Item 1. Business
OVERVIEW
Who We Are
IAC has majority ownership of both Match Group, which includes Tinder, Match, PlentyOfFish and OkCupid, and ANGI Homeservices, which includes HomeAdvisor, Angie’s List and Handy, and also operates Vimeo, Dotdash and The Daily Beast, among many other online businesses.
As used herein, "IAC," the "Company," "we," "our," "us" and similar terms refer to IAC/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 to 2005, we acquired a number of e-commerce companies, including Ticketmaster Group, Hotel Reservations Network (later renamed Hotels.com), Expedia.com, Match.com, LendingTree, Hotwire, TripAdvisor and AskJeeves.
In 2005, we completed the separation of our travel and travel‑related businesses and investments into an independent public company called Expedia, Inc. (now known as Expedia Group, Inc.). In 2008, we 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.
From 2008 to 2014, we continued to invest in and acquire e-commerce companies, including Meetic, About.com (now known as Dotdash), Dictionary.com and Investopedia. In 2015, we acquired Plentyoffish Media Inc. and completed the initial public offering of Match Group, Inc.
In 2016 and 2017, we 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. ("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, 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, Barry Diller, IAC’s Chairman and Senior Executive, his spouse (Diane von Furstenberg) and his stepson (Alexander von Furstenberg), collectively beneficially own 5,789,499 shares of Class B common stock representing 100% of the outstanding shares of Class B common stock. Together with shares of common stock held as of the date of this report by Mr. von Furstenberg (61,685), a trust for the benefit of certain members of Mr. Diller’s family (136,711) and a family foundation (1,711), these holdings represent approximately 42.8% of the total outstanding voting power of IAC (based on the number of shares of common and Class B common stock outstanding on February 1, 2019). As of the date of this report, Mr. Diller also holds 1,050,000 vested options and 250,000 unvested options to purchase shares 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 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 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"). 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"“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"“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’sMatch Group’s future financial performance, IAC’sMatch Group’s business prospects and strategy, anticipated trends and prospects in the industries in which IAC’sMatch Group’s businesses operate and other similar matters. These forward-looking statements are based on IAC management'sMatch Group management’s current 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‑lookingforward-looking statements for a variety of reasons, including, among others,others: the risk factors set forth below.in “Item 1A—Risk Factors.” Other unknown or unpredictable factors that could also adversely affect IAC’sMatch Group’s business, financial condition and results of operations may arise from time to time. In light of these risks and uncertainties, the forward‑lookingthese 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 IACMatch Group management as of the date of this annual report. IACMatch Group does not undertake to update these forward‑lookingforward-looking statements.
Risk Factors
PART I
Item 1. Business
Who we are
Match Group, Inc., through its portfolio companies, is a leading provider of dating products available globally. Our portfolio of brands includes Tinder®, Match®, Meetic®, OkCupid®, Hinge®, Pairs™, PlentyOfFish®, and OurTime®, as well as a number of other brands, each designed to increase our users’ likelihood of finding a meaningful connection. Through our portfolio companies and their trusted brands, we provide tailored products to meet the varying preferences of our users. Our products are available in over 40 languages to our users all over the world.
As used herein, “Match Group,” the “Company,” “we,” “our,” “us,” and similar terms refer to Match Group, Inc. and its subsidiaries after the completion of the Separation (defined below), unless the context indicates otherwise.
Separation of Match Group and IAC
On June 30, 2020, the companies formerly known as Match Group, Inc. (referred to as “Former Match Group”) and IAC/InterActiveCorp (referred to as “Former IAC”) completed the separation of the Company from IAC through a series of transactions that resulted in two, separate public companies—(1) Match Group, which consists of the businesses of Former Match Group and certain financing subsidiaries previously owned by Former IAC, and (2) IAC/InterActiveCorp, formerly known as IAC Holdings, Inc. (“IAC”), consisting of Former IAC’s businesses other than Match Group (the “Separation”).
The following diagram illustrates the simplified organizational and ownership structure immediately prior to the Separation.
Under the terms of the Transaction Agreement (the “Transaction Agreement”) dated as of December 19, 2019 and amended as of April 28, 2020 and as further amended as of June 22, 2020, Former Match Group merged with and into Match Group Holdings II, LLC (“MG Holdings II”), an indirect wholly-owned subsidiary of Match Group, with MG Holdings II surviving the merger as an indirect wholly-owned subsidiary of Match Group. Former Match Group stockholders (other than Former IAC) received, through the merger, in exchange for each outstanding share of Former Match Group common stock that they held, one share of Match Group common stock and, at the holder’s election, either (i) $3.00 in cash or (ii) a fraction of a share of Match Group common stock with a value of $3.00 (calculated pursuant to the Transaction Agreement). As a result of the merger and other transactions contemplated by the Transaction Agreement, Former Match Group stockholders (other than Former IAC) became stockholders of the Company.
The following diagram illustrates the simplified organizational and ownership structure of IAC and Match Group immediately after the Separation.
The Company was incorporated in 1986 in Delaware and underwent many name changes before becoming IAC/InterActiveCorp prior to the Separation described above. Former Match Group completed an initial public offering in 2015 and had operated as a stand-alone public company since that time. Upon the Separation described above, the Company changed its name to Match Group, Inc.
The business of creating meaningful connections
Our goal is to spark meaningful connections for users around the world. Consumers’ dating preferences vary significantly, influenced in part by demographics, geography, cultural norms, religion, and intent (for example, seeking casual dating or more serious relationships). As a result, the market for dating products is fragmented, and no single product has been able to effectively serve the dating category as a whole.
Prior to the proliferation of the internet and mobile devices, human connections traditionally were limited by social circles, geography, and time. People met through work colleagues, friends and family, in school, at church, at social gatherings, in bars and restaurants, or in other social settings. Today, the adoption of mobile technology and the internet has significantly expanded the ways in which people can build relationships, create new interactions, and develop meaningful connections. Additionally, the ongoing adoption of technology into more aspects of daily life continues to further erode biases and stigmas across the world that previously served as barriers to individuals using technology to help find and develop those connections.
We believe that dating products serve as a natural extension of the traditional means of meeting people and provide a number of benefits for their users, including:
•Expanded options: Dating products provide users access to a large pool of people they otherwise would not have a chance to meet.
•Efficiency: The search and matching features, as well as the profile information available on dating products, allow users to filter a large number of individuals in a short period of time, increasing the likelihood that users will make a connection with someone.
•More comfort and control: Compared to the traditional ways that people meet, dating products provide an environment that reduces the awkwardness around identifying and reaching out to new people who are interested in connecting. This leads to many people who would otherwise be passive participants in the dating process taking a more active role.
•Safely meet new people: Dating products can offer a safer way to contact new people for the first-time by limiting the amount of personal information exchanged and providing an opportunity to vet a new connection before meeting in person, including via video communication.
•Convenience: The nature of the internet and the proliferation of mobile devices allow users to connect with new people at any time, regardless of where they are.
Depending on a person’s circumstances at any given time, dating products can act as a supplement to, or substitute for, traditional means of meeting people. When selecting a dating product, we believe that users consider the following attributes:
•Brand recognition and scale: Brand is very important. Users generally associate strong dating brands with a higher likelihood of success depends, in substantial part,and more tools to help the user date safely and securely. Generally, successful dating brands depend on large, active communities of users, strong algorithmic filtering technology, and awareness of successful usage among similar users.
•Successful experiences: Demonstrated success of other users attracts new users through word-of-mouth recommendations. Successful experiences also drive repeat usage.
•Community identification: Users typically look for dating products that offer a community or communities with which the user can relate. By selecting a dating product that is focused on a particular demographic, religion, geography, or intent, users can increase the likelihood that they will make a connection with someone with whom they identify.
•Product features and user experience: Users tend to gravitate towards dating products that offer features and user experiences that resonate with them, such as question-based matching algorithms, location-based features, or search capabilities. User experience is also driven by the type of user interface (for example, using our continuedpatented Swipe® technology versus scrolling), a particular mix of free and paid features, ease of use, privacy, and security. Users expect every interaction with a dating product to be seamless and intuitive.
Given varying consumer preferences, we have adopted a brand portfolio approach, through which we attempt to offer dating products that collectively appeal to the broadest spectrum of consumers. We believe that this approach maximizes our ability to market, distributecapture additional users.
Our portfolio
Dating is a highly personal endeavor and monetizeconsumers 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. Many of our brands have a long legacy, while others emerged during the time when mobile devices proliferated. The following is a list of our key brands:
Tinder. Tinder, incubated at the Company, was launched in 2012 and has since risen to scale and popularity faster than any other product in the online dating category, growing to over 6.7 million average subscribers as of the fourth quarter of 2020. Tinder’s patented Swipe technology has led to significant adoption, particularly among 18 to 30 year-old users, who were previously underserved by the online dating category. Tinder employs a freemium model, through which users are allowed to 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 one of several subscription offerings: Tinder Plus®, launched in early 2015; Tinder Gold™, which was launched in late summer 2017; or Tinder Platinum™, launched in late 2020. Tinder users and subscribers may also pay for certain premium features, such as Super Likes™ and Boosts, on a pay-per-use basis. In 2020, Tinder launched Face to Face, a one-to-one real time video feature allowing users to connect in a new way within the app.
Match. Match was launched in 1995 and helped create the online dating category with the ability to search profiles and receive algorithmic matches. Match remains the most recognized dating app for singles over age 35
in the United States. In 2020, Match introduced a softer paywall to allow limited free access to messaging and other features before requiring a subscription and also introduced a one-to-one real-time video feature. Additionally, Match offers its subscribers a higher level of service than most of our other brands, including access to date coaching services and profile reviews. Match is a brand that focuses on users with a higher level of intent to enter into a serious relationship and its product and marketing are designed to reinforce that purpose.
Meetic. Meetic, a leading European online dating brand based in France, was launched in 2001. Meetic is the most recognized dating app for singles over age 35 in Europe. Meetic is a brand that focuses on users with a higher level of intent to enter into a serious relationship and its product and marketing are designed to reinforce that purpose. In 2020, Meetic also launched a one-to-one real-time video feature.
OkCupid. OkCupid was launched in 2004 and has attracted users through a Q&A approach to the dating category. OkCupid relies on a freemium model and has a loyal, culturally progressive user base predominately located in larger metropolitan areas in English-speaking markets, with an increasing presence in other global markets such as India and Israel.
Hinge. Hinge was launched in 2012 and has grown to be a popular app for relationship-minded individuals, particularly among the millennial and younger generations, in the United States and the United Kingdom. Hinge is a mobile-only experience and employs a freemium model. Hinge focuses on users with a higher level of intent to enter into a serious relationship and its product is designed to reinforce that purpose.
Pairs. Pairs was launched in 2012 and is a leading provider of dating products in Japan, with a presence in Taiwan and South Korea. Pairs is a dating app that was specifically designed to address social barriers generally associated with the use of dating products in Eastern Asian countries, particularly Japan.
PlentyOfFish. PlentyOfFish was launched in 2003. Among its distinguishing features is the ability to both search profiles and receive algorithmic matches. PlentyOfFish has grown in popularity over the years and 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. In 2020, PlentyOfFish launched POF Live™, a one-to-many live streaming video feature that allows users to engage with other users at PlentyOfFish in a new and different format from traditional dating profiles.
OurTime. OurTime is the largest community of singles over age 50 of any dating product. We offer this product in the United States and a number of European markets.
In addition to the brands above, our portfolio includes brands such as Chispa, BLK, and Upward, each of which brings the Swipe feature made popular by Tinder to the Latino, Black, and Christian communities, respectively. Our Hawaya brand focuses on the dating needs of the Muslim community globally by incorporating unique cultural aspects of dating in this community into its product design and feature sets. Ablo is a one-to-one video and text chat product that brings together people from all over the world with real-time translations allowing social discovery across language barriers.
We strive to empower individual brand leaders with the authority and incentives to grow their respective brand. Our brands compete with each other and with third-party dating businesses on brand characteristics, product features, and business model.
We also work to apply a centralized discipline to our portfolio of brands, by sharing best practices across our brands in order to increase growth, reduce costs, improve user safety, and maximize profitability. Additionally, we centralize certain other administrative functions, such as legal, trust and safety, human resources, accounting, finance, and tax. This approach allows us to quickly introduce new products and features, optimize marketing strategies, and more effectively deploy talent across our organization. We attempt to centrally facilitate excellence and efficiency across the entire portfolio by:
•centralizing operational functions across certain brands where we have strength in personnel and sufficient commonality of business interest (for example, ad sales, online marketing, and information technology are centralized across some, but not all, brands);
•developing talent across the portfolio to allow for development of specific proficiencies and promoting career advancement while giving us the ability to deploy the best talent in the most critical positions across the company at any given time; and
•sharing analytics and similar data to leverage product and marketing successes across our businesses rapidly for competitive advantage.
Staying competitive
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 these other dating brands, we also compete with social media platforms; social-discovery apps; offline dating services, such as in-person matchmakers; and other traditional means of meeting people.
We believe that our ability to attract new users to our brands will depend primarily upon the following factors:
•our ability to continue to increase consumer acceptance and adoption of dating products, particularly in emerging markets and other parts of the world where the associated 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 our established brands and the growth of our newer brands;
•the breadth and depth of our active communities of users;
•our brands’ reputation for trust and safety;
•our ability to evolve our products to keep up with user requirements, social trends, and services through search engines, socialthe ever-evolving technological landscape;
•our products’ ability to keep up with the constantly changing regulatory landscape, in particular, as it relates to the regulation of consumer digital media platformsplatforms;
•our ability to efficiently acquire new users for our products;
•our ability to continue to optimize our monetization strategies; and digital app stores.
The marketing, distribution•the design and monetizationfunctionality of our products.
A large portion of dating customers use multiple products over a given period of time, either concurrently or sequentially, making our broad portfolio of brands a competitive advantage.
Where we earn our revenue
All our products enable users to establish a profile and review other users’ profiles without charge. Each product also offers additional features, some of which are free, and some of which require payment 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 depending on the duration of a subscription, 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 products and services depends on ouroffer users certain features, such as the ability to cultivatepromote themselves for a given period of time, or highlight themselves to a specific user, and maintain cost-effectivethese features are offered on a pay-per-use, or à la carte, basis. The precise mix of paid and otherwise satisfactory relationships with search engines, social media platformspremium features is established over time on a brand-by-brand basis and digital app stores,is constantly subject to iteration and evolution.
Our direct revenue is primarily derived from users in particular, those operated by Google, Facebookthe form of recurring subscriptions, which typically provide unlimited access to a bundle of features for a specific period of time, and Apple. These platforms could decide not to market and distribute somea lesser extent from à la carte features, where users pay a non-recurring fee for a specific consumable benefit or allfeature. Each of our productsbrands offers a combination of free and services, change their terms and conditions of use at any time (and without notice), favor theirpaid features targeted to its own products and services over ours and/or significantly increase their fees. Whileunique community. In addition to direct revenue from our users, 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 havegenerate indirect revenue from advertising, which makes up 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 casemuch smaller percentage of our dating and Mosaic Group businesses) increasingly depend uponoverall revenue as compared to direct revenue.
Dependencies on services provided by others
App Stores
We fully rely on the Apple App Store and the Google Play Store to distribute our mobile applications and related in-app products. While our mobile applications are generally free to download from these stores, we offer our users the opportunity to purchase subscriptions and certain à la carte features through these applications. We determine the prices at which these subscriptions and features are sold; however, purchases of these subscriptions and features are required in most cases to be processed through the in-app payment systems provided by Apple and Google. Due to these requirements, we pay Apple and Google, as applicable, a meaningful share (generally 30%) of the revenue we receive from these transactions.
Additionally, when our users and subscribers access and pay through the app stores, the platforms may receive personal data about our users and subscribers that we would otherwise receive if we transacted with our users and subscribers directly. The platforms have restricted our access to much of that data.
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, (andand requirement to pay)pay, certain fees associated with purchases required to be 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 mobileour 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, and our ability to access information about our users and subscribers that they collect. Apple or Google could also make changes to their operating systems or payment services that could negatively impact our business, including by unilaterally raising the prices for those services.
Cloud Services
We rely on third parties, primarily data center service providers and cloud-based, hosted web service providers, such as Amazon Web Services, as well as third party computer systems, broadband and other communications systems and service providers, in connection with the provision of our products generally, as well as to facilitate and process certain transactions with our users. We have no control over any of these third parties or their operations.
Problems experienced by third-party data center service providers and cloud-based, hosted web service providers, such as Amazon Web Services, upon which brands including Tinder, Pairs, and Hinge rely, the telecommunications network providers with which we or they contract, or with the systems through which telecommunications providers allocate capacity among their customers could also adversely affect us. Any changes in service levels at our data centers or hosted web service providers, such as Amazon Web Services, or any interruptions, outages or delays in our systems or those of our third party providers, or deterioration in the performance of these systems, could impair our ability to provide our products or process transactions with our users, which would adversely impact our business, financial condition and results of operations.
Sales and marketing
All of our brands rely on word-of-mouth, or free, user acquisition to varying degrees. Other brands rely on paid user acquisition 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, email campaigns, video advertising, business development or partnership deals, creating content, and partnering with influencers to promote our products. Our offline marketing activities generally consist of television advertising, out-of-home advertising, and public relations efforts.
Intellectual property
We regard our intellectual property rights, including trademarks, domain names and other intellectual property, as critical to our success.
For example, we rely heavily upon the use of trademarks (primarily Tinder, Match, PlentyOfFish, OkCupid, Meetic, OurTime, Pairs, and Hinge, and associated domain names, taglines and logos) to market our products and applications and build and maintain brand loyalty and recognition. We have an ongoing trademark and service mark registration program, pursuant to which we register our brand names, product names, taglines and
logos and renew existing trademark and service mark registrations in the United States and other jurisdictions to the extent we determine it to be necessary or otherwise appropriate and cost-effective. In addition, we have a trademark and service mark monitoring policy pursuant to which we monitor applications filed by third parties to register trademarks and service marks that may be confusingly similar to ours, as well as potential unauthorized use of our material trademarks and service marks. Our enforcement of this policy affords us valuable protection under current laws, rules and regulations. We also reserve and file registrations (to the extent available) and renew existing registrations for domain names that we believe are material to our business.
We also rely upon a combination of in-licensed third-party and proprietary trade secrets, including proprietary algorithms, and upon patented and patent-pending technologies, processes, and features relating to our matching process systems or features, products, and services with expiration dates from 2023 to 2036. We have an ongoing invention recognition program pursuant to which we apply for patents to the extent we determine it to be core to our product or businesses or otherwise appropriate and cost-effective.
We rely on a combination of internal and external controls, including applicable laws, rules and regulations, and contractual restrictions with employees, contractors, customers, suppliers, affiliates and others, to establish, protect and otherwise control access to our various intellectual property rights.
Government regulation
We are subject to a variety of laws and regulations in the United States and abroad that involve matters that are important to or may otherwise impact our business, including, among others, broadband internet access, online commerce, advertising, user privacy, data protection, intermediary liability, protection of minors, consumer protection, general safety, sex-trafficking, taxation and securities law compliance. As a result, we could be subject to actions based on negligence, regulatory compliance, various torts, and trademark and copyright infringement, among other actions. See “Risk factors—Risks relating to our business—Our business is subject to complex and evolving U.S. and international laws and regulations, including with respect to data privacy and platform liability. These laws and regulations are subject to change and uncertain interpretation, and could result in changes to our business practices, increased cost of operations, declines in user growth or engagement, claims, monetary penalties, or otherwise harm our business” and “—Risks relating to our business—We may fail to adequately protect our intellectual property rights or may be accused of infringing the intellectual property rights of third parties.”
Because we receive, store, and use a substantial amount of information received from or generated by our users, we are particularly impacted by laws and regulations governing privacy; the storage, sharing, use, processing, disclosure, and protection of personal data; and data breaches, in many of the countries in which we operate. For example, in 2016, the European Commission adopted the General Data Protection Act (which we refer to as “GDPR”), a comprehensive EU privacy and data protection reform that became effective in May 2018. The act applies to companies established in the EU or otherwise providing services or monitoring the behavior of people located in the EU and provides for significant penalties in case of non-compliance as well as a private right of action for individual claimants. GDPR will continue to be interpreted by EU data protection regulators, which have and may in the future require that we make changes to our business practices, and could generate additional costs, risks, and liabilities. The EU is also considering an update to its Privacy and Electronic Communications (so-called “e-Privacy”) Directive, notably to amend rules on the use of cookies, direct marketing and processing of private communications and related metadata, which may also require that we make changes to our business practices and could generate additional costs, risks and liabilities. In July 2020, the Court of Justice of the EU declared transfers of personal data on the basis of the European Commission’s Privacy Shield Decision illegal and stipulated stricter requirements for the transfer of personal data based on standard contract clauses. This judgement and the resulting decisions and guidelines from EU supervisory authorities may require changes to our business practices and generate additional costs, risks and liabilities. Brexit 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. At the same time, many countries in which we do business have already adopted or are also currently considering adopting privacy and data protection laws and regulations. Multiple legislative proposals concerning privacy and the protection of user information have been introduced in the U.S. Congress. Various U.S. state legislatures, including those in New York, Illinois, California, and many other states, are considering privacy legislation in 2021. Other U.S. state
legislatures have already passed and enacted privacy legislation, most prominently the California Consumer Privacy Act of 2018, which was signed into law in June 2018 and came into effect on January 1, 2020, with full enforcement commencing on June 30, 2020. On November 3, 2020 the “California Privacy Rights Act of 2020” (CPRA) was enacted, which expands the state’s consumer privacy laws and creates a new government organization, the California Privacy Protection Agency (CPPA), to enforce the law. The majority of the CPRA’s provisions will enter into force on January 1, 2023, with a lookback to January 2022. Additionally, the Federal Trade Commission has increased its focus on privacy and data security practices at digital companies, as evidenced by its levying, in July 2019, of a first-of-its kind, $5 billion fine against Facebook for privacy violations. Finally, talks of a U.S. federal privacy law are ongoing in Congress, with multiple proposals having been made already, and may lead to the passing of a new law in 2021 or the coming years.
Concerns about harms and the use of dating products and social networking platforms for illegal conduct, such as romance scams, promotion of false or inaccurate information, financial fraud, and sex-trafficking, have produced and could continue to produce future legislation or other governmental action. For example, in January 2020, the Oversight Subcommittee on Economic and Consumer Policy of the U.S. House of Representatives launched an investigation into the online dating industry’s user safety policies, including certain practices of Match Group’s businesses relating to the identification and removal of registered sex offenders and underage individuals from our platforms. The EU and the United Kingdom are also considering new legislation on this topic, with the United Kingdom having released its Online Harms White Paper and the EU introducing the Digital Services Act, which in each case, would expose platforms to similar or more expansive liability. In the United States, government authorities, elected officials, and political candidates have called for amendments to Section 230 of the Communications Decency Act that would purport to limit or remove protections afforded interactive computer service providers. Proposed legislation includes the EARN IT Act, the PACT Act, the BAD ADS Act, the SAFE TECH Act, and others. If these proposed laws are passed, or if future legislation or governmental action is proposed or taken to address concerns regarding such harms, changes could be required to our products that could restrict or impose additional costs upon the conduct of our business generally or cause users to abandon our products. See “Risk factors—Risks relating to our business—Inappropriate actions by certain of our users could be attributed to us and damage our brands’ reputations, which in turn could adversely affect our business.”
Our global businesses are subject to a variety of complex and continuously evolving income and other tax frameworks. For example, the Organization for Economic Co-Operation and Development (“OECD”) is revising its recommendations on how to tax international businesses, including expanding the jurisdiction of member countries to tax businesses based on some level of digital presence and subjecting these companies to a minimum tax. Also, the European Commission, as well as several countries both inside and outside the EU, have recently adopted or considered 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.
As the provider of dating products with a subscription-based element, we are also subject to laws and regulations in certain U.S. states and other countries that apply to our automatically-renewing subscription payment models. For example, the EU’s Payment Services Directive (PSD2), which became effective in 2018, could impact our ability to process auto-renewal payments or offer promotional or differentiated pricing for users in the EU. Similar legislation or regulation, or changes to existing legislation or regulation governing subscription payments, are being considered in many U.S. states.
Finally, certain U.S. states and certain countries in the Middle East and Asia have laws that specifically govern dating services.
Human talent
Our people are critical to Match Group’s continued success and we work hard to attract, retain and motivate qualified talent. As of December 31, 2020, we had approximately 1,880 full-time and approximately 20 part-time employees, which represents a 15% year-over-year increase in employee headcount. We expect headcount growth to continue for the foreseeable future, particularly as we continue to focus on recruiting employees in technical functions such as software engineers. In addition, we plan to continue to hire a number of employees and contractors to continue to bolster various privacy, safety and data security initiatives as well as other functions to support our expected growth. We may also increase headcount through the completion of
merger and acquisition transactions, including the acquisition of Hyperconnect, Inc., announced in February 2021, which, pending regulatory approvals, is expected to close in the second quarter of 2021 and would increase our headcount by approximately 400 employees, based primarily in South Korea. As of December 31, 2020, approximately 68%, 1%, 20%, and 11% of our employees reside in the North America, Latin America, EMEA, and Asia-Pacific regions, respectively, spanning 22 countries and reflecting various cultures, backgrounds, ages, sexes, gender identities, sexual orientations, and ethnicities. Our global workforce is highly educated, with the majority of our employees working in engineering or technical roles that are central to the technological and product innovations that drive our business. Competition for qualified talent has historically been intense, particularly for software engineers and other technical staff.
We believe that an equitable and inclusive environment with diverse teams produces more creative solutions, results in better, more innovative products and is crucial to our efforts to attract and retain key talent. We work to support our goals of diversifying our workforce through recruiting, retention, and people development. Our goal is to create a culture where everybody, from everywhere and with every background, can contribute, grow, and thrive.
Our compensation and benefits programs are designed to attract and reward talented individuals who possess the skills necessary to support our business objectives, assist in the achievement of our strategic goals and create long-term value for our stockholders. In addition to salaries, these programs (which vary by country/region) include annual bonuses, stock-based awards, retirement benefits, healthcare, and insurance benefits, paid time off, family leave, flexible work schedules, and employee assistance programs. We are committed to providing competitive and equitable pay. We base our compensation on market data and conduct evaluations of our compensation practices on a regular basis to determine the competitiveness and fairness of our packages.
We are committed to empowering our people with career advancement and learning opportunities. Our talent development programs provide employees with resources to help achieve their career goals, build management skills and contribute to and, where applicable, lead their organizations.
We regularly conduct anonymous surveys to seek feedback from our employees on a variety of topics, including but not limited to, confidence in company leadership, competitiveness of our compensation and benefits, career growth opportunities and ways to improve our company’s position as an employer of choice. The results are shared with our employees and reviewed by senior leadership, who analyze areas of progress or opportunity and prioritize actions and activities in response to this feedback to drive meaningful improvements in employee engagement.
We believe that our approach to talent has been instrumental in our growth, and has made Match Group a desirable destination for current and future employees.
Additional information
Company website and public filings. Investors and others should note that we announce material financial and operational information to our investors using our investor relations website at https://ir.mtch.com, Securities and Exchange Commission (“SEC”) filings, press releases, and public conference calls. We use these channels as well as social media to communicate with our users and the public about our company, our services, and other issues. It is possible that the information we post on social media could be deemed to be material information. Accordingly, investors, the media, and others interested in our company should monitor the social media channels listed on our investor relations website in addition to following our SEC filings, press releases, and public conference calls. Neither the information on our website, nor the information on the website of any Match Group business, is incorporated by reference into this 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 Match Group’s principal executive officer, principal financial officer and principal accounting officer) and directors and is posted on the Company’s website at https://ir.mtch.com under the heading of “Corporate Governance.” 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 Match Group’s executive officers, senior financial officers or directors, will also be disclosed on Match Group’s website.
Relationship with IAC after the Separation
In connection with the Separation, the Company entered into certain agreements with IAC to govern the relationship between the Company and IAC following the Separation. These agreements, in certain cases, supersede the agreements entered into between Former Match Group and Former IAC in connection with Former Match Group’s IPO in November 2015 (the “IPO Agreements”) and include: a tax matters agreement; a transition services agreement; and an employee matters agreement. The IPO Agreements that were not superseded were terminated at closing of the Separation.
In addition to the agreements entered into at the time of the Separation, Match Group leases office space to IAC in a building owned by the Company in Los Angeles. Match Group also leases office space from IAC in New York City on a month-to-month basis, which the Company terminated in 2020 and expects to vacate in the first half of 2021.
Tax Matters Agreement
Pursuant to the tax matters agreement, each of Match Group and IAC is responsible for certain tax liabilities and obligations following the transfer by Former IAC (i) to Match Group of certain assets and liabilities of, or related to, the businesses of Former IAC (other than Former Match Group) and (ii) to holders of Former IAC common stock and Former IAC Class B common stock, as a result of the reclassification and mandatory exchange of certain series of Former IAC exchangeable preferred stock (collectively, the “IAC Distribution”). Under the tax matters agreement, IAC generally is responsible for, and has agreed to indemnify Match Group against, any liabilities incurred as a result of the failure of the IAC Distribution to qualify for the intended tax-free treatment unless, subject to certain exceptions, the failure to so qualify is attributable to Match Group's or Former Match Group’s actions or failure to act, Match Group's or Former Match Group’s breach of certain representations or covenants or certain acquisitions of equity securities of Match Group, in each case, described in the tax matters agreement (a "Match Group fault-based action"). If the failure to so qualify is attributable to a Match Group fault-based action, Match Group is responsible for liabilities incurred as a result of such failure and will indemnify IAC against such liabilities so incurred by IAC or its affiliates.
Transition Services Agreement
Pursuant to the transition services agreement, IAC continues to provide certain services to Match Group that Former IAC had historically provided to Former Match Group. Match Group also provides certain services to IAC that Former Match Group previously provided to Former IAC. The transition services agreement also provides that Match Group and IAC will make efforts to replace, amend, or divide certain joint contracts with third-parties relating to services or products used by both Match Group and IAC. Match Group and IAC also agreed to continue sharing certain services provided pursuant to certain third-party vendor contracts that were not replaced, amended, or divided prior to closing of the Separation.
Employee Matters Agreement
Pursuant to the amended and restated employee matters agreement, Match Group will reimburse IAC for the cost of any IAC equity awards held by the Company’s employees and former employees upon exercise or vesting. In addition, Match Group employees continued to participate in IAC’s U.S. health and welfare plans, 401(k) plan and flexible benefits plan through December 31, 2020. Match Group reimbursed IAC for the costs of such participation pursuant to the amended and restated employee matters agreement. Match Group established its own employee benefit plans effective January 1, 2021.
Other Agreements
The Transaction Agreement provides that each of Match Group and IAC has agreed to indemnify, defend and hold harmless the other party from and against any liabilities arising out of: (i) any asset or liability allocated to such party or the other members of such party's group under the Transaction Agreement or the businesses of such party's group after the closing of the Separation; (ii) any breach of, or failure to perform or comply with, any covenant, undertaking or obligation of a member of such party's group contained in the Transaction
Agreement that survives the closing of the Separation or is contained in any ancillary agreement; and (iii) any untrue or misleading statement or alleged untrue or misleading statement of a material fact or omission, with respect to information contained in or incorporated into the Form S-4 Registration Statement (the “Form S-4”) filed with the Securities and Exchange Commission (the “SEC”) by IAC and Former IAC in connection with the Separation or the joint proxy statement/prospectus filed by Former IAC and Former Match Group with the SEC pursuant to the Form S-4.
Item 1A. Risk Factors
Risks relating to our business
The dating industry is competitive, with low switching costs and a consistent stream of new products and entrants, and innovation by our competitors may disrupt our business.
The dating industry is competitive, with a consistent stream of new products and entrants. Some of our competitors may enjoy better competitive positions in certain geographical regions, user demographics or other key areas that we currently serve or may serve in the future. These advantages could enable these competitors to offer products that are more appealing to users and potential users than our products or to respond more quickly and/or cost-effectively than us to new or changing opportunities.
In addition, within the dating industry generally, costs for consumers to switch between products are low, and consumers have a propensity to try new approaches to connecting with people and to use multiple dating products at the same time. As a result, new products, entrants and business models are likely to continue to emerge. It is possible that a new product could gain rapid scale at the expense of existing brands through harnessing a new technology or a new or existing distribution channel, creating a new or different approach to connecting people or some other means.
Potential competitors include larger companies that could devote greater resources to the promotion or marketing of their products and services, take advantage of acquisition or other opportunities more readily or develop and expand their products and services more quickly than we do. Potential competitors also include established social media companies that may develop products, features, or services that may compete with ours or operators of mobile operating systems and app stores. For example, Facebook has introduced a dating feature on its platform, which it has rolled out in North America and other markets and has stated it plans to roll out globally. These social media and mobile platform competitors could use strong or dominant positions in one or more markets, and ready access to existing large pools of potential users and personal information regarding those users, to gain competitive advantages over us, including by offering different product features or services that users may prefer or offering their products and services to users at no charge, which may enable them to acquire and engage users at the expense of our user growth or engagement.
If we are not able to compete effectively against our current or future competitors and products that may emerge, the size and level of engagement of our user base may decrease, which could have an adverse effect on our business, financial condition and results of operations.
The limited operating history of our newer brands and products makes it difficult to evaluate our current business and future prospects.
We seek to tailor each of our brands and products to meet the preferences of specific communities of users. Building a given 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 brands and products have experienced significant growth over relatively short periods of time, the historical growth rates of these brands and products may not be an indication of future growth rates for such products or our newer brands and products generally. We have encountered, and may continue to encounter, risks and difficulties as we build our newer brands and products. The failure to successfully scale these brands and products and address these risks and difficulties could adversely affect our business, financial condition and results of operations.
Our growth and profitability rely, in part, on our ability to attract and retain users through cost-effective marketing efforts. Any failure in these efforts could adversely affect our business, financial condition, and results of operations.
Attracting and retaining users for our products involve considerable expenditures for online and offline marketing. Historically, we have had to increase our marketing expenditures over time in order to attract and retain users and sustain our growth.
Evolving consumer behavior can affect the availability of profitable marketing opportunities. For example, as traditional television viewership declines and as consumers spend more time on mobile devices rather than desktop computers, the reach of many of our traditional advertising channels continues to contract. Similarly, as consumers communicate less via email and more via text messaging, messaging apps and other virtual means,
the reach of email campaigns designed to attract new and repeat users (and retain current users) for our products is adversely impacted. Additionally, changes proposed by large tech platforms, such as Apple and Google, to advertisers’ ability to access and use unique advertising identifiers, cookies and other information to acquire potential users, may adversely impact our advertising efforts. To continue to reach potential users and grow our businesses, we must identify and devote more of our overall marketing expenditures to newer advertising channels, such as mobile and online video platforms. Generally, the opportunities in and sophistication of newer advertising channels and methods continue to be less developed, proven and precise, making it more difficult to assess returns on investment associated with our advertising efforts and to cost-effectively identify potential users. There can be no assurance that we will be able to continue to appropriately manage our marketing efforts in response to these and other trends in the advertising industry. Any failure to do so could adversely affect our business, financial condition and results of operations.
Our business and results of operations have been and may continue to be adversely affected by the recent COVID-19 outbreak or other similar outbreaks.
Our business could be materially and adversely affected by the outbreak of a widespread health epidemic or pandemic, including the Coronavirus Disease 2019 (COVID-19) pandemic. The COVID-19 pandemic has reached across the globe, resulting in the implementation of significant governmental measures intended to control the spread of the virus, including lockdowns, closures, quarantines, and travel bans, as well as changes in consumer behavior as individuals have become reluctant to engage in social activities with people outside their households. While some of these measures have been relaxed in certain parts of the world, ongoing and future prevention and mitigation measures, as well as the potential for some of these measures to be reinstituted in the event of repeat waves of the virus, are likely to have an adverse impact on global economic conditions and consumer confidence and spending, and could materially adversely affect demand, or users’ ability to pay, for our products and services.
A public health epidemic, including COVID-19, poses the risk that Match Group or its employees, contractors, vendors, and other business partners may be prevented or impaired from conducting ordinary course business activities for an indefinite period of time, including due to shutdowns necessitated for the health and wellbeing of our employees, the employees of business partners, or shutdowns that may be requested or mandated by governmental authorities. For example, early on in the pandemic, certain of our customer support vendors were impacted by government mandated shutdowns which adversely impacted the capability of the affected brands to respond timely and effectively to user inquiries and requests. In addition, in response to the COVID-19 outbreak, we have taken several precautions that may adversely impact employee productivity, such as continuing to allow employees to work remotely, imposing travel restrictions, and ongoing closures of office locations.
The ultimate extent of the impact of any epidemic, pandemic, or other health crisis on our business will depend on multiple factors that are highly uncertain and cannot be predicted, including its severity, location and duration, and actions taken to contain or prevent further its spread. Additionally, the COVID-19 pandemic could increase the magnitude of many of the other risks described in this annual report, and have other adverse effects on our operations that we are not currently able to predict. If our business and the markets in which we operate experience a prolonged occurrence of adverse public health conditions, such as COVID-19, it could materially and adversely affect our business, financial condition, and results of operations. See “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Trends affecting our business—Impacts of the Coronavirus.”
Foreign currency exchange rate fluctuations could adversely affect our results of operations.
We operate in various international markets, including jurisdictions within the European Union (which we refer to as the “EU”) and Asia. During periods of a strengthening U.S. dollar, our international revenues will be reduced when translated into U.S. dollars. In addition, as foreign currency exchange rates fluctuate, the translation of our international revenues into U.S. dollar-denominated operating results affects the period-over-period comparability of such results and can result in foreign currency exchange gains and losses.
The departure of the United Kingdom from the European Union, commonly referred to as “Brexit,” has caused, and may continue to cause, volatility in currency exchange rates between the U.S. dollar and the British Pound and the full impact of Brexit remains uncertain. See ‘‘Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Principles of Financial Reporting—Effects of Changes in Foreign
Exchange Rates on Revenue,“ and Item 7A—Quantitative and Qualitative Disclosures About Market Risk—Foreign Currency Exchange Risk.”
Distribution and marketing of, and access to, our products relies, in significant part, on a variety of third-party platforms, in particular, mobile app stores. If these third parties limit, prohibit, or otherwise interfere with or change their policies in any material way, it could adversely affect our business, financial condition, and results of operations.
We market and distribute our products (including related mobile applications) through a variety of third-party distribution channels, including Facebook, which has rolled out its own dating product. Our ability to market our brands on any given property or channel is subject to the policies of the relevant third party. Certain platforms and channels have, from time to time, limited or prohibited advertisements for our products for a variety of reasons, including poor behavior by other industry participants. There is no assurance that we will not be limited or prohibited from using certain marketing channels in the future. If this were to happen with a significant marketing channel and/or for a significant period of time, our business, financial condition and results of operations could be adversely affected.
Additionally, our mobile applications are almost exclusively accessed through the Apple App Store and Google Play Store. Both Apple and Google have broad discretion to change their policies regarding their mobile operating systems and app stores in ways that may limit, eliminate or otherwise interfere with our ability to distribute or market our applications through their stores, our ability to update our applications, including to make bug fixes or other feature updates or upgrades, the features we provide, our ability to access native functionality or other aspects of mobile devices, and our ability to access information about our users that they collect. To the extent either or both of them do so, our business, financial condition and results of operations could be adversely affected. For example, Apple has indicated that in the future it will require app users to opt in before their identifier for advertisers (“IDFA”) can be accessed by an app (which is currently expected to come into effect in 2021). As a consequence, the ability of advertisers to accurately target and measure their advertising campaigns at the user level may become significantly limited and we and other app developers may experience increased cost per registration. Additionally, Apple and Google are known to retaliate against app developers who publicly or privately challenge their app store rules and policies, and such retaliation has and could adversely affect our business, financial condition and results of operations.
In addition,The success of our products will depend, in part, on our ability to access, collect, and use personal data about our users and subscribers.
We rely on the Apple App Store and Google Play Store to distribute and monetize our mobile applications. Our users and subscribers engage with these platforms directly and may be subject to requirements regarding the use of certaintheir payment systems for various transactions. As a result of this disintermediation, these platforms receive and do not share with us key user data that we would otherwise receive if we transacted with our productsusers 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)subscribers directly. If these dating products exclusively through their Facebook profiles. While Match Group launched an alternate authentication method that allows usersplatforms continue 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 couldor increasingly limit, eliminate, or otherwise interfere with our ability to access, collect, and use Facebook as an authentication method orkey user data, our ability to allow Facebookidentify and communicate with a meaningful portion of our user and subscriber bases may be adversely impacted. If so, our customer relationship management efforts, our ability to use such datareach new segments of our user and subscriber bases and the population generally, the efficiency of our paid marketing efforts, the rates we are able to gain a competitive advantage. If any such event werecharge advertisers seeking to occur,reach users and subscribers on our various properties, and our ability to identify and exclude users and subscribers whose access would violate applicable terms and conditions, including underage individuals and bad actors, may be negatively impacted, and our business, financial condition and results of operations could be adversely affected.
Our success depends, in part, uponAs the continued migrationdistribution of certain markets and industries online and the continued growth and acceptance of onlineour 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 timeapp stores increases, in order to attract and convert consumers, retain users and sustainmaintain 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,profit margins, 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,. or our business, financial condition, and results of operations could be adversely affected.
We increasingly rely uponon the Apple App Store and the Google Play Store to distribute theand monetize our mobile applications of our various businesses.and related in-app products. While some of our mobile applications are generally free to download from these stores, many ofwe offer our mobile applications (primarily our datingusers the opportunity to purchase subscriptions and Mosaic Group applications) are subscription-based and/or offer in-appcertain à la carte features for a fee.within these applications. We determine the prices at which these subscriptions and à la carte features are sold; however, related purchases mustof these subscriptions and features via our mobile applications are required to be processed through
the in-app payment systems provided by Apple and Google. Due to a lesser extent, Google. As a result,these requirements, we pay Apple and Google, as applicable, a meaningful share (generally 30%) of the revenue we receive from these transactions. While we are constantly innovating on and creating our own payment systems and methods, given the ever increasing distribution of our mobile applicationsproducts through digital app stores and the strict mandates to use the in-app payment system requirements,payments systems tied into Apple’s and Google’s app stores, 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 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. Additionally,Google announced that it will require all developers to the extent Google changes its terms and conditions or practices to require us to process all in-app purchases of subscriptions and à la carte features entirely through itstheir in-app payment system beginning on September 30, 2021. To date, Google has not enforced such a requirement, but if Google does so, our business, financial condition and results of operations would be adversely affected.
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 across the globe, with the continued contributions of our senior management being especially critical to our success. Competition for well-qualified employees across Match Group and its various businesses is intense and our continued ability to compete effectively depends, in part, upon our ability to attract new employees. Effective succession planning is also important to our future success. If we fail to ensure the effective transfer of senior management knowledge and smooth transitions involving senior management 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 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 productssystems 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 conditioninfrastructures 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 breachesenhance, expand, 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 costsadapt these systems 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 resultinfrastructures in a variety of claims against us, including governmental enforcement actions, significant fines, litigation, claims of breach of contracttimely 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.cost-effective manner.
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 ofTo succeed, our systems technology and infrastructure, and those of third parties.
We rely on our systems, technology and infrastructure toinfrastructures must perform well on a consistent basis. FromWe have and may from time to time, in the past we have experienced (and in the future we may experience) occasionalexperience system interruptions that make some or all of this frameworkour systems or data unavailable and related information unavailable or that prevent usour products from providing products and services; anyfunctioning properly for our users. 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 computerFurther, our systems and a variety of communications systems
and service providers in connection with the provision of our products and services generally, as well asinfrastructures are vulnerable 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 todamage from fire, power loss, telecommunications failure, natural disasters, acts of war or terrorism,failures, 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.events. While we and the third parties upon whom we rely have certain backup systems in place for certain aspects of our respective frameworks, noneoperations, not all of our frameworkssystems and infrastructures are fully redundant, and disaster recovery planning is not sufficient for all eventualities. In addition,eventualities and our property and business interruption insurance coverage may not be adequate to fully compensate us for any losses that we may not have adequate insurance coverage to compensate for losses from a major interruption. When such damages,suffer. Any interruptions or outages, occur,regardless of the cause, could negatively impact our reputation could be harmedusers’ experiences with our products, tarnish our brands’ reputations and the competitive positions ofdecrease demand for our various brands and businesses could be diminished,products, 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 frameworktechnology and network systems to improve the consumer experience of our users, accommodate substantial increases in the numbervolume of visitorstraffic to our various platforms,products, ensure acceptable load times for our various products and services and keep up with changes in technology and user preferences. If we do notAny failure to do so in a timely and cost-effective manner could adversely affect our users’ experience with our various products and thereby negatively impact the user experiencedemand for our products, and demand acrosscould increase our brands and businesses could be adversely affected,costs, either of 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) keyprotect our systems and infrastructure from cyberattacks and may be adversely affected by cyberattacks experienced by third parties.
We are regularly under attack by perpetrators of random or targeted malicious technology-related events, such as cyberattacks, computer viruses, worms, bot attacks or other employeesdestructive or disruptive software, distributed denial of service attacks and attempts to misappropriate customer information, including personal user data, credit card information and account login credentials. While we have invested (and continue to invest) in the future. In addition, if we doprotection of our systems and infrastructure, in related personnel and training and in employing a data minimization strategy, where appropriate, there can be no assurance that our efforts will prevent significant breaches in our systems or other such events from occurring. Some of our systems have experienced past security incidents, and, although they did 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 andoperating results, there can be no assurance 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 subsidiariesa similar result in the casefuture. Any cyber or similar attack we are unable to protect ourselves against could damage our systems and infrastructure, prevent us from providing our products, tarnish our brand
reputation, result in the casedisclosure of ANGI Homeservices
indebtedness) guarantee any indebtednessconfidential or sensitive information of Match Group our users and/or ANGI Homeservices nor arebe costly to remedy, as well as subject us to any of the covenants relatedinvestigations by regulatory authorities and/or litigation that could result in liability to such indebtedness.third parties.
The termsimpact of the indebtedness of IAC, Match Group and ANGI Homeservices could:
limitcyber or similar attacks experienced by third parties who provide services to us or otherwise process data on 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,behalf could have a materialsimilar effect on us. Moreover, even cyber or similar attacks that do not directly affect us or our third party service providers or data processors may result in widespread access to user account login credentials that such users have used across multiple internet sites, including our sites, or a loss of consumer confidence generally, which could make users less likely to use or continue to use online products generally, including our products. The occurrence of any of these events could have an adverse effect on our business, financial condition and operating results;results of operations.
increase our respective vulnerabilities to a downturnOur success depends, in general economic conditions orpart, on the integrity of third-party systems and infrastructure.
We rely on third parties, primarily data center and cloud-based, hosted web service providers, such as Amazon Web Services, as well as third party computer systems, broadband and other communications systems and service providers, in pricingconnection with the provision of our various products generally, as well as to facilitate and services; and
limitprocess certain transactions with our respective abilities to react to changing market conditionsusers. We have no control over any of these third parties or their operations. Any changes in service levels at our data centers or hosted web service providers or any interruptions, outages or delays in our systems or those of our third party providers, deterioration 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 withperformance of these restrictions is significant, the risks described abovesystems, or cyber or similar attacks on these systems could increase.
Lastly, if an event a default has occurred or our leverage ratio exceeds specified thresholds,impair our ability to pay dividends, make distributionsprovide our products or process transactions with our users, which would adversely impact our business, financial condition and repurchaseresults of operations.
If the security of personal and confidential or redeemsensitive user 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 capital stock wouldreputation could be limited. Match Groupharmed.
We receive, process, store, and ANGI Homeservices are subjecttransmit a significant amount of personal user and other confidential or sensitive information, including credit card information and user-to-user communications, and enable our users to similar restrictions. See "Item 7-Management's Discussionshare their personal information with each other. In some cases, we engage third party service providers to store this information. We continuously develop and Analysismaintain systems to protect the security, integrity and confidentiality of Financial Conditionthis information, but we have experienced past incidents and Results of Operations-Financial Position, Liquidity and Capital Resources and Financial Position."
Wecannot guarantee that inadvertent or unauthorized use or disclosure will not occur in the future or that third parties will not gain unauthorized access to this information despite our efforts. When such events occur, we may not be able to generate sufficient cashremedy them, be required by law to notify regulators and individuals whose personal information was used or disclosed without authorization, be subject to claims against us, including government enforcement actions, fines and litigation, and have to expend significant capital and other resources to mitigate the impact of such events, including developing and implementing protections to prevent future events of this nature from occurring. When breaches of security (or the security of our service providers) occur, the perception of the effectiveness of our security measures, the security measures of our service providers and our reputation may be harmed, we may lose current and potential users and the our various brands’ reputation and competitive positions may be tarnished, any or 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 couldmight adversely affect our business, financial condition and results of operations.
We face additional risksOur business is subject to complex and evolving U.S. and international laws and regulations, including with respect to data privacy and platform liability. These laws and regulations are subject to change and uncertain interpretation, and could result in connection with our international operations.
We currently operate in various jurisdictions abroad and may continuechanges 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 resultspractices, increased cost of operations. Our successoperations, declines in international markets will also depend, in large part, on our ability to successfully complete international acquisitions, joint venturesuser growth 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 toengagement, claims, monetary penalties, or otherwise harm our business.
We are subject to a variety of laws and regulations in the U.S.United States and abroad that involve matters that are important to or may otherwise impact our business, including, among others, broadband internet access, online commerce, advertising, privacybusiness. See “Item 1—Business—Government regulation.” These U.S. federal, state, and data protection, intermediary liability, consumer protection, protection of minors, taxation and securities compliance. These domesticmunicipal and foreign laws and regulations, which in some cases can be enforced by private parties in addition to government entities, are constantly evolving and can be subject to significant change. As a result, the
application, interpretation, and enforcement of these laws and regulations are often uncertain, particularly in the Internetrapidly evolving industry in which we operate, and may be interpreted and applied inconsistently from jurisdictionstate to jurisdiction, as well as in a manner that could conflictstate and country to country and inconsistently with our current policies and practices. We face the same issues in the case of amended, proposed or new laws and regulations.
Compliance with applicableThese laws and regulations, as well as responding to any relatedassociated inquiries, investigations or other government action, couldactions, may be costly to comply with and may delay or impede the development of new products, and services, require modificationschanges to existing products and services and/or cessation of
certain business practices, result in negative publicity, increase our operating costs, require significant management time and attention. Non-compliance couldattention, and subject us to remedies that couldmay harm our business, such asincluding fines demands or ordersmodifications to existing business practices.
In the case of tax laws, positions that require uswe have taken or will take are subject to modify or cease then current products and services, as well as result in negative publicity. Consequences of compliance and non-complianceinterpretation by the relevant taxing authorities. While we believe that the positions we have taken to date comply with applicable lawslaw, there can be no assurances that the relevant taxing authorities will not take a contrary position, and regulations, if significant,so, that such positions will not adversely affect us. Any events of this nature could adversely affect our business, financial condition and results of operations.
We are particularly sensitive to lawsProposed or new legislation and regulations thatcould also 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 provideaffect 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.business. See “Item 1—Business—Government regulation.” To the extent our dating business issuch new or more stringent measures are required to implementbe implemented, impose new measures to prevent such access,liability or limit or remove existing protections, our business, financial condition and results of operations could be adversely affected. In addition,
The adoption of any laws or regulations that adversely affect the popularity or growth in use of the internet or our services, including laws or regulations that undermine open and neutrally administered internet access, could decrease user demand for our service offerings and increase our cost of doing business. For example, 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"“paid prioritization” of content or services by Internetinternet service providers. To the extent Internetinternet service providers takeengage in such blocking, throttling, “paid prioritization” of content or similar actions as a result of this order and the adoption of similar laws or regulations, our business, financial condition and results of operations could be adversely affected.
We are also sensitivesubject to the adoptiona number of risks related to credit card payments, including data security breaches and fraud that we or third parties experience, 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 accept payment from our users primarily through credit card transactions and certain online payment service providers. When we or a third party experiences a data security breach involving credit card information, affected cardholders will often cancel their credit cards. In the case of a breach experienced by a third party, the more sizable the third party’s customer base and the greater the number of credit card accounts impacted, the more likely it is that our users would be impacted by such a breach. To the extent our users are also sensitiveaffected by such a breach experienced by us or a third party, such users would need to the adoption ofbe contacted to obtain new tax laws. The European Commissioncredit card information and several European countries have issued proposalsprocess any pending transactions. It is likely that we would change various aspects of the current tax framework undernot be able to reach all affected users, and even if we could, some users’ new credit card information may not be obtained and some pending transactions may not be processed, 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.
Even if our users are not directly impacted by a given data security breach, they may lose confidence in the ability of service providers to protect their personal information generally, which could cause them to stop using their credit cards online or choose alternative payment methods that are less convenient or more costly for us or otherwise restrict our ability to process payments without significant user effort.
Additionally, if we fail to adequately prevent fraudulent credit card transactions, we may face litigation, fines, governmental enforcement action, civil liability, diminished public perception of our security measures, significantly higher credit card-related costs and remediation costs, or refusal by credit card processors to continue to process payments on our behalf, any of which could adversely affect our business, financial condition and results of operations.
Inappropriate actions by certain of our users could be attributed to us and damage our brands’ reputations, which in turn could adversely affect our business.
Users of our products have been, and may in the future be, physically, financially, emotionally or otherwise harmed by other individuals that such users met or may meet through the use of one of our products. When one or more of our users suffers or alleges to have suffered any such harm, we have in the past, and could in the future, experience negative publicity or legal action that could damage our reputation and our brands. Similar events affecting users of our competitors’ products have in the past, and could in the future, result in negative publicity for the dating industry generally, which could in turn negatively affect our business.
In addition, the reputations of our brands may be adversely affected by the actions of our users that are deemed to be hostile, offensive, defamatory, inappropriate, untrue or unlawful. While we have systems and processes in place that aim to monitor and review the appropriateness of the content accessible through our products, and have adopted policies regarding illegal, offensive or inappropriate use of our products, our users have in the past, and could in the future, nonetheless engage in activities that violate our policies. These safeguards may not be sufficient to avoid harm to our reputation and brands, especially if such hostile, offensive or inappropriate use is well-publicized.
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.recognition. We also rely to a lesser extent, upon patented and patent-pending proprietary technologies with expiration dates ranging from 2019and trade secrets relating to 2037.our products.
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 sought in every country in which our products 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 registered, even if available.
We also generally seek to apply for patents or for other similar statutory protections as and ifwhen we deem appropriate, based on then currentthen-current facts and circumstances, and will continue to do so in the future. No assurances can be given that these effortsany patent application we have filed or will file 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. ThirdIn addition, no assurances can be given that third parties could alsowill not create new products or methods that achieve similar results without infringing upon patents we own.
Despite these measures, challenges to our intellectual property rights may still not be protected in a meaningful manner, challenges to contractual rights could still arise, third parties could copy or otherwise obtain and use our intellectual property without authorization, and/our existing trademarks, patents, or trade secrets may be determined to be invalid or unenforceable, or laws and interpretations of laws regarding the enforceability of existing intellectual property rights couldmay change over time in an adverse manner.a manner that provides less protection. The occurrence of any of these events could result in the erosiontarnish of our brands and limitations onbrands’ reputation, limit our ability to control marketing online using our various domain names, as well asmarket them, or 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 allegedincluding claims of alleged infringement of thetrademarks, copyrights, patents and other intellectual property of others andrights held by third parties. In addition, litigation may need to institute legal proceedingsbe necessary in the future to enforce protect or refine the scope of our intellectual property rights.rights, protect our trade secrets and patents or to determine the validity and scope of proprietary rights claimed by others. For example, on March 17, 2018,in June 2020, we settled our Match Group business filed a lawsuit againstlongstanding litigation with 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 numberAny litigation 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,this nature, 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.
We operate in various international markets, including certain markets in which we have limited experience. As a result, we face additional risks in connection with certain of our international operations.
Operating internationally, particularly in countries in which we have limited experience, exposes us to a number of risks in addition to those otherwise described in this annual report, such as:
•operational and compliance challenges caused by distance, language, and cultural differences;
•difficulties in staffing and managing international operations;
•differing levels of social and technological acceptance of our products or lack of acceptance of them generally;
•compliance challenges due to different laws and regulatory environments, particularly in the case of privacy, data security, intermediary liability, and consumer protection;
•competitive environments that favor local businesses or local knowledge of such environments;
•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 (such as COVID-19).
The occurrence of any or all of the events described above could adversely affect our international operations, which could in turn adversely affect our business, financial condition, and results of operations.
We may experience operational and financial risks in connection with acquisitions.
We have made acquisitions in the past, have recently announced a pending acquisition and continue to seek potential acquisition candidates. We may experience operational and financial risks in connection with historical and future acquisitions if we are unable to:
•properly value prospective acquisitions, especially those with limited operating histories;
•fully identify potential risks and liabilities associated with acquired businesses;
•successfully integrate the operations and accounting, financial controls, management information, technology, human resources, and other administrative systems, of the acquired businesses with our existing operations and systems;
•retain or hire senior management and other key personnel at acquired businesses; and
•successfully support the acquired businesses in executing on strategic plans, including expansion into geographies where we have presence and experience.
Furthermore, we may not be successful in addressing other challenges encountered in connection with our acquisitions and the anticipated benefits of one or more of our acquisitions may not be realized. In addition, such acquisitions can result in material diversion of management’s attention or other resources from our existing businesses. The occurrence of any these events could have an adverse effect on our business, financial condition and results of operations.
We are subject to litigation, and adverse outcomes in such litigation could have an adverse effect on our financial condition.
We are, and from time to time may become, subject to litigation and various legal proceedings, including litigation and proceedings related to employment matters, intellectual property matters, privacy and consumer protection laws, as well as stockholder derivative suits, class action lawsuits and other matters, that involve claims for substantial amounts of money or for other relief or that might necessitate changes to our business or operations. The defense of these actions is time consuming and expensive. We evaluate these litigation claims and legal proceedings to assess the likelihood of unfavorable outcomes and to estimate, if possible, the amount of potential losses. Based on these assessments and estimates, we may establish reserves and/or disclose the relevant litigation claims or legal proceedings, as and when required or appropriate. These assessments and estimates are based on information available to management at the time of such assessment or estimation and involve a significant amount of judgment. As a result, actual outcomes or losses could differ materially from those envisioned by our current assessments and estimates. Our failure to successfully defend or settle any of these litigations or legal proceedings could result in liability that, to the extent not covered by our insurance, could have an adverse effect on our business, financial condition and results of operations. See “Item 3—Legal Proceedings.”
Risks relating to our indebtedness
Our indebtedness may 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, 2020, we had total debt outstanding of approximately $3.9 billion and borrowing availability of $749.8 million under our revolving credit facility.
Our indebtedness could have important consequences, such as:
•limiting our ability to obtain additional financing to fund working capital needs, acquisitions, capital expenditures, or other debt service requirements or for other purposes;
•limiting our ability to use operating cash flow to pursue acquisitions or invest in other areas, such as developing new brands, products, or exploiting business opportunities;
•restricting our business operations due to financial and operating covenants in the agreements governing our and certain of our subsidiaries’ existing and future indebtedness, including certain covenants that restrict the ability of our subsidiaries to pay dividends or make other distributions to us; and
•exposing us to potential events of default (if not cured or waived) under financial and operating covenants contained in our or our subsidiaries’ debt instruments that could have a material adverse effect on our business, financial condition and operating results.
Although the terms of our credit agreement and the indentures related to our senior notes contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and additional indebtedness incurred in compliance with these restrictions could be significant. If new debt is added to our and our subsidiaries’ current debt levels, the risks described above could increase.
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.
Our ability to satisfy our debt obligations will depend upon, among other things:
•our 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
•our future ability to borrow under our revolving credit facility, the availability of which will depend on, among other things, our complying with the covenants in the then-existing agreements governing our indebtedness.
There can be no assurance that our business will generate sufficient cash flow from operations, or that we will be able to draw under our revolving credit facility or otherwise, in an amount sufficient to fund our liquidity needs.
If our cash flows and capital resources are insufficient to service our indebtedness, we may be forced to reduce or delay capital expenditures, sell assets, seek additional capital or 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 will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. In addition, the terms of existing or future debt agreements may restrict us from adopting some of these alternatives.
Variable rate indebtedness that we have incurred or may incur under our credit agreement will subject us to interest rate risk, which could cause our debt service obligations to increase significantly.
We currently have $425 million of indebtedness outstanding under our term loan and no outstanding borrowings under our revolving credit agreement. Borrowings under term loan are, and any borrowings under
the revolving credit facility will be, at variable rates of interest. Indebtedness that bears interest at variable rates exposes us to interest rate risk. See “Item 7A—Quantitative and Qualitative Disclosures About Market Risk—Interest Rate Risk.”
Exchange of the exchangeable notes may dilute the ownership interests of existing stockholders or may otherwise depress the price of our common stock.
We are obligated as a guarantor under the indentures relating to the exchangeable notes. The exchange of some or all of the exchangeable notes may dilute the ownership interests of our stockholders to the extent we deliver shares of our common stock upon exchange. While the exchangeable note hedges are expected to reduce the potential dilutive effect on our common stock upon any exchange and/or offset any cash payment the issuers of the exchangeable notes would be required to make in excess of the principal amount of the exchanged notes, the warrants have a dilutive effect to the extent that the market price per share of our common stock exceeds the strike price of the warrants. Any sales in the public market of our common stock issuable upon such exchange could adversely affect prevailing market prices of our common stock. In addition, the existence of the exchangeable notes may encourage short selling of our common stock by market participants because the exchange of the exchangeable notes could be used to satisfy short positions. In addition, the anticipated exchange of the exchangeable notes could depress the price of our common stock.
Risks relating to the Separation
We may be unable to achieve some or all of the benefits that we expect to achieve through the Separation.
We believe that the intended strategic and financial benefits of the Separation should be achieved. However, there can be no assurance of this or that we will be able to attract transaction partners using our capital stock as acquisition currency and that analysts and investors will regard our new corporate structure as more clear and simple than our former corporate structure.
If the transactions effected in connection with the Separation were to fail to qualify as generally tax-free for U.S. federal income tax purposes, we and our stockholders could suffer material adverse consequences.
Following the completion of the Separation and the merger of Former Match Group into a wholly-owned subsidiary (“Merger Sub”) of Former IAC (the “Merger”), Former Match Group’s successor became a wholly-owned subsidiary of Match Group and most of Former IAC’s existing other subsidiaries came to be held under a separate public company. Former IAC and IAC received opinions from outside counsel that the Separation and related transactions taken together, and the Merger, were tax-free for U.S. federal income tax purposes. These opinions were based upon and rely on various facts and assumptions, as well as certain representations and undertakings of Former IAC, Former Match Group, IAC, and Match Group, including relating to the past and future conduct of Former IAC, Former Match Group, IAC, and Match Group. If any of these representations or undertakings is, or becomes, inaccurate or incomplete, or if any of the representations or covenants contained in any of the transaction-related agreements or in any document relating to the opinions of counsel is, or becomes, inaccurate or is not complied with by Former IAC, Former Match Group, IAC, Match Group, or any of their respective subsidiaries, the opinions of counsel may be invalid and the conclusions reached therein could be jeopardized.
Notwithstanding receipt of the opinions of counsel regarding the transactions, the U.S. Internal Revenue Service (“IRS”) could determine that some or all of the transactions effected in connection with the Separation should be treated as taxable for U.S. federal income tax purposes if it determines that any of the representations, assumptions or undertakings upon which the opinions of counsel were based are inaccurate or have not been complied with. Moreover, even if the foregoing representations, assumptions or undertakings are accurate and have been complied with, the opinions of counsel merely represent the judgment of such counsel and are not binding on the IRS or any court, and the IRS or a court may disagree with the conclusions in the opinions of counsel. Accordingly, there can be no assurance that the IRS will not assert that the transactions effected in connection with the Separation do not qualify for tax-free treatment for U.S. federal income tax purposes or that a court would not sustain such a challenge. In the event the IRS were to prevail with such a challenge, parties to the Separation, including Match Group could be subject to tax with respect to the Separation.
For example, if the transactions effected in connection with the Separation were to fail to qualify as a transaction that is generally tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Internal Revenue Code of 1986 (as amended, the “Code”), in general, for U.S. federal income tax purposes, we would recognize a taxable gain as if the distribution of New IAC stock in connection with the Separation had been sold in a taxable sale for its fair market value. Even if the transactions effected in connection with the Separation were to otherwise qualify as a tax-free transaction under Sections 355 and 368(a)(1)(D) of the Code, taxable gain may be triggered under Section 355(e) of the Code if the transactions effected in connection with the Separation were, or later transactions are, deemed to be part of a plan (or series of related transactions) pursuant to which one or more persons acquire, directly or indirectly, shares representing a 50 percent or greater interest (by vote or value) in us or IAC. For this purpose, any acquisitions of (i) Former IAC stock or Former Match Group stock before the Separation or (ii) IAC stock or Match Group stock within the period beginning two years before the Separation and ending two years after the Separation are presumed to be part of such a plan, although we or IAC may be able to rebut that presumption.
In addition to potential tax liabilities relating to Former Match Group, we and our subsidiaries could be liable to satisfy any tax liabilities relating to Former IAC or IAC with respect to the Separation if their tax-free treatment for U.S. federal income tax purposes were successfully challenged by the IRS. While, in some cases, IAC may be obligated under the Tax Matters Agreement to indemnify us for some or all of such taxes, even in those cases, there is no assurance that they will in fact indemnify us.
In addition, if the Merger were determined to be taxable for U.S. federal income tax purposes, we would be subject to tax on the transfer of the assets of Former Match to Merger Sub. If we or our subsidiaries were required to pay taxes imposed on us with respect to the Separation, our cash flows would be adversely affected.
We may not be able to engage in desirable capital-raising or strategic transactions following the Separation.
We believe we will generally be able to engage in desirable capital-raising or strategic transactions. However, under current U.S. federal income tax law, a distribution that otherwise qualifies for tax-free treatment can be rendered taxable to the distributing corporation and its stockholders as a result of certain post-distribution transactions, including certain acquisitions of shares or assets of both the distributing corporation and the corporation the stock of which is distributed. To preserve the tax-free treatment of the transactions effected in connection with the Separation, the Tax Matters Agreement imposes certain restrictions on us and our subsidiaries during the two-year period following the Separation. Except in specific circumstances, we are generally restricted from (1) ceasing to actively conduct certain of our businesses; (2) entering into certain transactions or series of transactions pursuant to which all or a portion of our shares of common stock would be acquired, whether by merger or otherwise; (3) liquidating or merging or consolidating with any other person; (4) issuing equity securities beyond certain thresholds; (5) repurchasing shares of our common stock, other than in certain open-market transactions; or (6) taking or failing to take any other action that would cause the transactions effected in connection with the Separation to fail to qualify as a transaction that is generally tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code. These restrictions may limit our ability to pursue certain equity issuances, strategic transactions, repurchases or other transactions that we may otherwise believe to be in the best interests of our stockholders or that might increase the value of our business.
Actual or potential conflicts of interest may develop between our management and directors, on the one hand, and the management and directors of IAC, on the other hand.
Certain of our directors and executive officers and directors of IAC own both Match Group common stock and IAC common stock. This ownership overlap could create, or appear to create, potential conflicts of interest when Match Group’s directors and IAC’s executive officers and directors face decisions that could have different implications for Match Group and IAC. For example, potential conflicts of interest could arise in connection with the resolution of any dispute between Match Group and IAC regarding the terms of the agreements governing the Separation and the relationship between Match Group and IAC thereafter. Potential conflicts of interest could also arise if Match Group and IAC enter into any commercial arrangements in the future.
In addition, Joseph Levin serves as the executive chairman of our board of directors, while also serving as the Chief Executive Officer and a director of IAC, Glenn H. Schiffman serves as a director of Match Group while also serving as an executive officer of IAC, and Alan G. Spoon serves as a director of each of Match Group and IAC. We believe that having a limited number of senior IAC management members serve on our Board for a
transitional period will be beneficial to us. However, the fact that Messrs. Levin, Schiffman, and Spoon hold positions with both Match Group and IAC could create, or appear to create, potential conflicts of interest for each of them when facing decisions that may affect both Match Group and IAC, and each of them also faces conflicts of interest with regard to the allocation of his time between Match Group and IAC.
Our certificate of incorporation could prevent us from benefiting from corporate opportunities that might otherwise have been available to us.
Our certificate of incorporation includes a “corporate opportunity” provision in which Match Group and its affiliates renounce any interests or expectancy in corporate opportunities which become known to any of Match Group’s directors or officers who are also officers or directors of IAC.
Generally, Match Group’s officers or directors who are also IAC’s officers or directors will not be liable to Match Group or its stockholders for breach of any fiduciary duty because such person fails to communicate or offer to Match Group a corporate opportunity that has been communicated or offered to IAC, that may also be a corporate opportunity of Match Group or because such person communicates or offers to IAC any corporate opportunity that may also be a corporate opportunity of Match Group. In order for any Match Group director or officer who is also an IAC director or officer not to be liable to Match Group or its stockholders, such opportunity cannot become known to the officer or director in his or her capacity as a Match Group director or officer and cannot be presented to any party other than IAC. In addition, such officer or director cannot pursue such opportunity in his or her individual capacity. The corporate opportunity provision may exacerbate conflicts of interest between Match Group and IAC because the provision effectively permits any of Match Group’s directors or officers who also serve as an officer or director of IAC to choose to direct a corporate opportunity to IAC instead of to Match Group.
Risks relating to ownership of our common stock
You may experience dilution due tothe issuance of additional securities in the future.
Our dilutive securities consist of vested and unvested options to purchase shares of our common stock, restricted stock unit awards, equity awards denominated in the equity of our non-public subsidiaries but settleable in shares of our common stock, the exchangeable notes and the exchangeable note warrants.
These dilutive securities are reflected in our dilutive earnings per share calculation contained in our financial statements for fiscal years ended December 31, 2020, 2019 and 2018. For more information, see “Note 10—Earnings per Share” to the consolidated financial statements included in “Part II, Item 8—Consolidated Financial Statements and Supplementary Data.” Intra-quarter movements in our stock price, could lead to more or less dilution than reflected in these calculations.
We do not expect to declare any regular cash dividends in the foreseeable future.
We have no current plans to pay cash dividends on our common stock. Instead, we anticipate that all of our future earnings will be retained to support our operations and to finance the growth and development of our business. We are not obligated to pay dividends on our common stock. Consequently, investors may need to rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. Investors seeking regular cash dividends should not purchase our common stock.
Provisions in our certificate of incorporation and bylaws or Delaware law may discourage, delay, or prevent a change of control of our company or changes in our management and, therefore, depress the trading price of our common stock.
Delaware corporate law and our certificate of incorporation and bylaws contain provisions that could discourage, delay or prevent a change in control of our company or changes in our management that the stockholders of our company may deem advantageous, including provisions which:
•authorize the issuance of “blank check” preferred stock that our board of directors could issue to increase the number of outstanding shares and to discourage a takeover attempt;
•establish a classified board of directors, as a result of which our board is divided into three classes, with each class serving for staggered three-year terms, which prevents stockholders from electing an entirely new board of directors at an annual meeting;
•prohibit stockholder action by written consent, thereby requiring all actions to be taken at a meeting of the stockholders;
•eliminate the ability of our stockholders to call special meetings of stockholders;
•provide that certain litigation against us can be brought only in Delaware (subject to certain exceptions); and
•provide that the board of directors is expressly authorized to make, alter, or repeal our bylaws.
Any provision of our certificate of incorporation, our bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.
Item 1B. Unresolved Staff Comments
Not applicable.None.
Item 2. Properties
IACMatch Group believes that the facilities for its management and operations are generally adequate for its current and near-term future needs. IAC'sMatch Group’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,and data centers and sales offices.
IAC believescenters. We also believe 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 leasesif we require additional space, we will be able to lease additional facilities 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.terms.
Item 3. Legal Proceedings
InOverview
We are, and from time to time may become, involved in various legal proceedings arising in the ordinarynormal course of our business the Companyactivities, such as patent infringement claims, trademark oppositions, and its subsidiaries are (or may become) parties to litigation involving property, personal injury, contract, intellectual property and other claims,consumer or advertising complaints, as well as stockholder derivative actions, class action lawsuits, and other matters. The amounts that may be recovered in such matters may be subject to insurance coverage. The litigation matters described below involve issues or claims that may be of particular interest to our stockholders, regardless of whether any of these matters may be material to our financial position or operations based upon the standard set forth in the rulesSEC’s rules.
Pursuant to the Transaction Agreement, we have agreed to indemnify IAC for matters relating to any business of Former Match Group, including indemnifying IAC for costs related to the matters described below other than the matter described under the heading “Newman Derivative and Stockholder Class Action Regarding Separation Transaction”.
The official names of legal proceedings in the descriptions below (shown in italics) reflect the original names of the Securitiesparties when the proceedings were filed as opposed to the current names of the parties following the separation of Match Group and Exchange Commission.
IAC.
Consumer Class Action Litigation 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‑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 itsa prior ruling sustaining Tinder’s demurrer, 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 thatdismissal. On May 9, 2018, the lower court had erred in sustaining Tinder’s demurrer because the complaint, as pleaded, stated a cognizable claim for violation
California Supreme Court denied Tinder’s petition seeking interlocutory review of the Court of Appeal’s decision. On May 9, 2018,decision and the California Supreme Court denied the petition. The case has beenwas returned to the trial court for further proceedingsproceedings.
In a related development, on June 21, 2019, in a substantially similar putative class action asserting the same substantive claims and is currentlypending in discovery.federal district court in California, the court entered judgment granting final approval of a class-wide settlement, the terms of which are not material to the Company. See Lisa Kim v. Tinder, Inc., No. 18-cv-3093 (Central District of California). Because the approved settlement class in Kim subsumes the proposed settlement class in Candelore, the judgment in Kim would effectively render Candelore a single-plaintiff lawsuit. Accordingly, on July 11, 2019, two objectors to the Kim settlement, represented by the plaintiff’s counsel in Candelore, filed a notice of appeal from the Kim judgment with the U.S. Court of Appeals for the Ninth Circuit. Oral argument on the appeal occurred on January 15, 2021.
On November 13, 2019, the trial court in Candelore issued an order staying the class claims in the case pending the Ninth Circuit’s decision on the Kim appeal. We and Match Group believe that the allegations in thisthe Candelore 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 IACAgainst Former Match Group and Match Group
On August 14, 2018, ten then-current and former employees of Match Group, LLC or Tinder, an operating businessInc. (“Tinder”), a former subsidiary of Former Match Group, filed a lawsuit in New York state court against IACFormer Match Group and Match Group. See Sean Rad et al. v. IAC/InterActiveCorp and Match Group, Inc., No. 654038/2018 (Supreme Court, New York County). The complaint alleges that in 2017, the defendants: (i) wrongfully interfered with a contractually established process for the independent valuation of Tinder by certain investment banks, resulting in a substantial undervaluation of Tinder and a consequent underpayment to the plaintiffs upon exercise of their Tinder stock options, and (ii) then wrongfully merged Tinder into Former Match Group, thereby depriving onecertain of the plaintiffs (Mr. Rad) of histheir contractual right to later valuations of Tinder on a stand‑alonestand-alone basis. The complaint asserts claims for breach of contract, breach of the implied covenant of good faith and fair dealing, unjust enrichment, interference with contractual relations (as against Former Match Group only), and interference with prospective economic advantage, and seeks compensatory damages in the amount of at least $2 billion, as well as punitive damages. On August 31, 2018, four plaintiffs who were still employed by Former Match Group filed a notice of discontinuance of their claims without prejudice, leaving the six former employees as the remaining plaintiffs. On October 9, 2018,June 13, 2019, the defendants filedcourt issued a decision and order granting defendants’ motion to dismiss the complaint on various grounds, including thatclaims for breach of the 2017 valuationimplied covenant of Tinder bygood faith and fair dealing and for unjust enrichments, as well as the investment banks was an expert determination any challengemerger-related claim for breach of contract as to which is both
time‑barred under applicable lawtwo of the remaining six plaintiffs, 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 theotherwise denying defendants’ motion to dismiss. On July 13, 2020, the four former plaintiffs filed arbitration demands with the American Arbitration Association asserting the same valuation claims and on September 3, 2020, the four arbitrations were consolidated. The four former plaintiffs’ request to stay the arbitration was denied on January 15, 2019, the defendants filed their reply brief. A hearing on the motion28, 2021, and arbitration is scheduled to begin on February 7, 2022. On November 17, 2020, the defendants’ motion to stay the trial in Rad was denied. Trial has been scheduled for March 6, 2019, and discovery in the case is proceeding. IAC and Match GroupNovember 2021. We believe that the allegations against Former Match Group and Match Group in this lawsuit are without merit and will continue to defend vigorously against it.them.
FTC InvestigationLawsuit Against Former Match Group
On September 25, 2019, the FTC filed a lawsuit in federal district court in Texas against Former Match Group. See FTC v. Match Group, Inc., No. 3:19:cv-02281-K (Northern District of CertainTexas). The complaint alleges that, prior to mid-2018, for marketing purposes Match.com Business Practices
In March 2017,notified non-paying users that other users were attempting to communicate with them, even though Match.com had identified those subscriber accounts as potentially fraudulent, thereby inducing non-paying users to subscribe and exposing them to the risk of fraud should they subscribe. The complaint also challenges the adequacy of Match.com’s disclosure of the terms of its six-month guarantee, the efficacy of its cancellation process, and its handling of chargeback disputes. The complaint seeks among other things permanent injunctive relief, civil penalties, restitution, disgorgement, and costs of suit. On October 9, 2020, the court granted the Company’s motion to stay the case until the United States Supreme Court issues a decision in the consolidated appeal of Federal Trade Commission (the "FTC") requested information v. Credit Bureau Center, LLC and documents in connection with a civil investigation regarding certain business practices of Match.com. In November 2018, the AMG Capital Management, LLC v. 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 toclaims regarding Match.com’s practices, policies, and procedures are without merit and are prepared towill defend vigorously against them.
Securities Class Action Lawsuit Against Former Match Group
On October 3, 2019, a Former Match Group shareholder filed a securities class action lawsuit in federal district court in Texas against Former Match Group, its Chief Executive Officer, and its Chief Financial Officer, on behalf of a class of acquirers of Former Match Group securities between August 6, 2019 and September 25, 2019. See Phillip R. Crutchfield v. Match Group, Inc., Amanda W. Ginsberg, and Gary Swidler, No. 3:19-cv-02356-C (Northern District of Texas). Invoking the allegations in the FTC lawsuit described above, the complaint alleges (i) that defendants failed to disclose to investors that Former Match Group induced customers to buy and upgrade subscriptions using misleading advertisements, that Former Match Group made it difficult for customers to cancel their subscriptions, and that, as a result, Former Match Group was likely to be subject to regulatory scrutiny; (ii) that Former Match Group lacked adequate disclosure controls and procedures; and (iii) that, as a result of the foregoing, defendants’ positive statements about Former Match Group’s business, operations, and prospects, were materially misleading and/or lacked a reasonable basis. We believe that the allegations in this lawsuit are without merit and will defend vigorously against them.
Derivative Complaint against Former Match Group
On February 28, 2020, a Former Match Group shareholder filed a shareholder derivative complaint in federal district court in Delaware against Former Match Group and its board of directors seeking to recover unspecified monetary damages on behalf of the Company and require the Company to implement and maintain unspecified internal controls and corporate governance practices and procedures. See Michael Rubin et al. v. Match Group, Inc. et al., Case No. 1:20-cv-00299 (District of Delaware). Invoking the allegations of the FTC lawsuit and Crutchfield securities class action lawsuit described above, the complaint alleges that the defendants caused or failed to prevent the alleged issues giving rise to the FTC complaint, received or approved compensation tied to the alleged wrongful conduct and sold Former Match Group stock with inside knowledge of the purported conduct. The parties filed a proposed stipulation and order staying the case until the motion to dismiss is decided in the Crutchfield litigation. The court granted the stay on April 9, 2020.
House Oversight Committee Investigation of Online Dating
On January 30, 2020, Former Match Group received a letter from the House of Representatives’ Subcommittee on Economic and Consumer Policy (the “Oversight Committee”) regarding its inquiry into underage use of online dating services and efforts by those services to remove registered sex offenders from their platforms. The Oversight Committee is also inquiring under what circumstances online dating services share or sell sensitive user information with third parties. The Company is cooperating with the investigation.
Irish Data Protection Commission Inquiry Regarding Tinder’s Practices
On February 3, 2020, we received a letter from the Irish Data Protection Commission (the “DPC”) notifying us that the DPC has commenced an inquiry examining Tinder’s compliance with the EU’s General Data Protection Regulation, focusing on Tinder’s processes for handling access and deletion requests and Tinder’s user data retention policies. We are fully cooperating with the DPC in connection with this inquiry.
Newman Derivative and Stockholder Class Action Regarding Separation Transaction
On June 24, 2020, a Former Match Group shareholder filed a complaint in the Delaware Court of Chancery against Former Match Group and its board of directors, as well as Match Group, IAC Holdings, Inc., and Barry Diller seeking to recover unspecified monetary damages on behalf of the Company and directly as a result of his ownership of Former Match Group stock in relation to the separation of Former Match Group from its former majority shareholder, Match Group. See David Newman et al. v. IAC/Interactive Corp. et al., C.A. No. 2020-0505-MTZ (Delaware Court of Chancery). The complaint alleges that that the special committee established by Former Match Group’s board of directors to negotiate with Match Group regarding the separation transaction was not sufficiently independent of control from Match Group and Mr. Diller and that Former Match Group board members failed to adequately protect Former Match Group’s interest in negotiating the separation transaction, which resulted in a transaction that was unfair to Former Match Group and its shareholders. We believe that the allegations in this lawsuit are without merit and will defend vigorously against it.
Item 4. Mine Safety DisclosuresDisclosure
Not applicable.
PART II
Item 5. Market for Registrant'sRegistrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market for Registrant'sRegistrant’s Common Equity and Related Stockholder Matters
IACOur common stock is quoted on the Nasdaq Global Select Market ("NASDAQ"(“NASDAQ”) under the ticker symbol "IAC." There is no established public trading market for IAC Class B common stock.“MTCH.”
As of February 1, 2019,January 31, 2020, there were approximately 1,2001,028 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 BCompany’s common stock. Because the substantial majority of the outstanding shares of IACour common stock are held by brokers and other institutions on behalf of shareholders, IAC iswe are not able to estimate the total number of beneficial holdersshareholders represented by these record holders.
Dividends
We do not currently expect that any cash or other dividends will be paid to holdersStock Performance Graph
The following graph compares the cumulative total return (assuming dividend reinvestment, as applicable) of our common or Class BMatch Group common stock (including such cumulative total return of Former Match Group common stock for the period prior to, and adjusted for, the separation of Match Group and IAC), the NASDAQ Composite index, the Russell 1000 Technology Index, and the Standard & Poor’s 500 Stock Index, in each case, based on $100 invested at the near future. Any future cash dividend or other dividend declarations are subject to the determinationclose of IAC's Board of Directors.
Unregistered Sales of Equity Securities
During the quarter endedtrading on 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 ended2015 through December 31, 2018. As2020. In accordance with applicable SEC rules, Match Group presents the cumulative return of that date, 8,036,226 sharespeer issuers. Match Group has selected the NASDAQ Composite Index and the Russell 1000 Technology Index as its peer issuers because they both include companies engaged in many of IAC common stock remained available for repurchase under the Company's previously announced May 2016 repurchase authorization. On IAC may purchase shares pursuantsame businesses as Match Group. The returns shown are based on historical results and are not intended to this repurchase authorization over an indefinite period of time insuggest future performance.
COMPARISON OF CUMULATIVE TOTAL RETURN
Match Group, Inc. Common Stock
Among Match Group, Inc., the open marketNASDAQ Composite Index,
the Russell 1000 Technology Index, 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.the S&P 500 Index
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 12/31/2015 | | 12/31/2016 | | 12/31/2017 | | 12/31/2018 | | 12/31/2019 | | 12/31/2020 |
| Match Group, Inc. | $100.00 | | $126.20 | | $231.07 | | $332.08 | | $637.52 | | $1,115.79 |
| NASDAQ Composite Index | $100.00 | | $108.97 | | $141.36 | | $137.39 | | $187.87 | | $272.51 |
| Russell 1000 Technology Index | $100.00 | | $114.08 | | $157.89 | | $155.99 | | $229.64 | | $336.89 |
| S&P 500 Index | $100.00 | | $111.95 | | $136.38 | | $130.39 | | $171.44 | | $202.96 |
Item 6. Selected Financial DataReserved
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.Not applicable.
|
| | | | | | | | | | | | | | | | | | | |
| | 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'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations
Separation
On June 30, 2020, the companies formerly known as Match Group, Inc. (referred to as “Former Match Group”) and IAC/InterActiveCorp (referred to as “Former IAC”) completed the separation of the Company from IAC through a series of transactions that resulted in two, separate public companies—(1) Match Group, which consists of the businesses of Former Match Group and certain financing subsidiaries previously owned by Former IAC, and (2) IAC, consisting of Former IAC’s businesses other than Match Group (the “Separation”). As part of the Separation, Former Match Group merged with and into Match Group Holdings II, LLC (“MG Holdings II”), an indirect wholly-owned subsidiary of Match Group, with MG Holdings II surviving the merger as an indirect wholly-owned subsidiary of Match Group. As a result of the Separation, the operations of Former IAC businesses other than Match Group are presented as discontinued operations.
For additional information relating to the Separation and the related transactions and agreements, see “Part I—Item 1—Business—Separation of Match Group and IAC” and “Part I—Item 1—Business—Relationship with IAC after the Separation.”
Other 2020 Developments
On February 11, 2020, MG Holdings II completed a private offering of $500 million aggregate principal amount of 4.125% Senior Notes. The proceeds from these notes were used to pay expenses associated with the offering and to fund a portion of the cash consideration of $3.00 per Former Match Group common share in connection with the Separation.
On February 13, 2020, the Credit Facility was amended to, among other things, increase the available borrowing capacity to $750 million, reduce interest rate margins by 0.125%, and extend its maturity to February 13, 2025. Additionally, on February 13, 2020, the Term Loan was amended to reprice the outstanding balance to LIBOR plus 1.75% and extend its maturity to February 13, 2027.
On May 19, 2020, MG Holdings II completed a private offering of $500 million aggregate principal amount of 4.625% Senior Notes. The proceeds from these notes were used to redeem the outstanding 6.375% Senior Notes, for general corporate purposes, and to pay expenses associated with the offering.
In July 2020, in connection with the Separation, the sale of 17.3 million newly issued shares of Match Group common stock was completed by IAC. The proceeds of $1.4 billion, net of associated fees, were transferred directly to IAC pursuant to the terms of the Transaction Agreement.
Key Terms:
When the following terms appear in this report, they have the meanings indicated below:Operating metrics:
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 itsour products and includes both subscription and à la carte revenue.
Subscribers•Indirect Revenue - is revenue that is not received directly from an end user of our products, substantially all of which is advertising revenue.
•Subscribers - are users who purchase a subscription to one of MTCH'sour products. Users who purchase only à la carte features are not included in Subscribers.
•Average Subscribers - is the number of Subscribers at the end of each day in the relevant measurement period divided by the number of calendar days in that period.
•Average Revenue per Subscriber ("ARPU"(“ARPU”) - is Direct Revenue from Subscribers in the relevant measurement period (whether in the form of subscription or àla carte revenue from Subscribers)revenue) divided by the Average Subscribers in such period and further divided by the number of calendar days in such period.
Direct Revenue from users who are not Subscribers and have purchased only à la carte features is not included in ARPU.
ANGI Homeservices
Marketplace Revenue - includes revenue from the HomeAdvisor and Handy domestic marketplace services, including consumer connection revenue for consumer matches, membership subscription revenue from HomeAdvisor service professionals and revenue from completed jobs sourced through the Handy platform. It excludes revenue from Angie's List, mHelpDesk, HomeStars and Felix.
Marketplace Service Requests - are fully completed and submitted domestic customer service requests to HomeAdvisor and completed jobs sourced through the Handy platform.
Marketplace Paying Service Professionals ("Marketplace Paying SPs") - are the number of HomeAdvisor and Handy domestic service professionals that had an active subscription 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.
Vimeo
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 Subscribers - is 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 and (ii) payments made to partners who distribute our business-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 hostingpurchase fees, compensation expense (including stock-based compensation expense) and other employee-related costs for personnel engaged in data center operations and MTCH customer servicecare functions, credit card processing fees, productionhosting fees, live video costs, relatedand data center rent, energy, and bandwidth costs. In-app purchase fees are monies paid to IAC Films, College Humor MediaApple and prior to its sale, Electus, content costs, expenses associatedGoogle in connection with the operationprocessing of in-app purchases of subscriptions and product features through the Company's data centersin-app payment systems provided by Apple and costs associated with publishing and distributing the Angie's List Magazine. For periods prior to the sale of The Princeton Review, cost of revenue also includes rent and cost for teachers and tutors.
Google.•Selling and marketing expense - consists primarily of advertising expenditures which include online marketing, including fees paid to search engines, social media sites and third parties that distribute our direct-to-consumer downloadable desktop applications, offline marketing, which is primarily television advertising, and partner-related payments to those who direct traffic to the brands within our MTCH and ANGI segments, and compensation expense (including stock-based compensation expense) and other employee-related costs for ANGI's sales forcepersonnel engaged in selling and marketing, personnel.
and sales support functions. Advertising expenditures includes online marketing, including fees paid to search engines and social media sites, offline marketing (which is primarily television advertising), and payments to partners that direct traffic to our brands.•General and administrative expense - consists primarily of compensation expense (including stock-based compensation expense) and other employee-related costs for personnel engaged in executive management, finance, legal, tax and human resources, and customer service functions (except for MTCH which includes customer service costs within cost of revenue)acquisition-related contingent consideration fair value adjustments (described below), fees for professional services (including transaction-related costs related to acquisitionsfor 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.
costs.•Product development expense -consists primarily of compensation expense (including stock-based compensation expense) and other employee-related costs that are not capitalized for personnel engaged in the design, development, testing, and enhancement of product offerings and related technology and software license and maintenance costs.
technology.•Acquisition-related contingent consideration fair value adjustments - relate to the portion of the purchase price of certain acquisitions that is contingent upon the future earningsfinancial performance and/or operating metricsmetric targets of the acquired company. The fair value of the liability is estimated at the date of acquisition and adjusted each reporting period until
the liability is settled. Significant changes in forecasted earnings and/or operating metrics for the acquired company will result in a significantly higher or lower fair value measurement. The changes in the estimated fair value of the contingent consideration arrangements during each reporting period, including the accretion of the discount if the arrangement is longer than one year, are recognized in "General“General and administrative expense"expense” in the accompanying consolidated statement of operations.
•Credit Facility - The revolving credit facility of MG Holdings II. At December 31, 2019, $500 million was available under the Credit Facility. On February 13, 2020, the Credit Facility was amended to, among other things, increase the consolidated financial statements included in "Item 8—Consolidated Financial Statementsavailable borrowing capacity from $500 million to $750 million, reduce interest rate margins by 0.125%, and Supplementary Data":extend its maturity from December 7, 2023 to February 13, 2025. At December 31, 2020, the Company had letters of credit of $0.2 million outstanding and therefore $749.8 million was available under the Credit Facility. MTCH •Term Loan - due November 16, 2022. The outstanding balance ofMG Holdings II’s term loan. At December 31, 2019, the MTCH Term Loan as of December 31, 2018 is $425.0 million. The MTCH Term Loan bearsbore interest at LIBOR plus 2.50% and the then applicable rate was 5.09% and 3.85% at December 31, 2018 and 2017, respectively.
MTCH Credit Facility -4.44%. On December 7, 2018,February 13, 2020, the MTCH $500 million revolving credit facilityTerm Loan was amended and restated, and is due on December 7, 2023. Theto reprice the outstanding borrowings under the MTCH Credit Facility as of December 31, 2018 are $260.0 million and bear interest atbalance to LIBOR plus 1.50%, or approximately 4.00%.1.75% and extend its maturity from November 16, 2022 to February 13, 2027. At December 31, 2017, there were no outstanding borrowings under2020, the MTCH Credit Facility.
applicable interest rate was 1.96% and $425 million was outstanding.•6.375% MTCH Senior Notes- MTCH'sMG Holdings II’s 6.375% Senior Notes, duewhich were redeemed on June 1, 2024,11, 2020 with interest payable each June 1 and December 1. The outstanding balancethe proceeds from the 4.625% Senior Notes.
•5.00% Senior Notes as of December 31, 2018 is $400.0 million.
5.00% MTCH Senior Notes - MTCH'sMG Holdings II’s 5.00% Senior Notes due December 15, 2027, with interest payable each June 15 and December 15. The proceeds, along with cash15, which were issued on hand, were used to redeem the outstanding balance of the 6.75% MTCHDecember 4, 2017. At December 31, 2020, $450 million aggregate principal amount was outstanding.
•5.625% Senior Notes. The outstanding balance of the 5.00% MTCHNotes - MG Holdings II’s 5.625% Senior Notes as ofdue February 15, 2029, with interest payable each February 15 and August 15, which were issued on February 15, 2019. At December 31, 2018 is $450.0 million.
5.625% MTCH Senior Notes - On February 15, 2019, MTCH completed a private offering of2020, $350 million aggregate principal amount of its 5.625%was outstanding.
•4.125% Senior Notes - MG Holdings II’s 4.125% Senior Notes due 2029.August 1, 2030, with interest payable each February 1 and August 1, which were issued on February 11, 2020. The proceeds were used to repay outstanding borrowings under the MTCH Credit Facility, to pay expenses associated with the offering and fund a portion of the $3.00 per common share of Former Match Group that was payable in connection with the Separation. At December 31, 2020, $500 million aggregate principal amount was outstanding.
•4.625% Senior Notes - MG Holdings II’s 4.625% Senior Notes due June 1, 2028, with interest payable each June 1 and December 1, which were issued on May 19, 2020. The proceeds were used to redeem the outstanding 6.375% Senior Notes, 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, 2017purposes, and to pay expenses associated 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.offering. At December 31, 2018, there were no outstanding borrowings under2020, $500 million aggregate principal amount was outstanding.
•2022 Exchangeable Notes - During the ANGI Credit Facility.
Exchangeable Notes - On October 2,third quarter of 2017, Match Group FinanceCo, Inc., a finance subsidiary of the Company, issued $517.5 million aggregate principal amount 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. Interest is payable each April 1 and October 1. The outstanding balance of the 2022 Exchangeable Notes as ofat December 31, 2018 is2020 was $517.5 million. Each $1,000
•2026 Exchangeable Notes - During the second quarter of principal2019, Match Group FinanceCo 2, Inc., a subsidiary of the Company, issued $575.0 million aggregate principal amount of 0.875% Exchangeable Senior Notes isdue June 15, 2026, which are exchangeable for 6.5713into shares of the Company's common stock, whichstock. Interest 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. The outstanding balance of the 4.75% Senior2026 Exchangeable Notes as ofat December 31, 2018 is $34.52020 was $575 million.
4.875% Senior•2030 Exchangeable Notes - IAC's 4.875% Senior Notes with an outstanding balanceDuring the second quarter of $361.9 million were redeemed on November 30, 2017 with a portion of the proceeds from the Exchangeable Notes.
IAC Credit Facility - On November 5, 2018, the IAC Credit Facility, under which IAC2019, Match Group LLC,FinanceCo 3, Inc., a subsidiary of the Company, issued $575.0 million aggregate principal amount of 2.00% Exchangeable Senior Notes due January 15, 2030, which are exchangeable into shares of the Company's common stock. Interest is payable each January 15 and July 15. The outstanding balance of the borrower, was amended and restated, reducing the facility size from $300 million to $250 million,
and now expires on November 5, 2023. At2030 Exchangeable Notes at December 31, 2018 and 2017, there were no outstanding borrowings under the IAC Credit Facility.2020 was $575 million.
Non-GAAP financial measure:
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• | Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") - is a non-GAAP financial measure. See "Principles of Financial Reporting" for the definition of Adjusted EBITDA and a reconciliation of net earnings (loss) attributable to IAC shareholders to operating income (loss) to consolidated Adjusted EBITDA for the years ended December 31, 2018, 2017, and 2016.•Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”) - is a Non-GAAP financial measure. See “Principles of Financial Reporting” for the definition of Adjusted EBITDA and a reconciliation of net earnings attributable to Match Group, Inc. shareholders to operating income and Adjusted EBITDA. |
MANAGEMENT OVERVIEW
IAC has majority ownership of both Match Group, whichInc., through its portfolio companies, is a leading provider of dating products available globally. Our portfolio of brands includes Tinder®, Match®, Meetic®, OkCupid®, Hinge®, Pairs™, PlentyOfFish®, and OkCupid,OurTime®, as well as a number of other brands, each designed to increase our users’ likelihood of finding a meaningful connection. Through our portfolio companies and ANGI Homeservices, which includes HomeAdvisor, Angie’s List and Handy, and also operates Vimeo, Dotdash and The Daily Beast, among many other online businesses.their trusted brands, we provide tailored products to meet the varying preferences of our users. Our products are available in over 40 languages to our users all over the world.
Sources of Revenue
MTCH'sAll our products provide the use of certain features for free, and then offer a variety of additional features to Subscribers. Our revenue is primarily derived directly from users in the form of recurring subscription fees.
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, all purchases are final and nonrefundable. Fees collected, or contractually due, in advance
for subscriptions are deferred and recognized as revenue using the straight-line method over the term of the applicable subscription period, which primarily ranges from one to six months, and corresponding in-app purchase fees which typically provide unlimited access to a bundleincurred on such transactions, if any, are deferred and expensed over the same period. We also earn revenue from the purchase 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 revenueadvertising. Revenue from the purchase of à la carte features 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 subscription fees paid by HomeAdvisor service professionals. Consumer connection revenue variesrecognized based upon several factors, including the service requested, 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. Digitalon usage. Online advertising revenue is generated primarilyrecognized every time an ad is displayed.
Trends affecting our business
Over the last several years, we have seen significant changes in our business. Tinder has grown from incubation to the largest contributing brand in our portfolio and in 2020 our other brands also returned to growth in the aggregate. This in turn has allowed us to invest in or acquire brands such as Hinge and Hawaya and incubate new brands such as Chispa, BLK, and Upward, where we see additional growth opportunities. With our evolving portfolio of brands, we have seen a number of significant trends in our business in recent years, including the following:
Lower cost users. All of our brands rely on word-of-mouth, or free, user acquisition to varying degrees. Word-of-mouth acquisition is typically a function of scale (with larger communities driving greater numbers of referrals), youthfulness (with the viral effect being more pronounced in younger populations due, in part, to a significantly higher concentration of single people in any given social circle and the increased adoption of social media and similar platforms among such populations), and monetization rate (with people generally more likely to talk openly about using dating products that are less heavily monetized). Additionally, some, but not all, of our brands spend meaningfully on paid marketing. Accordingly, the average amount we spend to acquire a user differs significantly across brands based in large part on each brand’s mix of paid and free acquisition channels. As our mix has shifted toward younger users, our mix of acquisition channels has shifted toward lower cost channels, driving a decline over the past several years in the average amount we spend to acquire a new user across our portfolio. As a percentage of revenue, our costs of acquiring users have declined.
Changing paid acquisition dynamics. Even as our acquisition of lower cost users increases, paid acquisition of users remains an important driver of our business. The channels 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 resultingwhich we market our brands are always evolving, but we are currently in a period of rapid change as TV and video consumption patterns evolve and internet consumption occurs regularly on mobile devices. As we adapt our paid marketing activities to maximize user engagement with our brands, we may increase our use of paid advertising at brands where we traditionally relied on word-of-mouth engagement to leverage these shifts in media consumption patterns and fuel international growth. Other brands in our portfolio may reduce paid marketing activities to reflect the change in audience engagement.
In-App Purchase Fees. Purchases made by our customers through mobile applications, as opposed to desktop or mobile web, continue to increase. Purchases processed through the in-app payments systems provided by the Apple App Store and Google Play Store are subject to in-app purchase or transaction.
A meaningful portionfees, which are generally 30% of the purchase price. As a result, the percentage of our revenues paid to Apple and Google continues to be a significant expense. In 2019, Tinder began offering subscribers an alternative payment method to Google’s in-app payment system similar to the payment alternatives other brands in our portfolio have historically offered to subscribers through mobile apps on Android. Google has announced that beginning in September 2021, all purchases will be required to be processed through the Google Play Store and subject to in-app purchase fees. To the extent that app stores fee change, or the mix of our revenue generated through app stores shifts, our results, in particular our profit measures, could be impacted.
Increase in acceptance and growth of dating products globally. Over the past decade, there has been meaningful growth in dating product usage in North America and Western Europe, and we see the potential for similar growth in the rest of the Desktop business withinworld in the Applications segmentyears ahead. As more internet-connected singles utilize online dating products and the Ask Media Group withinstigma around dating continues to erode, we believe that there is potential for accelerating growth in the Emerging & Other segment is attributable to a services agreement with Google Inc. ("Google"). The services agreement became effective on April 1, 2016, following the expirationuse of dating products globally.
Impacts of the previous services agreement,Coronavirus. When the novel coronavirus (“COVID-19”) first hit Western Europe and expiresthen certain major metropolitan centers in the U.S. in the Spring of 2020, particularly New York City, engagement (messages sent, daily active users, Swipes® on March 31, 2020. On February 11, 2019,Tinder) increased significantly, but subscribers who purchase a subscription for the Company and Google amendedfirst time (“first-time subscribers”) declined at most of our brands as meeting in person was restricted. Over the services agreement, effectivesummer, as users began to meet outdoors first-time subscribers increased to above pre-
COVID-19 levels. Since the expiration dateend of the agreement to March 31, 2023; provided that beginning September 2020summer, the resurgence of COVID-19 lockdowns has once again negatively impacted first-time subscriber trends, though not as severely as in the spring of 2020.
Other factors affecting the comparability of our results
Advertising spend. Our advertising spend, which is included in our selling and each September thereafter, either party may, after discussionmarketing expense, has consistently been one of our larger operating expenses. How we deploy our advertising spend varies among brands, with the other party, terminatemajority of our advertising spend taking place online, including search engines, social media sites, streaming services and influencers. Additionally, some brands utilize television and out-of-home marketing campaigns, such as on outdoor billboards. For established brands, we seek to optimize for total return on advertising spend by frequently analyzing and adjusting spend to focus on marketing channels and markets that generate returns above our thresholds. Our data-driven approach provides us the services agreement, effectiveflexibility to scale and optimize our advertising spend. We spend advertising dollars against an expected lifetime value of a Subscriber that is realized over a multi-year period; and while this advertising spend is intended to be profitable on September 30that basis, it is nearly always negative during the period in which the expense is incurred. For newer brands that are gaining scale, or existing brands that are expanding into new geographies, we may make incremental advertising investments to establish the brand before optimizing monetization of the year followingbrand. In general, our more established brands spend a higher proportion of their revenue on advertising while our newer brands spend a lower proportion and tend to rely more on word of mouth and other viral marketing. Additionally, advertising spend is typically higher during the year such notice is given. 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 certainfirst quarter of our products, services and/or business practices, which could be costly to address or otherwise have an adverse effect onfiscal year, and lower during the fourth quarter. See “Seasonality” below. We increased our advertising spend as advertising rates declined during the COVID-19 outbreak.
Seasonality. Historically, our business financial condition andhas experienced seasonal fluctuations in quarterly operating results, particularly with respect to our profit measurements. This is driven primarily by a higher concentration 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 marketingadvertising spend in anticipationthe first quarter, when advertising prices tend to be the lowest and demand for our products tends to be highest, and a lower concentration 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 assetadvertising spend in the fourth quarter, when advertising costs tend to be highest and demand for our products tends to be lowest. Seasonality is not consistent across our brands, with brands targeted at older users generally showing more seasonality than brands targeted at younger users.
International markets. Our products are available across the world. Our international revenue represented 53% of 2018. For the years ended December 31, 2018, 2017and2016, consolidatedour total revenue earned from Google was $825.2 million, $740.7 million and $824.4 million, respectively. Forfor both of the years ended December 31, 2018, 20172020 and 2016,2019. We vary our pricing to align with local market conditions and our international businesses typically earn revenue earnedin local currencies. As foreign currency exchange rates change, translation of the statement of operations of our international businesses into U.S. dollars affects year-over-year comparability of operating results.
2020 Consolidated Results
In 2020, revenue, operating income and Adjusted EBITDA grew 17%, 16% and 15%, respectively. Revenue growth was primarily due to strong growth at Tinder and additional contributions from Google represents 73%, 83%Hinge, Pairs, and 87% of ApplicationsPlentyOfFish. The growth in operating income and Adjusted EBITDA was due to the higher revenue and 94%, 96%lower selling and 96%marketing expense as a percentage of Ask Media Group revenue (and 68%, 48% and 35% of Emerging & Other revenue), respectively.
Revenue for the other businesses within the Emerging & Other segment is 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.
Strategic Partnerships, Advertiser Relationships and Online Advertising
Most of the Company's online advertising revenue is attributable to a services agreement with Google described above. For the years ended December 31, 2018, 2017 and 2016, revenue earned from Google represents 19%, 22% and 26%, respectively, of our consolidated revenue.
We pay traffic acquisition costs, which consist of fees paid to Apple and Google relateddue to the distribution and the facilitationcontinued product mix shift toward brands with lower marketing spend as a percentage of in-app purchases of product features and payments made to partners who distribute our business-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.
2018 Developments
Acquisitions
On October 22, 2018, IAC acquired 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 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 December 31, 2018, 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 sold Dictionary LLC ("Dictionary.com"), an online and 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 MTCH Credit Facility of $500 million was amended and 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
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 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.
2018 Consolidated Results
Revenue increased $955.7 million, or 29%, to $4.3 billion due primarily to growth from MTCH of $399.2 million, an increase from ANGI of $395.9 million due, in part, to the Combination (defined below), and increases of $59.7 million from Emerging & Other, $56.3 million from Vimeo and $40.1 million from Dotdash.
revenue. Operating income increased $376.7 million, or 200%, to $565.1 million due primarily toand Adjusted EBTIDA were also impacted by an increase in Adjusted EBITDAcost of $413.5 million,revenue expense primarily due to higher in-app purchase fees as a decreaseresult of $26.2 million in stock-based compensation expense,growing revenue sourced through mobile app stores, increased web operation costs, and a changelive video costs.
Adjusted EBITDA increased $413.5 million, or 72%, to $988.8 million due primarily to growth of $209.6 million from ANGI, $185.0 million from MTCH, $24.1 million from Dotdash and $10.3 million from Emerging & Other, partially offset by a decrease of $4.9 million from Applications and increased losses of $6.3 million and $4.4 million from Corporate and Vimeo, respectively.
Events affecting year-over-year comparability include:
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(i) | the combination on September 29, 2017 of the 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 Combination, is expected to be approximately $35 million in 2019 and $20 million in 2020; |
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(ii) | the 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 sales commissions expense of $4.9 million at ANGI due to the capitalization and 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;
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(iii) | the adoption of FASB ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, on January 1, 2018. For the year ended December 31, 2018, the adoption of ASU No. 2016-01
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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
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(iv) | in addition to those listed under "2018 Developments" above, the acquisitions and dispositions of the following businesses: |
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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.
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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 |
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(v) | the transfer of Daily Burn from the Emerging & Other segment to the Applications segment effective April 1, 2018. |
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(vi) | restructuring charges in 2016 of $14.5 million, $2.6 million and $1.1 million at Ask Media Group, Applications and Dotdash, respectively, to reduce costs in light of significant declines in revenue from the Google contract, which was effective April 1, 2016, as well as declines from certain other legacy businesses. |
Results of Operations for the Years Endedyears ended December 31, 2018, 20172020, 2019 and 20162018
The following discussion should be read in conjunction with “Item 8. Consolidated Financial Statements and Supplementary Data.”
Revenue
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| | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | $ Change | | % Change | | 2017 | | $ Change | | % Change | | 2016 |
| | (Dollars in thousands) |
| Match Group | $ | 1,729,850 |
| | $ | 399,189 |
| | 30% | | $ | 1,330,661 |
| | $ | 212,551 |
| | 19% | | $ | 1,118,110 |
|
| ANGI Homeservices | 1,132,241 |
| | 395,855 |
| | 54% | | 736,386 |
| | 237,496 |
| | 48% | | 498,890 |
|
| 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 | 582,287 |
| | 4,289 |
| | 1% | | 577,998 |
| | (26,142 | ) | | (4)% | | 604,140 |
|
| Emerging & Other | 528,250 |
| | 59,661 |
| | 13% | | 468,589 |
| | (294,020 | ) | | (39)% | | 762,609 |
|
| Inter-segment elimination | (368 | ) | | 249 |
| | 40% | | (617 | ) | | (32 | ) | | (6)% | | (585 | ) |
| Total | $ | 4,262,892 |
| | $ | 955,653 |
| | 29% | | $ | 3,307,239 |
| | $ | 167,357 |
| | 5% |
| $ | 3,139,882 |
|
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| Years Ended December 31, |
| 2020 | | Change | | % Change | | 2019 | | Change | | % Change | | 2018 |
| | | | | | | | | | | | | |
| (Amounts in thousands, except ARPU) |
| Direct Revenue: | | | | | | | | | | | | | |
| North America | $ | 1,185,307 | | | $ | 161,146 | | | 16% | | $ | 1,024,161 | | | $ | 121,683 | | | 13% | | $ | 902,478 | |
| International | 1,159,417 | | | 176,404 | | | 18% | | 983,013 | | | 208,320 | | | 27% | | 774,693 | |
| Total Direct Revenue | 2,344,724 | | | 337,550 | | | 17% | | 2,007,174 | | | 330,003 | | | 20% | | 1,677,171 | |
| Indirect Revenue | 46,545 | | | 2,461 | | | 6% | | 44,084 | | | (8,595) | | | (16)% | | 52,679 | |
| Total Revenue | $ | 2,391,269 | | | $ | 340,011 | | | 17% | | $ | 2,051,258 | | | $ | 321,408 | | | 19% | | $ | 1,729,850 | |
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| | | | | | | | | | | | | |
| Direct Revenue | | | | | | | | | | | | | |
| Tinder | $ | 1,355,400 | | | $ | 203,355 | | | 18% | | $ | 1,152,045 | | | $ | 346,729 | | | 43% | | $ | 805,316 | |
| Other brands | 989,324 | | | 134,195 | | | 16% | | 855,129 | | | (16,726) | | | (2)% | | 871,855 | |
| Total Direct Revenue | $ | 2,344,724 | | | $ | 337,550 | | | 17% | | $ | 2,007,174 | | | $ | 330,003 | | | 20% | | $ | 1,677,171 | |
| | | | | | | | | | | | | |
| Percentage of Total Revenue: | | | | | | | | | | | | |
| Direct Revenue: | | | | | | | | | | | | | |
| North America | 50% | | | | | | 50% | | | | | | 52% |
| International | 48% | | | | | | 48% | | | | | | 45% |
| Total Direct Revenue | 98% | | | | | | 98% | | | | | | 97% |
| Indirect Revenue | 2% | | | | | | 2% | | | | | | 3% |
| Total Revenue | 100% | | | | | | 100% | | | | | | 100% |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Average Subscribers: | | | | | | | | | | | | |
| North America | 4,858 | | | 304 | | | 7% | | 4,554 | | | 393 | | | 9% | | 4,161 | |
| International | 5,572 | | | 843 | | | 18% | | 4,729 | | | 1,017 | | | 27% | | 3,712 | |
| Total | 10,430 | | | 1,147 | | | 12% | | 9,283 | | | 1,410 | | | 18% | | 7,873 | |
| | | | | | | | | | | | | |
| (Change calculated using non-rounded numbers) |
| ARPU: | | | | | | | | | | | | | |
| North America | $ | 0.65 | | | | | 7% | | $ | 0.61 | | | | | 4% | | $ | 0.59 | |
| International | $ | 0.56 | | | | | —% | | $ | 0.56 | | | | | —% | | $ | 0.56 | |
| Total | $ | 0.60 | | | $ | 0.02 | | | 3% | | $ | 0.58 | | | $ | 0.01 | | | 2% | | $ | 0.57 | |
For the year ended December 31, 20182020 compared to the year ended December 31, 20172019
MTCH revenue increased 30% to $1.7 billion driven by International Direct Revenue growth of $234.8grew $176.4 million, or 43%18%, andin 2020 versus 2019, driven by 18% growth in Average Subscribers. North America Direct Revenue growth ofgrew $161.1 million, or 22%. Both16%, in 2020 versus 2019, driven by 7% growth in Average Subscribers, a 7% increase in ARPU, and growth of non-subscriber live streaming video revenue at PlentyOfFish.
Growth in International and North America Average Subscribers was primarily driven by Tinder. Hinge, BLK and Chispa also contributed to North America Average Subscriber growth and Pairs contributed to International Average Subscriber growth. North America ARPU increased primarily due to increases in à la carte purchases at Tinder and PlentyOfFish and optimized subscription pricing at Hinge.
Indirect Revenue increased $2.5 million primarily due to higher rates per impression.
For the year ended December 31, 2019 compared to the year ended December 31, 2018
International Direct Revenue growth weregrew $208.3 million, or 27%, in 2019 versus 2018, driven by higher27% growth in Average Subscribers. North America Direct Revenue grew $121.7 million, or 13%, in 2019 versus 2018, driven by 9% growth in Average Subscribers, up 31%and a 4% increase in ARPU.
Growth in International and North America Average Subscribers was primarily driven by Tinder. Hinge and Pairs also contributed to 3.7 million and 17% to 4.2 million, respectively, due primarily to continuedsubscriber growth in Subscribers at Tinder. TotalNorth America and International, respectively. North America ARPU increased 6%primarily due to increases in ARPU at 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 International ARPU was unfavorably impacted 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 weakeningstrength of the U.S. dollar relative to the Euro.Euro, British pound (“GBP”), and certain other currencies.
Vimeo revenue grew 54% to $159.6Indirect Revenue decreased $8.6 million primarily 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 effective April 1, 2018. The decline at Desktop was driven by the business-to-business partnership operations' loss of certain partnerslower impressions and a decrease in the direct-to-consumer desktop applications business due primarily to lower price per impression received from an advertising network provider.
Cost of revenue per query. The adoption(exclusive of ASU 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).depreciation)
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 in 2017, lower revenue from IAC Films due to the sale of a film in the third quarter of 2017 and the transfer of Daily Burn.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2020 | | $ Change | | % Change | | 2019 | | $ Change | | % Change | | 2018 |
| | | | | | | | | | | | | |
| (Dollars in thousands) |
| Cost of revenue | $635,833 | | $108,649 | | 21% | | $527,184 | | $117,184 | | 29% | | $410,000 |
| Percentage of revenue | 27% | | | | | | 26% | | | | | | 24% |
For the year ended December 31, 20172020 compared to the year ended December 31, 20162019
MTCHCost of revenue increased 19% to $1.3 billion driven by International Direct Revenue growth of $146.5 million, or 37%, and North America Direct Revenue growth of $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 revenue increased 48% to $736.4 million driven by Marketplace growth of $152.5 million, or 36%, and growth of $20.4 million, or 55%, at the European 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 businesses was driven by the acquisitions of controlling interests in MyHammer on November 3, 2016 and MyBuilder, as well as by organic growth across other regions.
Vimeo revenue grew 31% to $103.3 million due to Platform revenue growth of $20.8 million, or 26%, and Hardware revenue of $3.7 million both due in part, to the 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.
Applicationsin-app purchase fees of $50.0 million, as revenue decreased 4% duecontinues to a declinebe increasingly sourced through mobile app stores; an increase in hosting fees of $41.2 million, or 7%, in Desktop, partially offset by$24.0 million; an increase of $15.0$17.9 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.
Emerging & Other revenue decreased 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 TheMeyerowitz Stories (New and Selected) and The Legacy of a Whitetail Deer Hunter and the release of Lady Bird at IAC Films,partner related costs associated with our live video streaming; and an increase at Electus.
Costin compensation expense of 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, 20182019 compared to the year ended December 31, 20172018
CostCost of revenue in 2018 increased 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 of $80.1 million, as MTCH's revenues arerevenue continues to be increasingly sourced through mobile app stores.
The Emerging & Other increase was due primarily tostores; an increase of $143.2 million in traffic acquisition costs principally driven by higher revenue at Ask Media Group, primarily in international markets, and the expense from the inclusion of BlueCrew, which was acquired on February 26, 2018, partially offset by a decrease of $71.1 million in production costs, driven primarily by the sale of Electus in 2018 and lower revenue from IAC Films, the sale of The Princeton Review in 2017 and the transfer of Daily Burn to Applications.
The ANGI increase was due primarily to increases of $7.2 million in traffic 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.$21.9 million; and an increase in compensation expense of $11.2 million related to increased headcount and other operating costs in customer care.
The Vimeo increase was due primarily to theSelling and marketing expense from the inclusion of Livestream.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2020 | | $ Change | | % Change | | 2019 | | $ Change | | % Change | | 2018 |
| | | | | | | | | | | | | |
| (Dollars in thousands) |
| Selling and marketing expense | $479,907 | | $52,467 | | 12% | | $427,440 | | $7,486 | | 2% | | $419,954 |
| Percentage of revenue | 20% | | | | | | 21% | | | | | | 24% |
For the year ended December 31, 20172020 compared to the year ended December 31, 2016
Cost of revenue in 2017 decreased from 2016 due to decreases of $180.1 million from Emerging & Other and $20.9 million from Applications, partially offset by increases of $83.9 million from MTCH, $8.2 million from ANGI and $6.9 million from Vimeo.
The Emerging & Other decrease was due primarily to the sales of ShoeBuy and The Princeton Review, a reduction of $13.2 million in traffic acquisition costs and $8.4 million in rent expense due to vacating a data center in the fourth quarter of 2016 at Ask Media Group and lower production costs at College Humor Media, partially offset by an increase in production costs at IAC Films related to the sales of TheMeyerowitz 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 reductions in workforce in 2016.
The MTCH 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 ANGI 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.2019
Selling and marketing expense increased primarily due to higher marketing spend at multiple brands, and an increase in compensation expense of $5.7 million. Selling and marketing expense continued to decline as a percentage of revenue as we continue to generate revenue growth from brands with relatively lower 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, 20182019 compared to the year ended December 31, 20172018
Selling and marketing expense in 2018 increased from 2017primarily due to increases of $77.4 million from ANGI, $44.3 million from MTCHin spending at Tinder, Hinge, and $26.1 million from Vimeo,Pairs, partially offset by a decrease of $13.2 million from Emerging & Other.
The ANGI increase was due primarily to increases in advertisingdecreases at Meetic, Match, and PlentyOfFish. Selling and marketing 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. Asdeclined as a percentage of revenue selling
and marketing expense declined due, in part,as we continue to acceleratedgenerate 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 towardsfrom brands with relatively lower marketing spend.expense.
The Vimeo increase was due primarily to increased investment in marketing of $13.2 million, $8.8 million ofGeneral and administrative 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 decrease in online marketing of $9.0 million at Ask Media Group, partially offset by higher 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 compensation expense at The Daily Beast due, in part, to an increase in the sales force. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2020 | | $ Change | | % Change | | 2019 | | $ Change | | % Change | | 2018 |
| | | | | | | | | | | | | |
| (Dollars in thousands) |
| General and administrative expense | $311,207 | | $55,069 | | 21% | | $256,138 | | $73,886 | | 41% | | $182,252 |
| Percentage of revenue | 13% | | | | | | 12% | | | | | | 11% |
For the year ended December 31, 20172020 compared to the year ended December 31, 20162019
SellingGeneral and marketingadministrative expense in 2017 increased from 2016primarily due to increases of $157.3 million from ANGI, $26.5 million from MTCH and $11.7 million from Vimeo, partially offset by decreases of $53.0 million from Emerging & Other and $6.7 million from Applications.
The ANGI increase was due primarily to higher advertising 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 advertising expense was due primarily to increased investments 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 reflects $14.8 million of expense in 2017 due to the modification of previously issued HomeAdvisor equity awards, which were converted into ANGI Homeservices' equity awards and $9.6 million of expense in 2017 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.
The MTCH increase was due primarily to higher advertising expense of $15.3 million and an increase in compensation expense of $9.1 million. The increase in advertising expense was due primarily to an increase in strategic investments in certain international markets at Tinder and increased marketing related to the launch of a new brand by Meetic in Europe, partially offset by a reduction in marketing spend at MTCH's affinity brands. The increase in compensation expense was$39.3 million primarily related to an increase in headcount at Tinder and the employer portionan increase in stock-based compensation expense resulting from a modification charge in 2020; an increase of payroll$6.7 million for non-income taxes, paid in connection with the exerciseprimarily digital services taxes; and an increase of MTCH 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 Vimeo increase was due primarily to increases in marketing expense of $10.6 million and $2.3 million 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$6.4 million in online marketing and compensation expense, respectively, at Ask Media Group and a decrease of $3.5 million in offline marketing at Daily Burn, partially offset by increases in marketing expense at IAC Films of $6.5 million and compensation expense at Electus of $1.7 million. Online marketing and compensation expense at Ask Media Group decreased principally related to lower revenue resulting from changes in the Google contract and reductions in workforce that occurred in 2016, including $3.1 million in restructuring costs in 2016.
The Applications decrease was due primarily to lower online marketing expense of $10.0 million at Desktop, partially offset by higher online marketing expense of $6.5 million at Mosaic Group.
General and administrative expense
|
| | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | $ Change | | % Change | | 2017 | | $ Change | | % Change | | 2016 |
| | (Dollars in thousands) |
| General and administrative expense | $774,079 | | $54,822 | | 8% | | $719,257 | | $188,811 | | 36% | | $530,446 |
| As a percentage of revenue | 18% | | | | | | 22% | | | | | | 17% |
For the year ended December 31, 20182019 compared to the year ended December 31, 20172018
General and administrative expense in 2018 increased from 2017primarily 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$38.1 million in bad debtlegal fees; an increase in compensation of $19.0 million primarily related to stock-based compensation 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 reflectingnew equity awards made since the impact from the inclusion of Angie's List, $2.4 million in compensation expenseprior year period, modification charges during 2019, 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 Livestreamheadcount; and an increase in legal costs in 2018.of $4.7 million for non-income taxes that includes the recently enacted French Digital Services Tax, which was made effective retroactively to January 1, 2019.
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 ofProduct development expense from the inclusion of BlueCrew.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2020 | | $ Change | | % Change | | 2019 | | $ Change | | % Change | | 2018 |
| | | | | | | | | | | | | |
| (Dollars in thousands) |
| Product development expense | $169,811 | | $17,851 | | 12% | | $151,960 | | $19,930 | | 15% | | $132,030 |
| Percentage of revenue | 7% | | | | | | 7% | | | | | | 8% |
For the year ended December 31, 20172020 compared to the year ended December 31, 20162019
General and administrativeProduct development expense in 2017 increased from 2016 due to increasesprimarily as a result of $192.9 million from ANGI, $44.8 million from MTCH and $20.0 million from Corporate, partially offset by decreases of $64.8 million from Emerging & Other and $10.2 million from Applications.
The ANGI 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 reflects $65.7 million of expense in 2017 due to the modification of previously issued HomeAdvisor equity awards, which were converted into ANGI Homeservices' equity awards, and $17.7 million of expense in 2017 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 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 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 MTCH increase was due primarily to an increase of $20.6$18.7 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 compared to income of $9.2 million in 2016) and an increase of $6.8 million in professional fees. The increase in compensation expense wasprimarily 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 MTCH options and an increase inincreased headcount from business growth. The increase in professional fees was due primarily to the settlement of the Tinder 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 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.
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, 20182019 compared to the year ended December 31, 20172018
Product development expense in 2018 increased from 2017 due to increasesprimarily as a result of $30.9 million from MTCH, $13.2 million from ANGI, $9.8 million from Vimeo and $6.0 million from Dotdash.
The MTCH increase was due primarily to an increase of $28.8$18.6 million in compensation, expense, due primarily to higher headcount at Tinder.
The ANGIincluding an increase was due primarily to increases of $4.9 million in compensation expense and $4.5 million in software license and maintenance costs, reflecting the impact from the inclusion of Angie's List. The increase in compensation expense was due primarily to increased headcount, partially offset by a decrease of $6.1$10.3 million in stock-based compensation expense resulting from a lower modification charge relatedprimarily due to the Combination.vesting of certain awards for which the market condition was met, and increased headcount at Tinder.
The Vimeo increase was due primarily to $8.7 million
The Dotdash increase was due primarily to an increase of $5.7 million in compensation expense, due primarily to higher headcount.Depreciation
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2020 | | $ Change | | % Change | | 2019 | | $ Change | | % Change | | 2018 |
| | | | | | | | | | | | | |
| (Dollars in thousands) |
| Depreciation | $41,271 | | $6,916 | | 20% | | $34,355 | | $(472) | | (1)% | | $34,827 |
| Percentage of revenue | 2% | | | | | | 2% | | | | | | 2% |
For the year ended December 31, 20172020 compared to the year ended December 31, 20162019
Product development expense in 2017Depreciation increased from 2016 due to increases of $27.3 million from ANGI, $23.0 million from MTCH and $3.6 million from Vimeo, partially offset by decreases of $10.9 million from Emerging & Other and $4.4 million from Applications.
The ANGI 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 to an increase of $14.5 million in stock-based compensation expense principally due to the modification charge related to the Combination and increased headcount.
The MTCH increase was due primarily to an increase of $20.7 millioninternally developed software being placed 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 MTCH options, and an increase of $6.3 million in stock-based compensation expense due primarily to new grants issued since 2016.
The Vimeo increase was due primarily to $2.2 million of expense from the inclusion of Livestream.
The Emerging & Other decrease was due primarily to the sales of The Princeton Review and ASKfm and a decrease of $4.3 million in compensation expense due, in part, to reductions in workforce in 2016, including $1.2 million in restructuring costs in 2016 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, 20182019 compared to the year ended December 31, 20172018
Depreciation in 2018 increased from 2017decreased primarily due primarily to continued corporate growth at ANGI,certain internally developed software becoming fully depreciated, partially offset by certain fixed assets becoming fully depreciatedincreased depreciation related to leasehold improvements.
Operating Income and the saleAdjusted EBITDA
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2020 | | $ Change | | % Change | | 2019 | | $ Change | | % Change | | 2018 |
| | | | | | | | | | | | | |
| (Dollars in thousands) |
| | | | | | | | | | | | | |
| Operating income | $745,715 | | $100,261 | | 16% | | $645,454 | | $95,985 | | 17% | | $549,469 |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Percentage of revenue | 31% | | | | | | 31% | | | | | | 32% |
| | | | | | | | | | | | | |
| Adjusted EBITDA | $896,779 | | $118,519 | | 15% | | $778,260 | | $126,295 | | 19% | | $651,965 |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Percentage of revenue | 38% | | | | | | 38% | | | | | | 38% |
For a reconciliation of The Princeton Review.net earnings attributable to Match Group, Inc. shareholders to operating income and Adjusted EBITDA, see “Principles of Financial Reporting.”
For the year ended December 31, 20172020 compared to the year ended December 31, 20162019
DepreciationOperating income and Adjusted EBITDA increased 16% to $100.3 million and 15% to $118.5 million, respectively, primarily as a result of the increase in 2017 increased from 2016 due primarily to the increased depreciationrevenue of $340.0 million driven by growth at ANGImultiple brands and MTCH related to continued corporate growth,lower selling and marketing expense as a percentage of revenue, 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, 2018 compared to the year ended December 31, 2017
Operating income in 2018 increased from 2017 due primarily to an increase in Adjusted EBITDAcost of $413.5 million described below, 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 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 awards 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 amortized in 2017. The indefinite-lived intangible asset impairment charge at Desktop wasrevenue due to Google’s policy changes related to its Chrome browser which became effective on September 12, 2018higher in-app purchase fees, as revenue is increasingly sourced through mobile app stores, increased web operation costs, and have negatively impacted the distribution of our business to consumer desktop products.live video costs.
At December 31, 2018,2020, there was $326.0$142.5 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, 20172019 compared to the year ended December 31, 20162018
Operating income and Adjusted EBITDA increased 17% to $96.0 million and 19% to $126.3 million, respectively, primarily as a result of the increase in 2017 increased fromrevenue of $321.4 million and lower selling and marketing expense as a loss in 2016percentage of revenue due primarily to the inclusion in 2016ongoing product mix shift toward brands with lower marketing spend as a percentage of a 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,revenue, partially offset by an increase in cost of $159.8 millionrevenue due to higher in-app purchase fees and an increase in legal fees. Operating income was also impacted by higher stock-based compensation expense as a changepercentage of $3.2 million in acquisition-related contingent consideration fair value adjustmentsrevenue and an increase in amortization due to the impairment of $2.6the Match brand in the UK, resulting in decreased growth compared to Adjusted EBITDA.
Interest expense
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2020 | | $ Change | | % Change | | 2019 | | $ Change | | % Change | | 2018 |
| | | | | | | | | | | | | |
| (Dollars in thousands) |
| Interest expense | $174,791 | | $34,221 | | 24% | | $140,570 | | $46,002 | | 49% | | $94,568 |
| | | | | | | | | | | | | |
For the year ended December 31, 2020 compared to the year ended December 31, 2019
Interest expense increased primarily due to the issuance of the 4.125% Senior Notes on February 11, 2020 and the issuance of the 4.625% Senior Notes on May 19, 2020. Additionally, the 2026 and 2030 Senior Exchangeable Notes were outstanding for the entire year. Partially offsetting these increases were decreases due to the redemption of the 6.375% Senior Notes during 2020 and a lower LIBOR rate on the Term Loan.
For the year ended December 31, 2019 compared to the year ended December 31, 2018
Interest expense increased primarily due to the issuance of the 5.625% Senior Notes in February 2019. Additionally, the interest rate on the Term Loan, which is based on LIBOR, was higher in 2019.
Other income (expense), net
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2020 | | $ Change | | % Change | | 2019 | | $ Change | | % Change | | 2018 |
| | | | | | | | | | | | | |
| (Dollars in thousands) |
| Other income (expense), net | $15,861 | | $17,887 | | NM | | $(2,026) | | $(9,536) | | NM | | $7,510 |
________________________
NM = not meaningful
Other income, net, in 2020 includes a legal settlement of $35.0 million and interest income of $2.7 million, partially offset by a loss on redemption of bonds of $16.5 million, expense of $3.4 million related to mark-to-market adjustments pertaining to liability classified equity instruments, and $0.6 million in depreciation expense. The goodwillnet foreign currency losses in the period.
Other expense, net, in 2019 includes a $4.0 million impairment charge at IAC Publishingof an equity investment, expense of $1.7 million related to a mark-to-market adjustment pertaining to a liability classified equity instrument, and $0.9 million in 2016 was drivennet foreign currency losses in the period, partially offset by the impact from the Google contract, traffic trends and monetization challenges. The decreaseinterest income of $4.4 million.
Other income, net in amortization of intangibles was2018 includes $5.3 million in net foreign currency exchange gains due primarily to lower expensea strengthening of the U.S. dollar relative to the British Pound in 2017 as a resultthe period and $4.9 million of a Dotdash trade name and certain intangible assets from the PlentyOfFish acquisition becoming fully amortized and impairment charges in 2016 of $9.0 million and $2.6interest income, partially offset by $2.1 million related to impairments of certain Dictionary.comequity investments and Dotdash indefinite-lived trade names, respectively, partially offset by expense in 2017$0.7 million related to the Combination. The increase in stock-based compensation expense was due primarily to an increase of $140.3 million at ANGI due primarily to the modification and acceleration charges related to the Combination, as well as an increase in expense relateda mark-to-market adjustment pertaining to a subsidiary denominated equity award heldinstrument.
Income tax provision
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2020 | | $ Change | | % Change | | 2019 | | $ Change | | % Change | | 2018 |
| | | | | | | | | | | | | |
| (Dollars in thousands) |
| Income tax provision | $32,874 | | $24,649 | | 300% | | $8,225 | | $(3,082) | | (27)% | | $11,307 |
| Effective income tax rate | 6% | | | | | | 2% | | | | | | 2% |
For discussion of income taxes, see “Note 3—Income Taxes” to the consolidated financial statements included in “Item 8—Consolidated Financial Statements and Supplementary Data.”
For the years ended December 31, 2020, 2019, and 2018, the Company recorded an income tax provision of $32.9 million, $8.2 million, and $11.3 million, respectively, representing an effective tax rate of 6%, 2%, and 2%, respectively, which is lower than the U.S. statutory rate of 21% due primarily to excess tax benefits generated by (i) the exercise and vesting of stock-based awards and (ii) research credits. In 2020, these benefits were partially offset by an increase in the valuation allowance for foreign tax credits.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was enacted to respond to economic challenges due to COVID-19. The CARES Act provided Match Group accelerated depreciation deductions and a non-employee,relaxation of limitations on interest expense deductions, both of which award was settled duringimpact the third quartertiming of 2017,the realizability of our federal and state net operating loss deferred tax assets. The CARES Act did not have a material impact on our income tax provision for the issuanceyear ended December 31, 2020, or our ability to recover our deferred tax assets.
Related party transactions
For discussion of new equity awards since 2016.related party transactions, see “Note 15—Related Party Transactions” to the consolidated financial statements included in “Item 8—Consolidated Financial Statements and Supplementary Data.”
PRINCIPLES OF FINANCIAL REPORTING
Match Group reports Adjusted EBITDA and Revenue excluding foreign exchange effects, both of which are supplemental measures to U.S. generally accepted accounting principles (“GAAP”). Adjusted EBITDA is among the primary metrics by which we evaluate the performance of our business, on which our internal budget is based, and by which management is compensated. Revenue excluding foreign exchange effects provides a comparable framework for assessing how our business performed without the effect of exchange rate differences when compared to prior periods. We believe that investors should have access to the same set of tools that we use in analyzing our results. These non-GAAP measures 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. Match Group endeavors to compensate for the limitations of the non-GAAP measures 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 measures, which we discuss below.
Adjusted EBITDAPRINCIPLES OF FINANCIAL REPORTING
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | $ Change | | % Change | | 2017 | | $ Change | | % Change | | 2016 |
| | (Dollars in thousands) |
| Match Group | $ | 653,931 |
| | $ | 184,990 |
| | 39 | % | | $ | 468,941 |
| | $ | 65,561 |
| | 16 | % | | $ | 403,380 |
|
| ANGI Homeservices | 247,506 |
| | 209,648 |
| | 554 | % | | 37,858 |
| | (7,993 | ) | | (17 | )% | | 45,851 |
|
| 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 | 131,837 |
| | (4,920 | ) | | (4 | )% | | 136,757 |
| | 4,481 |
| | 3 | % | | 132,276 |
|
| Emerging & Other | 36,178 |
| | 10,316 |
| | 40 | % | | 25,862 |
| | 15,751 |
| | 156 | % | | 10,111 |
|
| Corporate | (74,017 | ) | | (6,262 | ) | | (9 | )% | | (67,755 | ) | | (14,483 | ) | | (27 | )% | | (53,272 | ) |
| Total | $ | 988,774 |
| | $ | 413,481 |
| | 72 | % | | $ | 575,293 |
| | $ | 74,074 |
| | 15 | % | | $ | 501,219 |
|
| | | | | | | | | | | | | | |
| As a percentage of revenue | 23% | | | | | | 17% | | | | | | 16% |
For a reconciliation of net earnings (loss) attributable to IAC shareholders to operating income (loss) to consolidatedMatch Group reports Adjusted EBITDA see "Principlesand Revenue excluding foreign exchange effects, both of Financial Reportingwhich are supplemental measures to U.S. generally accepted accounting principles (“GAAP”)." For a reconciliation of operating income (loss) to Adjusted EBITDA is among the primary metrics by which we evaluate the performance of our business, on which our internal budget is based, and by which management is compensated. Revenue excluding foreign exchange effects provides a comparable framework for assessing how our business performed without the Company's reportable segments, see "Note 12—Segment Information"effect of exchange rate differences when compared to prior periods. We believe that investors should have access to the consolidated financial statements includedsame set of tools that we use in "Item 8—Consolidated Financial Statements and Supplementary Data."For the year ended December 31, 2018 comparedanalyzing our results. These non-GAAP measures should be considered in addition 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
MTCH 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 MTCH'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.
ANGI 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, software license and maintenance costs, and higher losses at the European businesses driven primarily by its expansion strategy. Adjusted EBITDA in 2017 was further impacted by write-offs of deferred revenue related to the Combination of $7.8 million.
Vimeo Adjusted EBITDA loss increased 16% to a loss of $23.6 million, despite higher revenue (including the impact of deferred revenue write-offs of $2.1 million related to acquisition of Livestream), reflecting 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.
Emerging & Other Adjusted EBITDA increased 156% to $25.9 million, despite lower revenue, due primarily to the inclusion in 2016 of $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 Google 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 27% to $67.8 million due primarily to higher compensation costs and professional fees.
Interest expense
|
| | | | | | | | | | | | | | | |
| | 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 MTCH Term Loan and $6.6 million related to the repayment of the outstanding balances of the 4.875% Senior Notes and 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 6.375% MTCH Senior Notes, $5.2 million from the issuance of the Exchangeable Notes, $1.8 million related to the 5.00% MTCH Senior Notes and $1.7 million from the ANGI Term Loan.
Other income (expense), net
|
| | | | | | | | | | | | | |
| | 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 valueresults prepared in accordance with ASU No. 2016-01, which was adopted on January 1, 2018; $120.6 million in gains relatedGAAP, but should not be considered a substitute for or superior to GAAP results. Match Group endeavors to compensate for 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 strengtheninglimitations of the dollar relative tonon-GAAP measures presented by providing the British Pound.
Other expense, net in 2017 includes: $16.8 million in net foreign currency exchange losses due primarily to the weakeningcomparable GAAP measure with equal or greater prominence and descriptions of the dollar relativereconciling items, including quantifying such items, to derive the British Pound; $15.4 million expense relatednon-GAAP measure. We encourage investors to examine the extinguishment ofreconciling adjustments between the 6.75% MTCH Senior NotesGAAP and repricing of the MTCH Term Loan; $13.0 million mark-to-market charge principally pertaining to a subsidiary denominated equity award held by a non-employee; $12.2 million in other-than-temporary impairment charges related to certain investments; $1.2 million expense related to the write-off of deferred financing costs associated with the repayment of the 4.875% Senior Notes; $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 ShoeBuy and PriceRunner, 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; $5.1 million of interest income; $3.6 million gain related to the sale of certain equity investments; $12.1 million non-cash charge 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 MTCH Term Loan; $10.7 million in other-than-temporary impairment charges related to certain investments; $3.8 million loss related to the sale of ASKfm; $3.6 million loss on the 4.75% and 4.875% Senior Note redemptions and repurchases; and $2.5 million mark-to-market charge principally pertaining to a subsidiary denominated equity award held by a non-employee.
Income tax (provision) benefit
|
| | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | $ Change | | % Change | | 2017 | | $ Change | | % Change | | 2016 |
| | (Dollars in thousands) |
| Income tax (provision) benefit | $(3,811) | | NM | | NM | | $291,050 | | $226,116 | | 348% | | $64,934 |
| Effective income tax rate | 1% | | | | | | NM | | | | | | 80% |
In 2018, the Company recorded an income tax provision of $3.8 million,non-GAAP measures, 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.discuss below.
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 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 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.
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 Dotdash and Emerging & Other segments.
Net earnings attributable to noncontrolling interests
Noncontrolling interests represent the noncontrolling holders’ percentage share of earnings or losses from the subsidiaries in which the Company holds a majority, but less than 100%, ownership interest and the results of which are included in our consolidated financial statements.
|
| | | | | | | | | | | | | | | | | | | |
| | 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 MTCH's earnings, partially offset by the 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 MTCH.
PRINCIPLES OF FINANCIAL REPORTING
IACMatch Group reports Adjusted EBITDA as aand Revenue excluding foreign exchange effects, both of which are supplemental measuremeasures to U.S. generally accepted accounting principles ("GAAP"(“GAAP”). This measureAdjusted EBITDA is one ofamong the primary metrics by which we evaluate the performance of our businesses,business, on which our internal budgets arebudget is based, and by which management is compensated. Revenue excluding foreign exchange effects provides a comparable framework for assessing how our business performed without the effect of exchange rate differences when compared to prior periods. We believe that investors should have access to and we are obligated to provide, the same set of tools that we use in analyzing our results. ThisThese non-GAAP measuremeasures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results. IACMatch Group endeavors to compensate for the limitations of the non-GAAP measuremeasures presented by providing the comparable GAAP 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,measures, which we discuss below.
Definition of Non-GAAP MeasureAdjusted EBITDA
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("(“Adjusted EBITDA"EBITDA”) is defined as operating income excluding: (1) stock-based compensation expense; (2) depreciation; and (3) acquisition-related items consisting of (i) amortization of intangible assets and impairments of goodwill and intangible assets, if applicable, and (ii) gains and losses recognized on changes in the fair value of contingent consideration arrangements. We believe this measure is useful for analysts and investors as this measure allows a more meaningful comparison between our performance and that of our competitors. The above items are excluded from our Adjusted EBITDA measure because these itemsthey are non-cash in nature. Adjusted EBITDA has certain limitations in thatbecause it does not take into accountexcludes the impact to our consolidated statement of operations of certainthese 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 MeasureAdjusted EBITDA
Stock-based compensationexpense consists principally of expense associated with the grants including unvested grants assumed in acquisitions (including the Combination), of stock options, restricted stock units ("RSUs"(“RSUs”), performance-based RSUs, and market-based awards. These expenses are not paid in cash, and we include the related shares in our fully diluted shares outstanding using the treasury stock method. Performance-basedmethod; however, performance-based RSUs and market-based awards are included only to the extent the applicable performance or market condition(s) have been met (assuming the end of the reporting period is the end of the contingency period). To the extent that stock-based awards are settled on a net basis, the Company remitswe remit the required tax-withholding amounts from itsour 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).acquisitions. At the time of an acquisition, the identifiable definite-lived intangible assets of the acquired company, such as technology, service professional and contractor relationships, customer lists, and user base, memberships, trade names, and content,technology, are valued and amortized over their estimated lives. Value is also assigned to (i) acquired indefinite-lived intangible assets, which compriseconsist of trade names and trademarks, and (ii) goodwill, thatwhich 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 arrangementsare accounting adjustments to report contingent consideration liabilities at fair value. These adjustments can be highly variable and are excluded from our assessment of performance because they are considered non-operational in nature and, therefore, are not indicative of current or future performance or the ongoing cost of doing business.
The following table reconciles net earnings attributable to Match Group, Inc. shareholders to operating income and Adjusted EBITDA:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2020 | | 2019 | | 2018 |
| | | | | |
| (In thousands) |
| Net earnings attributable to Match Group, Inc. shareholders | $ | 128,561 | | | $ | 431,131 | | | $ | 626,961 | |
| Add back: | | | | | |
| Net earnings attributable to noncontrolling interests | 59,280 | | | 112,689 | | | 130,786 | |
| Loss (earnings) from discontinued operations, net of tax | 366,070 | | | (49,187) | | | (306,643) | |
| Income tax provision | 32,874 | | | 8,225 | | | 11,307 | |
| Other (income) expense, net | (15,861) | | | 2,026 | | | (7,510) | |
| Interest expense | 174,791 | | | 140,570 | | | 94,568 | |
| Operating Income | 745,715 | | | 645,454 | | | 549,469 | |
| Stock-based compensation expense | 102,268 | | | 89,724 | | | 66,031 | |
| Depreciation | 41,271 | | | 34,355 | | | 34,827 | |
| Amortization of intangibles | 7,525 | | | 8,727 | | | 1,318 | |
| Acquisition-related contingent consideration fair value adjustments | — | | | — | | | 320 | |
| Adjusted EBITDA | $ | 896,779 | | | $ | 778,260 | | | $ | 651,965 | |
Effects of Changes in Foreign Exchange Rates on Revenue
The impact of foreign exchange rates on the Company, due to its global reach, may be an important factor in understanding period over period comparisons if movement in exchange rates is significant. Since our results are reported in U.S. dollars, international revenue is favorably impacted as the U.S. dollar weakens relative to other currencies, and unfavorably impacted as the U.S. dollar strengthens relative to other currencies. We believe the presentation of revenue excluding the effects from foreign exchange, in addition to reported revenue, helps improve the ability to understand the Company’s performance because it excludes the impact of foreign currency volatility that is not indicative of Match Group’s core operating results.
Revenue excluding foreign exchange effects compares results between periods as if exchange rates had remained constant period over period. Revenue excluding foreign exchange effects is calculated by translating current period revenue using prior period exchange rates. The percentage change in revenue excluding foreign exchange effects is calculated by determining the change in current period revenue over prior period revenue where current period revenue is translated using prior period exchange rates.
The following tables presents the impact of foreign exchange on total revenue, ARPU, and International ARPU for the year ended December 31, 2020 compared to the year ended December 31, 2019 and the year ended December 31, 2019 compared to the year ended December 31, 2018:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2020 | | $ Change | | % Change | | 2019 |
| | | | | | | |
| | (Dollars in thousands, except ARPU) |
| Revenue, as reported | $ | 2,391,269 | | | $ | 340,011 | | | 17% | | $ | 2,051,258 | |
| Foreign exchange effects | 6,412 | | | | | | | |
| Revenue excluding foreign exchange effects | $ | 2,397,681 | | | $ | 346,423 | | | 17% | | $ | 2,051,258 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| (Percentage change calculated using non-rounded numbers) | | | | | | | |
| ARPU, as reported | $ | 0.60 | | | | | 3% | | $ | 0.58 | |
| Foreign exchange effects | 0.00 | | | | | | | |
| ARPU, excluding foreign exchange effects | $ | 0.60 | | | | | 3% | | $ | 0.58 | |
| | | | | | | |
| International ARPU, as reported | $ | 0.56 | | | | | 0% | | $ | 0.56 | |
| Foreign exchange effects | 0.00 | | | | | | | |
| International ARPU, excluding foreign exchange effects | $ | 0.56 | | | | | 0% | | $ | 0.56 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2019 | | $ Change | | % Change | | 2018 |
| | | | | | | |
| | (Dollars in thousands, except ARPU) |
| Revenue, as reported | $ | 2,051,258 | | | $ | 321,408 | | | 19% | | $ | 1,729,850 | |
| Foreign exchange effects | 47,459 | | | | | | | |
| Revenue excluding foreign exchange effects | $ | 2,098,717 | | | $ | 368,867 | | | 21% | | $ | 1,729,850 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| (Percentage change calculated using non-rounded numbers) | | | | | | | |
| ARPU, as reported | $ | 0.58 | | | | | 2% | | $ | 0.57 | |
| Foreign exchange effects | 0.02 | | | | | | | |
| ARPU, excluding foreign exchange effects | $ | 0.60 | | | | | 4% | | $ | 0.57 | |
| | | | | | | |
| International ARPU, as reported | $ | 0.56 | | | | | —% | | $ | 0.56 | |
| Foreign exchange effects | 0.03 | | | | | | | |
| International ARPU, excluding foreign exchange effects | $ | 0.59 | | | | | 5% | | $ | 0.56 | |
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
Financial Position
| | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| | | |
| (In thousands) |
| Cash and cash equivalents: | | | |
| United States | $ | 581,038 | | | $ | 322,267 | |
| All other countries | 158,126 | | | 143,409 | |
| Total cash and cash equivalents | $ | 739,164 | | | $ | 465,676 | |
| | | |
| | | |
| | | |
| Long-term debt, net: | | | |
| Credit Facility due February 13, 2025 | $ | — | | | $ | — | |
| Term Loan due February 13, 2027 | 425,000 | | | 425,000 | |
| 6.375% Senior Notes | — | | | 400,000 | |
| 5.00% Senior Notes due December 15, 2027 | 450,000 | | | 450,000 | |
| 4.625% Senior Notes due June 1, 2028 | 500,000 | | | — | |
| 5.625% Senior Notes due February 15, 2029 | 350,000 | | | 350,000 | |
| 4.125% Senior Notes due August 1, 2030 | 500,000 | | | — | |
| 2022 Exchangeable Notes | 517,500 | | | 517,500 | |
| 2026 Exchangeable Notes | 575,000 | | | 575,000 | |
| 2030 Exchangeable Notes | 575,000 | | | 575,000 | |
| Total long-term debt | 3,892,500 | | | 3,292,500 | |
| | | |
| Less: unamortized original issue discount and original issue premium, net | 312,891 | | | 357,887 | |
| Less: unamortized debt issuance costs | 44,903 | | | 44,987 | |
| Total long-term debt, net | $ | 3,534,706 | | | $ | 2,889,626 | |
|
| | | | | | | | |
| | | December 31, |
| | | 2018 | | 2017 |
| | | (In thousands) |
| Cash and cash equivalents: | | | | |
| United States | | $ | 1,971,282 |
| | $ | 1,178,616 |
|
All other countries(a) | | 160,350 |
| | 452,193 |
|
| Total cash and cash equivalents | | 2,131,632 |
| | 1,630,809 |
|
| Marketable securities (United States) | | 123,665 |
| | 4,995 |
|
Total cash and cash equivalents and marketable securities(b)(c) | | $ | 2,255,297 |
| | $ | 1,635,804 |
|
| | | | | |
| 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 | | 11,737 |
| | 13,636 |
|
| Total MTCH debt, net | | 1,515,911 |
| | 1,252,696 |
|
| | | | | |
| 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 | | 2,529 |
| | 2,938 |
|
| Total ANGI debt, net | | 244,971 |
| | 258,312 |
|
| | | | | |
| IAC Debt: | | | | |
| Exchangeable Notes | | 517,500 |
| | 517,500 |
|
| 4.75% Senior Notes | | 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 |
|
| |
(a)
| At December 31, 2018, all of the 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. |
| |
(b)
| Cash and cash equivalents at December 31, 2018 and December 31, 2017 includes 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, respectively. MTCH is a separate and distinct legal entity with its own public shareholders and board of directors and has no obligation to provide the Company with funds. As a result, the Company cannot freely access the cash of MTCH and its subsidiaries. |
| |
(c)
| Cash and cash equivalents at December 31, 2018 and December 31, 2017 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. Marketable securities at December 31, 2018 include $24.9 million at ANGI. ANGI held no marketable securities at December 31, 2017. ANGI is a separate and distinct legal entity with its own public shareholders and board of directors and has no obligation to provide the Company with funds. As a result, the Company cannot freely access the cash of ANGI and its subsidiaries. |
IAC, MTCH and ANGI Long-term Debt
Cash Flow Information
In summary, the Company'sCompany’s cash flows are as follows: |
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | (In thousands) |
| Net cash provided by (used in): | | | | | |
| Operating activities | $ | 988,128 |
| | $ | 416,699 |
| | $ | 344,238 |
|
| Investing activities | (173,440 | ) | | 42,049 |
| | 12,862 |
|
| Financing activities | (312,798 | ) | | (196,869 | ) | | (492,140 | ) |
| | | | | | | | | | | | | | | | | |
| Years ended December 31, |
| 2020 | | 2019 | | 2018 |
| | | | | |
| (In thousands) |
| Net cash provided by operating activities attributable to continuing operations | $ | 788,552 | | | $ | 647,989 | | | $ | 611,455 | |
| Net cash used in investing activities attributable to continuing operations | (3,922,131) | | | (41,730) | | | (38,204) | |
| Net cash provided by (used in) financing activities attributable to continuing operations | 1,787,846 | | | 654,024 | | | (198,768) | |
2020
Net cash provided by operating activities consistsattributable to continuing operations in 2020 includes adjustments to earnings consisting primarily of earnings adjusted for non-cash items,$102.3 million of stock-based compensation expense; $44.7 million of original issue discount accretion on the effectExchangeable Senior Notes; $41.3 million of depreciation; $7.5 million of amortization of intangibles; other adjustments of $26.7 million, which includes a loss on bond
redemption of $16.5 million; and deferred income tax of $5.0 million. The increase in cash from changes in working capital primarily consists of an increase from income taxes payable and acquisition-related contingent considerationreceivable of $16.9 million due primarily to the timing of tax payments (toand refunds; an increase in accounts payable and accrued expenses and other current liabilities of $24.2 million due mainly to the extent greater thantiming of payments, including interest payments; and an increase in deferred revenue of $23.5 million, due mainly to growth in subscription sales. These increases in cash were partially offset by a decrease related to an increase in other assets of $33.2 million primarily related to an increase in prepaid hosting services and an increase in accounts receivable of $24.2 million primarily related to an increase in revenue.
Net cash used in investing activities attributable to continuing operations in 2020 consists primarily of the liability initially recognized at$3.9 billion of net cash distributed to IAC related to the timeSeparation, which was partially funded by $1.4 billion of acquisition). Non-cash adjustments include goodwill impairments, stock-based compensation expense, net gainsproceeds from the salestock issuance in connection with the Separation as noted below, and capital expenditures of businesses$42.4 million that are primarily related to internal development of software and investments, unrealized gainscomputer hardware to support our products and lossesservices.
Net cash provided by financing activities attributable to continuing operations in 2020 is primarily due to proceeds of $1.4 billion from the stock offering in connection with the Separation, which were subsequently transferred to IAC as noted above, proceeds of $1.0 billion from the issuance of the 4.125% and 4.625% Senior Notes, partially offset by the redemption of the $400.0 million 6.375% Senior Notes, payments of $212.0 million for withholding taxes paid on behalf of employees for net settled equity securities, amortizationawards of intangibles, depreciation, bad debt expense,both Former Match Group and deferred income taxes.Match Group, and purchases of treasury stock of Former Match Group of $132.9 million.
20182019
AdjustmentsNet cash provided by operating activities attributable to continuing operations in 2019 includes adjustments to earnings consistconsisting primarily of $238.4$89.7 million of stock-based compensation expense, $108.4$34.4 million of depreciation, $30.4 million of original issue discount accretion on the Exchangeable Senior Notes, and $8.7 million of amortization of intangibles, $75.4intangibles. Partially offsetting these adjustments was deferred income tax of $19.6 million primarily related to net operating loss created by settlement of stock-based awards. The decrease in cash from changes in working capital primarily consists of an increase in other assets of $24.2 million primarily related to an increase in prepaid hosting services, an increase in accounts receivable of $17.9 million primarily related to an increase in revenue, and a decrease from income taxes payable and receivable of $4.2 million due primarily to the timing of tax payments. These decreases in cash were partially offset by an increase in accounts payable and accrued expenses and other current liabilities of $33.7 million due mainly to the timing of payments, including interest payments; and an increase in deferred revenue of $9.5 million, due mainly to growth in subscription sales.
Net cash used in investing activities attributable to continuing operations in 2019 consists primarily of capital expenditures of $39.0 million that are primarily related to internal development of software and computer hardware to support our products and services.
Net cash provided by financing activities attributable to continuing operations in 2019 is primarily due to $1.2 billion from the issuance of the 2026 and 2030 Exchangeable Notes; proceeds of $350.0 million from the issuance of the 5.625% Senior Notes and proceeds of $40.0 million from borrowings under the Credit Facility. Partially offsetting these proceeds were cash payments of $300.0 million for the repayment of borrowings under the Credit Facility, purchases of treasury stock of $216.4 million, $203.2 million for withholding taxes paid on behalf of employees for net settled equity awards, and $136.9 million used to pay the net premium on the 2026 and 2030 Exchangeable Notes hedge and warrant transactions.
2018
Net cash provided by operating activities attributable to continuing operations in 2018 includes adjustments to earnings consisting primarily of $66.0 million of stock-based compensation expense, $34.8 million of depreciation, $48.4and $1.3 million of bad debt expense, partially offset by $147.8 millionamortization 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. Theintangibles. Partially offsetting these adjustments was deferred income tax benefitof $23.0 million primarily relatesrelated to amortization of intangibles, a decrease in the valuation allowance, and an increase in tax credit carryforwards, partially offset by the deferred income tax provision on theutilization of net unrealized gains on certain equity securities.operating losses. The increase in cash from changes in working capital primarily consists of an increase in accounts payable and accrued expenses and other current liabilities of $53.6$21.4 million an increase in deferred revenuedue to the timing 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 increasepayments; a decrease in accounts receivable of $34.8 million. The increase in accounts payable and other liabilities is$17.3 million 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 duerelated to an accelerated cash receipt from a mobile app store provider.provider; an increase in deferred revenue of $13.1 million, due mainly to growth
in subscription sales; and an increase from income taxes payable and receivable of $26.9 million due primarily to the timing of tax payments. These increases in cash were partially offset by an increase in other assets of $14.6 million primarily related to an increase in capitalized mobile app fees.
Net cash used in investing activities includes cash used for acquisitions and investmentsattributable to continuing operations in 2018 consists primarily 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$31.4 million that are primarily related to investments in thecomputer hardware and internal development of capitalized software at ANGI and MTCH to support theirour 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, and $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 liabilities of $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 sourced through mobile app stores at MTCH, which is settled more slowly than traditional credit cards; and (ii) revenue growth at ANGI. The decrease in accounts payable and other liabilities is due to: (i) a decrease at MTCH 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 (iv) an increase in accrued advertising at MTCH. The increase in deferred revenue is due mainly to growth in subscription sales at MTCH and Vimeo, as well as growth in subscription sales and time-based advertising to service professionals at ANGI, 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 sales of The Princeton Review and a MTCH 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 $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 MTCH and ANGI 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 a 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 MTCH 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 MTCH, IAC and ANGI employees, respectively, for stock-based awards that were net settled, $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% MTCH 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 MTCH debt, $517.5 million in proceeds from the issuance of the Exchangeable Notes, $275.0 million in proceeds from the ANGI Term Loan, $82.4 million, $59.4 million and $1.7 million in proceeds from the exercise of IAC, MTCH and ANGI stock options, respectively, and $23.7 million in proceeds from the issuance of warrants.
2016
Adjustments to earnings consist primarily of $198.3 million and $77.0 million of goodwill impairment at the 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, 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 Dotdash and Emerging & Other goodwill impairments. The decrease from changes in working capital consists primarily of a decrease in accounts payable and other liabilities of $52.4 million, an increase in other assets of $12.8$3.8 million, partially offset by an increasenet cash acquired in deferred revenuea business combination of $35.8 million and an increase in income taxes payable and receivable of $9.0 million. The decrease in accounts payable and other liabilities is due to (i) a decrease in accrued advertising and revenue share expense at Ask 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 Ask Media Group, and (iii) decreases in payables at MTCH 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 MTCH, ANGI 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 sales of PriceRunner and ShoeBuy, partially offset by capital expenditures of $78.0 million, primarily related to investments in development of capitalized software at MTCH and ANGI 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$1.1 million.
Net cash used in financing activities includes $450.0 millionattributable to continuing operations in principal payments on MTCH 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 of2018 is primarily due to withholding taxes paid on behalf of MTCH and IAC employees respectively, for stock-based awards that were net settled partially offset by $400.0stock awards of $207.7 million, in proceeds from the issuancepurchases of MTCH debt and $39.4treasury stock of $133.5 million, a cash dividend of $105.1 million, purchases of non-controlling interests of $10.0 million, and $25.8debt issuance costs of $1.7 million. Partially offsetting these payments were proceeds of $260.0 million in proceeds from a draw on the exercise of MTCH and IAC stock options, respectively.Credit Facility.
Liquidity and Capital Resources
The Company'sCompany’s principal sources of liquidity are its cash and cash equivalents and marketable securities, cash flows generated from operations and available borrowings under the IAC Credit Facility. IAC's consolidatedas well as cash and cash equivalents and marketable securities at December 31, 2018 were $2.3 billion, of which $186.9 million was held by MTCH and $361.9 million was held by ANGI. The Company generated $988.1 million of operating cash flows for the year ended December 31, 2018, of which $603.5 million was generated by MTCH and $223.7 million was generated by ANGI. Each of MTCH and ANGI is a separate and distinct legal entity with its own public shareholders and board of directors and has no obligation to provide the Company with funds. As a result, the Company cannot freely access the cash of MTCH and ANGI and their respective subsidiaries. In addition, agreements governing MTCH and ANGI indebtedness limit the payment of dividends or distributions and loans or advances to stockholders, including the Company, in the event a default has occurred or in the case of MTCH, its secured net leverage ratio (as defined in the MTCH Term Loan) exceeds 2.0 to 1.0 or its consolidated leverage ratio (as defined in 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) exceeds 4.5 to 1.0. There were no such limitations at December 31, 2018.
On December 7, 2018, the MTCH $500 million revolving credit facility was amended and restated, and now expires on December 7, 2023.equivalents. At December 31, 2018, the outstanding borrowings2020, $749.8 million was available 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 issuedthat expires 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 at December 31, 2018.13, 2025.
The Company anticipates that it will need to make capital and other expenditures in connection with the development and expansion of its operations. The Company's 2019Company expects that 2021 cash capital expenditures are expected towill be higher than 2018 by approximately 25% to 30%, driven, in part, by higherbetween $80 million and $90 million, an increase from 2020 cash capital expenditures for ANGIprimarily related to the development of capitalized software to support its products and services, and leasehold improvements related to the expansion ofin our new leased New York office space, and building improvements at MTCH's Tinder business.our company owned buildings in Los Angeles.
DuringIn February 2021, the year ended December 31, 2018, IAC repurchased 0.5 million shares, onCompany entered into a trade date basis,definitive agreement to acquire Hyperconnect, Inc. (“Hyperconnect”), a leading social discovery and video technology company based in Seoul, South Korea. The acquisition is valued at approximately $1.725 billion, subject to customary adjustments for cash, debt-like items, and net working capital at the closing 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.
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 ANGI authorized ANGI to repurchase up to 15 million shares of its common stock.
acquisition. The Company has granted stock settled stock appreciation rights denominated in the equity of certain non-publicly traded subsidiariesoption to employees and management of those subsidiaries. These equity awards are settled on a net basis, with the award holder entitledpay up to receive a payment in IAC shares equal to the intrinsic value50% of the award at exercise less an amount equal to the required cash tax withholding payment. The number of IAC common shares that would be required to settle these vested and unvested interests, other than for MTCH, ANGI and their subsidiaries, at current estimated fair values, at February 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 $16.0 million at 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 movementsconsideration 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.
The 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 $158.6 million is related to unvested stock options) in cash for withholding taxes (assuming a 50% 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 net 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") can be settled in MTCH or IAC common stock at the Company's election. Assuming all vested and unvested Tandem Awards outstanding on February 1, 2019 were exercised on that date and settled using IAC stock, 0.4 million IAC common shares would have been issued in settlement and MTCH would have issued 1.5 million shares, which is included in the amount above, to IAC as reimbursement.
In connection with the Combination, previously issued stock appreciation rights related to the common stock of HomeAdvisor (US) were converted into ANGI stock appreciation rights that are settleable, at ANGI's option, on a net basisthe Company, with ANGI remitting withholding taxes on behalfthe remaining balance of the employee or on a gross basis with ANGI issuing a sufficient number of Class A sharesconsideration paid in cash. The Company expects to coverfund the withholding taxes. In addition, at IAC's option, these awards can be settled in either Class A shares of ANGI or 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 allportion of the stock appreciation rights outstandingconsideration with cash on February 1, 2019 were net settled on that date using IAC stock, 1.0 million IAC common shares would have been issued in settlementhand and IAC would have been issued 13.0 million shares of ANGI Class A stock and ANGI would have remitted $219.6 million in cash for 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 all 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 PSUs 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 IAC common shares would have been issued in settlement, IAC 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, 2018, IAC's economic and voting interest in MTCH is 81.1% and 97.6%, respectively, and in ANGI is 83.9% and 98.1%, respectively. As described above, certain MTCH and ANGI equity awards can be settled either in IAC common shares or the common shares of these subsidiaries at IAC's election.its existing revolving credit facility. The Company currently expectsmay also opt to settle a sufficient numberuse additional third-party financing. The acquisition is anticipated to close in the second quarter of awards in IAC shares2021, subject to maintain an economic interest in both MTCHcustomary closing conditions and ANGIreceipt of 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 does not expect to be a full U.S. federal cash income tax payer until 2022. The ultimate timing is dependent primarily on the performance of the Company and the amount and timing of tax deductions related to stock-based awards.certain regulatory approvals.
At December 31, 2018,2020, all of the 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.
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 its normal operating requirements, including capital expenditures, debt service, the payment of withholding taxes paid on behalf of employees for net-settled stock-based awards, and investing and other commitments for the foreseeable future. The Company's liquidity could be negatively affected by a decrease in demand for its products and services. The Company’sOur indebtedness could limit itsour ability to: (i) obtain additional financing to fund working capital needs, acquisitions, capital expenditures, debt service, or other requirements; and (ii) use operating cash flow to makepursue acquisitions or capital expenditures, or invest in other areas, such as developing properties and exploiting business opportunities. The Company 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 the 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 | Contractual Obligations(a) | Less Than
1 Year | | 1–3
Years | | 3–5
Years | | More Than
5 Years | | Total |
| | (In thousands) | | | | | | | | | | |
Long-term debt(b) (c) | $ | 109,608 |
| | $ | 224,974 |
| | $ | 1,622,736 |
| | $ | 952,750 |
| | $ | 2,910,068 |
| |
| | | | (In thousands) |
Long-term debt(b) | | Long-term debt(b) | $ | 115,581 | | | $ | 744,102 | | | $ | 222,097 | | | $ | 3,714,837 | | | $ | 4,796,617 | |
Operating leases(d)(c) | 38,770 |
| | 87,438 |
| | 64,633 |
| | 255,563 |
| | 446,404 |
| 14,806 | | | 22,813 | | | 18,172 | | | 62,458 | | | 118,249 | |
Purchase obligations(e) | 40,428 |
| | 23,897 |
| | — |
| | — |
| | 64,325 |
| |
Purchase obligation(d) | | Purchase obligation(d) | 54,000 | | | 9,000 | | | 12,000 | | | — | | | 75,000 | |
| Total contractual obligations | $ | 188,806 |
| | $ | 336,309 |
| | $ | 1,687,369 |
| | $ | 1,208,313 |
| | $ | 3,420,797 |
| Total contractual obligations | $ | 184,387 | | | $ | 775,915 | | | $ | 252,269 | | | $ | 3,777,295 | | | $ | 4,989,866 | |
| |
(a)
| The Company has excluded $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, 2018 consists of $1.4 billion bearing interest at fixed rates and $0.9 billion bearing interest at variable rates. The variable 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 5.09%, at December 31, 2018. The ANGI Term Loan bears interest at LIBOR plus 1.50%, or approximately 4.00% at December 31, 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 MTCH and ANGI 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 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 certain lease agreements. These operating expenses are not included in the table above. For additional information on operating leases, see "Note 13—Commitments and Contingencies" to the consolidated financial statements included in "Item 8—Consolidated Financial Statements and Supplementary Data." |
| |
(e)
| The purchase obligations principally include web hosting commitments. |
(a)The Company has excluded $41.8 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.” |
| | | | | | | | | | | | | | | | | | | |
| | Amount of Commitment Expiration Per Period |
Other Commercial Commitments(f) | Less Than 1 Year | | 1–3 Years | | 3–5 Years | | More Than 5 Years | | Total |
| | (In thousands) |
| Letters of credit and surety bonds | $ | 449 |
| | $ | — |
| | $ | — |
| | $ | 2,272 |
| | $ | 2,721 |
|
| |
(f) | Commercial commitments are funding commitments that could potentially require the Company to perform in the event of demands by third parties or contingent events. |
(c)The Company leases 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 certain lease agreements. These operating expenses are not included in the table above. For additional information on operating leases, see “Note 13—Leases” to the consolidated financial statements included in “Item 8—Consolidated Financial Statements and Supplementary Data.”
(d)The purchase obligations consist primarily of a web hosting commitment.
We also had $0.2 million of letters of credit and surety bonds outstanding at December 31, 2020 that could potentially require performance by the Company in the event of demands by third parties or other contingent events.
Off-Balance Sheet Arrangements
Other than the items described above, the Company doesdid not have any off-balance sheet arrangements as ofat December 31, 2018.2020.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The following disclosure is provided to supplement the descriptions of IAC'sMatch Group’s accounting policies contained in "Note“Note 2—Summary of Significant Accounting Policies"Policies” to the consolidated financial statements included in "Item“Item 8—Consolidated Financial Statements and Supplementary Data"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.principles (“GAAP”). 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 arehave been, and will continue to be, an important part of the Company'sCompany’s growth strategy. The Company invested $243.3 million (including the value of ANGI Homeservices Class A common stock issued in connection with the acquisition of Handy), $912.1 million (including the value of ANGI Class A common stock issued in connection with the Combination) and $36.1 million in acquisitions in the years ended December 31, 2018, 2017 and 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 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)unit that is expected to benefit from the combination as of the acquisition date.
In connection with certain business combinations in the past, the Company has entered into contingent consideration arrangements that are determined to be part of the purchase price. Each of these arrangements is 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 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.
Recoverability of Goodwill and Indefinite-Lived Intangible Assets
Goodwill is the Company'sCompany’s largest asset with a carrying value of $2.7$1.3 billion and $2.6$1.2 billion at December 31, 20182020 and 2017, respectively.2019, representing 43% and 15%, respectively, of the Company’s total assets. Indefinite-lived intangible assets, which consist of the Company'sCompany’s acquired trade names and trademarks, have a carrying value of $458.1$226.6 million and $459.1$221.2 million at December 31, 20182020 and 2017,2019, 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 goodwill impairment assessment, the Company has the option under GAAP to qualitatively assess whether it is more likely than not that the fair value of a reporting unit is less than its carrying value.
Forvalue; if the Company's annual goodwill test at October 1, 2018, aconclusion of the qualitative assessment is that there are no indicators of impairment, the Company does not perform a quantitative test, which would require a valuation of the MTCH, ANGI, Vimeo, College Humor Media and BlueCrew 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 are described below:
MTCH's October 1, 2018 market capitalization of $15.7 billion exceeded its carrying value by approximately $15.1 billion and MTCH's strong operating performance.
ANGI's October 1, 2018 market capitalization of $10.7 billion exceeded its carrying value by approximately $9.6 billion and ANGI's strong operating performance.
The Company performed valuations of the Vimeo, College Humor Media and BlueCrew reporting units during 2018. These valuations were prepared primarily in connection with the issuance and/or settlement of equity awards that are denominated in the equity of these businesses. The valuations were prepared time proximate to, however, notunit, as of October 1, 2018. The fair value of each of these businesses was in excess of its October 1, 2018 carrying value.
The Company tests goodwill for impairment when it concludes that it is more likely than not that there may be an impairment. For1. If needed, the Company's annual goodwill test at October 1, 2018, the Company quantitatively tested the Desktop and Mosaic Group reporting units (included in the Applications segment). The Company's quantitative test indicated that the fair value of these reporting units is in excess of their respective carrying values; therefore, the goodwill of these reporting units is not impaired. The Company's Dotdash, Ask Media Group and The Daily Beast reporting units have no goodwill.
The aggregate goodwill balance for the reporting units for which the most recent estimate of fair value is less than 110% of their carrying values is approximately $265.1 million.
The annual or interim quantitative test of the recovery of goodwill involves a comparison of the estimated fair value of the Company'seach reporting unit that is being tested to its carrying value, including goodwill. If the estimated fair value of athe reporting unit exceeds its carrying value, goodwill of the reporting unit is not impaired. If the carrying value of athe reporting unit exceeds its estimated fair value, an impairment loss equal to the excess is recorded. The 2020 and 2019 annual assessments did not identify any impairments.
As a result of the Company's reporting units (exceptSeparation, the Company had a negative carrying value 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 teststhe Company’s annual goodwill for impairment, either on an interim basis or annual basis as oftest at October 1, each year.2020. Additionally, an impairment test of goodwill was not necessary because there were no factors identified that would indicate an impairment loss. The Company uses the same approach in determining the faircontinued to have a negative carrying value of its businesses in connection with its non-public subsidiary denominated stock-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 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 15% in 2018 and 12.5% to 17.5% in 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.at December 31, 2020.
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'sCompany’s policy is to determine the fair value of each of its indefinite-lived intangible assets annually as of October 1.1, in part, because the level of effort required to perform the quantitative and qualitative assessments is essentially equivalent. The Company determines the fair value of its 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'sCompany’s trade names and trademarks. The future cash flows 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. 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'sCompany’s annual indefinite-lived impairment assessment ranged from 10.5%10% to 35%23% in 20182020 and 11% to 16%26% in 2017,2019, and the royalty rates used ranged from 0.75%5% to 8.0%8% in 20182020 and 2%3% to 7%8% in 2017.2019.
TheIf the carrying value of an indefinite-lived intangible asset exceeds its estimated fair value, an impairment equal to the excess is recorded. During the year ended December 31, 2020, the Company recognized an impairment charge related to the Match brand in the UK and the Meetic brand in Europe of $4.6 million. During the year ended December 31, 2019, the Company recognized an impairment charge on the Match brand in the UK of $6.6 million. At December 31, 2019, the aggregate indefinite-lived intangible asset balance for which the most recent estimate of fair value isat that time was less than 110% of their carrying values iswas approximately $131.3$92.3 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 At December 31, 2020, no 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 distributionbalance had an estimated fair value less than 110% 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 charge equal to the entire $275.4 million at IAC Publishing. In connection with the Company's realignment of its reportable segments in the fourth quarter of 2018, $198.3 million and $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 Dictionary.com and Dotdash indefinite-lived trade names, respectively.carrying value.
Recoverability and Estimated Useful Lives of Long-Lived Assets
We review the carrying value of all long-lived assets, comprisingconsisting of 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 $492.1was $112.1 million and $519.8$108.2 million, at December 31, 20182020 and 2017,2019, respectively.
Income Taxes
The Company accountsMatch Group is subject to income taxes in the United States and numerous foreign jurisdictions. Significant judgment is required in determining our provision for income taxes under the liability method, and deferredincome tax assets and liabilities, are recognizedincluding evaluating uncertainties in the application of accounting principles and complex tax laws.
We record a provision for income taxes for the anticipated tax consequences of our reported results of operations using the asset and liability method. Under this method, we recognize deferred income tax assets and liabilities for the future tax consequences attributable toof temporary differences between the financial statement carrying valuesreporting and tax bases of existing assetsasset and liabilities, as well as for net operating loss and their respective tax bases.credit carryforwards. 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 recoveredrealized or settled. We recognize the deferred income tax effects of a change in tax rates in the period of enactment.
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. At December 31, 2018We consider all available evidence, both positive and 2017,negative,
including historical levels of income, expectations and risks associated with estimates of future taxable income, and tax planning strategies in assessing the balance of the Company's net deferredneed for a valuation allowance.
We recognize tax asset is $41.2 million and $31.3 million, respectively.
The Company evaluates and accounts forbenefits from uncertain tax positions using a two-step approach. Recognition (step one) occurs whenonly if we believe that it is more likely than not that the Company concludes that a tax position will be sustained based solely on itsthe technical merits is more-likely-than-not to be sustainable upon examination. Measurement (step two) determinesof the amount ofposition. Such tax benefits are measured based on the largest benefit that ishas a greater than 50% likely to belikelihood of being 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. settlement. This measurement step is inherently difficult and requires subjective estimations of such amounts to determine the probability of various possible outcomes. At December 31, 2018 and 2017, the Company has unrecognized tax benefits, 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 adjustmentadjustment. We make adjustments to our unrecognized tax benefits when facts and circumstances change, such as the closing of a tax audit or the refinement of an estimate. Although we believe that we have adequately reserved for our uncertain tax positions, the final outcome of these matters may vary significantly from our estimates. To the extent that the final outcome of these matters is different from the amounts recorded, such differences will affect the income tax provision in the period in which may not accurately anticipate actual outcomes. Although management currently believes changes to reserves from period to periodsuch determination is made, and differences between amounts paid, if any, upon resolution of issues raised in audits and amounts previously provided will notcould have a material impact on the liquidity, results of operations, orour financial condition and operating results.
As of December 31, 2020, $158.1 million in cash and cash equivalents was held by our foreign subsidiaries. Generally, our ability to distribute cash from these subsidiaries is limited to that subsidiary’s distributable reserves and after considering other corporate legal restrictions. As a result of the Company, these matters are subject to inherent uncertaintiesTax Cuts and management’s view of these matters may changeJobs Act enacted in the future.
The ultimate amount of deferred income tax assets realized andU.S. in 2017, earnings in our foreign jurisdictions are generally available for distribution to 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.
At December 31, 2018, all of the Company’s international cash can be repatriatedU.S. without significant tax consequences. The Company has not provided for approximately $1.0 million of foreign deferred taxes for 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 each 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 beginning in 2018. The Financial 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 tax expense related to 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$102.3 million and $104.8$89.7 million for the years ended December 31, 2018, 20172020 and 2016,2019, respectively. Included
Stock-based compensation at the Company is complex due to our desire to attract, retain, and reward employees at many of our brands by allowing them to benefit from the value they help to create. We also utilize equity awards as part of our acquisition strategy. We accomplish these objectives, in stock-based compensation expensepart, by issuing equity awards denominated in 2018 and 2017 is $70.6 million and $122.1 million, respectively, relatedthe equity of our non-public subsidiaries as well as in Match Group, Inc. We further refine this approach by tailoring the terms of equity awards as appropriate. For example, we issue certain equity awards with vesting conditioned on the achievement of specified performance targets such as revenue or profits; these awards are referred to as performance awards. In other cases, we condition the vesting of equity awards to the modificationachievement of previously issued HomeAdvisor equityvalue targets for a specific subsidiary or the Company’s stock price; these 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. are referred to as market-based awards.
The Company estimatedissues restricted stock units (“RSUs”) and performance-based stock units (“PSUs”). The value of RSUs with vesting subject only to continued service is based on the fair value of Match Group common stock options issued (including those modified in connection withon the Combination) in 2018, 2017 and 2016 using a Black-Scholes option pricing model and, for those withgrant date. The value of RSUs that include a market condition is based on fair value estimated using a lattice model. For stock options, including subsidiary denominated equity, theThe value of the stock optionRSUs is measured at the grant date at fair value and expensed over the vesting term. The impact onas stock-based compensation expense forover the year ended December 31, 2018, assuming a 1% increase inapplicable vesting term. For PSU grants, 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 $3.8 million, $17.5 million and $6.1 million, respectively. The Company also issues RSUs and performance-based RSUs. For RSUs, the value of the instrumentexpense 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 IACMatch Group common stock and expensed as stock-based compensation over the vesting term whenif the performance targets are considered probable of being achieved.
Investments in Debt and Equity Securities
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 loss on debt securities in net earnings when the impairment is determined to be other-than-temporary. Factors 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 is considered to be other-than-temporary, the debt security will be written down to its fair value and the loss 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 investment strategy. Our equity securities, other than those of our consolidated subsidiaries and those accounted for under the equity 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 equity 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 prospects, 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 its fair value and records 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 is 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 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 $0.6 million related to an equity method investment. During 2017 and 2016, the Company recognized other-than-temporary impairments of $12.2 million and $10.7 million, respectively, related to cost and equity method investments.
Recent Accounting Pronouncements
Data.”
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
The Company'sCompany’s exposure to market risk for changes in interest rates relates primarily to the Company's cash equivalents, marketable debt securities andCompany’s long-term debt, including current maturities.debt.
The Company invests its excess cash in certain cash equivalents and marketable debt securities, which may consist of money market funds, 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, 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 $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 $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, 2018,2020, the Company'sCompany’s outstanding long-term debt was $2.3$3.9 billion, of which $1.4$3.5 billion bears consists of Senior Notes and Exchangeable Senior Notes that bear interest at fixed rates. If market rates decline, the Company runs the risk that the related required payments on the fixed ratefixed-rate debt will exceed those on debt 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 $58.2$135.5 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. TheAt December 31, 2020, the $425 million MTCH Term Loan the $261.3 million outstanding balance on the ANGI Term Loan, and the $260 million of outstanding borrowings under the MTCH Credit Facility bearbore interest at a variable rates. The MTCH Term Loan bears interest atrate, LIBOR plus 2.50%1.75%. As ofAt December 31, 2018,2020, the rate in effect was 5.09%1.96%. If LIBOR were to increase or decrease by 100 basis points, then the annual interest expense and payments on the MTCH Term Loan would increase or decrease, respectively, by $4.3 million. The ANGI Term Loan bears interest at LIBOR plus 1.50%. As of December 31, 2018,million based upon the outstanding balance and rate in effect was approximately 4.00%. If LIBOR were to increase or decrease by 100 basis points, thenat December 31, 2020.
On February 13, 2020, the annual interest expense onCredit Facility and the ANGI Term Loan were amended to, among other things, provide for a benchmark replacement should the LIBOR rate not be available in the future. The rate used would increase or decrease by $2.6 million. The MTCHbe agreed to between the administrative agent and Match Group and may be based upon a secured overnight financing rate at the Federal Reserve Bank of New York. Additional information about the benchmark replacement can be found Amendment No. 6 to the 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.Agreement.
Foreign Currency Exchange Risk
The Company conducts business in certain foreign markets, primarily in various jurisdictions within the European Union (“EU”) and as a result, isAsia. We are exposed to foreign exchange risk for bothprimarily the Euro and British Pound ("GBP"(“GBP”).
For the years ended December 31, 2018, 20172020, 2019 and 2016,2018, international revenue accounted for 34%53%, 30%53% and 26%50%, respectively, of our consolidated revenue. The Company hasWe have exposure to foreign currency exchange risk relatesrelated to transactions carried out in a currency other than the U.S. dollar, and investments in foreign subsidiaries that transact business inwith a functional currency other than the U.S. dollar. As a result, as foreign currency exchange rates fluctuate, thechange, translation of the statement of operations of the Company'sour international businesses into U.S. dollars affects year-over-year comparability of operating results. The average GBP and Euro exchange rates strengthened against the U.S. dollarDollar by approximately 4%1% and 5%2%, respectively, in 20182020 compared to 2017.2019. Foreign currency exchange rate changes during the years ended December 31, 2020 and 2019 negatively impacted revenue by $6.4 million and $47.5 million, respectively, or less than 1% and 2% of total revenue, respectively. See “Principles of Financial Reporting” in “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the definition of Revenue excluding foreign exchange effects and a reconciliation of Revenue to Revenue excluding foreign exchange effects.
The Company is also exposed to foreignForeign currency transactionexchange gains and losses toincluded in 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 $34.4 millionCompany’s earnings for the years ended December 31, 2020, 2019 and 2018 2017 and 2016, respectively. The increase in GBP versus the U.S. dollar during 2018 and 2017 and the decrease in the GBP versus the U.S. dollar during 2016, following the Brexit vote on June 23, 2016, generated the majority of the Company's foreign currency exchange gains and losses in these years. The foreign exchange gains and losses are primarily related to a U.S. dollar denominated intercompany loan related to a 2016 acquisition in which the receivable is held by a foreign subsidiary with a GBP functional currency. The foreign exchange losses in 2017(losses) and gains in 2016 were further impacted by U.S. dollar denominated cash, the majority of which is from the proceeds received in the PriceRunner sale in March 2016, held by a foreign subsidiary with a GBP functional currency. Subsequent to December 31, 2017, the Company moved this U.S. dollar denominated cash to a U.S. dollar functional currency entity.$(0.6) million, $(0.9) million and $5.3 million, respectively.
Foreign currency exchange gains or losses historically have not been material to the Company. As a result, we have not historically, the Company has not hedged any 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 onadversely affect 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/InterActiveCorpMatch Group, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of IAC/InterActiveCorpMatch Group, Inc. and subsidiaries (the Company) as of December 31, 20182020 and 2017,2019, and the related consolidated statements of operations, comprehensive operations, shareholders'shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2018,2020, 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, 20182020 and 2017,2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018,2020, 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'sCompany’s internal control over financial reporting as of December 31, 2018,2020, 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, 2019February 25, 2021 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'sCompany’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.
Critical Audit Matters
/s/ ERNST & YOUNG LLPThe critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
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| Stock-Based Compensation |
| Description of the Matter | During the year ended December 31, 2020, the Company recorded stock-based compensation expense of $102.3 million. As discussed in Note 11 to the consolidated financial statements, the Company issues various types of equity awards, including stock options, restricted stock units, performance-based awards, market-based awards and equity instruments denominated in the shares of certain subsidiaries. Auditing the Company’s accounting for stock-based compensation required complex auditor judgment due to the number and the variety of the types of equity awards, the subjectivity of assumptions used to value stock-based awards (e.g., expected term), the frequent use of performance-based vesting conditions and the existence of awards denominated in the shares of certain subsidiaries. |
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| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s controls over stock-based compensation. For example, we tested controls over the Company’s process to assess the completeness of its share-based awards and for measuring and recording stock-based compensation, including management’s review of the underlying calculations, and the significant assumptions used in valuing certain awards. To test stock-based compensation expense, we performed audit procedures that included, among others, assessing the completeness of the awards granted and evaluating the methodologies used to estimate the fair value of the awards granted and the significant assumptions described above. Our procedures also included, evaluating the key terms and conditions of awards granted to assess the accounting treatment for a sample of awards and testing the clerical accuracy of the calculation of the expense recorded. Additionally, we involved our internal valuation specialists to assess certain assumptions used in estimating the fair value of the awards. |
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| Recoverability of Indefinite-Lived Intangible Assets |
| Description of the Matter | As of December 31, 2020, the Company’s indefinite-lived intangible asset balance, excluding goodwill, was $226.6 million. As disclosed in Note 2 to the consolidated financial statements, 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 an indefinite-lived intangible asset below its carrying value. Auditing management’s impairment tests for indefinite-lived intangible assets was complex and judgmental due to the measurement uncertainty in estimating the fair value of indefinite-lived intangible assets. Specifically, the fair value estimates for indefinite-lived intangible assets were sensitive to assumptions such as discount rates, revenue growth rates, royalty rates and projected cash flow terminal growth rates. These assumptions are affected by such factors as expected future market or economic conditions. |
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| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s controls over its indefinite-lived intangible assets impairment review process. For example, we tested controls over the Company’s forecasting and budgeting process as well as controls over management’s review of the significant assumptions used to estimate the fair values of the indefinite-lived intangible assets. To test the estimated fair value of indefinite-lived intangible assets, our audit procedures included, among others, assessing the methodologies and testing the significant assumptions and underlying data used by the Company. We evaluated the Company’s underlying forecast and budget information by comparing the significant assumptions to current industry and economic trends, changes in the Company’s business model and assessed the historical accuracy of management’s estimates. For example, we evaluated management’s forecasted revenue to identify, understand and evaluate changes as compared to historical results. We performed sensitivity analyses of significant assumptions to evaluate the change in the fair value of indefinite-lived intangible assets resulting from changes in the assumptions. In addition, we involved an internal valuation specialist to assist in evaluating management’s methodologies and significant assumptions applied in developing the fair value estimates. |
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| Separation of Match Group and IAC/InterActiveCorp |
| Description of the Matter | As described in Note 1 to the consolidated financial statements, the companies formerly known as Match Group, Inc. (“Former Match Group”) and IAC/InterActiveCorp (“Former IAC”) completed the separation of Match Group from IAC on June 30, 2020. At the effective date, the two public companies were fully separated as follows: (1) Match Group, which consists of the businesses of Former Match Group and certain financing subsidiaries previously owned by Former IAC, and (2) IAC/InterActiveCorp, formerly known as IAC Holdings, Inc. (“IAC”), consisting of Former IAC’s businesses other than Match Group and certain financing subsidiaries (the “Separation”). As disclosed in Note 4, the operations of the Former IAC businesses other than Match Group and certain financing subsidiaries, are presented as discontinued operations. Auditing the Separation transaction required a significant amount of audit effort due to the especially complex nature of the transaction among related parties and the presentation of the Former IAC businesses as discontinued operations. In particular, significant audit effort was necessary to perform procedures and evaluate evidence relating to management's evaluation of the Separation transaction, including the determination of the U.S. federal income tax consequences, which required complex auditor judgement in determining the appropriate tax treatment for the Separation. |
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| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s controls over its accounting for the Separation and basis of presentation. For example, we tested controls over management’s analysis and review of the Separation documents, management’s review of the accounting conclusions reached related to the discounted operations presentation, management’s review of the recording of the related journal entries and management’s review and analysis of the appropriate tax treatment for the Separation. To test the accounting for the transactions related to the Separation among related parties and the basis of presentation, our audit procedures included, among others, inspecting the Separation related documents, such as the transaction agreement and tax matters agreement; inquiring of executive officers, key members of management, the Audit Committee of the Board of Directors and legal counsel regarding the Separation; inspecting the Company’s minutes from meetings of the Board of Directors and related committees; verifying that the discontinued operations were properly determined, calculated and presented and assessing the appropriateness of the composition of the consolidated financial statements. For example, we tested the Separation journal entries recorded and vouched the cash transactions. In addition, we involved internal tax specialists to assist in reviewing the series of steps that effectuated the Separation and the related tax opinion, verifying the appropriateness of the tax treatment for the Separation. |
We have served as the Company’s auditor since 1996.
New York, New York
March 1, 2019February 25, 2021
MATCH GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET | | | | | | | | December 31, |
| | December 31, | | 2020 | | 2019 |
| | 2018 | | 2017 | | | | |
| | (In thousands, except par value amounts) | | (In thousands, except share data) |
| ASSETS | | | | ASSETS | | | |
| Cash and cash equivalents | $ | 2,131,632 |
| | $ | 1,630,809 |
| Cash and cash equivalents | $ | 739,164 | | | $ | 465,676 | |
| Marketable securities | 123,665 |
| | 4,995 |
| |
| Accounts receivable, net of allowance and reserves of $18,860 and $11,489, respectively | 279,189 |
| | 304,027 |
| |
| | Accounts receivable, net of allowance of $286 and $578, respectively | | Accounts receivable, net of allowance of $286 and $578, respectively | 137,023 | | | 116,459 | |
| | Other current assets | 228,253 |
| | 185,374 |
| Other current assets | 144,025 | | | 97,850 | |
| Current assets of discontinued operations | | Current assets of discontinued operations | 0 | | | 3,028,079 | |
| Total current assets | 2,762,739 |
| | 2,125,205 |
| Total current assets | 1,020,212 | | | 3,708,064 | |
|
|
| |
|
| |
| Property and equipment, net of accumulated depreciation and amortization | 318,800 |
| | 315,170 |
| |
| Property and equipment, net | | Property and equipment, net | 107,799 | | | 101,065 | |
| Goodwill | 2,726,859 |
| | 2,559,066 |
| Goodwill | 1,270,532 | | | 1,239,839 | |
| Intangible assets, net of accumulated amortization | 631,422 |
| | 663,737 |
| |
| Long-term investments | 235,055 |
| | 64,977 |
| |
| Intangible assets, net | | Intangible assets, net | 230,900 | | | 228,324 | |
| Deferred income taxes | 64,786 |
| | 66,321 |
| Deferred income taxes | 224,013 | | | 192,496 | |
| | Other non-current assets | 134,924 |
| | 73,334 |
| Other non-current assets | 123,524 | | | 64,232 | |
| Non-current assets of discontinued operations | | Non-current assets of discontinued operations | 0 | | | 2,830,783 | |
| TOTAL ASSETS | $ | 6,874,585 |
| | $ | 5,867,810 |
| TOTAL ASSETS | $ | 2,976,980 | | | $ | 8,364,803 | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | | LIABILITIES AND SHAREHOLDERS’ EQUITY | | | |
| LIABILITIES | | LIABILITIES | | | |
|
| |
| |
| LIABILITIES AND SHAREHOLDERS' EQUITY | | | | |
| LIABILITIES: | | | | |
| Current portion of long-term debt | $ | 13,750 |
| | $ | 13,750 |
| |
| Accounts payable, trade | 74,907 |
| | 76,571 |
| |
| | Accounts payable | | Accounts payable | $ | 29,200 | | | $ | 20,191 | |
| Deferred revenue | 360,015 |
| | 342,483 |
| Deferred revenue | 239,088 | | | 218,843 | |
| | Accrued expenses and other current liabilities | 434,886 |
| | 366,924 |
| Accrued expenses and other current liabilities | 231,748 | | | 182,250 | |
| Current liabilities of discontinued operations | | Current liabilities of discontinued operations | 0 | | | 588,896 | |
| Total current liabilities | 883,558 |
| | 799,728 |
| Total current liabilities | 500,036 | | | 1,010,180 | |
|
|
| |
|
| |
| Long-term debt, net | 2,245,548 |
| | 1,979,469 |
| Long-term debt, net | 3,534,706 | | | 2,889,626 | |
| Income taxes payable | 37,584 |
| | 25,624 |
| Income taxes payable | 14,582 | | | 30,295 | |
| Deferred income taxes | 23,600 |
| | 35,070 |
| Deferred income taxes | 17,213 | | | 18,285 | |
| Other long-term liabilities | 66,807 |
| | 38,229 |
| Other long-term liabilities | 86,428 | | | 26,158 | |
|
|
| |
|
| |
| Non-current liabilities of discontinued operations | | Non-current liabilities of discontinued operations | 0 | | | 447,414 | |
| Redeemable noncontrolling interests | 65,687 |
| | 42,867 |
| Redeemable noncontrolling interests | 640 | | | 44,527 | |
|
| |
| |
| Commitments and contingencies |
| |
| Commitments and contingencies | 0 | | 0 |
|
| |
| |
| SHAREHOLDERS' EQUITY: |
| |
| |
| 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 |
| |
| SHAREHOLDERS’ EQUITY | | SHAREHOLDERS’ EQUITY | | | |
| Common stock; $0.001 par value; authorized 1,600,000,000 shares; 267,329,284 and 0 shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively | | Common stock; $0.001 par value; authorized 1,600,000,000 shares; 267,329,284 and 0 shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively | 267 | | | 0 | |
| Former IAC common stock; $0.001 par value; authorized 1,600,000,000 shares; 0 and 263,229,724 shares issued; and 0 and 78,889,779 shares outstanding at December 31, 2020 and December 31, 2019, respectively | | Former IAC common stock; $0.001 par value; authorized 1,600,000,000 shares; 0 and 263,229,724 shares issued; and 0 and 78,889,779 shares outstanding at December 31, 2020 and December 31, 2019, respectively | 0 | | | 263 | |
| Former IAC Class B convertible common stock; $0.001 par value; authorized 400,000,000 shares; 0 and 16,157,499 shares issued; and 0 and 5,789,499 shares outstanding at December 31, 2020 and December 31, 2019, respectively | | Former IAC Class B convertible common stock; $0.001 par value; authorized 400,000,000 shares; 0 and 16,157,499 shares issued; and 0 and 5,789,499 shares outstanding at December 31, 2020 and December 31, 2019, respectively | 0 | | | 16 | |
| Additional paid-in capital | 12,022,387 |
| | 12,165,002 |
| Additional paid-in capital | 7,394,646 | | | 11,683,799 | |
| Retained earnings | 1,258,794 |
| | 595,038 |
| Retained earnings | (8,491,126) | | | 1,689,925 | |
| Accumulated other comprehensive loss | (128,722 | ) | | (103,568 | ) | Accumulated other comprehensive loss | (81,454) | | | (136,349) | |
| Treasury stock 194,708 and 194,163 shares, respectively | (10,309,612 | ) | | (10,226,721 | ) | |
| Total IAC shareholders' equity | 2,843,125 |
| | 2,430,028 |
| |
| Treasury stock; 0 and 194,707,945 shares, respectively | | Treasury stock; 0 and 194,707,945 shares, respectively | 0 | | | (10,309,612) | |
| Total Match Group, Inc. shareholders’ equity | | Total Match Group, Inc. shareholders’ equity | (1,177,667) | | | 2,928,042 | |
| Noncontrolling interests | 708,676 |
| | 516,795 |
| Noncontrolling interests | 1,042 | | | 970,276 | |
| Total shareholders' equity | 3,551,801 |
| | 2,946,823 |
| |
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 6,874,585 |
| | $ | 5,867,810 |
| |
| Total shareholders’ equity | | Total shareholders’ equity | (1,176,625) | | | 3,898,318 | |
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | | TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 2,976,980 | | | $ | 8,364,803 | |
MATCH GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2020 | | 2019 | | 2018 |
| | | | | |
| | (In thousands, except per share data) |
| Revenue | $ | 2,391,269 | | | $ | 2,051,258 | | | $ | 1,729,850 | |
| Operating costs and expenses: | | | | | |
| Cost of revenue (exclusive of depreciation shown separately below) | 635,833 | | | 527,184 | | | 410,000 | |
| Selling and marketing expense | 479,907 | | | 427,440 | | | 419,954 | |
| General and administrative expense | 311,207 | | | 256,138 | | | 182,252 | |
| Product development expense | 169,811 | | | 151,960 | | | 132,030 | |
| Depreciation | 41,271 | | | 34,355 | | | 34,827 | |
| Amortization of intangibles | 7,525 | | | 8,727 | | | 1,318 | |
| Total operating costs and expenses | 1,645,554 | | | 1,405,804 | | | 1,180,381 | |
| Operating income | 745,715 | | | 645,454 | | | 549,469 | |
| Interest expense | (174,791) | | | (140,570) | | | (94,568) | |
| | | | | |
| Other income (expense), net | 15,861 | | | (2,026) | | | 7,510 | |
| Earnings from continuing operations, before tax | 586,785 | | | 502,858 | | | 462,411 | |
| Income tax provision | (32,874) | | | (8,225) | | | (11,307) | |
| Net earnings from continuing operations | 553,911 | | | 494,633 | | | 451,104 | |
| (Loss) earnings from discontinued operations, net of tax | (366,070) | | | 49,187 | | | 306,643 | |
| Net earnings | 187,841 | | | 543,820 | | | 757,747 | |
| Net earnings attributable to noncontrolling interests | (59,280) | | | (112,689) | | | (130,786) | |
| Net earnings attributable to Match Group, Inc. shareholders | $ | 128,561 | | | $ | 431,131 | | | $ | 626,961 | |
| | | | | |
| Net earnings per share from continuing operations: | | | | | |
| Basic | $ | 2.21 | | | $ | 2.15 | | | $ | 2.03 | |
| Diluted | $ | 2.00 | | | $ | 1.88 | | | $ | 1.73 | |
| | | | | |
| Net earnings per share attributable to Match Group, Inc. shareholders: | | | | | |
| Basic | $ | 0.58 | | | $ | 2.37 | | | $ | 3.48 | |
| Diluted | $ | 0.49 | | | $ | 2.08 | | | $ | 3.05 | |
| | | | | |
| Stock-based compensation expense by function: | | | | | |
| Cost of revenue | $ | 4,201 | | | $ | 3,693 | | | $ | 2,287 | |
| Selling and marketing expense | 5,141 | | | 5,112 | | | 3,599 | |
| General and administrative expense | 59,174 | | | 42,863 | | | 32,346 | |
| Product development expense | 33,752 | | | 38,056 | | | 27,799 | |
| Total stock-based compensation expense | $ | 102,268 | | | $ | 89,724 | | | $ | 66,031 | |
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | (In thousands, except per share data) |
| Revenue | $ | 4,262,892 |
| | $ | 3,307,239 |
| | $ | 3,139,882 |
|
| Operating costs and expenses: | | | | | |
| Cost of revenue (exclusive of depreciation shown separately below) | 911,146 |
| | 651,008 |
| | 755,730 |
|
| Selling and marketing expense | 1,519,440 |
| | 1,381,221 |
| | 1,247,097 |
|
| General and administrative expense | 774,079 |
| | 719,257 |
| | 530,446 |
|
| Product development expense | 309,329 |
| | 250,879 |
| | 212,765 |
|
| Depreciation | 75,360 |
| | 74,265 |
| | 71,676 |
|
| Amortization of intangibles | 108,399 |
| | 42,143 |
| | 79,426 |
|
| Goodwill impairment | — |
| | — |
| | 275,367 |
|
| Total operating costs and expenses | 3,697,753 |
| | 3,118,773 |
| | 3,172,507 |
|
| Operating income (loss) | 565,139 |
| | 188,466 |
| | (32,625 | ) |
| Interest expense | (109,327 | ) | | (105,295 | ) | | (109,110 | ) |
| Other income (expense), net | 305,746 |
| | (16,213 | ) | | 60,650 |
|
| Earnings (loss) before income taxes | 761,558 |
| | 66,958 |
| | (81,085 | ) |
| Income tax (provision) benefit | (3,811 | ) | | 291,050 |
| | 64,934 |
|
| Net earnings (loss) | 757,747 |
| | 358,008 |
| | (16,151 | ) |
| Net earnings attributable to noncontrolling interests | (130,786 | ) | | (53,084 | ) | | (25,129 | ) |
| Net earnings (loss) attributable to IAC shareholders | $ | 626,961 |
| | $ | 304,924 |
| | $ | (41,280 | ) |
| | | | | | |
| Per share information attributable to IAC shareholders: | | | | | |
| Basic earnings (loss) per share | $ | 7.52 |
| | $ | 3.81 |
| | $ | (0.52 | ) |
| Diluted earnings (loss) per share | $ | 6.59 |
| | $ | 3.18 |
| | $ | (0.52 | ) |
| | | | | | |
| Stock-based compensation expense by function: | | | | | |
| Cost of revenue | $ | 2,482 |
| | $ | 1,881 |
| | $ | 2,305 |
|
| Selling and marketing expense | 7,943 |
| | 31,318 |
| | 6,000 |
|
| General and administrative expense | 188,510 |
| | 192,957 |
| | 77,151 |
|
| Product development expense | 39,485 |
| | 38,462 |
| | 19,364 |
|
| Total stock-based compensation expense | $ | 238,420 |
| | $ | 264,618 |
| | $ | 104,820 |
|
IAC/INTERACTIVECORPMATCH GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE OPERATIONS
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2020 | | 2019 | | 2018 |
| | | | | |
| (In thousands) |
| Net earnings | $ | 187,841 | | | $ | 543,820 | | | $ | 757,747 | |
| Other comprehensive income (loss), net of tax | | | | | |
| Change in foreign currency translation adjustment | 39,415 | | | (9,961) | | | (31,411) | |
| Change in unrealized losses and gains on available-for-sale securities | (1) | | | (5) | | | 5 | |
| Total other comprehensive income (loss) | 39,414 | | | (9,966) | | | (31,406) | |
| Comprehensive income | 227,255 | | | 533,854 | | | 726,341 | |
| Comprehensive loss (income) attributable to noncontrolling interests: | | | | | |
| Net earnings attributable to noncontrolling interests | (59,280) | | | (112,689) | | | (130,786) | |
| Change in foreign currency translation adjustment attributable to noncontrolling interests | 1,072 | | | 2,023 | | | 6,129 | |
| Change in unrealized losses and gains of available-for-sale debt securities attributable to noncontrolling interests | 0 | | | 1 | | | (1) | |
| Comprehensive income attributable to noncontrolling interests | (58,208) | | | (110,665) | | | (124,658) | |
| Comprehensive income attributable to Match Group, Inc. shareholders | $ | 169,047 | | | $ | 423,189 | | | $ | 601,683 | |
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | (In thousands) |
| Net earnings (loss) | $ | 757,747 |
| | $ | 358,008 |
| | $ | (16,151 | ) |
| Other comprehensive (loss) income, net of tax: | | | | | |
| Change in foreign currency translation adjustment | (31,411 | ) | | 80,269 |
| | (43,126 | ) |
| 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 | 726,341 |
| | 434,251 |
| | (57,793 | ) |
| Components of comprehensive (income) loss attributable to noncontrolling interests: | | | | | |
| Net earnings attributable to noncontrolling interests | (130,786 | ) | | (53,084 | ) | | (25,129 | ) |
| Change in foreign currency translation adjustment attributable to noncontrolling interests | 6,129 |
| | (13,797 | ) | | 6,033 |
|
| Change in unrealized gain and losses of available-for-sale securities attributable to noncontrolling interests | (1 | ) | | — |
| | 458 |
|
| Comprehensive income attributable to noncontrolling interests | (124,658 | ) | | (66,881 | ) | | (18,638 | ) |
| Comprehensive income (loss) attributable to IAC shareholders | $ | 601,683 |
| | $ | 367,370 |
| | $ | (76,431 | ) |
MATCH GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS'SHAREHOLDERS’ EQUITY
Years Ended December 31, 2018, 20172020, 2019, and 20162018
Certain prior year amounts have been reclassified to conform to the current year presentation.
U.S. and foreign earnings (loss) before income taxes and noncontrolling interests are as follows:
