | | |
| Income tax benefit | 291,050 |
| | | | | | | | | | | |
| Income tax provision | | (3,811 | ) | | | | | | | | | | |
| Net earnings | 358,008 |
| | | | | | | | | | | 757,747 |
| | | | | | | | | | |
| Net earnings attributable to noncontrolling interests | (53,084 | ) | | | | | | | | | | | (130,786 | ) | | | | | | | | | | |
| Net earnings attributable to IAC shareholders | $ | 304,924 |
| | | | | | | | | | | $ | 626,961 |
| | | | | | | | | | |
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | Year Ended December 31, 2016 | Year Ended December 31, 2017 |
| | Operating Income (Loss) | | Stock-Based Compensation Expense | | Depreciation | | Amortization of Intangibles | | Acquisition-related Contingent Consideration Fair Value Adjustments | | Goodwill Impairment | | Adjusted EBITDA | Operating Income (Loss) | | Stock-Based Compensation Expense | | Depreciation | | Amortization of Intangibles | | Acquisition-related Contingent Consideration Fair Value Adjustments | | Adjusted EBITDA |
| | (In thousands) | (In thousands) |
| Match Group | $ | 315,549 |
| | $ | 52,370 |
| | $ | 27,726 |
| | $ | 16,932 |
| | $ | (9,197 | ) | | $ | — |
| | $ | 403,380 |
| $ | 360,517 |
| | $ | 69,090 |
| | $ | 32,613 |
| | $ | 1,468 |
| | $ | 5,253 |
| | $ | 468,941 |
|
| ANGI Homeservices | 25,363 |
| | 8,916 |
| | 8,419 |
| | 3,153 |
| | — |
| | — |
| | 45,851 |
| (149,176 | ) | | $ | 149,230 |
| | $ | 14,543 |
| | $ | 23,261 |
| | $ | — |
| | $ | 37,858 |
|
| Video | (27,656 | ) | | 640 |
| | 1,785 |
| | 4,176 |
| | (192 | ) | | — |
| | (21,247 | ) | |
| Vimeo | | (27,328 | ) | | $ | — |
| | $ | 1,408 |
| | $ | 2,313 |
| | $ | — |
| | $ | (23,607 | ) |
| Dotdash | | (15,694 | ) | | $ | — |
| | $ | 2,255 |
| | $ | 10,676 |
| | $ | — |
| | $ | (2,763 | ) |
| Applications | 109,663 |
| | — |
| | 5,095 |
| | 5,483 |
| | 12,035 |
| | — |
| | 132,276 |
| 130,176 |
| | $ | — |
| | $ | 3,863 |
| | $ | 2,170 |
| | 548 |
| — |
| $ | 136,757 |
|
| Publishing | (334,417 | ) | | — |
| | 8,531 |
| | 42,948 |
| | — |
| | 275,367 |
| | (7,571 | ) | |
| Other | (11,678 | ) | | 618 |
| | 6,219 |
| | 6,734 |
| | (91 | ) | | — |
| | 1,802 |
| |
| Emerging & Other | | 17,412 |
| | $ | 2,130 |
| | $ | 4,065 |
| | $ | 2,255 |
| | $ | — |
| | $ | 25,862 |
|
| Corporate | (109,449 | ) | | 42,276 |
| | 13,901 |
| | — |
| | — |
| | — |
| | (53,272 | ) | (127,441 | ) | | $ | 44,168 |
| | $ | 15,518 |
| | $ | — |
| | $ | — |
| | $ | (67,755 | ) |
| Total | (32,625 | ) | | $ | 104,820 |
| | $ | 71,676 |
| | $ | 79,426 |
| | $ | 2,555 |
| | $ | 275,367 |
| | $ | 501,219 |
| 188,466 |
| | | | | | | | | | |
| Interest expense | (109,110 | ) | | | | | | | | | | | | | (105,295 | ) | | | | | | | | | | |
| Other income, net | 60,650 |
| | | | | | | | | | | | | |
| Loss before income taxes | (81,085 | ) | | | | | | | | | | | | | |
| Other expense, net | | (16,213 | ) | | | | | | | | | | |
| Earnings before income taxes | | 66,958 |
| | | | | | | | | | |
| Income tax benefit | 64,934 |
| | | | | | | | | | | | | 291,050 |
| | | | | | | | | | |
| Net loss | (16,151 | ) | | | | | | | | | | | | | |
| Net earnings | | 358,008 |
| | | | | | | | | | |
| Net earnings attributable to noncontrolling interests | (25,129 | ) | | | | | | | | | | | | | (53,084 | ) | | | | | | | | | | |
| Net loss attributable to IAC shareholders | $ | (41,280 | ) | | | | | | | | | | | | | |
| Net earnings attributable to IAC shareholders | | $ | 304,924 |
| | | | | | | | | | |
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2015 |
| | Operating
Income
(Loss) | | Stock-Based
Compensation
Expense | | Depreciation | | Amortization of Intangibles | | Acquisition-related Contingent Consideration Fair Value Adjustments | | Goodwill Impairment | | Adjusted EBITDA |
| | (In thousands) |
| Match Group | $ | 212,981 |
| | $ | 49,401 |
| | $ | 19,791 |
| | $ | 13,437 |
| | $ | (11,056 | ) | | $ | — |
| | $ | 284,554 |
|
| ANGI Homeservices | (1,568 | ) | | 7,853 |
| | 6,593 |
| | 3,835 |
| | — |
| | — |
| | 16,713 |
|
| Video | (38,756 | ) | | 360 |
| | 1,091 |
| | 1,558 |
| | (2,637 | ) | | — |
| | (38,384 | ) |
| Applications | 175,145 |
| | — |
| | 4,617 |
| | 6,264 |
| | (1,768 | ) | | — |
| | 184,258 |
|
| Publishing | (26,692 | ) | | — |
| | 9,577 |
| | 104,903 |
| | — |
| | — |
| | 87,788 |
|
| Other | (28,611 | ) | | 682 |
| | 8,652 |
| | 9,955 |
| | — |
| | 14,056 |
| | 4,734 |
|
| Corporate | (112,911 | ) | | 47,154 |
| | 11,884 |
| | — |
| | — |
| | — |
| | (53,873 | ) |
| Total | 179,588 |
| | $ | 105,450 |
| | $ | 62,205 |
| | $ | 139,952 |
| | $ | (15,461 | ) | | $ | 14,056 |
| | $ | 485,790 |
|
| Interest expense | (73,636 | ) | | | | | | | | | | | | |
| Other income, net | 36,938 |
| | | | | | | | | | | | |
| Earnings before income taxes | 142,890 |
| | | | | | | | | | | | |
| Income tax provision | (29,516 | ) | | | | | | | | | | | | |
| Net earnings | 113,374 |
| | | | | | | | | | | | |
| Net loss attributable to noncontrolling interests | 6,098 |
| | | | | | | | | | | | |
| Net earnings attributable to IAC shareholders | $ | 119,472 |
| | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2016 |
| | Operating Income (Loss) | | Stock-Based
Compensation
Expense | | Depreciation | | Amortization of Intangibles | | Acquisition-related Contingent Consideration Fair Value Adjustments | | Goodwill Impairment | | Adjusted EBITDA |
| | (In thousands) |
| Match Group | $ | 315,549 |
| | $ | 52,370 |
| | $ | 27,726 |
| | $ | 16,932 |
| | $ | (9,197 | ) | | $ | — |
| | $ | 403,380 |
|
| ANGI Homeservices | 25,363 |
| | $ | 8,916 |
| | $ | 8,419 |
| | $ | 3,153 |
| | $ | — |
| | $ | — |
| | $ | 45,851 |
|
| Vimeo | (25,350 | ) | | $ | — |
| | $ | 1,085 |
| | $ | 4,176 |
| | $ | (192 | ) | | $ | — |
| | $ | (20,281 | ) |
| Dotdash | (248,705 | ) | | $ | — |
| | $ | 2,775 |
| | $ | 30,754 |
| | $ | — |
| | $ | 198,330 |
| | $ | (16,846 | ) |
| Applications | 109,663 |
| | $ | — |
| | $ | 5,095 |
| | $ | 5,483 |
| | $ | 12,035 |
| | $ | — |
| | $ | 132,276 |
|
| Emerging & Other | (99,696 | ) | | $ | 1,258 |
| | $ | 12,675 |
| | $ | 18,928 |
| | $ | (91 | ) | | $ | 77,037 |
| | $ | 10,111 |
|
| Corporate | (109,449 | ) | | $ | 42,276 |
| | $ | 13,901 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | (53,272 | ) |
| Total | (32,625 | ) | | | | | | | | | | | | |
| Interest expense | (109,110 | ) | | | | | | | | | | | | |
| Other income, net | 60,650 |
| | | | | | | | | | | | |
| Loss before income taxes | (81,085 | ) | | | | | | | | | | | | |
| Income tax benefit | 64,934 |
| | | | | | | | | | | | |
| Net loss | (16,151 | ) | | | | | | | | | | | | |
| Net earnings attributable to noncontrolling interests | (25,129 | ) | | | | | | | | | | | | |
| Net loss attributable to IAC shareholders | $ | (41,280 | ) | | | | | | | | | | | | |
The following tables reconcile segment assets to total assets:assets by reportable segment:
| | | | December 31, 2017 | December 31, 2018 |
| | Segment Assets | | Property and Equipment, Net | | Goodwill | | Indefinite-Lived
Intangible
Assets | | Definite-Lived
Intangible
Assets, Net | | Total Assets | Segment Assets (b) | | Property and Equipment, Net | | Goodwill | | Indefinite-Lived
Intangible
Assets | | Definite-Lived
Intangible
Assets, Net | | Total Assets |
| | (In thousands) | (In thousands) |
| Match Group | $ | 467,338 |
| | $ | 61,620 |
| | $ | 1,247,899 |
| | $ | 228,296 |
| | $ | 2,049 |
| | $ | 2,007,202 |
| $ | 377,965 |
| | $ | 58,351 |
| | $ | 1,245,013 |
| | $ | 230,684 |
| | $ | 6,956 |
| | $ | 1,918,969 |
|
| ANGI Homeservices | 264,450 |
| | 53,292 |
| | 768,317 |
| | 153,447 |
| | 175,124 |
| | 1,414,630 |
| 497,327 |
| | 70,859 |
| | 892,800 |
| | 171,486 |
| | 132,809 |
| | 1,765,281 |
|
| Video | 129,855 |
| | 3,076 |
| | 95,608 |
| | 1,800 |
| | 23,322 |
| | 253,661 |
| |
| Vimeo | | 33,568 |
| | 1,014 |
| | 77,152 |
| | — |
| | 9,442 |
| | 121,176 |
|
| Dotdash | | 39,276 |
| | 3,229 |
| | — |
| | 13,500 |
| | 1,514 |
| | 57,519 |
|
| Applications | 345,532 |
| | 7,004 |
| | 447,242 |
| | 60,600 |
| | 847 |
| | 861,225 |
| 153,781 |
| | 4,867 |
| | 504,892 |
| | 39,463 |
| | 22,447 |
| | 725,450 |
|
| Publishing | 182,949 |
| | 5,350 |
| | — |
| | 15,000 |
| | 3,252 |
| | 206,551 |
| |
| Other | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
| Emerging & Other | | 95,858 |
| | 1,638 |
| | 7,002 |
| | 2,971 |
| | 150 |
| | 107,619 |
|
Corporate (f)(c) | 873,392 |
| | 184,828 |
| | — |
| | — |
| | — |
| | 1,058,220 |
| 1,934,943 |
| | 178,842 |
| | — |
| | — |
| | — |
| | 2,113,785 |
|
| Total | $ | 2,263,516 |
| | $ | 315,170 |
| | $ | 2,559,066 |
| | $ | 459,143 |
| | $ | 204,594 |
| | 5,801,489 |
| $ | 3,132,718 |
| | $ | 318,800 |
| | $ | 2,726,859 |
| | $ | 458,104 |
| | $ | 173,318 |
| | 6,809,799 |
|
Add: Deferred tax assets (g)(d) | | | | | | | | | | | 66,321 |
| | | | | | | | | | | 64,786 |
|
| Total Assets | | | | | | | | | | | $ | 5,867,810 |
| | | | | | | | | | | $ | 6,874,585 |
|
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | December 31, 2016 | December 31, 2017 |
| | Segment Assets | | Property and Equipment, Net | | Goodwill | | Indefinite-Lived
Intangible
Assets | | Definite-Lived
Intangible
Assets, Net | | Total Assets | Segment Assets (b) | | Property and Equipment, Net | | Goodwill | | Indefinite-Lived
Intangible
Assets | | Definite-Lived
Intangible
Assets, Net | | Total Assets |
| | (In thousands) | (In thousands) |
| Match Group | $ | 422,509 |
| | $ | 62,954 |
| | $ | 1,206,538 |
| | $ | 214,461 |
| | $ | 3,221 |
| | $ | 1,909,683 |
| $ | 467,338 |
| | $ | 61,620 |
| | $ | 1,247,899 |
| | $ | 228,296 |
| | $ | 2,049 |
| | $ | 2,007,202 |
|
| ANGI Homeservices | 74,106 |
| | 23,645 |
| | 170,611 |
| | 4,884 |
| | 5,908 |
| | 279,154 |
| 264,450 |
| | 53,292 |
| | 768,317 |
| | 153,447 |
| | 175,124 |
| | 1,414,630 |
|
| Video | 225,519 |
| | 4,750 |
| | 25,239 |
| | 1,800 |
| | 4,167 |
| | 261,475 |
| |
| Vimeo | | 30,507 |
| | 1,972 |
| | 77,303 |
| | — |
| | 15,655 |
| | 125,437 |
|
| Dotdash | | 27,190 |
| | 4,077 |
| | — |
| | 6,000 |
| | 3,152 |
| | 40,419 |
|
| Applications | 98,460 |
| | 10,559 |
| | 447,242 |
| | 60,600 |
| | 2,481 |
| | 619,342 |
| 345,532 |
| | 7,004 |
| | 447,242 |
| | 60,600 |
| | 847 |
| | 861,225 |
|
| Publishing | 398,958 |
| | 10,696 |
| | — |
| | 15,000 |
| | 11,441 |
| | 436,095 |
| |
| Other | 15,372 |
| | 6,774 |
| | 74,422 |
| | 23,900 |
| | 7,588 |
| | 128,056 |
| |
| Emerging & Other | | 255,107 |
| | 2,377 |
| | 18,305 |
| | 10,800 |
| | 7,767 |
| | 294,356 |
|
Corporate (f)(c) | 822,687 |
| | 186,870 |
| | — |
| | — |
| | — |
| | 1,009,557 |
| 873,392 |
| | 184,828 |
| | — |
| | — |
| | — |
| | 1,058,220 |
|
| Total | $ | 2,057,611 |
| | $ | 306,248 |
| | $ | 1,924,052 |
| | $ | 320,645 |
| | $ | 34,806 |
| | 4,643,362 |
| $ | 2,263,516 |
| | $ | 315,170 |
| | $ | 2,559,066 |
| | $ | 459,143 |
| | $ | 204,594 |
| | 5,801,489 |
|
Add: Deferred tax assets (g)(d) | | | | | | | | | | | 2,511 |
| | | | | | | | | | | 66,321 |
|
| Total Assets | | | | | | | | | | | $ | 4,645,873 |
| | | | | | | | | | | $ | 5,867,810 |
|
(b) Consistent with the Company's primary metric (described in (a) above), the Company excludes, if applicable, property and equipment, goodwill and intangible assets from the measure of segment assets presented above.
| |
(f)(c) | Corporate assets consist primarily of cash and cash equivalents, marketable securities and IAC's headquarters building. |
| |
(g)(d) | Total segment assets differ from total assets on a consolidated basis as a result of unallocated deferred tax assets. |
The following table presents capital expenditures by reportable segment:
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | (In thousands) |
| Capital expenditures: | | | | | |
| Match Group | $ | 30,954 |
| | $ | 28,833 |
| | $ | 46,098 |
|
| ANGI Homeservices | 46,976 |
| | 26,837 |
| | 16,660 |
|
| Vimeo | 209 |
| | 109 |
| | 1,959 |
|
| Dotdash | 102 |
| | 825 |
| | 1,671 |
|
| Applications | 111 |
| | 227 |
| | 1,196 |
|
| Emerging & Other | 1,119 |
| | 852 |
| | 6,683 |
|
| Corporate | 6,163 |
| | 17,840 |
| | 3,772 |
|
| Total | $ | 85,634 |
| | $ | 75,523 |
| | $ | 78,039 |
|
NOTE 15—13—COMMITMENTS AND CONTINGENCIES
Commitments
The Company leases land, office space, data center facilities and equipment used in connection with its operations under various operating leases, many of which contain escalation clauses. The Company is also committed to pay a portion of the related operating expenses under a data centercertain lease agreement.agreements. These operating expenses are not included in the table below.
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Future minimum payments under operating lease agreements are as follows:
| | | Years Ending December 31, | (In thousands) | | (In thousands) |
| 2018 | $ | 38,339 |
| |
| 2019 | 36,996 |
| | $ | 38,770 |
|
| 2020 | 30,594 |
| | 46,440 |
|
| 2021 | 23,253 |
| | 40,998 |
|
| 2022 | 19,688 |
| | 34,066 |
|
| 2023 | | | 30,567 |
|
| Thereafter | 211,649 |
| | 255,563 |
|
| Total | $ | 360,519 |
| | $ | 446,404 |
|
Expenses charged to operations under these agreements are $42.0 million, $37.9 million $50.8 million and $39.4$50.8 million for the years ended December 31, 2018, 2017 2016 and 2015,2016, respectively.
The Company's three most significant operating lease is a seventy-seven-year land leaseleases are for IAC's headquarters building in New York City that expires in 2081, ANGI's call center in New York that expires in 2028 and approximates 48%ANGI's headquarters in Denver, Colorado that expires in 2029, which collectively approximate 61% of the future minimum payments due under all operating lease agreements in the table above.
The Company also has funding commitments that could potentially require its performance in the event of demands by third parties or contingent events as follows:
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | Amount of Commitment Expiration Per Period | Amount of Commitment Expiration Per Period |
| | Less Than 1 Year | | 1-3 Years | | 3-5 Years | | More Than 5 Years | | Total Amounts Committed | Less Than 1 Year | | 1-3 Years | | 3-5 Years | | More Than 5 Years | | Total Amounts Committed |
| | (In thousands) | (In thousands) |
| Purchase obligations | $ | 21,994 |
| | $ | 10,816 |
| | $ | — |
| | $ | — |
| | $ | 32,810 |
| $ | 40,428 |
| | $ | 23,897 |
| | $ | — |
| | $ | — |
| | $ | 64,325 |
|
| Letters of credit and surety bonds | 576 |
| | 71 |
| | — |
| | 1,939 |
| | 2,586 |
| 449 |
| | — |
| | — |
| | 2,272 |
| | 2,721 |
|
| Total commercial commitments | $ | 22,570 |
| | $ | 10,887 |
| | $ | — |
| | $ | 1,939 |
| | $ | 35,396 |
| $ | 40,877 |
| | $ | 23,897 |
| | $ | — |
| | $ | 2,272 |
| | $ | 67,046 |
|
The purchase obligations principally include web hosting commitments. The letters of credit primarily support the Company's casualty insurance program.
Contingencies
In the ordinary course of business, the Company is a party to various lawsuits. The Company establishes reserves for specific legal matters when it determines that the likelihood of an unfavorable outcome is probable and the loss is reasonably estimable. Management has also identified certain other legal matters where we believe an unfavorable outcome is not probable and, therefore, no reserve is established. Although management currently believes that resolving claims against us, including claims where an unfavorable outcome is reasonably possible, will not have a material impact on the liquidity, results of operations, or financial condition of the Company, these matters are subject to inherent uncertainties and management's view of these matters may change in the future. The Company also evaluates other contingent matters, including income and non-income tax contingencies, to assess the likelihood of an unfavorable outcome and estimated extent of potential loss. It is possible that an unfavorable outcome of one or more of these lawsuits or other contingencies could have a material impact on the liquidity, results of operations, or financial condition of the Company. See "Note 3—Income Taxes" for additional information related to income tax contingencies. On August 14, 2018, ten then-current and former employees of Match Group, LLC or Tinder, Inc. ("Tinder"), an operating business of Match Group, filed a lawsuit in New York state court against IAC 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
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 Match Group, thereby depriving one of the plaintiffs (Mr. Rad) of his contractual right to later valuations of Tinder on a stand-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 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. On August 31, 2018, four plaintiffs who were still employed by Match Group filed a notice of discontinuance of their claims without prejudice, leaving the six former employees as the remaining plaintiffs. 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. On December 17, 2018, plaintiffs filed their opposition to the motion to dismiss. On January 15, 2019, the defendants filed their reply brief. A hearing on the motion is scheduled for March 6, 2019, and discovery in the case is proceeding. IAC and Match Group believe that the allegations in this lawsuit are without merit and will continue to defend vigorously against it.
NOTE 16—14—SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental Disclosure of Non-Cash Transactions:
The Company recorded acquisition-related contingent consideration liabilities of $0.2$25.5 million and $27.4$0.2 million during the years ended December 31, 20162018 and 2015,2016, respectively, in connection with various acquisitions. There were no acquisition-related contingent consideration liabilities recorded for the year ended December 31, 2017. See "Note 8—Fair Value Measurements and 6—Financial Instruments" for additional information on contingent consideration arrangements. On October 19, 2018, ANGI issued 8.6 million shares of its Class A common stock valued at $165.8 million in connection with the acquisition of Handy.
On September 29, 2017, ANGI Homeservices issued 61.3 million shares of its Class A common stock valued at $763.7 million in connection with the Combination.
On November 16, 2015, Match Group exchanged $445.3 million of 4.75% Senior Notes for $445.2 million of Match Group 6.75% Senior Notes.
Supplemental Disclosure of Cash Flow Information:
| | | | Years Ended December 31, | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 | 2018 | | 2017 | | 2016 |
| | (In thousands) | (In thousands) |
| Cash paid (received) during the year for: | | | | | | | | | | |
| Interest | $ | 92,461 |
| | $ | 107,360 |
| | $ | 51,666 |
| $ | 90,485 |
| | $ | 92,461 |
| | $ | 107,360 |
|
| Income tax payments | 35,598 |
| | 69,103 |
| | 70,762 |
| 45,154 |
| | 35,598 |
| | 69,103 |
|
| Income tax refunds | (42,025 | ) | | (23,877 | ) | | (5,619 | ) | (33,698 | ) | | (42,025 | ) | | (23,877 | ) |
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 17—15—RELATED PARTY TRANSACTIONS
IAC and Match Group:MTCH:
IAC and Match Group,MTCH, in connection with Match Group'sMTCH's IPO, entered into the following agreements:
A Master Transaction Agreement, under which Match GroupMTCH agrees to assume all of the assets and liabilities related to its business and agrees to indemnify IAC against any losses arising out of any breach by Match GroupMTCH of the Master Transaction Agreement or other IPO related agreements;
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
An Investor Rights Agreement that provides IAC with (i) specified registration and other rights relating to shares of Match Group'sMTCH common stock and (ii) anti-dilution rights with respect to Match Group'sMTCH common stock;
An Employee Matters Agreement, which governs the respective rights, responsibilities and obligations of IAC and Match GroupMTCH after the IPO with respect to a range of compensation and benefit issues;
A Tax Sharing Agreement, which governs the respective rights, responsibilities and obligations of IAC and Match GroupMTCH with respect to tax liabilities and benefits, entitlement to refunds, preparation of tax returns, tax contests and other tax matters regarding U.S. federal, state, local and foreign income taxes; and
A Services Agreement, under which IAC has agreed to provide a range of services to Match Group,MTCH, including, among others, (i) assistance with certain legal, finance, internal audit, treasury, information technology support, insurance and tax affairs, including assistance with certain public company reporting obligations; (ii) payroll processing services; (iii) tax compliance services; and (iv) such other services as to which IAC and Match GroupMTCH may agree, and Match GroupMTCH agrees to provide IAC informational technology services and such other services as to which IAC and Match GroupMTCH may agree.
During the years ended December 31, 2018, 2017 and 2016, 3.0 million, 11.9 million and 1.0 million shares, respectively, of Match GroupMTCH common stock were issued to IAC pursuant to the employee matters agreement; 2.5 million, 11.3 million and 0.5 million, respectively, of which were issued as reimbursement for shares of IAC common stock issued in connection with the exercise and settlement of Match GroupMTCH tandem stock options and equity awards denominated in shares of a subsidiary of Match Group,MTCH, respectively; and 0.5 million, 0.6 million and 0.4 million, respectively, of which were issued as reimbursement for shares of IAC common stock issued in connection with the exercise and vesting of IAC equity awards held by Match GroupMTCH employees.
For the years ended December 31, 2018, 2017 and 2016, and for the period from the date of the IPO through December 31, 2015, Match GroupMTCH was charged $7.6 million, $9.9 million $11.8 million and $0.7$11.8 million, respectively, by the Company for services rendered pursuant to a services agreement. Included in these amounts are $5.2 million, $5.1 million $4.3 million and $0.3$4.3 million, respectively, for leasing of office space for certain of Match Group'sMTCH's businesses at properties owned by IAC. These amounts were paid in full by Match GroupMTCH at December 31, 2018, 2017 and 2016, respectively.
At December 31, 2017, and 2016, Match GroupMTCH had a tax receivable of $7.3 million and $9.0 million, respectively, due from the Company pursuant to the tax sharing agreement. Refunds made by the Company during 2018 and 2017 pursuant to this agreement were $7.0 million and $10.9 million, and payments maderespectively. There were no outstanding receivables or payables pursuant to the Company during 2016 were $19.9 million.tax sharing agreement as of December 31, 2018.
In December 2017, certain international subsidiaries of Match GroupMTCH agreed to sell NOLs that were not expected to be utilized to an IAC subsidiary for $0.9 million.
IAC and ANGI Homeservices:ANGI:
IAC and ANGI, Homeservices, in connection with the Combination, entered into the following agreements:
A Contribution Agreement under which the Company separated its HomeAdvisor business from its other businesses and caused the HomeAdvisor business to be transferred to ANGI Homeservices prior to the Combination. Under the Contribution Agreement, ANGI Homeservices agrees to indemnify IAC against any losses arising out of any breach by ANGI Homeservices of the Contribution Agreement;
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
An Investor Rights Agreement that provides IAC with (i) specified registration and other rights relating to shares of ANGI Homeservices' common stock owned by IAC; (ii) anti-dilution rights with respect to ANGI Homeservices' common stock; and (iii) specified board matters with respect to designation of ANGI Homeservices directors;
A Services Agreement, under which IAC has agreed to provide a range of services to ANGI, Homeservices, including, among others, (i) assistance with certain legal, M&A, human resources, finance, risk management, internal audit and treasury functions, health and wellness, information security services and insurance and tax affairs, including assistance with certain public company and unclaimed property reporting obligations; (ii) accounting, controllership and payroll
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
processing services; (iii) investor relations services; (iv) tax compliance services; and (iv) such other services as to which IAC and ANGI Homeservices may agree.
A Tax Sharing Agreement, which governs the respective rights, responsibilities and obligations of IAC and ANGI Homeservices with respect to tax matters, including taxes attributable to ANGI, Homeservices, entitlement to refunds, allocation of tax attributes, preparation of tax returns, certain tax elections, control of tax contests and other tax matters regarding U.S. federal, state, local and foreign income taxes; and
An Employee Matters Agreement, which governs the respective rights, responsibilities and obligations of IAC and ANGI Homeservices after the closing of the Combination with respect to a range of compensation and benefit issues.
Additionally, on September 29, 2017, the Company and ANGI Homeservices entered into two intercompany notes (collectively referred to as "Intercompany Notes") to ANGI Homeservices as follows: (i) a Payoff Intercompany Note, which provided the funds necessary to repay the outstanding balance under Angie's List's previously existing credit agreement, totaling $61.5 million; and (ii) a Working Capital Intercompany Note, which provided ANGI Homeservices with $15 million for working capital purposes. These Intercompany Notes were repaid on November 1, 2017, with a portion of the proceeds from the ANGI Homeservices Term Loan that were received on the same date. See "Note 9—Long-term Debt" for further information. For the years ended December 31, 2018 and for the period subsequent to the Combination through December 31, 2017, 0.9 million and 0.4 million shares, respectively, of ANGI HomeservicesClass B common stock were issued to IAC pursuant to the employee matters agreement as reimbursement for shares of IAC common stock issued in connection with the exercise and vesting of IAC equity awards held by ANGI Homeservices employees.
On October 10, 2018, IAC was issued 5.1 million shares of Class B common stock of ANGI pursuant to the post-closing adjustment provision of the Angie's List merger agreement.
For the years ended December 31, 2018 and for the period subsequent to the Combination through December 31, 2017, ANGI Homeservices was charged $5.7 million and $1.7 million, respectively, by the Company for services rendered pursuant to the services agreement. The amount outstanding atAt December 31, 2018 and 2017, the Company had a $0.1 million outstanding payable to IACANGI and a $0.4 million receivable from ANGI, respectively, pursuant to the services agreement is $0.4 million.agreement. In addition, the Company hasANGI had an outstanding payable due to IAC of $2.0 million at December 31, 2017 related primarily to transaction related costs incurred in connection with the Combination.Combination, which was paid in full during the first quarter of 2018. There were no comparable costs in 2018.
At December 31, 2018, ANGI had taxes payable of $12.1 million due to the Company pursuant to the tax sharing agreement. No payments were made to the Company during 2018 pursuant to this agreement.
IAC and Expedia:
Each of IAC and Expedia has a 50% ownership interest in threetwo aircrafts that may be used by both companies. The Company and Expedia purchased the third of these three aircraftsan aircraft during the second quarter of 2017 to replace the older of the existing aircrafts,a previously owned aircraft, which was subsequently sold on February 13, 2018. The Company paid $17.4 million (50% of the total purchase price and refurbish costs) for its interest.interest in the new aircraft. Members of the aircrafts' flight crews are employed by an entity in which each of the Company and Expedia has a 50% ownership interest. The Company and Expedia have agreed to share costs relating to flight crew compensation and benefits pro-rata according to each company's respective usage of the aircraft, for which they are separately billed by the entity described above. The Company and Expedia are related parties since they are under common control, given that Mr. Diller serves as Chairman and Senior Executive of both IAC and Expedia. For the years ended December 31, 2018, 2017 2016 and 2015,2016, total payments made to this entity by the Company were not material.
NOTE 18—16—BENEFIT PLANS
IAC has a retirement savings plan in the United States that qualifies under Section 401(k) of the Internal Revenue Code. Under the IAC/InterActiveCorp Retirement Savings Plan ("the Plan"), participating employees may contribute up to 50% of their pre-tax earnings, but not more than statutory limits. IAC contributes fifty cents for each dollar a participant contributes in this plan, with a maximum contribution of 3% of a participant's eligible earnings. Matching contributions for the Plan for the years ended December 31, 2018, 2017 and 2016 and 2015 are $12.9 million, $11.1 million $10.0 million and $9.1$10.0 million, respectively. Matching
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
contributions are invested in the same manner as each participant's voluntary contributions in the investment options provided under the Plan. An investment option in the Plan is IAC common stock, but neither participant nor matching contributions are required to be invested in IAC common stock. The increase in matching contributions in 20172018 and 20162017 are due primarily to an increase in participation in the Plan due to an increaseincreases in headcount from the Combination and continued corporate growth at Match GroupANGI, MTCH, Vimeo and ANGI Homeservices as a result of continued business growth.Dotdash.
IAC also has or participates in various benefit plans, principally defined contribution plans, for its international employees. IAC's contributions for these plans for the years ended December 31, 2018, 2017 and 2016 and 2015 are $3.4 million, $2.5 million $2.1 million and $2.5$2.1 million, respectively. The increase in contributions in 2018 and 2017 waswere due, in part, to an increase in participation in the international plans due to an increase in headcount at Match GroupMTCH and ANGI Homeservices as a result of continued business growth and acquisitions. The decrease in contributions in 2016 was due, in part, to the sale of PriceRunner.growth.
NOTE 19—17—CONSOLIDATED FINANCIAL STATEMENT DETAILS
| | | | December 31, | December 31, |
| | 2017 | | 2016 | 2018 | | 2017 |
| | (In thousands) | (In thousands) |
| Other current assets: | | | | | | |
| Capitalized costs to obtain a contract with a customer | | $ | 69,817 |
| | $ | — |
|
| Prepaid expenses | $ | 49,350 |
| | $ | 37,665 |
| 55,586 |
| | 49,350 |
|
| Capitalized downloadable search toolbar costs, net | | 33,365 |
| | 31,588 |
|
| Income taxes receivable | 33,239 |
| | 41,352 |
| 10,132 |
| | 33,239 |
|
| Capitalized downloadable search toolbar costs, net | 31,588 |
| | 28,737 |
| |
| Production costs | 18,570 |
| | 39,763 |
| 2,260 |
| | 18,570 |
|
| Other | 52,627 |
| | 56,551 |
| 57,093 |
| | 52,627 |
|
| Other current assets | $ | 185,374 |
| | $ | 204,068 |
| $ | 228,253 |
| | $ | 185,374 |
|
| | | | December 31, | December 31, |
| | 2017 | | 2016 | 2018 | | 2017 |
| | (In thousands) | (In thousands) |
| Property and equipment, net of accumulated depreciation and amortization: | | | | | | |
| Buildings and leasehold improvements | $ | 252,511 |
| | $ | 247,563 |
| $ | 249,026 |
| | $ | 246,038 |
|
| Computer equipment and capitalized software | 218,529 |
| | 275,455 |
| 229,083 |
| | 218,529 |
|
| Furniture and other equipment | 88,930 |
| | 94,555 |
| 86,694 |
| | 88,930 |
|
| Projects in progress | 19,094 |
| | 13,048 |
| 29,204 |
| | 19,094 |
|
| Land | 7,917 |
| | 5,117 |
| 11,591 |
| | 14,390 |
|
| | 586,981 |
| | 635,738 |
| |
| Property and equipment | | 605,598 |
| | 586,981 |
|
| Accumulated depreciation and amortization | (271,811 | ) | | (329,490 | ) | (286,798 | ) | | (271,811 | ) |
| Property and equipment, net of accumulated depreciation and amortization | $ | 315,170 |
| | $ | 306,248 |
| $ | 318,800 |
| | $ | 315,170 |
|
| | | | December 31, | December 31, |
| | 2017 | | 2016 | 2018 | | 2017 |
| | (In thousands) | (In thousands) |
| Accrued expenses and other current liabilities: | | | | | | |
| Accrued employee compensation and benefits | $ | 108,431 |
| | $ | 106,301 |
| $ | 137,583 |
| | $ | 108,431 |
|
| Accrued advertising expense | 96,445 |
| | 68,916 |
| 105,520 |
| | 96,445 |
|
| Other | 162,048 |
| | 169,693 |
| 191,783 |
| | 162,048 |
|
| Accrued expenses and other current liabilities | $ | 366,924 |
| | $ | 344,910 |
| $ | 434,886 |
| | $ | 366,924 |
|
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | Years Ended December 31, | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 | 2018 | | 2017 | | 2016 |
| | (In thousands) | (In thousands) |
| Revenue: | | | | | | | | | | |
| Service revenue | $ | 3,302,937 |
| | $ | 2,967,474 |
| | $ | 3,077,080 |
| $ | 4,249,227 |
| | $ | 3,302,937 |
| | $ | 2,967,474 |
|
| Product revenue | 4,302 |
| | 172,408 |
| | 153,853 |
| 13,665 |
| | 4,302 |
| | 172,408 |
|
| Revenue | $ | 3,307,239 |
| | $ | 3,139,882 |
| | $ | 3,230,933 |
| $ | 4,262,892 |
| | $ | 3,307,239 |
| | $ | 3,139,882 |
|
| | | | Years Ended December 31, | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 | 2018 | | 2017 | | 2016 |
| | (In thousands) | (In thousands) |
| Cost of revenue: | | | | | | | | | | |
| Cost of service revenue | $ | 647,226 |
| | $ | 617,058 |
| | $ | 652,137 |
| $ | 898,736 |
| | $ | 647,226 |
| | $ | 617,058 |
|
| Cost of product revenue | 3,782 |
| | 138,672 |
| | 126,024 |
| 12,410 |
| | 3,782 |
| | 138,672 |
|
| Cost of revenue | $ | 651,008 |
| | $ | 755,730 |
| | $ | 778,161 |
| $ | 911,146 |
| | $ | 651,008 |
| | $ | 755,730 |
|
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (In thousands) |
| Other (expense) income, net | $ | (16,213 | ) | | $ | 60,650 |
| | $ | 36,938 |
|
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | (In thousands) |
| Other income (expense), net | $ | 305,746 |
| | $ | (16,213 | ) | | $ | 60,650 |
|
Other income, net in 2018 includes: $124.2 million of net unrealized gains related to certain equity investments that were adjusted to fair value in accordance with ASU No. 2016-01, which was adopted on January 1, 2018; $120.6 million in gains related to the sales of Dictionary.com, Electus, Felix and CityGrid; $30.4 million of interest income; $27.9 million in realized gains related to the sale of certain equity investments; and $5.3 million in net foreign currency exchange gains due primarily to the strengthening of the dollar relative to the British Pound.
Other expense, net in 2017 includesincludes: $16.8 million in net foreign currency exchange losses due primarily to the weakening of the dollar relative to the British Pound, expense ofPound; $15.4 million expense related to the extinguishment of the Match Group 6.75% MTCH Senior Notes and repricing of the Match GroupMTCH Term Loan, expense ofLoan; $13.0 million related to a mark-to-market adjustmentcharge principally pertaining to a subsidiary denominated equity award held by a non-employee,non-employee; $12.2 million in other-than-temporary impairment charges related to certain investments and expense ofinvestments; $1.2 million expense related to the write-off of deferred financing costs associated with the repayment of the 4.875% Senior Notes, partially offset byNotes; $34.9 million in realized gains related to the sale of certain investments; and $11.4 million of interest income.
Other income, net in 2016 includes: $37.5 million and $12.0 million in realized gains related to the sales of certain investments and interest income of $11.4 million.
Other income, net in 2016 includes gains of $37.5 million and $12.0 million related to the sale of ShoeBuy and PriceRunner, respectively,respectively; $34.4 million in net foreign currency exchange gains due primarily to the strengthening of the dollar relative to the British Pound and Euro, interest income ofEuro; $5.1 million and aof interest income; $3.6 million gain related to the sale of marketablecertain equity securities, partially offset by ainvestments; $12.1 million non-cash charge of $12.1 million related to the write-off of a proportionate share of original issue discount and deferred financing costs associated with the repayment of $440 million of the Match GroupMTCH Term Loan,Loan; $10.7 million in other-than-temporary impairment charges related to certain investments, a loss ofinvestments; $3.8 million loss related to the sale of ASKfm, aASKfm; $3.6 million loss on the 4.75% and 4.875% Senior Note redemptions and repurchasesrepurchases; and an expense of $2.5 million related to a mark-to-market adjustmentcharge principally pertaining to a subsidiary denominated equity award held by a non-employee.
NOTE 18—TRANSACTION AND INTEGRATION RELATED COSTS IN CONNECTION WITH THE COMBINATION
During the years ended December 31, 2018 and 2017, the Company incurred $3.6 million and $44.1 million, respectively, in 2015 included a gain of $34.3 million from a real estate transaction, $5.4 million in net foreign currency exchange gains duecosts related to the strengtheningCombination (including severance, retention, transaction and integration related costs), as well as deferred revenue write-offs of $5.5 million and $7.8 million, respectively. During the dollar relative toyears ended December 31, 2018 and 2017, the Euro and $4.3 million in interest income, partially offset by $6.7 million in other-than-temporary impairment charges related to certain investments and an expense
Contents
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 20—TRANSACTION AND INTEGRATION RELATED COSTS IN CONNECTION WITH THE COMBINATION
ANGI Homeservices segment
During the year ended December 31, 2017, the Company incurred $44.1 million in costs related to the Combination (including severance, retention, transaction and integration related costs) as well as deferred revenue write-offs of $7.8 million. The Company also incurred $70.6 million and $122.1 million, respectively, in stock-based compensation expense during 2017 related to the modification of previously issued HomeAdvisor vestedequity awards and unvestedpreviously issued Angie's List equity awards, both of which were converted into ANGI Homeservices' equity awards in the expense related to previously issued Angie's List equity awardsCombination, and the acceleration of certain Angie's Listconverted equity awards resulting from the termination of Angie's List employees in connection with the Combination.
A summary of the costs incurred, payments made and the related accrual for ANGI Homeservices at December 31, 2017 is presented below.
| | | | | | Years Ended December 31, |
| | Year Ended December 31, 2017 | 2018 | | 2017 |
| | (In thousands) | (In thousands) |
| Transaction and integration related costs | $ | 44,101 |
| $ | 3,584 |
| | $ | 44,101 |
|
| Stock-based compensation expense | 122,066 |
| 70,645 |
| | 122,066 |
|
| Total | $ | 166,167 |
| $ | 74,229 |
| | $ | 166,167 |
|
| | | | December 31, 2017 | December 31, |
| | (In thousands) | 2018 | | 2017 |
| Charges incurred | $ | 44,101 |
| |
| | | (In thousands) |
| Accrual as of January 1 | | $ | 8,480 |
| | $ | — |
|
| Costs incurred | | 3,584 |
| | 44,101 |
|
| Payments made | (35,621 | ) | (12,064 | ) | | (35,621 | ) |
| Accrual as of December 31 | $ | 8,480 |
| $ | — |
| | $ | 8,480 |
|
The costs are allocated as follows in the accompanying consolidated statement of operations:
|
| | | | | | | | | | | |
| | Year Ended December 31, 2018 |
| | Integration Related Costs | | Stock-based Compensation Expense | | Total |
| | (In thousands) |
| Cost of revenue | $ | — |
| | $ | — |
| | $ | — |
|
| Selling and marketing expense | — |
| | 2,161 |
| | 2,161 |
|
| General and administrative expense | 3,584 |
| | 61,010 |
| | 64,594 |
|
| Product development expense | — |
| | 7,474 |
| | 7,474 |
|
| Total | $ | 3,584 |
| | $ | 70,645 |
| | $ | 74,229 |
|
|
| | | | | | | | | | | |
| | Year Ended December 31, 2017 |
| | Transaction and Integration Related Costs | | Stock-based Compensation Expense | | Total |
| | (In thousands) |
| Cost of revenue | $ | — |
| | $ | — |
| | $ | — |
|
| Selling and marketing expense | 7,430 |
| | 24,416 |
| | 31,846 |
|
| General and administrative expense | 36,120 |
| | 83,420 |
| | 119,540 |
|
| Product development expense | 551 |
| | 14,230 |
| | 14,781 |
|
| Total | $ | 44,101 |
| | $ | 122,066 |
| | $ | 166,167 |
|
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 21—19—GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION
The 4.75% Senior Notes are unconditionally guaranteed, jointly and severally, by certain domestic subsidiaries which are 100% owned by the Company. The following tables present condensed consolidating financial information at December 31, 20172018 and 20162017 and for the years ended December 31, 2018, 2017 2016 and 20152016 for: IAC, on a stand-alonestandalone basis; the combined guarantor subsidiaries of IAC; the combined non-guarantor subsidiaries of IAC; and IAC on a consolidated basis.
Balance sheet at December 31, 2018: |
| | | | | | | | | | | | | | | | | | | |
| | IAC | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | IAC Consolidated |
| | (In thousands) |
| Cash and cash equivalents | $ | 1,018,082 |
| | $ | — |
| | $ | 1,113,550 |
| | $ | — |
| | $ | 2,131,632 |
|
| Marketable securities | 98,299 |
| | — |
| | 25,366 |
| | — |
| | 123,665 |
|
| Accounts receivable, net of allowance and reserves | — |
| | 99,970 |
| | 179,219 |
| | — |
| | 279,189 |
|
| Other current assets | 27,349 |
| | 29,222 |
| | 171,682 |
| | — |
| | 228,253 |
|
| Intercompany receivables | — |
| | 1,423,456 |
| | — |
| | (1,423,456 | ) | | — |
|
| Property and equipment, net of accumulated depreciation and amortization | 6,526 |
| | 163,281 |
| | 148,993 |
| | — |
| | 318,800 |
|
| Goodwill | — |
| | 412,009 |
| | 2,314,850 |
| | — |
| | 2,726,859 |
|
| Intangible assets, net of accumulated amortization | — |
| | 43,914 |
| | 587,508 |
| | — |
| | 631,422 |
|
| Investment in subsidiaries | 1,897,699 |
| | 214,519 |
| | — |
| | (2,112,218 | ) | | — |
|
| Other non-current assets | 274,789 |
| | 94,290 |
| | 251,315 |
| | (185,629 | ) | | 434,765 |
|
| Total assets | $ | 3,322,744 |
| | $ | 2,480,661 |
| | $ | 4,792,483 |
| | $ | (3,721,303 | ) | | $ | 6,874,585 |
|
| | | | | | | | | | |
| Current portion of long-term debt | $ | — |
| | $ | — |
| | $ | 13,750 |
| | $ | — |
| | $ | 13,750 |
|
| Accounts payable, trade | 1,304 |
| | 36,293 |
| | 37,310 |
| | — |
| | 74,907 |
|
| Other current liabilities | 41,721 |
| | 95,405 |
| | 657,775 |
| | — |
| | 794,901 |
|
| Long-term debt, net | 34,262 |
| | — |
| | 2,211,286 |
| | — |
| | 2,245,548 |
|
| Income taxes payable | 15 |
| | 1,707 |
| | 35,862 |
| | — |
| | 37,584 |
|
| Intercompany liabilities | 402,056 |
| | — |
| | 1,021,400 |
| | (1,423,456 | ) | | — |
|
| Other long-term liabilities | 261 |
| | 18,181 |
| | 257,594 |
| | (185,629 | ) | | 90,407 |
|
| Redeemable noncontrolling interests | — |
| | — |
| | 65,687 |
| | — |
| | 65,687 |
|
| Shareholders' equity (deficit) | 2,843,125 |
| | 2,329,075 |
| | (216,857 | ) | | (2,112,218 | ) | | 2,843,125 |
|
| Noncontrolling interests | — |
| | — |
| | 708,676 |
| | — |
| | 708,676 |
|
| Total liabilities and shareholders' equity | $ | 3,322,744 |
| | $ | 2,480,661 |
| | $ | 4,792,483 |
| | $ | (3,721,303 | ) | | $ | 6,874,585 |
|
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Balance sheet at December 31, 2017: | | | | IAC | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | IAC Consolidated | IAC | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | IAC Consolidated |
| | (In thousands) | (In thousands) |
| Cash and cash equivalents | $ | 585,639 |
| | $ | — |
| | $ | 1,045,170 |
| | $ | — |
| | $ | 1,630,809 |
| $ | 585,639 |
| | $ | — |
| | $ | 1,045,170 |
| | $ | — |
| | $ | 1,630,809 |
|
| Marketable securities | 4,995 |
| | — |
| | — |
| | — |
| | 4,995 |
| 4,995 |
| | — |
| | — |
| | — |
| | 4,995 |
|
| Accounts receivable, net of allowance | 31 |
| | 109,289 |
| | 194,707 |
| | — |
| | 304,027 |
| |
| Accounts receivable, net of allowance and reserves | | 31 |
| | 109,289 |
| | 194,707 |
| | — |
| | 304,027 |
|
| Other current assets | 49,159 |
| | 33,387 |
| | 102,828 |
| | — |
| | 185,374 |
| 49,159 |
| | 33,387 |
| | 102,828 |
| | — |
| | 185,374 |
|
| Intercompany receivables | — |
| | 668,703 |
| | — |
| | (668,703 | ) | | — |
| — |
| | 668,703 |
| | — |
| | (668,703 | ) | | — |
|
| Property and equipment, net of accumulated depreciation and amortization | 2,811 |
| | 174,323 |
| | 138,036 |
| | — |
| | 315,170 |
| 2,811 |
| | 174,323 |
| | 138,036 |
| | — |
| | 315,170 |
|
| Goodwill | — |
| | 412,010 |
| | 2,147,056 |
| | — |
| | 2,559,066 |
| — |
| | 412,010 |
| | 2,147,056 |
| | — |
| | 2,559,066 |
|
| Intangible assets, net of accumulated amortization | — |
| | 74,852 |
| | 588,885 |
| | — |
| | 663,737 |
| — |
| | 74,852 |
| | 588,885 |
| | — |
| | 663,737 |
|
| Investment in subsidiaries | 2,076,004 |
| | 554,998 |
| | — |
| | (2,631,002 | ) | | — |
| 2,077,898 |
| | 554,998 |
| | — |
| | (2,632,896 | ) | | — |
|
| Other non-current assets | 170,073 |
| | 87,306 |
| | 79,688 |
| | (132,435 | ) | | 204,632 |
| 170,073 |
| | 87,306 |
| | 79,688 |
| | (132,435 | ) | | 204,632 |
|
| Total assets | $ | 2,888,712 |
| | $ | 2,114,868 |
| | $ | 4,296,370 |
| | $ | (3,432,140 | ) | | $ | 5,867,810 |
| $ | 2,890,606 |
| | $ | 2,114,868 |
| | $ | 4,296,370 |
| | $ | (3,434,034 | ) | | $ | 5,867,810 |
|
| | | | | | | | | | | | | | | | | | | |
| Current portion of long-term debt | $ | — |
| | $ | — |
| | $ | 13,750 |
| | $ | — |
| | $ | 13,750 |
| $ | — |
| | $ | — |
| | $ | 13,750 |
| | $ | — |
| | $ | 13,750 |
|
| Accounts payable, trade | 5,163 |
| | 30,469 |
| | 40,939 |
| | — |
| | 76,571 |
| 5,163 |
| | 30,469 |
| | 40,939 |
| | — |
| | 76,571 |
|
| Other current liabilities | 29,489 |
| | 88,050 |
| | 591,868 |
| | — |
| | 709,407 |
| 29,489 |
| | 88,050 |
| | 591,868 |
| | — |
| | 709,407 |
|
| Long-term debt, net | 34,572 |
| | — |
| | 1,944,897 |
| | — |
| | 1,979,469 |
| 34,572 |
| | — |
| | 1,944,897 |
| | — |
| | 1,979,469 |
|
| Income taxes payable | 16 |
| | 1,605 |
| | 24,003 |
| | — |
| | 25,624 |
| 16 |
| | 1,605 |
| | 24,003 |
| | — |
| | 25,624 |
|
| Intercompany liabilities | 388,933 |
| | — |
| | 279,770 |
| | (668,703 | ) | | — |
| 390,827 |
| | — |
| | 277,876 |
| | (668,703 | ) | | — |
|
| Other long-term liabilities | 511 |
| | 18,613 |
| | 186,610 |
| | (132,435 | ) | | 73,299 |
| 511 |
| | 18,613 |
| | 186,610 |
| | (132,435 | ) | | 73,299 |
|
| Redeemable noncontrolling interests | — |
| | — |
| | 42,867 |
| | — |
| | 42,867 |
| — |
| | — |
| | 42,867 |
| | — |
| | 42,867 |
|
| IAC shareholders' equity | 2,430,028 |
| | 1,976,131 |
| | 654,871 |
| | (2,631,002 | ) | | 2,430,028 |
| |
| Shareholders' equity | | 2,430,028 |
| | 1,976,131 |
| | 656,765 |
| | (2,632,896 | ) | | 2,430,028 |
|
| Noncontrolling interests | — |
| | — |
| | 516,795 |
| | — |
| | 516,795 |
| — |
| | — |
| | 516,795 |
| | — |
| | 516,795 |
|
| Total liabilities and shareholders' equity | $ | 2,888,712 |
| | $ | 2,114,868 |
| | $ | 4,296,370 |
| | $ | (3,432,140 | ) | | $ | 5,867,810 |
| $ | 2,890,606 |
| | $ | 2,114,868 |
| | $ | 4,296,370 |
| | $ | (3,434,034 | ) | | $ | 5,867,810 |
|
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Balance sheet atStatement of operations for the year ended December 31, 2016:2018: |
| | | | | | | | | | | | | | | | | | | |
| | IAC | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | IAC Consolidated |
| | (In thousands) |
| Cash and cash equivalents | $ | 553,643 |
| | $ | — |
| | $ | 775,544 |
| | $ | — |
| | $ | 1,329,187 |
|
| Marketable securities | 89,342 |
| | — |
| | — |
| | — |
| | 89,342 |
|
| Accounts receivable, net of allowance | — |
| | 77,335 |
| | 142,803 |
| | — |
| | 220,138 |
|
| Other current assets | 71,152 |
| | 48,349 |
| | 84,567 |
| | — |
| | 204,068 |
|
| Intercompany receivables | — |
| | 565,013 |
| | 1,209,788 |
| | (1,774,801 | ) | | — |
|
| Property and equipment, net of accumulated depreciation and amortization | 4,350 |
| | 199,343 |
| | 102,555 |
| | — |
| | 306,248 |
|
| Goodwill | — |
| | 412,010 |
| | 1,512,042 |
| | — |
| | 1,924,052 |
|
| Intangible assets, net of accumulated amortization | — |
| | 83,179 |
| | 272,272 |
| | — |
| | 355,451 |
|
| Investment in subsidiaries | 3,659,570 |
| | 498,054 |
| | — |
| | (4,157,624 | ) | | — |
|
| Other non-current assets | 52,228 |
| | 118,624 |
| | 162,008 |
| | (115,473 | ) | | 217,387 |
|
| Total assets | $ | 4,430,285 |
| | $ | 2,001,907 |
| | $ | 4,261,579 |
| | $ | (6,047,898 | ) | | $ | 4,645,873 |
|
| | | | | | | | | | |
| Current portion of long-term debt | $ | 20,000 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 20,000 |
|
| Accounts payable, trade | 2,697 |
| | 29,867 |
| | 30,299 |
| | — |
| | 62,863 |
|
| Other current liabilities | 42,160 |
| | 84,827 |
| | 503,538 |
| | — |
| | 630,525 |
|
| Long-term debt, net | 405,991 |
| | — |
| | 1,176,493 |
| | — |
| | 1,582,484 |
|
| Income taxes payable | — |
| | 3,470 |
| | 30,274 |
| | (216 | ) | | 33,528 |
|
| Intercompany liabilities | 1,774,801 |
| | — |
| | — |
| | (1,774,801 | ) | | — |
|
| Other long-term liabilities | 315,414 |
| | 21,002 |
| | 51,817 |
| | (115,257 | ) | | 272,976 |
|
| Redeemable noncontrolling interests | — |
| | — |
| | 32,827 |
| | — |
| | 32,827 |
|
| IAC shareholders' equity | 1,869,222 |
| | 1,862,741 |
| | 2,294,883 |
| | (4,157,624 | ) | | 1,869,222 |
|
| Noncontrolling interests | — |
| | — |
| | 141,448 |
| | — |
| | 141,448 |
|
| Total liabilities and shareholders' equity | $ | 4,430,285 |
| | $ | 2,001,907 |
| | $ | 4,261,579 |
| | $ | (6,047,898 | ) | | $ | 4,645,873 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | IAC | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | IAC Consolidated |
| | (In thousands) |
| Revenue | $ | — |
| | $ | 850,475 |
| | $ | 3,412,795 |
| | $ | (378 | ) | | $ | 4,262,892 |
|
| Operating costs and expenses: | | | | | | | | | |
| Cost of revenue (exclusive of depreciation shown separately below) | 195 |
| | 262,912 |
| | 648,330 |
| | (291 | ) | | 911,146 |
|
| Selling and marketing expense | 977 |
| | 313,769 |
| | 1,204,844 |
| | (150 | ) | | 1,519,440 |
|
| General and administrative expense | 141,727 |
| | 49,563 |
| | 582,720 |
| | 69 |
| | 774,079 |
|
| Product development expense | 2,003 |
| | 56,431 |
| | 250,901 |
| | (6 | ) | | 309,329 |
|
| Depreciation | 1,203 |
| | 12,497 |
| | 61,660 |
| | — |
| | 75,360 |
|
| Amortization of intangibles | — |
| | 29,437 |
| | 78,962 |
| | — |
| | 108,399 |
|
| Total operating costs and expenses | 146,105 |
| | 724,609 |
| | 2,827,417 |
| | (378 | ) | | 3,697,753 |
|
| Operating (loss) income | (146,105 | ) | | 125,866 |
| | 585,378 |
| | — |
| | 565,139 |
|
| Equity in earnings of unconsolidated affiliates | 731,834 |
| | 20,083 |
| | — |
| | (751,917 | ) | | — |
|
| Interest expense | (1,700 | ) | | — |
| | (107,627 | ) | | — |
| | (109,327 | ) |
Other (expense) income, net (a) | (18,834 | ) | | 503,261 |
| | 199,757 |
| | (378,438 | ) | | 305,746 |
|
| Earnings before income taxes | 565,195 |
| | 649,210 |
| | 677,508 |
| | (1,130,355 | ) | | 761,558 |
|
| Income tax benefit (provision) | 61,766 |
| | (56,612 | ) | | (8,965 | ) | | — |
| | (3,811 | ) |
| Net earnings | 626,961 |
| | 592,598 |
| | 668,543 |
| | (1,130,355 | ) | | 757,747 |
|
| Net earnings attributable to noncontrolling interests | — |
| | — |
| | (130,786 | ) | | — |
| | (130,786 | ) |
| Net earnings attributable to IAC shareholders | $ | 626,961 |
| | $ | 592,598 |
| | $ | 537,757 |
| | $ | (1,130,355 | ) | | $ | 626,961 |
|
| Comprehensive income attributable to IAC shareholders | $ | 601,683 |
| | $ | 601,232 |
| | $ | 515,766 |
| | $ | (1,116,998 | ) | | $ | 601,683 |
|
____________________
| |
(a) | During the year ended December 31, 2018, foreign cash of $396.2 million was repatriated to the U.S, of which $25.2 million was between non-guarantor subsidiaries. |
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Statement of operations for the year ended December 31, 2017: | | | | IAC | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | IAC Consolidated | IAC | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | IAC Consolidated |
| | (In thousands) | (In thousands) |
| Revenue | $ | — |
| | $ | 753,858 |
| | $ | 2,553,998 |
| | $ | (617 | ) | | $ | 3,307,239 |
| $ | — |
| | $ | 753,858 |
| | $ | 2,553,998 |
| | $ | (617 | ) | | $ | 3,307,239 |
|
| Operating costs and expenses: | | | | | | | | | | | | | | | | | | |
| Cost of revenue (exclusive of depreciation shown separately below) | 160 |
| | 159,488 |
| | 491,865 |
| | (505 | ) | | 651,008 |
| 160 |
| | 159,488 |
| | 491,865 |
| | (505 | ) | | 651,008 |
|
| Selling and marketing expense | 1,250 |
| | 353,186 |
| | 1,027,304 |
| | (519 | ) | | 1,381,221 |
| 1,250 |
| | 353,186 |
| | 1,027,304 |
| | (519 | ) | | 1,381,221 |
|
| General and administrative expense | 100,237 |
| | 62,340 |
| | 556,273 |
| | 407 |
| | 719,257 |
| 100,237 |
| | 62,340 |
| | 556,273 |
| | 407 |
| | 719,257 |
|
| Product development expense | 2,421 |
| | 55,232 |
| | 193,226 |
| | — |
| | 250,879 |
| 2,421 |
| | 55,232 |
| | 193,226 |
| | — |
| | 250,879 |
|
| Depreciation | 1,564 |
| | 20,668 |
| | 52,033 |
| | — |
| | 74,265 |
| 1,564 |
| | 20,668 |
| | 52,033 |
| | — |
| | 74,265 |
|
| Amortization of intangibles | — |
| | 11,213 |
| | 30,930 |
| | — |
| | 42,143 |
| — |
| | 11,213 |
| | 30,930 |
| | — |
| | 42,143 |
|
| Total operating costs and expenses | 105,632 |
| | 662,127 |
| | 2,351,631 |
| | (617 | ) | | 3,118,773 |
| 105,632 |
| | 662,127 |
| | 2,351,631 |
| | (617 | ) | | 3,118,773 |
|
| Operating (loss) income | (105,632 | ) | | 91,731 |
| | 202,367 |
| | — |
| | 188,466 |
| (105,632 | ) | | 91,731 |
| | 202,367 |
| | — |
| | 188,466 |
|
| Equity in earnings of unconsolidated affiliates | 425,675 |
| | 20,755 |
| | — |
| | (446,430 | ) | | — |
| 419,149 |
| | 20,755 |
| | — |
| | (439,904 | ) | | — |
|
| Interest expense | (20,339 | ) | | — |
| | (84,956 | ) | | — |
| | (105,295 | ) | (20,339 | ) | | — |
| | (84,956 | ) | | — |
| | (105,295 | ) |
| Other (expense) income, net | (39,207 | ) | | 28,434 |
| | (5,440 | ) | | — |
| | (16,213 | ) | (30,787 | ) | | 28,434 |
| | (13,860 | ) | | — |
| | (16,213 | ) |
| Earnings before income taxes | 260,497 |
| | 140,920 |
| | 111,971 |
| | (446,430 | ) | | 66,958 |
| 262,391 |
| | 140,920 |
| | 103,551 |
| | (439,904 | ) | | 66,958 |
|
| Income tax benefit (provision) | 44,427 |
| | (119,957 | ) | | 366,580 |
| | — |
| | 291,050 |
| 42,533 |
| | (119,957 | ) | | 368,474 |
| | — |
| | 291,050 |
|
| Net earnings | 304,924 |
| | 20,963 |
| | 478,551 |
| | (446,430 | ) | | 358,008 |
| 304,924 |
| | 20,963 |
| | 472,025 |
| | (439,904 | ) | | 358,008 |
|
| Net earnings attributable to noncontrolling interests | — |
| | — |
| | (53,084 | ) | | — |
| | (53,084 | ) | — |
| | — |
| | (53,084 | ) | | — |
| | (53,084 | ) |
| Net earnings attributable to IAC shareholders | $ | 304,924 |
| | $ | 20,963 |
| | $ | 425,467 |
| | $ | (446,430 | ) | | $ | 304,924 |
| $ | 304,924 |
| | $ | 20,963 |
| | $ | 418,941 |
| | $ | (439,904 | ) | | $ | 304,924 |
|
| Comprehensive income attributable to IAC shareholders | $ | 367,370 |
| | $ | 7,629 |
| | $ | 504,558 |
| | $ | (512,187 | ) | | $ | 367,370 |
| $ | 367,370 |
| | $ | 7,629 |
| | $ | 498,032 |
| | $ | (505,661 | ) | | $ | 367,370 |
|
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Statement of operations for the year ended December 31, 2016: |
| | | | | | | | | | | | | | | | | | | |
| | IAC | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | IAC Consolidated |
| | (In thousands) |
| Revenue | $ | — |
| | $ | 960,000 |
| | $ | 2,180,487 |
| | $ | (605 | ) | | $ | 3,139,882 |
|
| Operating costs and expenses: | | | | | | | | | |
| Cost of revenue (exclusive of depreciation shown separately below) | 859 |
| | 297,712 |
| | 457,571 |
| | (412 | ) | | 755,730 |
|
| Selling and marketing expense | 2,353 |
| | 417,051 |
| | 828,016 |
| | (323 | ) | | 1,247,097 |
|
| General and administrative expense | 89,583 |
| | 83,636 |
| | 357,097 |
| | 130 |
| | 530,446 |
|
| Product development expense | 4,807 |
| | 69,778 |
| | 138,180 |
| | — |
| | 212,765 |
|
| Depreciation | 1,610 |
| | 26,514 |
| | 43,552 |
| | — |
| | 71,676 |
|
| Amortization of intangibles | — |
| | 41,157 |
| | 38,269 |
| | — |
| | 79,426 |
|
| Goodwill impairment | — |
| | 253,245 |
| | 22,122 |
| | — |
| | 275,367 |
|
| Total operating costs and expenses | 99,212 |
| | 1,189,093 |
| | 1,884,807 |
| | (605 | ) | | 3,172,507 |
|
| Operating (loss) income | (99,212 | ) | | (229,093 | ) | | 295,680 |
| | — |
| | (32,625 | ) |
| Equity in earnings of unconsolidated affiliates | 49,545 |
| | 6,774 |
| | — |
| | (56,319 | ) | | — |
|
| Interest expense | (26,876 | ) | | — |
| | (82,234 | ) | | — |
| | (109,110 | ) |
| Other (expense) income, net | (1,879 | ) | | 10,209 |
| | 52,320 |
| | — |
| | 60,650 |
|
| (Loss) earnings before income taxes | (78,422 | ) | | (212,110 | ) | | 265,766 |
| | (56,319 | ) | | (81,085 | ) |
| Income tax benefit (provision) | 37,142 |
| | 77,851 |
| | (50,059 | ) | | — |
| | 64,934 |
|
| Net (loss) earnings | (41,280 | ) | | (134,259 | ) | | 215,707 |
| | (56,319 | ) | | (16,151 | ) |
| Net earnings attributable to noncontrolling interests | — |
| | — |
| | (25,129 | ) | | — |
| | (25,129 | ) |
| Net (loss) earnings attributable to IAC shareholders | $ | (41,280 | ) | | $ | (134,259 | ) | | $ | 190,578 |
| | $ | (56,319 | ) | | $ | (41,280 | ) |
| Comprehensive (loss) income attributable to IAC shareholders | $ | (76,431 | ) | | $ | (142,494 | ) | | $ | 145,039 |
| | $ | (2,545 | ) | | $ | (76,431 | ) |
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Statement of operationscash flows for the year ended December 31, 2015:2018: |
| | | | | | | | | | | | | | | | | | | |
| | IAC | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | IAC Consolidated |
| | (In thousands) |
| Revenue | $ | — |
| | $ | 1,355,222 |
| | $ | 1,876,305 |
| | $ | (594 | ) | | $ | 3,230,933 |
|
| Operating costs and expenses: | | | | | | | | | |
| Cost of revenue (exclusive of depreciation shown separately below) | 720 |
| | 341,351 |
| | 436,649 |
| | (559 | ) | | 778,161 |
|
| Selling and marketing expense | 3,210 |
| | 624,979 |
| | 720,172 |
| | (68 | ) | | 1,348,293 |
|
| General and administrative expense | 93,090 |
| | 94,896 |
| | 324,036 |
| | 33 |
| | 512,055 |
|
| Product development expense | 4,311 |
| | 73,500 |
| | 118,812 |
| | — |
| | 196,623 |
|
| Depreciation | 1,918 |
| | 23,912 |
| | 36,375 |
| | — |
| | 62,205 |
|
| Amortization of intangibles | — |
| | 102,622 |
| | 37,330 |
| | — |
| | 139,952 |
|
| Goodwill impairment | — |
| | 14,056 |
| | — |
| | — |
| | 14,056 |
|
| Total operating costs and expenses | 103,249 |
| | 1,275,316 |
| | 1,673,374 |
| | (594 | ) | | 3,051,345 |
|
| Operating (loss) income | (103,249 | ) | | 79,906 |
| | 202,931 |
| | — |
| | 179,588 |
|
| Equity in earnings of unconsolidated affiliates | 215,080 |
| | 17,353 |
| | — |
| | (232,433 | ) | | — |
|
| Interest expense | (49,405 | ) | | (6,130 | ) | | (18,101 | ) | | — |
| | (73,636 | ) |
| Other (expense) income, net | (3,172 | ) | | 27,810 |
| | 12,300 |
| | — |
| | 36,938 |
|
| Earnings before income taxes | 59,254 |
| | 118,939 |
| | 197,130 |
| | (232,433 | ) | | 142,890 |
|
| Income tax benefit (provision) | 60,218 |
| | (42,072 | ) | | (47,662 | ) | | — |
| | (29,516 | ) |
| Net earnings | 119,472 |
| | 76,867 |
| | 149,468 |
| | (232,433 | ) | | 113,374 |
|
| Net loss attributable to noncontrolling interests | — |
| | — |
| | 6,098 |
| | — |
| | 6,098 |
|
| Net earnings attributable to IAC shareholders | $ | 119,472 |
| | $ | 76,867 |
| | $ | 155,566 |
| | $ | (232,433 | ) | | $ | 119,472 |
|
| Comprehensive income attributable to IAC shareholders | $ | 55,069 |
| | $ | 73,970 |
| | $ | 89,158 |
| | $ | (163,128 | ) | | $ | 55,069 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | IAC | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | IAC Consolidated |
| | (In thousands) |
| Net cash (used in) provided by operating activities | $ | (38,737 | ) | | $ | 583,498 |
| | $ | 822,227 |
| | $ | (378,860 | ) | | $ | 988,128 |
|
| Cash flows from investing activities: | | | | | | | | | |
| Acquisitions, net of cash acquired | (4,142 | ) | | (50,530 | ) | | (9,824 | ) | | — |
| | (64,496 | ) |
| Capital expenditures | (5,274 | ) | | (1,396 | ) | | (78,964 | ) | | — |
| | (85,634 | ) |
| Proceeds from maturities and sales of marketable debt securities | 298,600 |
| | — |
| | 35,000 |
| | — |
| | 333,600 |
|
| Purchases of marketable debt securities | (390,005 | ) | | — |
| | (59,671 | ) | | — |
| | (449,676 | ) |
| Net proceeds from the sale of businesses and investments | 408 |
| | 87,254 |
| | 49,057 |
| | — |
| | 136,719 |
|
| Purchases of investments | (39,180 | ) | | — |
| | (13,800 | ) | | — |
| | (52,980 | ) |
| Other, net | (5,000 | ) | | 7,451 |
| | 6,576 |
| | — |
| | 9,027 |
|
| Net cash (used in) provided by investing activities | (144,593 | ) | | 42,779 |
| | (71,626 | ) | | — |
| | (173,440 | ) |
| Cash flows from financing activities: | | | | | | | | | |
| Repurchases of IAC debt | (363 | ) | | — |
| | — |
| | — |
| | (363 | ) |
| Proceeds from issuance of Match Group debt | — |
| | — |
| | 260,000 |
| | — |
| | 260,000 |
|
| Principal payments on ANGI Homeservices Term Loan | — |
| | — |
| | (13,750 | ) | | — |
| | (13,750 | ) |
| Debt issuance costs | — |
| | — |
| | (5,449 | ) | | — |
| | (5,449 | ) |
| Purchase of IAC treasury stock | (82,891 | ) | | — |
| | — |
| | — |
| | (82,891 | ) |
| Purchase of Match Group treasury stock | — |
| | — |
| | (133,455 | ) | | — |
| | (133,455 | ) |
Proceeds from the exercise of IAC stock options
| 41,700 |
| | — |
| | — |
| | — |
| | 41,700 |
|
Proceeds from the exercise of Match Group and ANGI Homeservices stock options
| — |
| | — |
| | 4,705 |
| | — |
| | 4,705 |
|
Withholding taxes paid on behalf of IAC employees on net settled stock-based awards
| (18,982 | ) | | — |
| | — |
| | — |
| | (18,982 | ) |
| Withholding taxes paid on behalf of Match Group and ANGI Homeservices employees on net settled stock-based awards | — |
| | — |
| | (237,564 | ) | | — |
| | (237,564 | ) |
| Dividends paid to Match Group noncontrolling interests | — |
| | — |
| | (105,126 | ) | | — |
| | (105,126 | ) |
| Purchase of noncontrolling interests | — |
| | — |
| | (16,063 | ) | | — |
| | (16,063 | ) |
| Acquisition-related contingent consideration payments | — |
| | — |
| | (185 | ) | | — |
| | (185 | ) |
| Intercompany | 673,308 |
| | (625,338 | ) | | (426,830 | ) | | 378,860 |
| | — |
|
| Other, net | 2,674 |
| | (939 | ) | | (7,110 | ) | | — |
| | (5,375 | ) |
| Net cash provided by (used in) financing activities | 615,446 |
| | (626,277 | ) | | (680,827 | ) | | 378,860 |
| | (312,798 | ) |
| Total cash provided | 432,116 |
| | — |
| | 69,774 |
| | — |
| | 501,890 |
|
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | 327 |
| | — |
| | (2,214 | ) | | — |
| | (1,887 | ) |
| Net increase in cash, cash equivalents, and restricted cash | 432,443 |
| | — |
| | 67,560 |
| | — |
| | 500,003 |
|
| Cash, cash equivalents, and restricted cash at beginning of period | 585,639 |
| | — |
| | 1,048,043 |
| | — |
| | 1,633,682 |
|
| Cash, cash equivalents, and restricted cash at end of period | $ | 1,018,082 |
| | $ | — |
| | $ | 1,115,603 |
| | $ | — |
| | $ | 2,133,685 |
|
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Statement of cash flows for the year ended December 31, 2017: | | | | IAC | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | IAC Consolidated | IAC | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | IAC Consolidated |
| | (In thousands) | (In thousands) |
| Net cash (used in) provided by operating activities | $ | (61,002 | ) | | $ | 131,581 |
| | $ | 346,111 |
| | $ | 416,690 |
| $ | (52,582 | ) | | $ | 131,700 |
| | $ | 337,581 |
| | $ | 416,699 |
|
| Cash flows from investing activities: | | | | | | | | | | | | | | |
| Acquisitions, net of cash acquired | — |
| | (2,550 | ) | | (146,544 | ) | | (149,094 | ) | — |
| | (2,550 | ) | | (144,003 | ) | | (146,553 | ) |
| Capital expenditures | (337 | ) | | (1,050 | ) | | (74,136 | ) | | (75,523 | ) | (337 | ) | | (1,169 | ) | | (74,017 | ) | | (75,523 | ) |
| Proceeds from maturities and sales of marketable debt securities | 114,350 |
| | — |
| | — |
| | 114,350 |
| 114,350 |
| | — |
| | — |
| | 114,350 |
|
| Purchases of marketable debt securities | (29,891 | ) | | — |
| | — |
| | (29,891 | ) | (29,891 | ) | | — |
| | — |
| | (29,891 | ) |
| Net proceeds from the sale of businesses and investments | | 1,266 |
| | — |
| | 184,512 |
| | 185,778 |
|
| Purchases of investments | — |
| | — |
| | (9,106 | ) | | (9,106 | ) | — |
| | — |
| | (9,106 | ) | | (9,106 | ) |
| Net proceeds from the sale of businesses and investments | 1,266 |
| | — |
| | 184,512 |
| | 185,778 |
| |
| Other, net | — |
| | 1,944 |
| | 1,050 |
| | 2,994 |
| — |
| | 1,944 |
| | 1,050 |
| | 2,994 |
|
| Net cash provided by (used in) investing activities | 85,388 |
| | (1,656 | ) | | (44,224 | ) | | 39,508 |
| 85,388 |
| | (1,775 | ) | | (41,564 | ) | | 42,049 |
|
| Cash flows from financing activities: | | | | | | | | | | | | | | |
| Proceeds from issuance of IAC debt | — |
| | — |
| | 517,500 |
| | 517,500 |
| — |
| | — |
| | 517,500 |
| | 517,500 |
|
| Principal payments on IAC debt | (393,464 | ) | | — |
| | — |
| | (393,464 | ) | |
| Repurchases of IAC debt | | (393,464 | ) | | — |
| | — |
| | (393,464 | ) |
| Proceeds from issuance of Match Group debt | — |
| | — |
| | 525,000 |
| | 525,000 |
| — |
| | — |
| | 525,000 |
| | 525,000 |
|
| Principal payments on Match Group debt | — |
| | — |
| | (445,172 | ) | | (445,172 | ) | — |
| | — |
| | (445,172 | ) | | (445,172 | ) |
| Borrowing under ANGI Homeservices Term Loan | — |
| | — |
| | 275,000 |
| | 275,000 |
| — |
| | — |
| | 275,000 |
| | 275,000 |
|
| Purchase of exchangeable note hedge | — |
| | — |
| | (74,365 | ) | | (74,365 | ) | — |
| | — |
| | (74,365 | ) | | (74,365 | ) |
| Proceeds from issuance of warrants | 23,650 |
| | — |
| | — |
| | 23,650 |
| 23,650 |
| | — |
| | — |
| | 23,650 |
|
| Debt issuance costs | — |
| | — |
| | (33,744 | ) | | (33,744 | ) | — |
| | — |
| | (33,744 | ) | | (33,744 | ) |
| Purchase of IAC treasury stock | (56,424 | ) | | — |
| | — |
| | (56,424 | ) | (56,424 | ) | | — |
| | — |
| | (56,424 | ) |
Proceeds from the exercise of IAC stock options
| 82,397 |
| | — |
| | — |
| | 82,397 |
| 82,397 |
| | — |
| | — |
| | 82,397 |
|
| Proceeds from the exercise of Match Group and ANGI Homeservices stock options | | — |
| | — |
| | 61,095 |
| | 61,095 |
|
Withholding taxes paid on behalf of IAC employees on net settled stock-based awards
| (93,832 | ) | | — |
| | — |
| | (93,832 | ) | (93,832 | ) | | — |
| | — |
| | (93,832 | ) |
Proceeds from the exercise of Match Group stock options
| — |
| | — |
| | 59,442 |
| | 59,442 |
| |
| Withholding taxes paid on behalf of Match Group employees on net settled stock-based awards | — |
| | — |
| | (254,210 | ) | | (254,210 | ) | |
Proceeds from the exercise of ANGI Homeservices stock options
| — |
| | — |
| | 1,653 |
| | 1,653 |
| |
| Withholding taxes paid on behalf of ANGI employees on net settled stock-based awards | — |
| | — |
| | (10,113 | ) | | (10,113 | ) | |
| Withholding taxes paid on behalf of Match Group and ANGI Homeservices employees on net settled stock-based awards | | — |
| | — |
| | (264,323 | ) | | (264,323 | ) |
| Purchase of Match Group stock-based awards | — |
| | — |
| | (272,459 | ) | | (272,459 | ) | — |
| | — |
| | (272,459 | ) | | (272,459 | ) |
| Purchase of noncontrolling interests | — |
| | — |
| | (15,439 | ) | | (15,439 | ) | — |
| | — |
| | (15,439 | ) | | (15,439 | ) |
| Acquisition-related contingent consideration payments | — |
| | — |
| | (27,289 | ) | | (27,289 | ) | — |
| | — |
| | (27,289 | ) | | (27,289 | ) |
| Funds returned from escrow for MyHammer tender offer | — |
| | — |
| | 10,604 |
| | 10,604 |
| |
| Decrease in restricted cash related to bond redemptions | 20,141 |
| | — |
| | — |
| | 20,141 |
| |
| Intercompany | 424,816 |
| | (129,925 | ) | | (294,891 | ) | | — |
| 416,396 |
| | (129,925 | ) | | (286,471 | ) | | — |
|
| Other, net | 251 |
| | — |
| | (5,251 | ) | | (5,000 | ) | 251 |
| | — |
| | (5,251 | ) | | (5,000 | ) |
| Net cash provided by (used in) financing activities | 7,535 |
| | (129,925 | ) | | (43,734 | ) | | (166,124 | ) | |
| Net cash used in financing activities | | (21,026 | ) | | (129,925 | ) | | (45,918 | ) | | (196,869 | ) |
| Total cash provided | 31,921 |
| | — |
| | 258,153 |
| | 290,074 |
| 11,780 |
| | — |
| | 250,099 |
| | 261,879 |
|
| Effect of exchange rate changes on cash and cash equivalents | 75 |
| | — |
| | 11,473 |
| | 11,548 |
| |
| Net increase in cash and cash equivalents | 31,996 |
| | — |
| | 269,626 |
| | 301,622 |
| |
| Cash and cash equivalents at beginning of period | 553,643 |
| | — |
| | 775,544 |
| | 1,329,187 |
| |
| Cash and cash equivalents at end of period | $ | 585,639 |
| | $ | — |
| | $ | 1,045,170 |
| | $ | 1,630,809 |
| |
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | | 75 |
| | — |
| | 11,529 |
| | 11,604 |
|
| Net increase in cash, cash equivalents, and restricted cash | | 11,855 |
| | — |
| | 261,628 |
| | 273,483 |
|
| Cash, cash equivalents, and restricted cash at beginning of period | | 573,784 |
| | — |
| | 786,415 |
| | 1,360,199 |
|
| Cash, cash equivalents, and restricted cash at end of period | | $ | 585,639 |
| | $ | — |
| | $ | 1,048,043 |
| | $ | 1,633,682 |
|
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Statement of cash flows for the year ended December 31, 2016: |
| | | | | | | | | | | | | | | | | | | |
| | IAC | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | IAC Consolidated |
| | (In thousands) |
| Net cash (used in) provided by operating activities | $ | (62,686 | ) | | $ | 128,473 |
| | $ | 278,354 |
| | $ | — |
| | $ | 344,141 |
|
| Cash flows from investing activities: | | | | | | | | | |
| Acquisitions, net of cash acquired | — |
| | — |
| | (18,403 | ) | | — |
| | (18,403 | ) |
| Capital expenditures | (479 | ) | | (5,762 | ) | | (71,798 | ) | | — |
| | (78,039 | ) |
| Investments in time deposits | — |
| | — |
| | (87,500 | ) | | — |
| | (87,500 | ) |
| Proceeds from maturities of time deposits | — |
| | — |
| | 87,500 |
| | — |
| | 87,500 |
|
| Proceeds from maturities and sales of marketable debt securities | 252,369 |
| | — |
| | — |
| | — |
| | 252,369 |
|
| Purchases of marketable debt securities | (313,943 | ) | | — |
| | — |
| | — |
| | (313,943 | ) |
| Purchases of investments | — |
| | — |
| | (12,565 | ) | | — |
| | (12,565 | ) |
| Net proceeds from the sale of businesses and investments | 73,843 |
| | 1,779 |
| | 96,606 |
| | — |
| | 172,228 |
|
| Intercompany | (155,104 | ) | | — |
| | — |
| | 155,104 |
| | — |
|
| Other, net | 126 |
| | 910 |
| | 10,179 |
| | — |
| | 11,215 |
|
| Net cash (used in) provided by investing activities | (143,188 | ) | | (3,073 | ) | | 4,019 |
| | 155,104 |
| | 12,862 |
|
| Cash flows from financing activities: | | | | | | | | | |
| Principal payments on IAC debt | (126,409 | ) | | — |
| | — |
| | — |
| | (126,409 | ) |
| Proceeds from issuance of Match Group debt | — |
| | — |
| | 400,000 |
| | — |
| | 400,000 |
|
| Principal payments on Match Group debt | — |
| | — |
| | (450,000 | ) | | — |
| | (450,000 | ) |
| Debt issuance costs | — |
| | — |
| | (7,811 | ) | | — |
| | (7,811 | ) |
| Purchase of IAC treasury stock | (308,948 | ) | | — |
| | — |
| | — |
| | (308,948 | ) |
| Proceeds from the exercise of IAC stock options | 25,821 |
| | — |
| | — |
| | — |
| | 25,821 |
|
Withholding taxes paid on behalf of IAC employees on net settled stock-based awards
| (26,716 | ) | | — |
| | — |
| | — |
| | (26,716 | ) |
| Proceeds from the exercise of Match Group stock options | — |
| | — |
| | 39,378 |
| | — |
| | 39,378 |
|
| Withholding taxes paid on behalf of Match Group employees on net settled stock-based awards | — |
| | — |
| | (29,830 | ) | | — |
| | (29,830 | ) |
| Purchase of noncontrolling interests | (1,400 | ) | | — |
| | (1,340 | ) | | — |
| | (2,740 | ) |
| Acquisition-related contingent consideration payments | — |
| | (351 | ) | | (1,829 | ) | | — |
| | (2,180 | ) |
| Funds held in escrow for MyHammer tender offer | — |
| | — |
| | (10,548 | ) | | — |
| | (10,548 | ) |
| Intercompany | 122,965 |
| | (122,965 | ) | | 155,104 |
| | (155,104 | ) | | — |
|
| Increase in restricted cash related to bond redemptions | (141 | ) | | — |
| | — |
| | — |
| | (141 | ) |
| Other, net | (313 | ) | | (2,084 | ) | | (308 | ) | | — |
| | (2,705 | ) |
| Net cash (used in) provided by financing activities | (315,141 | ) | | (125,400 | ) | | 92,816 |
| | (155,104 | ) | | (502,829 | ) |
| Total cash (used) provided | (521,015 | ) | | — |
| | 375,189 |
| | — |
| | (145,826 | ) |
| Effect of exchange rate changes on cash and cash equivalents | — |
| | — |
| | (6,434 | ) | | — |
| | (6,434 | ) |
| Net (decrease) increase in cash and cash equivalents | (521,015 | ) | | — |
| | 368,755 |
| | — |
| | (152,260 | ) |
| Cash and cash equivalents at beginning of period | 1,074,658 |
| | — |
| | 406,789 |
| | — |
| | 1,481,447 |
|
| Cash and cash equivalents at end of period | $ | 553,643 |
| | $ | — |
| | $ | 775,544 |
| | $ | — |
| | $ | 1,329,187 |
|
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
| | | | | | | | | | | | | | | | | | | |
| | IAC | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | IAC Consolidated |
| | (In thousands) |
| Net cash (used in) provided by operating activities | $ | (62,686 | ) | | $ | 128,503 |
| | $ | 278,421 |
| | $ | — |
| | $ | 344,238 |
|
| Cash flows from investing activities: | | | | | | | | | |
| Acquisitions, net of cash acquired | — |
| | — |
| | (18,403 | ) | | — |
| | (18,403 | ) |
| Capital expenditures | (479 | ) | | (5,792 | ) | | (71,768 | ) | | — |
| | (78,039 | ) |
| Proceeds from maturities and sales of marketable debt securities | 252,369 |
| | — |
| | — |
| | — |
| | 252,369 |
|
| Purchases of marketable debt securities | (313,943 | ) | | — |
| | — |
| | — |
| | (313,943 | ) |
| Investments in time deposits | — |
| | — |
| | (87,500 | ) | | — |
| | (87,500 | ) |
| Proceeds from maturities of time deposits | — |
| | — |
| | 87,500 |
| | — |
| | 87,500 |
|
| Net proceeds from the sale of businesses and investments | 73,843 |
| | 1,779 |
| | 96,606 |
| | — |
| | 172,228 |
|
| Purchases of investments | — |
| | — |
| | (12,565 | ) | | — |
| | (12,565 | ) |
| Intercompany | (155,104 | ) | | — |
| | — |
| | 155,104 |
| | — |
|
| Other, net | 126 |
| | 910 |
| | 10,179 |
| | — |
| | 11,215 |
|
| Net cash (used in) provided by investing activities | (143,188 | ) | | (3,103 | ) | | 4,049 |
| | 155,104 |
| | 12,862 |
|
| Cash flows from financing activities: | | | | | | | | | |
| Repurchases of IAC debt | (126,409 | ) | | — |
| | — |
| | — |
| | (126,409 | ) |
Proceeds from issuance of Match Group debt
| — |
| | — |
| | 400,000 |
| | — |
| | 400,000 |
|
Principal payments on Match Group debt
| — |
| | — |
| | (450,000 | ) | | — |
| | (450,000 | ) |
Debt issuance costs
| — |
| | — |
| | (7,811 | ) | | — |
| | (7,811 | ) |
Purchase of IAC treasury stock
| (308,948 | ) | | — |
| | — |
| | — |
| | (308,948 | ) |
Proceeds from the exercise of IAC stock options
| 25,821 |
| | — |
| | — |
| | — |
| | 25,821 |
|
Proceeds from the exercise of Match Group stock options
| — |
| | — |
| | 39,378 |
| | — |
| | 39,378 |
|
Withholding taxes paid on behalf of IAC employees on net settled stock-based awards
| (26,716 | ) | | — |
| | — |
| | — |
| | (26,716 | ) |
Withholding taxes paid on behalf of Match Group employees on net settled stock-based awards
| — |
| | — |
| | (29,830 | ) | | — |
| | (29,830 | ) |
Purchase of noncontrolling interests
| (1,400 | ) | | — |
| | (1,340 | ) | | — |
| | (2,740 | ) |
Acquisition-related contingent consideration payments
| — |
| | (351 | ) | | (1,829 | ) | | — |
| | (2,180 | ) |
| Intercompany | 122,965 |
| | (122,965 | ) | | 155,104 |
| | (155,104 | ) | | — |
|
| Other, net | (313 | ) | | (2,084 | ) | | (308 | ) | | — |
| | (2,705 | ) |
| Net cash (used in) provided by financing activities | (315,000 | ) | | (125,400 | ) | | 103,364 |
| | (155,104 | ) | | (492,140 | ) |
| Total cash (used) provided | (520,874 | ) | | — |
| | 385,834 |
| | — |
| | (135,040 | ) |
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | — |
| | — |
| | (6,434 | ) | | — |
| | (6,434 | ) |
| Net (decrease) increase in cash, cash equivalents, and restricted cash | (520,874 | ) | | — |
| | 379,400 |
| | — |
| | (141,474 | ) |
| Cash, cash equivalents, and restricted cash at beginning of period | 1,094,658 |
| | — |
| | 407,015 |
| | — |
| | 1,501,673 |
|
| Cash, cash equivalents, and restricted cash at end of period | $ | 573,784 |
| | $ | — |
| | $ | 786,415 |
| | $ | — |
| | $ | 1,360,199 |
|
|
| | | | | | | | | | | | | | | |
| | IAC | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | IAC Consolidated |
| | (In thousands) |
| Net cash (used in) provided by operating activities | $ | (121,331 | ) | | $ | 242,554 |
| | $ | 284,448 |
| | $ | 405,671 |
|
| Cash flows from investing activities: | | | | | | | |
| Acquisitions, net of cash acquired | — |
| | (6,078 | ) | | (611,324 | ) | | (617,402 | ) |
| Capital expenditures | (1,332 | ) | | (13,198 | ) | | (47,519 | ) | | (62,049 | ) |
| Proceeds from maturities and sales of marketable debt securities | 218,462 |
| | — |
| | — |
| | 218,462 |
|
| Purchases of marketable debt securities | (93,134 | ) | | — |
| | — |
| | (93,134 | ) |
| Purchases of investments | (6,978 | ) | | — |
| | (27,492 | ) | | (34,470 | ) |
| Net proceeds from the sale of businesses and investments | 1,277 |
| | — |
| | 8,136 |
| | 9,413 |
|
| Other, net | 3,613 |
| | 385 |
| | (7,539 | ) | | (3,541 | ) |
| Net cash provided by (used in) investing activities | 121,908 |
| | (18,891 | ) | | (685,738 | ) | | (582,721 | ) |
| Cash flows from financing activities: | | | | | | | |
| Principal payment on IAC debt | — |
| | (80,000 | ) | | — |
| | (80,000 | ) |
| Proceeds from issuance of Match Group debt | — |
| | — |
| | 788,000 |
| | 788,000 |
|
| Debt issuance costs | (1,876 | ) | | — |
| | (17,174 | ) | | (19,050 | ) |
| Fees and expenses related to note exchange | — |
| | — |
| | (6,954 | ) | | (6,954 | ) |
| Proceeds from Match Group initial public offering, net of fees and expenses | — |
| | — |
| | 428,789 |
| | 428,789 |
|
| Purchase of IAC treasury stock | (200,000 | ) | | — |
| | — |
| | (200,000 | ) |
| Dividends | (113,196 | ) | | — |
| | — |
| | (113,196 | ) |
| Proceeds from the exercise of IAC stock options | 27,325 |
| | — |
| | — |
| | 27,325 |
|
Withholding taxes paid on behalf of IAC employees on net settled stock-based awards
| (65,743 | ) | | — |
| | — |
| | (65,743 | ) |
| Purchase of Match Group stock-based awards | — |
| | — |
| | (23,431 | ) | | (23,431 | ) |
| Purchase of noncontrolling interests | — |
| | — |
| | (32,207 | ) | | (32,207 | ) |
| Acquisition-related contingent consideration payments | — |
| | (240 | ) | | (5,510 | ) | | (5,750 | ) |
| Increase in restricted cash related to bond redemptions | (20,000 | ) | | — |
| | — |
| | (20,000 | ) |
| Intercompany | 684,716 |
| | (143,423 | ) | | (541,293 | ) | | — |
|
| Other, net | 166 |
| | — |
| | 441 |
| | 607 |
|
| Net cash provided by (used in) financing activities | 311,392 |
| | (223,663 | ) | | 590,661 |
| | 678,390 |
|
| Total cash provided | 311,969 |
| | — |
| | 189,371 |
| | 501,340 |
|
| Effect of exchange rate changes on cash and cash equivalents | — |
| | — |
| | (10,298 | ) | | (10,298 | ) |
| Net increase in cash and cash equivalents | 311,969 |
| | — |
| | 179,073 |
| | 491,042 |
|
| Cash and cash equivalents at beginning of period | 762,689 |
| | — |
| | 227,716 |
| | 990,405 |
|
| Cash and cash equivalents at end of period | $ | 1,074,658 |
| | $ | — |
| | $ | 406,789 |
| | $ | 1,481,447 |
|
Contents
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 22—20—QUARTERLY RESULTS (UNAUDITED)
| | | | | Quarter Ended March 31 (a) | | Quarter Ended June 30 (b) | | Quarter Ended September 30 (c) | | Quarter Ended December 31(d) |
| | | (In thousands, except per share data) |
| Year Ended December 31, 2018 | | | | | | | | |
| Revenue | | $ | 995,075 |
| | $ | 1,059,122 |
| | $ | 1,104,592 |
| | $ | 1,104,103 |
|
| Cost of revenue | | 201,962 |
| | 218,224 |
| | 237,238 |
| | 253,722 |
|
| Operating income | | 89,950 |
| | 168,437 |
| | 172,832 |
| | 133,920 |
|
| Net earnings | | 87,839 |
| | 280,854 |
| | 171,577 |
| | 217,477 |
|
| Net earnings attributable to IAC shareholders | | 71,082 |
| | 218,353 |
| | 145,774 |
| | 191,752 |
|
| Per share information attributable to IAC shareholders: | | Per share information attributable to IAC shareholders: |
Basic earnings per share(g) | | $ | 0.86 |
| | $ | 2.61 |
| | $ | 1.75 |
| | $ | 2.29 |
|
Diluted earnings per share(g) | | $ | 0.71 |
| | $ | 2.32 |
| | $ | 1.49 |
| | $ | 2.04 |
|
| | | | | | | | | | | | | | | | |
| | Quarter Ended March 31 | | Quarter Ended June 30 | | Quarter Ended September 30(a) (c) | | Quarter Ended December 31(b) | Quarter Ended March 31 | | Quarter Ended June 30 | | Quarter Ended September 30(e) | | Quarter Ended December 31(f) |
| | (In thousands, except per share data) | (In thousands, except per share data) |
| Year Ended December 31, 2017 | | | | | | | | | | | | | | |
| Revenue | $ | 760,833 |
| | $ | 767,387 |
| | $ | 828,434 |
| | $ | 950,585 |
| $ | 760,833 |
| | $ | 767,387 |
| | $ | 828,434 |
| | $ | 950,585 |
|
| Cost of revenue | 145,958 |
| | 139,033 |
| | 166,290 |
| | 199,727 |
| 145,958 |
| | 139,033 |
| | 166,290 |
| | 199,727 |
|
| Operating income (loss) | 37,060 |
| | 75,635 |
| | (18,589 | ) | | 94,360 |
| 37,060 |
| | 75,635 |
| | (18,589 | ) | | 94,360 |
|
| Net earnings | 28,463 |
| | 80,557 |
| | 225,639 |
| | 23,349 |
| 28,463 |
| | 80,557 |
| | 225,639 |
| | 23,349 |
|
| Net earnings attributable to IAC shareholders | 26,209 |
| | 66,268 |
| | 179,643 |
| | 32,804 |
| 26,209 |
| | 66,268 |
| | 179,643 |
| | 32,804 |
|
Per share information attributable to IAC shareholders: | Basic earnings per share(e) | $ | 0.34 |
| | $ | 0.84 |
| | $ | 2.22 |
| | $ | 0.40 |
| |
Diluted earnings per share(e) | $ | 0.29 |
| | $ | 0.70 |
| | $ | 1.79 |
| | $ | 0.37 |
| |
| | | | | | | | | |
| | Quarter Ended March 31(d) | | Quarter Ended June 30(e) | | Quarter Ended September 30 | | Quarter Ended December 31(d) | |
| | (In thousands, except per share data) | |
| Year Ended December 31, 2016 | | | | | | | | |
| Revenue | $ | 819,179 |
| | $ | 745,439 |
| | $ | 764,102 |
| | $ | 811,162 |
| |
| Cost of revenue | 193,734 |
| | 170,397 |
| | 179,131 |
| | 212,468 |
| |
| Operating income (loss) | 21,417 |
| | (252,446 | ) | | 85,584 |
| | 112,820 |
| |
| Net earnings (loss) | 7,934 |
| | (190,542 | ) | | 52,340 |
| | 114,117 |
| |
| Net earnings (loss) attributable to IAC shareholders | 8,282 |
| | (194,775 | ) | | 43,162 |
| | 102,051 |
| |
| Per share information attributable to IAC shareholders: | |
Basic earnings (loss) per share(e) | $ | 0.10 |
| | $ | (2.45 | ) | | $ | 0.54 |
| | $ | 1.29 |
| |
Diluted earnings (loss) per share(e) | $ | 0.09 |
| | $ | (2.45 | ) | | $ | 0.49 |
| | $ | 1.18 |
| |
Basic earnings per share(g) | | $ | 0.34 |
| | $ | 0.84 |
| | $ | 2.22 |
| | $ | 0.40 |
|
Diluted earnings per share(g) | | $ | 0.29 |
| | $ | 0.70 |
| | $ | 1.79 |
| | $ | 0.37 |
|
| |
(a) | The first quarter of 2018 includes after-tax stock-based compensation expense of $14.6 million related to the modification of previously issued HomeAdvisor equity awards and previously issued Angie's List equity awards, both of which were converted into ANGI Homeservices' equity awards in the Combination, and the acceleration of certain converted equity awards resulting from the termination of Angie's List employees in connection with the Combination, as well as after-tax costs of $4.1 million related to the Combination (including $2.8 million of deferred revenue write-offs). |
| |
(b) | The second quarter of 2018 includes: |
| |
| i. | after-tax stock-based compensation expense of $12.8 million related to the modification of previously issued HomeAdvisor equity awards and previously issued Angie's List equity awards, both of which were converted into ANGI Homeservices' equity awards in the Combination, and the acceleration of certain converted equity awards resulting from the termination of Angie's List employees in connection with the Combination, as well as after-tax costs of $2.0 million related to the Combination (including $1.8 million of deferred revenue write-offs). |
| |
| ii. | after-tax realized and unrealized gains of $133.3 million related to the sale of a certain equity investment. |
| |
(c) | The third quarter of 2018 includes after-tax stock-based compensation expense of $12.3 million related to the modification of previously issued HomeAdvisor equity awards and previously issued Angie's List equity awards, both of which were converted into ANGI Homeservices' equity awards in the Combination. |
| |
(d) | The fourth quarter of 2018 includes: |
| |
| i. | after-tax stock-based compensation expense of $14.4 million related to the modification of previously issued HomeAdvisor equity awards and previously issued Angie's List equity awards, both of which were converted into ANGI Homeservices' equity awards in the Combination. |
| |
| ii. | combined after-tax gains of $92.5 million related to the sales of Dictionary.com, Electus, Felix and CityGrid. |
| |
| iii. | after-tax impairment charges related to indefinite-lived intangible assets of $21.3 million. |
IAC/INTERACTIVECORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| |
(e) | The third quarter of 2017 includes includes: |
| |
| i. | after-tax stock-based compensation expense of $60.9 million related primarily to the modification of previously issued HomeAdvisor vested awards, which were converted into ANGI Homeservices equity awards, and the acceleration of certain Angie’s List equity awards in connection with the Combination, as well as after-tax costs of $17.4 million related to the Combination. |
| |
(b)ii. | a reduction to the income tax provision of $257.0 million related to excess tax benefits generated by the exercise, purchase and settlement of stock-based awards. |
| |
(f) | The fourth quarter of 2017 includes after-tax stock-based compensation expense of $15.8 million related primarily to the modification of previously issued HomeAdvisor unvested awards, which were converted into ANGI Homeservices equity awards, the expense related to previously issued Angie's List equity awards and the acceleration of certain Angie's List equity awards resulting from the termination of employees in connection with the Combination, as well as after-tax costs of $13.9 million related to the Combination (including $7.6 million of deferred revenue write-offs). |
| |
(c) | The third quarter of 2017 includes a reduction to the income tax provision of $257.0 million related to excess tax benefits generated by the exercise, purchase and settlement of stock-based awards. |
| |
(d) | The first quarter and fourth quarter of 2016 include after-tax gains of $11.9 million and $37.5 million related to the sale of PriceRunner and ShoeBuy, respectively. |
| |
(e) | The second quarter of 2016 includes after-tax impairment charges related to goodwill and indefinite-lived intangible assets of $183.5 million and $7.2 million, respectively. |
| |
(f)(g) | Quarterly per share amounts may not add to the related annual per share amount because of differences in the average common shares outstanding during each period. |
NOTE 21—SUBSEQUENT EVENTS (UNAUDITED)
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 beginning September 2020 and 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 Company’s previously existing agreement with Google.
On February 15, 2019, MTCH completed a private offering of $350 million aggregate principal amount of its 5.625% Senior Notes due 2029. A portion of the proceeds from these notes were used to repay outstanding borrowings under the MTCH Credit Facility and to pay expenses associated with the offering; the remaining proceeds will be used for general corporate purposes.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Conclusion Regarding the Effectiveness of the Company's Disclosure Controls and Procedures
The Company monitors and evaluates on an ongoing basis its disclosure controls and procedures 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) of the Exchange Act, IAC management, including the Chairman and Senior Executive, the Chief Executive Officer and the Chief Financial Officer, conducted an evaluation, as of the end of the period covered by this report, of the effectiveness of the Company's disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e). Based on this evaluation, the Chairman and Senior Executive, the Chief Executive Officer and the Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this report.
Management's Report on Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) for the Company. The Company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2017.2018. In making this assessment, our management used the criteria for effective internal control over financial reporting described in "Internal Control—Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Based on this assessment, management has determined that, as of December 31, 2017,2018, the Company's internal control over financial reporting is effective. The effectiveness of our internal control over financial reporting as of December 31, 20172018 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their attestation report, included herein.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control Over Financial Reporting
The Company monitors and evaluates on an ongoing basis its internal control over financial reporting in order to improve its 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(d), IAC management, including the Chairman and Senior Executive, the Chief Executive Officer and the Chief Financial Officer, also conducted an evaluation of the Company's internal control over financial reporting to determine whether any changes occurred during the quarter ended December 31, 20172018 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. Based on that evaluation, there has been no such change during the quarter ended December 31, 2017.2018.
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of IAC/InterActiveCorp
Opinion on Internal Control over Financial Reporting
We have audited IAC/InterActiveCorp and subsidiaries’ internal control over financial reporting as of December 31, 2017,2018, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, IAC/InterActiveCorp and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2018, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 20172018 and 2016,2017, and the related consolidated statements of operations, comprehensive operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2017,2018, and the related notes and the financial statement schedule listed in the Index at Item 15(a), and our report dated March 1, 20182019 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ ERNST & YOUNG LLP
New York, New York
March 1, 20182019
Item 9B. Other Information
Not applicable.
PART III
The information required by Part III (Items 10, 11, 12, 13 and 14) has been incorporated herein by reference to IAC's definitive Proxy Statement to be used in connection with its 20182019 Annual Meeting of Stockholders (the "2018"2019 Proxy Statement"), as set forth below in accordance with General Instruction G(3) of Form 10-K.
Item 10. Directors, Executive Officers and Corporate Governance
The information required by Items 401 and 405 of Regulation S-K relating to directors and executive officers of IAC and their compliance with Section 16(a) of the Exchange Act is set forth in the sections entitled "Information Concerning Director Nominees" and "Information Concerning IAC Executive Officers Who Are Not Directors," and "Section 16(a) Beneficial Ownership Reporting Compliance," respectively, in the 20182019 Proxy Statement and is incorporated herein by reference. The information required by Item 406 of Regulation S-K relating to IAC's Code of Ethics is set forth under the caption "Part I-Item 1-Business-Description of IAC Businesses-Additional Information-Code of Ethics" of this annual report and is incorporated herein by reference. The information required by subsections (c)(3), (d)(4) and (d)(5) of Item 407 of Regulation S-K is set forth in the sections entitled "Corporate Governance" and "The Board and Board Committees" in the 20182019 Proxy Statement and is incorporated herein by reference.
Item 11. Executive Compensation
The information required by Item 402 of Regulation S-K relating to executive and director compensation and pay ratio disclosure is set forth in the sections entitled "Executive Compensation," "Director Compensation" and "Pay Ratio Disclosure" in the 20182019 Proxy Statement and is incorporated herein by reference. The information required by subsections (e)(4) and (e)(5) of Item 407 of Regulation S-K relating to certain compensation committee matters is set forth in the sections entitled "The Board and Board Committees," "Compensation Committee Report" and "Compensation Committee Interlocks and Insider Participation" in the 20182019 Proxy Statement and is incorporated herein by reference; provided, that the information set forth in the section entitled "Compensation Committee Report" shall be deemed furnished herein and shall not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information regarding ownership of IAC common stock and Class B common stock required by Item 403 of Regulation S-K and securities authorized for issuance under IAC's various equity compensation plans required by Item 201(d) of Regulation S-K is set forth in the sections entitled "Security Ownership of Certain Beneficial Owners and Management" and "Equity Compensation Plan Information," respectively, in the 20182019 Proxy Statement and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information regarding certain relationships and related transactions involving IAC required by Item 404 of Regulation S-K and director independence determinations required by Item 407(a) of Regulation S-K is set forth in the sections entitled "Certain Relationships and Related Person Transactions" and "Corporate Governance," respectively, in the 20182019 Proxy Statement and is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
Information required by Item 9(e) of Schedule 14A regarding the fees and services of IAC's independent registered public accounting firm and the pre-approval policies and procedures applicable to services provided to IAC by such firm is set forth in the sections entitled "Fees Paid to Our Independent Registered Public Accounting Firm" and "Audit and Non-Audit Services Pre-Approval Policy," respectively, in the 20182019 Proxy Statement and is incorporated herein by reference.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) List of documents filed as part of this Report:
(1) Consolidated Financial Statements of IAC
Report of Independent Registered Public Accounting Firm: Ernst & Young LLP.
Consolidated Balance Sheet as of December 31, 20172018 and 2016.2017.
Consolidated Statement of Operations for the Years Ended December 31, 2018, 2017 2016 and 2015.2016.
Consolidated Statement of Comprehensive Operations for the Years Ended December 31, 2018, 2017 2016 and 2015.2016.
Consolidated Statement of Shareholders' Equity for the Years Ended December 31, 2018, 2017 2016 and 2015.2016.
Consolidated Statement of Cash Flows for the Years Ended December 31, 2018, 2017 2016 and 2015.2016.
Notes to Consolidated Financial Statements.
(2) Consolidated Financial Statement Schedule of IAC
|
| | |
Schedule Number | | |
| II | | Valuation and Qualifying Accounts. |
All other financial statements and schedules not listed have been omitted since the required information is either included in the Consolidated Financial Statements or the notes thereto, is not applicable or is not required.
(3) Exhibits
The documents set forth below, numbered in accordance with Item 601 of Regulation S-K, are filed herewith, incorporated herein by reference to the location indicated or furnished herewith. |
| | | | | |
Exhibit No. | | Description | | Location |
| 2.1 |
| | Agreement and Plan of Merger, dated as of May 1, 2017, as amended by Amendment No. 1 to the Agreement and Plan of Merger, dated as of August 26, 2017, by and among Angie’s List, Inc., IAC/InterActiveCorp, ANGI Homeservices Inc. and Casa Merger Sub, Inc.
| | |
2.2 |
| | Stock Purchase Agreement, dated as of July 13, 2015, by and among Match.com Inc., Plentyoffish Media Inc., Markus Frind, Markus Frind Family Trust No. 2 and Frind Enterprises Ltd. | | |
| 3.1 |
| | 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). | | |
| 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 4.75% Senior Notes due 2022, dated as of December 21, 2012, among IAC/InterActiveCorp, the Guarantors named therein and Computershare Trust Company, N.A., as Trustee. | | |
|
| | Supplemental Indenture for 4.75% Senior Notes due 2022, dated as of May 30, 2013, among IAC/InterActiveCorp, the Guarantors named therein and Computershare Trust Company, N.A., as Trustee, with a schedule of subsequent Guarantors.(1) | | |
| 4.3 |
| | Indenture for 0.875% Senior Exchangeable Notes due 2022, dated as of October 2, 2017, among IAC FinanceCo, Inc., IAC/InterActiveCorp and Computershare Trust Company, N.A., as Trustee. | | |
| 4.4 |
| | Indenture for 6.375% Senior Notes, dated June 1, 2016, between Match Group, Inc. and Computershare Trust Company, N.A., as Trustee.
| |
|
| 4.5 |
| | Indenture for 5.00% Senior Notes, dated as of December 4, 2017, between Match Group, Inc. and Computershare Trust Company, N.A., as Trustee.
| | |
| 4.6 |
| | Registration Rights Agreement, dated as of October 2, 2017, among IAC/InterActiveCorp, IAC FinanceCo, Inc., J.P. Morgan Securities LLC and Goldman Sachs & Co. LLC
| |
|
| 10.1 |
| | Amended and Restated Governance Agreement, dated as of August 9, 2005, among the Registrant, Liberty Media Corporation and Barry Diller. | | |
| 10.2 |
| | Letter Agreement, dated as of December 1, 2010, by and among the Registrant, Liberty Media Corporation, Liberty USA Holdings, LLC and Barry Diller. | |
|
| 10.3 |
| | Letter Agreement, dated as of December 1, 2010, by and between the Registrant and Barry Diller. | | |
| 10.4 |
| | IAC/InterActiveCorp 2018 Stock and Annual Incentive Plan.(1) | | |
|
| | | | | |
|
| | Form of Terms and Conditions for Stock Options granted under the IAC/InterActiveCorp 2018 Stock and Annual Incentive Plan.(1)(2) | | |
|
| | Form of Terms and Conditions for Restricted Stock Units granted under the IAC/InterActiveCorp 2018 Stock and Annual Incentive Plan.(1)(2) | | |
| 10.7 |
| | IAC/InterActiveCorp 2013 Stock and Annual Incentive Plan.(2)(1) | | |
10.510.8 |
| | Form of Terms and Conditions for Stock Options granted under the IAC/InterActiveCorp 2013 Stock and Annual Incentive Plan.(2)(1) | | |
|
| | | | | |
10.610.9 |
| | Form of Terms and Conditions for Restricted Stock Units granted under the IAC/InterActiveCorp 2013 Stock and Annual Incentive Plan.(2)(1) | | |
10.710.10 |
| | IAC/InterActiveCorp 2008 Stock and Annual Incentive Plan.(2)(1) | |
|
10.810.11 |
| | Form of Terms and Conditions for Stock Options granted under the IAC/InterActiveCorp 2008 Stock and Annual Incentive Plan.(2)(1) | | |
10.910.12 |
| | Form of Terms and Conditions for Restricted Stock Units granted under the IAC/InterActiveCorp 2008 Stock and Annual Incentive Plan.(2)(1) | | |
10.1010.13 |
| | IAC/InterActiveCorp 2005 Stock and Annual Incentive Plan.(2)(1) | | |
10.1110.14 |
| | Form of Terms and Conditions for Stock Options granted under the IAC/InterActiveCorp 2005 Stock and Annual Incentive Plan.(2)(1) | | |
10.1210.15 |
| | Summary of Non-Employee Director Compensation Arrangements.(2)(1) | | |
10.1310.16 |
| | 2011 IAC/InterActiveCorp Deferred Compensation Plan for Non-Employee Directors.(2)(1) | | |
|
| | | | | |
10.1410.17 |
| | Equity and Bonus Compensation Arrangement, dated as of August 24, 1995, between Barry Diller and the Registrant. | | |
| 10.18 |
| | Employment Agreement between Joseph Levin and the Registrant, dated as of November 21, 2017.(2)(1) | |
|
10.1510.19 |
| | Second Amended and Restated Employment Agreement between Victor A. Kaufman and the Registrant, dated as of March 15, 2012.(2)(1)
| |
|
10.1610.20 |
| | Employment Agreement between Glenn H. Schiffman and the Registrant, dated as of April 7, 2016.(2)(1)
| |
|
10.1710.21 |
| | Employment Agreement between Mark Stein and the Registrant, dated as of June 28, 2018.(1)
| | |
| 10.22 |
| | Employment Agreement between Gregg Winiarski and the Registrant, dated as of February 26, 2010.(2)(1) | | |
10.1810.23 |
| | Google Services Agreement, dated as of October 26, 2015, between the Registrant and Google Inc.(3) | | |
10.19 |
| | | | | |
| 10.24 |
| | Second Amended and Restated Credit Agreement, dated as of October 7, 2015,November 5, 2018, by and among IAC/InterActiveCorp, as Borrower,IAC Group, LLC, the Lenders from time to time party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent, and the other parties thereto. | |
|
10.20 |
| | Amendment No. 2, dated as of September 25, 2017, to the Credit Agreement dated as of December 21, 2012, as amended and restated as of October 7, 2015, among IAC/InterActiveCorp, as Borrower, the Lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral Agent, and the other parties thereto.Agent.
| | |
10.21 |
| | Joinder and Reaffirmation Agreement, dated as of October 2, 2107, among IAC/InterActiveCorp, IAC Group, LLC, each of the parties listed on Schedule 1 thereto and JPMorgan Chase Bank, N.A., as Administrative Agent.
| |
|
10.2210.25 |
| | Amended and Restated Credit Agreement, dated as of November 16, 2015, among Match Group, Inc., as Borrower, the Lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and the other parties thereto.
| |
|
|
| | | | | |
10.2310.26 |
| | Amendment No. 3, dated as of December 8, 2016, 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, among Match Group, Inc., as Borrower, the Lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and the other parties thereto. | | |
10.2410.27 |
| | Amendment No. 4, dated as of August 14, 2017, 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 December 8, 2016, among Match Group, Inc., as Borrower, the Lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and the other parties thereto.
| |
|
10.2510.28 |
| | Amendment No. 5, dated as of December 7, 2018, to the Credit Agreement dated as of October 7, 2015, as amended and restated as of November 1,16, 2015, as further amended as of December 16, 2015, as further amended December 8, 2016 and as further amended August 14, 2017, among ANGI HomeservicesMatch Group, Inc., as Borrower, the Lenders party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent.Agent, and the other parties thereto.
| |
|
10.2610.29 |
| | Registration RightsAmended and Restated Credit Agreement, dated as of October 2, 2017,November 5, 2018, by and among IAC/InterActiveCorp, IAC FinanceCo,ANGI Homeservices Inc., J.P. Morgan Securities LLCthe Lenders from time to time party thereto and Goldman Sachs & Co. LLCJPMorgan Chase Bank, N.A., as Administrative Agent.
| |
|
10.2710.30 |
| | Master Transaction Agreement, dated as of November 24, 2015, by and between IAC/InterActiveCorp and Match Group, Inc.. | | |
10.2810.31 |
| | Employee Matters Agreement, dated as of November 24, 2015, by and between IAC/InterActiveCorp and Match Group, Inc. | | |
10.2910.32 |
| | Amendment No.1 to Employee Matters Agreement, dated as of April 13, 2016, by and between IAC/InterActiveCorp and Match Group, Inc.
| |
|
10.3010.33 |
| | Investor Rights Agreement, dated as of November 24, 2015, by and between IAC/InterActiveCorp and Match Group, Inc. | | |
10.3110.34 |
| | Tax Sharing Agreement, dated as of November 24, 2015, by and between IAC/InterActiveCorp and Match Group, Inc. | | |
10.3210.35 |
| | Services Agreement, dated as of November 24, 2015, by and between IAC/InterActiveCorp and Match Group, Inc. | | |
10.3310.36 |
| | Contribution Agreement, dated as of September 29, 2017, by and between IAC/InterActiveCorp and ANGI Homeservices Inc. | | |
10.3410.37 |
| | Employee Matters Agreement, dated as of September 29, 2017, by and between IAC/InterActiveCorp and ANGI Homeservices Inc. | | |
10.35 |
| | | | | |
| 10.38 |
| | Investor Rights Agreement, dated as of September 29, 2017, by and between IAC/InterActiveCorp and ANGI Homeservices Inc. | | |
10.3610.39 |
| | Tax Sharing Agreement, dated as of September 29, 2017, by and between IAC/InterActiveCorp and ANGI Homeservices Inc. | | |
10.3710.40 |
| | Services Agreement, dated as of September 29, 2017, by and between IAC/InterActiveCorp and ANGI Homeservices Inc. | | |
|
| | Subsidiaries of the Registrant as of December 31, 2017.(1)2018.(2) | | |
|
| | Consent of Ernst & Young LLP.(1)(2) | | |
|
| | | | | |
|
| | Certification of the Chairman and Senior Executive pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(1)(2) | | |
|
| | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(1)(2) | | |
|
| | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(1)(2) | | |
|
| | | | |
| | 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 of 2002.(4) | | |
| | 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 of 2002.(4) | | |
| | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(4) | | |
| 101.INS | | XBRL Instance (1)(2) | | |
| 101.SCH | | XBRL Taxonomy Extension Schema (1)(2) | | |
| 101.CAL | | XBRL Taxonomy Extension Calculation (1)(2) | | |
| 101.DEF | | XBRL Taxonomy Extension Definition (1)(2) | | |
| 101.LAB | | XBRL Taxonomy Extension Labels (1)(2) | | |
| 101.PRE | | XBRL Taxonomy Extension Presentation (1)(2) | | |
| |
(2) | Reflects management contracts and management and director compensatory plans. |
| |
| (3) | Certain portions of this document have been omitted pursuant to a confidential treatment request. |
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.
|
| | | | |
March 1, 20182019 | | IAC/INTERACTIVECORP |
| | | By: | | /s/ GLENN H. SCHIFFMAN |
| | | | | Glenn H. Schiffman |
| | | | | Executive Vice President and Chief Financial Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on March 1, 2018:2019: |
| | |
| Signature | | Title |
| | | |
| /s/ BARRY DILLER | | Chairman of the Board, Senior Executive and Director |
| Barry Diller | | |
| | | |
| /s/ JOSEPH LEVIN | | Chief Executive Officer and Director |
| Joseph Levin | | |
| | | |
| /s/ VICTOR A. KAUFMAN | | Vice Chairman and Director |
| Victor A. Kaufman | | |
| /s/ GLENN H. SCHIFFMAN | | Executive Vice President and Chief Financial Officer |
| Glenn H. Schiffman | | |
| | | |
| /s/ MICHAEL H. SCHWERDTMAN | | Senior Vice President and Controller (Chief Accounting Officer) |
| Michael H. Schwerdtman | | |
| | | |
| /s/ EDGAR BRONFMAN, JR. | | Director |
| Edgar Bronfman, Jr. | | |
| | | |
| /s/ CHELSEA CLINTON | | Director |
| Chelsea Clinton | | |
| | | |
| /s/ MICHAEL D. EISNER | | Director |
| Michael D. Eisner | | |
| | | |
| /s/ BONNIE S. HAMMER | | Director |
| Bonnie S. Hammer | | |
| | | |
| | | |
| /s/ BRYAN LOURD | | Director |
| Bryan Lourd | | |
| | | |
| /s/ DAVID S. ROSENBLATT | | Director |
| David S. Rosenblatt | | |
| | | |
| /s/ ALAN G. SPOON | | Director |
| Alan G. Spoon | | |
| | | |
| /s/ ALEXANDER VON FURSTENBERG | | Director |
| Alexander von Furstenberg | | |
| | | |
| /s/ RICHARD F. ZANNINO | | Director |
| Richard F. Zannino | | |
Schedule II
IAC/INTERACTIVECORP AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
| | | Description | Balance at Beginning of Period | | Charges to Earnings | | Charges to Other Accounts | | Deductions | | Balance at End of Period | Balance at Beginning of Period | | Charges to Earnings | | Charges to Other Accounts | | Deductions | | Balance at End of Period |
| | (In thousands) | (In thousands) |
| 2018 | | | | | | | | | | |
| Allowance for doubtful accounts and revenue reserves | | $ | 11,489 |
| | $ | 48,445 |
| (a) | $ | (573 | ) | | $ | (40,501 | ) | (d) | $ | 18,860 |
|
| Deferred tax valuation allowance | | 132,598 |
| | (20,746 | ) | (b) | 4,001 |
| (c) | — |
| | 115,853 |
|
| Other reserves | | 2,544 |
| | | | | | | | 7,734 |
|
| 2017 | | | | | | | | | | | | | | | | | | |
| Allowance for doubtful accounts and revenue reserves | $ | 16,405 |
| | $ | 28,930 |
| (a) | $ | (1,006 | ) | | $ | (32,840 | ) | (d) | $ | 11,489 |
| $ | 16,405 |
| | $ | 28,930 |
| (a) | $ | (1,006 | ) | | $ | (32,840 | ) | (d) | $ | 11,489 |
|
| Sales returns accrual | 80 |
| | — |
| | (80 | ) | | — |
| | — |
| 80 |
| | — |
| | (80 | ) | | — |
| | — |
|
| Deferred tax valuation allowance | 88,170 |
| | 38,144 |
| (b) | 6,284 |
| (c) | — |
| | 132,598 |
| 88,170 |
| | 38,144 |
| (e) | 6,284 |
| (f) | — |
| | 132,598 |
|
| Other reserves | 2,822 |
| | | | | | | | 2,544 |
| 2,822 |
| | | | | | | | 2,544 |
|
| 2016 | | | | | | | | | | | | | | | | | | |
| Allowance for doubtful accounts and revenue reserves | $ | 16,528 |
| | $ | 17,733 |
| (a) | $ | (695 | ) | | $ | (17,161 | ) | (d) | $ | 16,405 |
| $ | 16,528 |
| | $ | 17,733 |
| (a) | $ | (695 | ) | | $ | (17,161 | ) | (d) | $ | 16,405 |
|
| Sales returns accrual | 828 |
| | 14,998 |
| | (962 | ) | | (14,784 | ) | | 80 |
| 828 |
| | 14,998 |
| | (962 | ) | | (14,784 | ) | | 80 |
|
| Deferred tax valuation allowance | 90,482 |
| | (837 | ) | (e) | (1,475 | ) | (f) | — |
| | 88,170 |
| 90,482 |
| | (837 | ) | (g) | (1,475 | ) | (h) | — |
| | 88,170 |
|
| Other reserves | 2,801 |
| | | | | | | | 2,822 |
| 2,801 |
| | | | | | | | 2,822 |
|
| 2015 | | | | | | | | | | |
| Allowance for doubtful accounts and revenue reserves | $ | 12,437 |
| | $ | 16,648 |
| (a) | $ | (536 | ) | | $ | (12,021 | ) | (d) | $ | 16,528 |
| |
| Sales returns accrual | 1,119 |
| | 17,569 |
| | — |
| | (17,860 | ) | | 828 |
| |
| Deferred tax valuation allowance | 98,350 |
| | (6,072 | ) | (g) | (1,796 | ) | (h) | — |
| | 90,482 |
| |
| Other reserves | 2,204 |
| | | | | | | | 2,801 |
| |
| |
| (a) | Additions to the allowance for doubtful accounts are charged to expense. Additions to the revenue reserves are charged against revenue. |
| |
| (b) | Amount is primarily related to a decrease in foreign tax credits subject to a valuation allowance and the realization of previously unbenefited capital losses, partially offset by an increase in state net operating losses and foreign interest deduction carryforwards. |
| |
| (c) | Amount is primarily related to acquired federal and state NOLs, partially offset by currency translation adjustments on foreign NOLs. |
| |
| (d) | Write-off of fully reserved accounts receivable. |
| |
| (e) | Amount is due primarily to the establishment of foreign NOLs related to a recentan acquisition. |
| |
(c)(f) | Amount is primarily related to acquired state NOLs, acquired foreign tax credits and currency translation adjustments on foreign NOLs. |
| |
(d) | Write-off of fully reserved accounts receivable. |
| |
(e)(g) | Amount is primarily related to other-than-temporary impairment charges for certain cost method investments and an increase in federal capital and NOLs, partially offset by a decrease in state NOLs, foreign tax credits, and foreign NOLs. |
| |
(f)(h) | Amount is primarily related to the realization of previously unbenefited unrealized losses on available-for-sale marketable equity securities included in accumulated other comprehensive income and currency translation adjustments on foreign NOLs. |
| |
(g) | Amount is primarily related to the release of a valuation allowance on the other-than-temporary impairment charges for certain cost method investments, partially offset by an increase in federal, foreign and state net operating and capital losses. |
| |
(h) | Amount is primarily related to a net reduction in unbenefited unrealized losses on available-for-sale marketable equity securities included in accumulated other comprehensive income and currency translation adjustments on foreign NOLs. |
