IAC INC. GENERAL
Acquisition of
OnDecember 1, 2021 ,Dotdash Media Inc. (formerly known asAbout Inc. , and referred to herein as "Dotdash"), a wholly-owned subsidiary ofIAC Inc. (formerly known asIAC/InterActiveCorp , referred to herein as "IAC"), completed the acquisition of Meredith Holdings Corporation ("Meredith"), which holdsMeredith Corporation's national media business, consisting of its digital and magazine businesses, and its corporate operations. The parent of the combined entity isDotdash Meredith, Inc. ("DotdashMeredith ").
Vimeo Spin-off
OnMay 25, 2021 , IAC completed the spin-off of its full stake inVimeo, Inc. (formerlyVimeo Holdings, Inc. ("Vimeo")) to IAC shareholders (which we refer to as the "Spin-off"). Following the Spin-off, Vimeo became an independent, separately traded public company. Therefore, Vimeo is presented as a discontinued operation within IAC's financial statements for all periods prior toMay 25, 2021 . Management Overview
IAC today is comprised of Dotdash
As used herein, "IAC," the "Company," "we," "our" or "us" and similar terms
refer to
For a more detailed description of the Company's operating businesses, see
"Description of IAC Businesses" included in "Item 1-Business" to the Company's
Annual Report on Form 10-K for the year ended
Defined Terms and Operating Metrics:
Unless otherwise indicated or as the context otherwise requires, certain terms used in this quarterly report, which include the principal operating metrics we use in managing our business, are defined below:
Reportable Segments (for additional information see " Note 8-Segment Information " to the financial statements included in " Item 1. Consolidated Financial Statements "):
•DotdashMeredith - one of the largest digital and print publishers in America. From mobile to magazines, nearly 200 million people trust us to help them make decisions, take action, and find inspiration. DotdashMeredith 's over 40 iconic brands include PEOPLE,Better Homes & Gardens , Verywell, FOOD & WINE, The Spruce, Allrecipes, Byrdie, REAL SIMPLE, Investopedia and Southern Living. •Angi Inc. - a publicly traded company that connects quality home service professionals with consumers across more than 500 different categories, from repairing and remodeling homes to cleaning and landscaping. AtSeptember 30, 2022 , the Company's economic interest and voting interest inAngi Inc. were 84.3% and 98.2%, respectively.
•Search - consists of
•Emerging & Other - consists of:
•Care.com, a leading online destination for families to easily connect with caregivers for their children, aging parents, pets and homes and for a wide variety of caregivers to easily connect with families.Care.com's brands include Care For Business,Care.com offerings to enterprises, and HomePay; 45 -------------------------------------------------------------------------------- Table of Contents •Mosaic Group, a leading developer and provider of global subscription mobile applications.Mosaic Group has a portfolio of some of the largest and most popular applications in the following verticals: Communications (RoboKiller , TapeACall, Trapcall), Language (iTranslate, Grammatica), Weather (Clime:NOAA Weather Radar Live, Weather Live), Business (PDF Hero, Scan Hero), Health (Window - Intermittent Fasting) and Lifestyle (Blossom, Pixomatic); and
•Bluecrew,
Dotdash
•Digital Revenue - consists principally of display advertising, performance marketing, and licensing and other revenue.
•Dotdash Display Advertising Revenue - primarily includes revenue generated from display advertisements sold both directly through our sales team and via programmatic exchanges.
•Dotdash Performance Marketing Revenue - primarily includes affiliate commerce and performance marketing commissions generated when consumers are directed from our properties to third-party service providers. Affiliate commerce commissions are generated when a consumer completes a purchase or transaction. Performance marketing commissions are generated on a cost-per-click or cost-per-action basis.
•Print Revenue - primarily includes subscription, newsstand, advertising and performance marketing revenue.
•Angi Ads and Leads Revenue - primarily reflects domestic ads and leads revenue, including consumer connection revenue for consumer matches, revenue from service professionals under contract for advertising and membership subscription revenue from service professionals and consumers. •Angi Services Revenue - primarily reflects domestic revenue from pre-priced offerings by which the consumer purchases services directly fromAngi Inc. andAngi Inc. engages a service professional to perform the service and includes revenue fromTotal Home Roofing, Inc. ("Angi Roofing"), which was acquired onJuly 1, 2021 . •Angi Service Requests ("Service Requests") - are fully completed and submitted domestic customer service requests and includes Angi Services requests in the period.
Operating Costs and Expenses:
•Cost of revenue - consists primarily of traffic acquisition costs, which includes (i) payments made to partners who direct traffic to ourAsk Media Group websites and who distribute our business-to-business customized browser-based applications and (ii) the amortization of fees paid to Apple andMeredith , payments made to independent third-party service professionals who perform work contracted under Angi Services arrangements, compensation expense (including stock-based compensation expense) and other employee-related costs, roofing material and third-party contactor costs associated with Angi Roofing, credit card processing fees, payments made to workers staffed byBluecrew , hosting fees, and payments made to care providers for Care For Business. •Selling and marketing expense - consists primarily of advertising expenditures, which include online marketing, including fees paid to search engines, social media sites, other online marketing platforms, app platforms and partner-related payments to those who direct traffic to the brands within ourAngi Inc. segment, offline marketing, which is primarily television advertising, compensation expense (including stock-based compensation expense) and other employee-related costs for sales force and marketing personnel, subscription acquisition costs related to DotdashMeredith , and outsourced personnel and consulting costs. 46 -------------------------------------------------------------------------------- Table of Contents •General and administrative expense - consists primarily of compensation expense (including stock-based compensation expense) and other employee-related costs for personnel engaged in executive management, finance, legal, tax, human resources and customer service functions (except forCare.com , which includes customer service costs within "Cost of revenue" in the statement of operations), fees for professional services (including transaction-related costs related to the acquisition ofMeredith , the Spin-off and other acquisitions and dispositions), provision for credit losses, rent expense and facilities cost, software license and maintenance costs, and acquisition-related contingent consideration fair value adjustments (described below). The customer service function atAngi Inc. includes personnel who provide support to its service professionals and consumers. •Product development expense - consists primarily of compensation expense (including stock-based compensation expense) and other employee-related costs and third-party contractor 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. •Acquisition-related contingent consideration fair value adjustments - relate to the portion of the purchase price of certain acquisitions that is contingent upon the financial performance and/or operating metric targets of the acquired company. The fair value of the liability is estimated at the date of acquisition and adjusted each reporting period until the liability is settled. Significant changes in financial performance and/or operating metrics will result in a significantly higher or lower fair value measurement. The changes in the estimated fair value of the contingent consideration arrangements during each reporting period, including the accretion of the discount if the arrangement is longer than one year, are recognized in "General and administrative expense" in the statement of operations.
Long-term debt (for additional information see " Note 6-Long-term Debt " to the financial statements included in " Item 1. Consolidated Financial Statements "):
•DotdashMeredith Term Loan A - dueDecember 1, 2026 . The outstanding balance of the DotdashMeredith Term Loan A is$336.9 million and$350.0 million atSeptember 30, 2022 andDecember 31, 2021 , respectively, and bore interest at an adjusted term secured overnight financing rate ("Adjusted Term SOFR") plus 2.25% and 2.00%, or 4.86% and 2.15%, atSeptember 30, 2022 andDecember 31, 2021 , respectively. The DotdashMeredith Term Loan A has quarterly principal payments. •DotdashMeredith Term Loan B - dueDecember 1, 2028 . The outstanding balance of the DotdashMeredith Term Loan B is$1.24 billion and$1.25 billion atSeptember 30, 2022 andDecember 31, 2021 , respectively, and bore interest at Adjusted Term SOFR, subject to a minimum of 0.50%, plus 4.00%, or 6.61% and 4.50%, atSeptember 30, 2022 andDecember 31, 2021 , respectively. The DotdashMeredith Term Loan B has quarterly principal payments.
•Dotdash
•ANGI Group Senior Notes - onAugust 20, 2020 ,ANGI Group, LLC ("ANGI Group "), a direct wholly-owned subsidiary ofAngi Inc. , issued$500 million of its 3.875% Senior Notes dueAugust 15, 2028 , with interest payableFebruary 15 andAugust 15 of each year. Non-GAAP financial measure:
•Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization
("Adjusted EBITDA") - is a non-GAAP financial measure. See " Principles of
Financial Reporting " for the definition of Adjusted EBITDA and a
reconciliation of net (loss) earnings attributable to IAC shareholders to
operating loss to Adjusted EBITDA for the three and nine months ended
InMarch 2021 ,ANGI Homeservices Inc. changed its name toAngi Inc. and updated one of its leading websites and brands,Angie's List , toAngi , and since then, has concentrated its marketing investment in the Angi brand in order to focus its marketing, sales, and branding efforts on a single brand. 47 -------------------------------------------------------------------------------- Table of ContentsAngi Inc. relies heavily on free, or organic, search results from search engine optimization and paid search engine marketing to drive traffic to its websites. This brand integration initiative initially adversely affected the placement and ranking ofAngi Inc. websites, particularly Angi.com, in organic search results.Angi Inc. has now passed the anniversary of the rebranding and organic search results continue to improve relative to the same period in 2021.Angi Inc. expects this positive trend to continue. However, organic search results are still below pre-March 2021 levels. The shift of marketing to supportAngi , away from HomeAdvisor, powered byAngi , has had and continues to have a negative effect on the efficiency of its search engine marketing efforts.Angi Inc. will continue to optimize the efficiency and conversion of marketing to HomeAdvisor to maintain profitable demand generation to that domain for the foreseeable future but they do expect the trend of declining traffic to continue due to sustained marketing emphasis in favor ofAngi .
Angi Services was launched inAugust 2019 , andAngi Inc. has invested and continues to invest significantly in Angi Services since then.Angi Inc.'s investment in Angi Services peaked in the first quarter of 2022. As a result, on a sequential basis, the negative impact on profits has declined in each quarter of 2022 and is expected to decline in the fourth quarter of 2022 relative to the third quarter. On a year-over-year basis, the positive impact on profits began in the third quarter of 2022 andAngi Inc. expects that positive year-over-year trend to continue in the fourth quarter of 2022 and into 2023.
Dotdash
In the first quarter of 2022, DotdashMeredith announced its plans to discontinue certain print publications and the shutdown of PeopleTV to focus the portfolio and further enable investments toward digital growth. The discontinued print publications consist ofEntertainment Weekly , InStyle, EatingWell, Health, Parents, and People en Español, with theApril 2022 issues as the final print editions, and Martha Stewart Living, with theMay 2022 issue as the final print edition. DotdashMeredith also announced a voluntary retirement program in the first quarter of 2022 to its employees who met certain age and service requirements. In addition, actions were taken to improve efficiencies following theMeredith acquisition, including vacating leased office space. For the three and nine months endedSeptember 30, 2022 , the Company incurred$24.7 million and$60.8 million , respectively, of related restructuring charges, including$3.4 million and$36.5 million , respectively, of severance and related costs. The restructuring charges for both the three and nine months endedSeptember 30, 2022 include$21.3 million of impairment charges related to the consolidation of certain leased spaces following theMeredith acquisition;$14.3 million related to the impairment of a right-of-use asset ("ROU asset"), which is included in "General and administrative expense," and$7.0 million related to the impairment of leasehold improvements and furniture and equipment, which is included in "Depreciation" in the statement of operations. DotdashMeredith anticipates the estimated remaining costs associated with the 2022 restructuring events will be approximately$1.0 million and will be paid byDecember 31, 2023 from existing cash on hand. See " Note 4-DotdashMeredith Restructuring Charges, Transaction-Related Expenses and Change-in-Control Payments " to the financial statements included in " Item 1. Consolidated Financial Statements " for additional information on DotdashMeredith restructuring charges.
Certain Risks and Concentrations-Services Agreement with
The Company andMarch 31, 2024 and provides for an automatic renewal for an additional one-year period absent a notice of non-renewal from either party on or beforeMarch 31, 2023 . The Company earns certain other advertising revenue fromSeptember 30, 2022 , total revenue earned from$161.6 million and$524.3 million , respectively, representing 12% and 13%, respectively, of the Company's revenue. The total revenue earned from the Services Agreement for the three and nine months endedSeptember 30, 2022 was$117.3 million and$386.6 million , respectively, representing 9% and 10%, respectively, of the Company's total revenue. For the three and nine months endedSeptember 30, 2021 , total revenue earned from$185.6 million and$527.0 million , respectively, representing 20% and 21%, respectively, of the Company's revenue. The total revenue earned from the Services Agreement for the three and nine months endedSeptember 30, 2021 was$168.0 million and$471.3 million , respectively, representing 18% and 19%, respectively, of the Company's total revenue. The related accounts receivable totaled$58.3 million and$89.1 million atSeptember 30, 2022 andDecember 31, 2021 , respectively. The revenue attributable to the Services Agreement is earned byAsk Media Group and the Desktop business, both within the Search segment. For the three and nine months endedSeptember 30, 2022 , revenue earned from the Services Agreement was$97.3 million and$315.4 million , respectively, withinAsk Media Group and$20.0 million and$71.2 million , respectively, within the Desktop business. For the three and nine months endedSeptember 30, 2021 , revenue earned from the Services Agreement was$137.9 million and$382.5 million , respectively, withinAsk Media Group and$30.1 million and$88.8 million , respectively, within the Desktop business. The Services Agreement requires that the Company comply with certain guidelines promulgated byAugust 27, 2020 . These industry-wide changes, combined with increased enforcement of policies under the Services Agreement, have had a negative impact on the results of operations of the B2C business. During the fourth quarter of 2020,January 2021 . Subsequently,May 10, 2021 . We anticipated that thisMarch 2021 . This elimination of marketing positively impacted profitability starting in the second quarter of 2021 because revenue from B2C products is earned over multiple periods beyond just the period in which the initial marketing is incurred. Following the cessation of the introduction of new products inMarch 2021 , the B2C revenue stream relates solely to the then existing installed base of products. We expect future revenue and profits of the B2C business to continue to decline significantly.
COVID-19 Update
The impact on the Company from the COVID-19 pandemic and the measures designed
to contain its spread continues to have a negative impact on year-over-year
financial performance at
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Angi Inc.
As previously disclosed, the impact of COVID-19 on the businesses in IAC's Angi
Inc. segment initially resulted in a decline in demand for service requests,
driven primarily by decreases in demand in certain categories of jobs
(particularly discretionary indoor projects). While these businesses experienced
a rebound in service requests from mid-2020 through early 2021, service requests
started to decline in May 2021 and have continued to decline during 2022 due, in
part, to COVID-19 measures that were more widely in place in prior periods. Angi
Inc.'s ability to monetize service requests rebounded modestly in the second
half of 2021 and the first half of 2022, however, that improved monetization
plateaued in the third quarter of 2022 and is now in line with monetization
rates experienced pre-COVID-19.
Dotdash
Traffic to Dotdash's sites is down relative to last year when COVID-19 measures were still more widely in place. As a result, digital advertising and performance marketing revenue at Dotdash, excludingMeredith , declined compared to 2021 due to lower traffic to its sites compared to prior year COVID-19 traffic highs. Post acquisition,Meredith has experienced a similar impact to its digital advertising revenue.
Future Outlook
The extent to which developments related to the COVID-19 pandemic and measures
designed to curb its spread continue to impact the Company's business, financial
condition and results of operations will depend on future developments, all of
which are highly uncertain and many of which are beyond the Company's control,
including the continuing spread of COVID-19, the severity of resurgences of
COVID-19 caused by variant strains of the virus, the effectiveness of vaccines
and attitudes toward receiving them, materials and supply chain constraints,
labor shortages, the scope of governmental and other restrictions on travel,
discretionary services and other activity, and public reactions to these
developments.
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Results of Operations for the three and nine months ended September 30, 2022
compared to the three and nine months ended September 30, 2021
Revenue
Three Months Ended September 30, Nine Months Ended September 30,
2022 $ Change % Change 2021 2022 $ Change % Change 2021
(Dollars in thousands)
Dotdash Meredith
Digital $ 220,749 $ 155,584 239% $ 65,165 $ 671,424 $ 467,505 229% $ 203,919
Print 251,471 251,471 N/A - 801,756 801,756 N/A -
Intersegment eliminations (5,135) (5,135) N/A - (16,100) (16,100) N/A -
Total Dotdash Meredith 467,085 401,920 617% 65,165 1,457,080 1,253,161 615% 203,919
Angi Inc. 498,036 36,471 8% 461,565 1,449,977 180,395 14% 1,269,582
Search 156,719 (71,726) (31)% 228,445 578,287 (14,799) (2)% 593,086
Emerging & Other 180,820 11,897 7% 168,923 508,903 35,168 7% 473,735
Intersegment eliminations (1,759) (1,729) (5,802)% (30) (5,420) (5,283) (3,848)% (137)
Total $ 1,300,901 $ 376,833 41% $ 924,068 $ 3,988,827 $ 1,448,642 57% $ 2,540,185
_____________________
N/A = Not applicable
For the three months ended
•DotdashMeredith revenue increased 617% to$467.1 million due to the contribution of$407.9 million fromMeredith , acquiredDecember 1, 2021 , partially offset by a decrease of$5.4 million , or 13%, in Dotdash Display Advertising Revenue. The decrease in Dotdash Display Advertising Revenue was due primarily to a decrease in advertising sold through our sales team and lower programmatic rates. •Angi Inc. revenue increased 8% to$498.0 million driven by increases of$21.6 million , or 7%, in Angi Ads and Leads Revenue and$14.5 million , or 12%, inAngi Services Revenue. The increase in Angi Ads and Leads Revenue was due primarily to price increases implemented during the second quarter of 2022. The increase in Angi Services Revenue was due primarily to organic growth, partially offset by a decrease of$11.4 million in revenue from Angi Roofing. •Search revenue decreased 31% to$156.7 million due to decreases of$58.5 million , or 30%, fromAsk Media Group and$13.2 million , or 38%, from Desktop. The decrease inAsk Media Group revenue was due to a reduction in marketing from affiliate partners resulting in decreased visitors to ad supported search and content websites. The decrease in Desktop revenue was due primarily to the Google policy changes announced in the prior year described above under "Services Agreement with$180.8 million due primarily to a 13% increase in revenue atCare.com , an increase of$8.2 million atIAC Films due to Everything Everywhere All at Once and growth of 77% fromVivian Health , partially offset by lower revenue atMosaic Group andthe Daily Beast .
For the nine months ended
•DotdashMeredith revenue increased 615% to$1.5 billion due to the contribution of$1.3 billion fromMeredith , acquiredDecember 1, 2021 , partially offset by decreases of$8.9 million , or 11%, in Dotdash Performance Marketing Revenue and$3.1 million , or 3%, in Dotdash Display Advertising Revenue. The decrease in Dotdash Performance Marketing Revenue was due to primarily to declines in both affiliate commerce commission revenue and performance marketing commission revenue due primarily to lower traffic to its sites compared to the prior year COVID-19 traffic highs. The decrease in Dotdash Display Advertising Revenue was due to the factors described above in the three-month discussion. 51 -------------------------------------------------------------------------------- Table of Contents •Angi Inc. revenue increased 14% to$1.4 billion driven by increases of$151.0 million , or 62%, in Angi Services Revenue and$31.1 million , or 3%, in Angi Ads and Leads Revenue, partially offset by a decrease of$1.7 million , or 3%, at the European businesses. The increase in Angi Services Revenue was due primarily to organic growth and to a lesser extent,$67.9 million in revenue attributable to Angi Roofing, acquiredJuly 1, 2021 . The increase in Angi Ads and Leads Revenue is due primarily to price increases implemented during the second quarter of 2022 and the anniversary of the initial impact of the brand integration that began inMarch 2021 . The revenue decrease at the European businesses was due to the unfavorable impact of the strengthening of theU.S. dollar relative to the Euro and British Pound. •Search revenue decreased 2% to$578.3 million due to a decrease of$27.6 million , or 26%, from Desktop, partially offset by growth of$12.8 million , or 3%, fromAsk Media Group . The decrease in Desktop revenue was due primarily to the factor described above in the three-month discussion. The increase inAsk Media Group revenue was due primarily to higher marketing driving increased visitors to ad supported search and content websites in the first half of 2022.
•Emerging & Other revenue increased 7% to
Cost of revenue (exclusive of depreciation shown separately below)
Three Months Ended September 30, Nine Months Ended September 30,
2022 $ Change % Change 2021 2022 $ Change % Change 2021
(Dollars in thousands)
Cost of revenue (exclusive of depreciation) $ 453,513 $ 113,003 33% $ 340,510 $ 1,499,968 $ 671,224 81% $ 828,744
As a percentage of revenue 35% 37% 38% 33%
For the three months ended
Cost of revenue in 2022 increased from 2021 due to an increase of
•The DotdashMeredith increase was due primarily to$179.0 million of expense from the inclusion ofMeredith and an increase of$4.2 million in compensation expense related to increased editorial headcount at Dotdash.
•The Search decrease was due primarily to a decrease of
For the nine months ended
Cost of revenue in 2022 increased from 2021 due to increases of$578.6 million from DotdashMeredith and$112.8 million fromAngi Inc. , partially offset by a decrease of$25.9 million from Search. •The DotdashMeredith increase was due primarily to$567.5 million of expense from the inclusion ofMeredith and an increase of$12.0 million in compensation expense related to increased editorial headcount at Dotdash. Included inMeredith 's expense is$17.9 million of restructuring costs primarily related to the reorganization of the DotdashMeredith business described above under "DotdashMeredith Restructuring Charges." •The Angi Inc. increase was due primarily to$55.2 million of costs attributable to growth at Angi Services and$53.7 million of costs attributable to the inclusion of Angi Roofing for nine months in the current year compared to three months in the prior year. The increase at Angi Services was due primarily to organic growth, including costs incurred for third-party service professionals for other Angi Services arrangements. The increase at Angi Roofing was due primarily to costs incurred for roofing materials and third-party contractors. 52 -------------------------------------------------------------------------------- Table of Contents •The Search decrease was due primarily to a decrease in traffic acquisition costs of$40.9 million atAsk Media Group , partially offset by an increase in traffic acquisition costs of$16.8 million at Desktop. The decrease in traffic acquisition costs atAsk Media Group was due primarily to a decrease in the proportion of revenue earned from partners who direct traffic to our websites. The increase in traffic acquisition costs at Desktop was a result of unfavorable revenue share rates resulting in higher revenue share payments compared to the prior year.
Selling and marketing expense
Three Months Ended September 30, Nine Months Ended September 30,
2022 $ Change % Change 2021 2022 $ Change % Change 2021
(Dollars in thousands)
Selling and marketing expense $ 489,573 $ 141,386 41% $ 348,187 $ 1,490,947 $ 489,187 49% $ 1,001,760
As a percentage of revenue 38% 38% 37% 39%
For the three months ended
Selling and marketing expense in 2022 increased from 2021 due to increases of$122.6 million from DotdashMeredith ,$18.4 million from Search and$5.8 million from Emerging and Other.
•The Dotdash
•The Search increase was due primarily to an increase of$20.8 million in online marketing atAsk Media Group , partially offset by a decrease of$3.6 million at Desktop as it eliminated all marketing of its B2C products beginning in earlyMarch 2021 due primarily to theAsk Media Group was due primarily to increases in both search engine marketing and ad placement spend on social media sites. •The Emerging & Other increase was due primarily to increases of$3.7 million in marketing spend atIAC Films ,$3.2 million and$1.3 million in compensation expense atCare.com andVivian Health , respectively, partially offset by decreases of$2.8 million in advertising expense atMosaic Group and$2.4 million in online marketing atCare.com . The increase in marketing spend atIAC Films was related to Everything Everywhere All at Once. The increase in compensation expense at bothCare.com andVivian Health was due primarily to higher headcount.
For the nine months ended
Selling and marketing expense in 2022 increased from 2021 due to increases of$415.2 million from DotdashMeredith ,$28.8 million from Emerging & Other,$28.7 million fromAngi Inc. , and$22.2 million from Search. •The DotdashMeredith increase was due principally to$410.4 million of expense from the inclusion ofMeredith . Included inMeredith 's expense is$10.3 million of restructuring costs primarily related to the reorganization of the DotdashMeredith business described above under "DotdashMeredith Restructuring Charges." •The Emerging & Other increase was due primarily to increases of$8.2 million in compensation expense and$4.8 million in online marketing atCare.com ,$3.7 million in marketing spend atIAC Films ,$3.5 million in compensation expense and$1.9 million in online marketing atVivian Health and$1.8 million in outsourced personnel costs atBluecrew . The increases atCare.com ,IAC Films and Vivian Health are due to the factors described above in the three-month discussion. 53 -------------------------------------------------------------------------------- Table of Contents •The Angi Inc. increase was due primarily to expense of$10.0 million from the inclusion of Angi Roofing for nine months in the current year compared to three months in the prior year, and increases in advertising expense of$7.2 million , professional fees of$4.4 million , software maintenance costs of$4.0 million and compensation expense of$2.5 million partially offset by a decrease in lease expense of$4.2 million . The increase in advertising expense was due primarily to an increase of$20.2 million in search engine marketing spend, partially offset by decreases of$11.4 million in app platforms and service professional marketing, and$1.6 million in television spend. The increase in search engine marketing spend was due to the continued brand integration initiative at the beginning of 2022 and increased costs to obtain service requests later in 2022. The decrease in fees paid to app platforms and service professional marketing was due primarily to the investment in Angi Services in 2021 as compared to 2022. The decrease in television spend in 2022 reflects the return to historical spending levels in 2021 as compared to the shift to online marketing from television marketing. The increase in professional fees was due primarily to an increase in consulting costs for creative advertising agencies. The increase in software maintenance costs was due primarily to general maintenance. The increase in compensation expense was due primarily to an increase in wage-related expense from higher headcount, partially offset by a decrease in commissions expense. The decrease in lease expense was as a result ofAngi Inc. reducing its real estate footprint in 2021. •The Search increase was due primarily to an increase of$44.1 million in online marketing atAsk Media Group , partially offset by a decrease of$22.7 million at Desktop. The increase atAsk Media Group and the decrease at Desktop are due to the factors described above in the three-month discussion.
General and administrative expense
Three Months Ended September 30 , Nine
Months Ended
2022 $ Change % Change 2021 2022 $ Change % Change 2021
(Dollars in thousands)
General and administrative
expense $ 260,073 $ 76,774 42% $ 183,299 $ 750,746 $ 229,576 44% $ 521,170
As a percentage of revenue 20% 20% 19% 21%
For the three months ended
General and administrative expense in 2022 increased from 2021 due to increases
of
•The DotdashMeredith increase was due primarily to$43.0 million of expense from the inclusion ofMeredith , a$14.3 million impairment of a ROU asset related to the consolidation of certain leased spaces following theMeredith acquisition, and an increase of$3.3 million in compensation expense, partially offset by a decrease of$5.5 million in professional fees at Dotdash. During the third quarter of 2022, DotdashMeredith incurred$15.7 million in restructuring costs, including the$14.3 million impairment described above, related to the reorganization of DotdashMeredith 's business described above under "DotdashMeredith Restructuring Charges." The increase in compensation expense at Dotdash was due primarily to an increase in stock-based compensation expense. The decrease in professional fees was due to the inclusion in 2021 of$5.5 million of transaction-related costs in connection with theMeredith transaction. •The Angi Inc. increase was due primarily to increases of$10.9 million in the provision for credit losses,$7.8 million in compensation expense and$6.3 million in legal expense. The increase in the provision for credit losses was due primarily to higher Angi Ads and Leads revenue. The increase in compensation expense was due primarily to increases in wage-related expense of$4.2 million and stock-based compensation expense of$3.0 million . The increase in wage-related expense was due primarily to an increase in headcount and the increase in stock-based compensation expense was primarily due to the acceleration of stock-based awards related to management departures in the third quarter of 2022, and new awards granted. The increase in legal expense is due primarily to accruals for certain legal matters in the current quarter. •The Emerging & Other decrease was due primarily to the inclusion in 2021 of expense of$15.0 million in an acquisition-related contingent consideration fair value adjustment related to a change in estimate of the liability related to the amount of contingent consideration to be paid out in connection with a previousMosaic Group acquisition. 54 -------------------------------------------------------------------------------- Table of Contents For the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021
General and administrative expense in 2022 increased from 2021 due to increases
of
•The DotdashMeredith increase was due primarily to$149.8 million of expense from the inclusion ofMeredith , a$14.3 million impairment described above in the three-month discussion related to the consolidation of certain leased spaces following theMeredith acquisition, and an increase of$10.6 million in compensation expense, partially offset by a decrease of$4.7 million in professional fees at Dotdash. During the first nine months of 2022, DotdashMeredith incurred$24.6 million in restructuring costs, including the$14.3 million impairment described above, related to the reorganization of DotdashMeredith 's business described above under "DotdashMeredith Restructuring Charges" and$5.8 million in transaction-related costs, of which$4.9 million was incurred atMeredith , associated with its acquisition. The increase in compensation expense and the decrease in professional fees at Dotdash are due to the factors described above in the three-month discussion. •The Angi Inc. increase was due primarily to increases of$22.7 million in compensation expense,$14.2 million in the provision for credit losses,$12.0 million of expense from the inclusion of Angi Roofing for nine months in the current year compared to three months in the prior year, increases of$6.3 million in legal expense,$6.2 million in professional fees and$5.5 million in software and maintenance costs, partially offset by a decrease of$8.2 million of impairment charges of ROU assets and related leasehold improvements and furniture and equipment. The increase in compensation expense was due primarily to increases in stock-based compensation expense of$14.4 million and wage-related expense of$12.8 million , partially offset by a$6.0 million charge in the first quarter of 2021, related to the acquisition of an additional 21% interest inMyBuilder at a premium to fair value. The increase in stock-based compensation expense was due primarily to the reversal of previously recognized expense related to unvested awards that were forfeited due to management departures in the first quarter of 2021, the acceleration of stock-based awards related to management departures in the third quarter of 2022, and new awards granted. The increases in wage-related expense, provision for credit losses and legal expense were due primarily to the factors described above in the three-month discussion. The increase in professional fees was due primarily to outsourced personnel costs and legal fees. The increase in software licenses and maintenance costs was due primarily to increased investment in software to supportAngi Inc.'s customer service function. The decrease in impairments of ROU assets and related leasehold improvements and furniture and equipment was due primarily to charges of$2.3 million in 2022 relative to$9.6 million in 2021, primarily due toAngi Inc. reducing its real estate footprint in 2021. •The Emerging & Other increase was due primarily to a$7.1 million charge atVivian Health related to the sale of equity interests held by certain members of its management and the settlement of certain employee stock-based awards in conjunction with the equity raise in the second quarter of 2022 and increases of$3.5 million in professional fees at Newco (an IAC incubator) and$1.8 million in software maintenance atCare.com , partially offset by the inclusion in 2021 of$15.0 million of expense in an acquisition-related contingent consideration fair value adjustment atMosaic Group , as described above in the three-month discussion, and a gain of$3.2 million atCare.com related to the termination of a lease in the first quarter of 2022.
•The Corporate decrease was due primarily to the inclusion in 2021 of
Product development expense
Three Months Ended September 30, Nine Months Ended September 30,
2022 $ Change % Change 2021 2022 $ Change % Change 2021
(Dollars in thousands)
Product development expense $ 74,078 $ 21,801 42% $ 52,277 $ 239,149 $ 81,556 52% $ 157,593
As a percentage of revenue 6% 6% 6% 6%
For the three months ended
Product development expense in 2022 increased from 2021 due to an increase of
•The Dotdash
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For the nine months ended September 30, 2022 compared to the nine months ended
September 30, 2021 Product development expense in 2022 increased from 2021 due to increases of
•The DotdashMeredith increase was due primarily to$64.8 million of expense from the inclusion ofMeredith and an increase of$4.2 million in compensation expense at Dotdash due primarily to an increase in headcount. •The Emerging & Other increase was due primarily to increases of$7.5 million in compensation expense and$3.4 million in outsourced personnel costs atCare.com , and a$2.4 million charge atVivian Health related to the sale of equity interests held by certain members of its management and the settlement of certain employee stock-based awards in conjunction with the equity raise in the second quarter of 2022. The increase in compensation expense atCare.com was due primarily to higher headcount. The increase in outsourced personnel costs atCare.com was due primarily to enhancing existing product offerings and developing new products. •The Search decrease was due primarily to a decrease of$5.4 million in compensation expense due primarily to the reduction in headcount following the cessation of new B2C products described above under "Services Agreement with
Depreciation
Three Months Ended September 30 ,
Nine Months Ended
2022 $ Change % Change 2021 2022 $ Change % Change 2021
(Dollars in thousands)
Depreciation $ 27,567 $ 9,772 55% $ 17,795 $ 86,855 $ 32,762 61% $ 54,093
As a percentage of revenue 2% 2% 2% 2%
For the three months ended
Depreciation increased in 2022 from 2021 due primarily to the impairment of leasehold improvements and furniture and equipment at DotdashMeredith of$7.0 million related to the consolidation of certain leased spaces, as described above under "DotdashMeredith Restructuring Charges" and an increase in expense of$3.1 million atAngi Inc. due primarily to investments in capitalized software.
For the nine months ended
Depreciation increased in 2022 from 2021 due primarily to
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Operating (loss) income
Three Months Ended September 30, Nine Months Ended September 30,
2022 $ Change % Change 2021 2022 $ Change % Change 2021
(Dollars in thousands)
Dotdash Meredith
Digital $ (104,445) $ (111,527) NM $ 7,082 $ (95,217) $ (139,600) NM $ 44,383
Print 27,325 27,325 N/A - (31,109) (31,109) N/A -
Other (18,378) (18,378) N/A - (52,924) (52,924) N/A -
Total Dotdash Meredith (95,498) (102,580) NM 7,082 (179,250) (223,633) NM 44,383
Angi Inc. (11,058) 3,915 26% (14,973) (65,901) (18,306) (38)% (47,595)
Search 19,085 (10,926) (36)% 30,011 70,461 (3,598) (5)% 74,059
Emerging & Other (1,577) 20,662 93% (22,239) (114,402) (90,456) (378)% (23,946)
Corporate (35,632) (3,684) (12)% (31,948) (110,542) 4,076 4% (114,618)
Total $ (124,680) $ (92,613) (289)% $ (32,067) $ (399,634) $ (331,917) (490)% $ (67,717) As a percentage of revenue (10)% (3)% (10)% (3)% _____________________ NM = Not meaningful
For the three months ended
Operating loss increased$92.6 million to$124.7 million , despite the increase of$24.5 million in Adjusted EBITDA, described below, due primarily to increases of$106.7 million in amortization of intangibles,$15.7 million in stock-based compensation expense, and$9.8 million in depreciation, partially offset by the inclusion in 2021 of$15.0 million of expense related to an acquisition-related contingent consideration fair value adjustment. The increase in the amortization of intangibles was due primarily to the acquisition ofMeredith , partially offset by lower expense atCare.com due to certain intangible assets becoming fully amortized. The increase in stock-based compensation expense was due primarily to new awards granted, the forfeiture of certain equity awards in 2021 and the acceleration of awards related to management departures in the third quarter of 2022. The increase in depreciation was due primarily to the impairment of leasehold improvements and furniture and equipment at DotdashMeredith of$7.0 million related to the consolidation of certain leased spaces, as described above under "DotdashMeredith Restructuring Charges" and an increase in expense of$3.1 million atAngi Inc. due primarily to investments in capitalized software.
For the nine months ended
Operating loss decreased$331.9 million to$399.6 million due primarily to an increase of$189.5 million in amortization of intangibles, a goodwill impairment of$86.7 million atMosaic Group in the second quarter of 2022, increases of$34.7 million in stock-based compensation expense and$32.8 million in depreciation, and a decrease in Adjusted EBITDA of$3.9 million , described below, partially offset by a change in acquisition-related contingent consideration fair value adjustments (income of$0.6 million in 2022 compared to expense of$15.0 million in 2021). The goodwill impairment atMosaic Group is a result of the projected reduction in future revenue and profits from the business and lower trading multiples of a selected peer group of companies. The increase in amortization of intangibles was due to the factors described above in the three-month discussion. The increase in depreciation was due primarily to expense from the inclusion ofMeredith and factors described above in the three-month discussion. The increase in stock-based compensation expense was due primarily to the reversal of previously recognized stock-based compensation expense due to forfeitures from management departures in 2021, the acceleration of awards related to management departures in the third quarter of 2022 and new awards granted since the first quarter of 2021.
See " Note 3-
AtSeptember 30, 2022 ,Mosaic Group has goodwill of$153.6 million and the carrying value of this reporting unit approximates its fair value. Any subsequent declines in the fair value ofMosaic Group will result in additional goodwill impairment charges to the extent the carrying value exceeds the fair value. 57 -------------------------------------------------------------------------------- Table of Contents The aggregate carrying value of goodwill for which the most recent estimate of the excess of fair value over carrying value is less than 20% is approximately$644.5 million . AtSeptember 30, 2022 , there was$349.6 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 4.6 years. Adjusted EBITDA Three Months Ended September 30, Nine Months Ended September 30, 2022 $ Change % Change 2021 2022 $ Change % Change 2021 (Dollars in thousands) Dotdash Meredith Digital$ 22,602 $ 14,400 176%$ 8,202 $ 108,718 $ 60,045 123%$ 48,673 Print 23,097 23,097 N/A - 18,882 18,882 N/A - Other (14,506) (14,506) N/A - (48,706) (48,706) N/A - Total Dotdash Meredith 31,193 22,991 280% 8,202 78,894 30,221 62% 48,673 Angi Inc. 22,882 10,487 85% 12,395 29,402 (1,737) (6)% 31,139 Search 19,111 (10,920) (36)% 30,031 70,528 (3,559) (5)% 74,087 Emerging & Other 2,425 (312) (11)% 2,737 (13,719) (35,311) NM 21,592 Corporate (20,830) 2,302 10% (23,132) (65,240) 6,529 9% (71,769) Total$ 54,781 $ 24,548 81%$ 30,233 $ 99,865 $ (3,857) (4)%$ 103,722
As a percentage of revenue 4% 3% 3% 4%
For a reconciliation of net (loss) earnings attributable to IAC shareholders to operating loss to Adjusted EBITDA, see " Principles of Financial Reporting
."
For a reconciliation of operating (loss) income to Adjusted EBITDA for the Company's reportable segments, see " Note 8-Segment Information " to the financial statements included in " Item 1. Consolidated Financial Statements ."
For the three months ended
•DotdashMeredith Adjusted EBITDA increased 280% to$31.2 million , due to higher revenue, partially offset by$17.7 million in restructuring charges and$0.8 million in transaction-related costs associated with theMeredith acquisition described above under "DotdashMeredith Restructuring Charges." •Angi Inc. Adjusted EBITDA increased$10.5 million to$22.9 million , due to higher revenue, partially offset by an increase of$25.2 million in general and administrative expense, which is described above.
•Search Adjusted EBITDA decreased
•Emerging & Other Adjusted EBITDA decreased$0.3 million to$2.4 million due primarily to increased losses atBluecrew ,the Daily Beast and Newco and lower profits atMosaic Group , partially offset by increased profits atCare.com .
•Corporate Adjusted EBITDA loss decreased 10% to
For the nine months ended
•DotdashMeredith Adjusted EBITDA increased 62% to$78.9 million , due to higher revenue, partially offset by$53.8 million in restructuring charges and$6.0 million in transaction-related costs associated with theMeredith acquisition described above under "DotdashMeredith Restructuring Charges." 58 -------------------------------------------------------------------------------- Table of Contents •Angi Inc. Adjusted EBITDA decreased 6% to$29.4 million , despite higher revenue, due to an increase of$112.8 million in cost of revenue due primarily to the growth of Angi Services, including$53.7 million of costs attributable to the inclusion of Angi Roofing for nine months in the current year compared to three months in the prior year, and an increase of$7.2 million in advertising expense, due primarily to the consolidation under a single brand onMarch 17, 2021 , which has adversely affected both free and paid search engine marketing efforts. •Search Adjusted EBITDA decreased$3.6 million to$70.5 million due primarily to a decrease in Desktop revenue and an increase in traffic acquisition costs as a result of unfavorable revenue share rates resulting in higher revenue share payments compared to the prior year, partially offset by higher revenue fromAsk Media Group . •Emerging & Other Adjusted EBITDA decreased$35.3 million to a loss of$13.7 million due primarily to a$9.8 million charge atVivian Health related to the sale of equity interests held by certain members of its management and the settlement of certain employee stock-based awards in conjunction with the equity raise in the second quarter of 2022, lower profits atMosaic Group andIAC Films and increased losses at Newco,Bluecrew andthe Daily Beast , partially offset by higher profits atCare.com . •Corporate Adjusted EBITDA loss decreased 9% to$65.2 million due primarily to the inclusion in 2021 of$6.1 million of transaction-related costs in connection with the Spin-off. Interest expense Three Months Ended September 30, Nine Months Ended September 30, 2022 $ Change % Change 2021 2022 $ Change % Change 2021 (Dollars in thousands) Interest expense$ 29,433 $ 23,401 388%$ 6,032 $ 74,862 $ 56,399 305%$ 18,463
For the three and nine months ended
Interest expense in 2022 increased from 2021 due primarily to the Dotdash
Unrealized gain (loss) on investment in MGM Resorts International
Three Months Ended September 30, Nine Months Ended September 30,
2022 $ Change % Change 2021 2022 $ Change % Change 2021
(Dollars in thousands)
Unrealized gain (loss) on
investment in MGM Resorts
International $ 42,523 $ 13,006 44% $ 29,517 $ (970,112) $ (1,657,267) NM $ 687,155 For the three months ended
During the three months endedSeptember 30, 2022 and 2021, the Company recorded unrealized pre-tax gains of$42.5 million and$29.5 million , respectively. In the third quarter of 2022, the Company purchased an additional 1.2 million shares ofMGM for$41.8 million .
For the nine months ended
During the nine months endedSeptember 30, 2022 and 2021, the Company recorded an unrealized pre-tax loss of$970.1 million and an unrealized pre-tax gain of$687.2 million , respectively. In the first and third quarters of 2022, the Company purchased a total of 5.7 million additional shares ofMGM for$244.3 million . Following these purchases, the Company owns approximately 64.7 million shares, representing a 16.9% ownership interest inMGM as ofOctober 31, 2022 . 59 -------------------------------------------------------------------------------- Table of Contents Other income (expense), net Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (Dollars in thousands) Realized gain related to the sale of investments $ 11,840 $
3,022 $ 12,302
8,778 216 11,918 931
Unrealized increase in the estimated
fair value of a warrant 8,467 47,075 21,318 102,331
Upward (downward) adjustments to the
carrying value of equity securities
without readily determinable fair
values 8,245 7,516 (14,131) 8,892
Net periodic pension benefit credits
(costs), other than the service cost
component(a) 1,871 - (75,317) -
Unrealized (loss) gain related to
marketable equity securities (13,972) 25,794 (8,316) 25,794
Foreign exchange losses, net(b) (5,196) (858) (11,425) (11,976)
Realized (loss) gain on the sale of a
marketable equity security - (3,536) - 7,174
Loss on extinguishment of debt(c) - - - (1,110)
Other (355) 310 603 (1,751)
Other income (expense), net $ 19,678 $ 79,539 $ (63,048) $ 133,388
$ Change $ (59,861) $ (196,436)
% Change (75) % NM
_____________________
(a) Includes a pre-tax actuarial gain of $2.6 million for the three months
ended September 30, 2022 related to Meredith 's funded pension plan in the U.S.
and a pre-tax actuarial loss of $76.1 million for the nine months ended
September 30, 2022 related to Meredith 's funded pension plans in the U.K. ,
consisting of the IPC Pension Scheme, and the U.S. See " Note 9-Pension and
Postretirement Benefit Plans " for additional information.
(b) Includes $10.0 million in foreign exchange losses primarily related to the
substantial liquidation of certain foreign subsidiaries in the nine months ended
September 30, 2021 .
(c) Represents the write-off of deferred debt issuance costs related to the
ANGI Group Term Loan, which was repaid in its entirety during the second quarter
of 2021.
Income tax benefit (provision)
Three Months Ended September 30, Nine Months Ended September 30,
2022 $ Change % Change 2021 2022 $ Change % Change 2021
(Dollars in thousands)
Income tax benefit
(provision) $ 26,065 $ 35,975 NM $ (9,910) $ 325,517 $ 476,563 NM $ (151,046)
Effective income tax rate 28% 14% 22% 21%
For further details of income tax matters, see " Note 10-Income Taxes " to the financial statements included in " Item 1. Consolidated Financial Statements ."
For the three months ended
In 2022, the effective income tax rate was higher than the statutory rate of 21% due primarily to the realization of a capital loss.
In 2021, 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, partially offset by state taxes, nondeductible stock-based
compensation expense and foreign income taxed at different rates.
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For the nine months ended September 30, 2022 compared to the nine months ended
September 30, 2021
In 2022, the effective income tax rate was higher than the statutory rate of 21%
due primarily to state taxes, offset by the non-deductible portion of the Mosaic
Group goodwill impairment charge.
In 2021, the effective income tax rate was the same as the statutory rate of 21%
due to excess tax benefits generated by the exercise and vesting of stock-based
awards, offset by an increase in the valuation allowance on
beginning-of-the-year deferred tax assets related to the Spin-off and state
taxes.
Net loss (earnings) attributable to noncontrolling interests
Three Months Ended September 30, Nine Months Ended September 30,
2022 $ Change % Change 2021 2022 $ Change % Change 2021
(Dollars in thousands)
Net loss (earnings)
attributable to noncontrolling
interests $ 2,024 $ 2,381 NM $ (357) $ 13,388 $ 10,299 333% $ 3,089
Net loss (earnings) attributable to noncontrolling interests in 2022 and 2021
primarily represents the publicly-held interest in Angi Inc.'s (losses)
earnings. Net loss attributable to noncontrolling interests in 2022 also include
a third-party interest in a subsidiary that holds two marketable equity
securities that the Company recorded net unrealized losses on in 2022. Net
(earnings) loss attributable to non-controlling interests in 2021 includes
unrealized gains related to one of the investments that went public in the third
quarter of 2021.
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PRINCIPLES OF FINANCIAL REPORTING
The Company reports Adjusted EBITDA as a supplemental measure to U.S. generally
accepted accounting principles ("GAAP"). This measure is one of the primary
metrics by which we evaluate the performance of our businesses and our internal
budgets are based and may impact management compensation. We believe that
investors should have access to, and we are obligated to provide, the same set
of tools that we use in analyzing our results. This non-GAAP measure should be
considered in addition to results prepared in accordance with GAAP, but should
not be considered a substitute for or superior to GAAP results. The Company
endeavors to compensate for the limitations of the non-GAAP measure presented by
providing the comparable GAAP measure with equal or greater prominence and
descriptions of the reconciling items, including quantifying such items, to
derive the non-GAAP measure. We encourage investors to examine the reconciling
adjustments between the GAAP and non-GAAP measure, which we discuss below.
Definition of Non-GAAP Measure
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization
("Adjusted EBITDA") is defined as operating income excluding: (1) stock-based
compensation expense; (2) depreciation; and (3) acquisition-related items
consisting of (i) amortization of intangible assets and impairments of goodwill
and intangible assets, if applicable, and (ii) gains and losses recognized on
changes in the fair value of contingent consideration arrangements. We believe
this measure is useful for analysts and investors as this measure allows a more
meaningful comparison between our performance and that of our competitors.
Adjusted EBITDA has certain limitations because it excludes the impact of these
expenses.
The following table reconciles net (loss) earnings attributable to IAC shareholders to operating loss to Adjusted EBITDA:
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
(In thousands)
Net (loss) earnings attributable to IAC shareholders $ (63,823) $ 60,690 $ (1,168,751) $ 584,575
Add back:
Net (loss) earnings attributable to noncontrolling
interests (2,024) 357 (13,388) (3,089)
Loss from discontinued operations, net of tax - - - 1,831
Income tax (benefit) provision (26,065) 9,910 (325,517) 151,046
Other (income) expense, net (19,678) (79,539) 63,048 (133,388)
Unrealized (gain) loss on investment in MGM Resorts
International (42,523) (29,517) 970,112 (687,155)
Interest expense 29,433 6,032 74,862 18,463
Operating loss (124,680) (32,067) (399,634) (67,717)
Add back:
Stock-based compensation expense 31,117 15,438 92,460 57,804
Depreciation 27,567 17,795 86,855 54,093
Amortization of intangibles 120,777 14,067 234,048 44,542
Acquisition-related contingent consideration fair
value adjustments - 15,000 (612) 15,000
Goodwill impairment - - 86,748 -
Adjusted EBITDA $ 54,781 $ 30,233 $ 99,865 $ 103,722 For a reconciliation of operating loss to Adjusted EBITDA for the Company's reportable segments, see " Note 8-Segment Information " to the financial statements included in " Item 1. Consolidated Financial Statements ."
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Non-Cash Expenses That Are Excluded from Our Non-GAAP Measure
Stock-based compensation expense consists of expense associated with awards that
were granted under various IAC stock and annual incentive plans and expense
related to awards issued by certain subsidiaries of the Company. These expenses
are not paid in cash and we view the economic costs of stock-based awards to be
the dilution to our share base; we also include the related shares in our fully
diluted shares outstanding for GAAP earnings per share using the treasury stock
method. The Company is currently settling all stock-based awards on a net basis;
IAC remits the required tax-withholding amounts for net-settled awards from its
current funds.
Depreciation is a non-cash expense relating to our capitalized software,
equipment, buildings and leasehold improvements and is computed using the
straight-line method to allocate the cost of depreciable assets to operations
over their estimated useful lives, or, in the case of leasehold improvements,
the lease term, if shorter.
Amortization of intangible assets and impairments of goodwill and intangible
assets are non-cash expenses related primarily to acquisitions. At the time of
an acquisition, the identifiable definite-lived intangible assets of the
acquired company, such as advertiser relationships, technology, licensee
relationships, content, trade names, service professional relationships,
customer lists and user base, and subscriber relationships, are valued and
amortized over their estimated lives. Value is also assigned to acquired
indefinite-lived intangible assets, which comprise trade names and trademarks,
and goodwill that are not subject to amortization. An impairment is recorded
when the carrying value of an intangible asset or goodwill exceeds its fair
value. We believe that intangible assets represent costs incurred by the
acquired company to build value prior to acquisition and the related
amortization and impairments of intangible assets or goodwill, if applicable,
are not ongoing costs of doing business.
Gains and losses recognized on changes in the fair value of contingent consideration arrangements are accounting adjustments to report contingent consideration liabilities at fair value. These adjustments can be highly variable and are excluded from our assessment of performance because they are considered non-operational in nature and, therefore, are not indicative of current or future performance or the ongoing cost of doing business.
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FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
Financial Position
September 30,
2022 December 31, 2021
(In thousands)
Dotdash Meredith cash and cash equivalents:
United States $ 125,002 $ 218,612
All other countries 14,336 14,781
Total Dotdash Meredith cash and cash equivalents 139,338 233,393
Angi Inc. cash and cash equivalents:
United States 302,046 404,277
All other countries 26,749 23,859
Total Angi Inc. cash and cash equivalents 328,795 428,136
IAC (excluding
1,106,843 1,408,828
All other countries 32,408 48,373
Total cash and cash equivalents 1,139,251 1,457,201
Marketable securities (United States) 16,343 19,788
Total IAC (excluding
1,155,594 1,476,989
Total cash and cash equivalents and marketable securities
$ 2,138,518 DotdashMeredith Debt: Dotdash Meredith Term Loan A$ 336,875 $ 350,000 Dotdash Meredith Term Loan B 1,240,625 1,250,000 Total Dotdash Meredith long-term debt 1,577,500
1,600,000
Less: current portion of Dotdash
30,000
Less: original issue discount 5,521 6,176
Less: unamortized debt issuance costs 10,673 12,139
Total Dotdash Meredith long-term debt, net 1,531,306 1,551,685
ANGI Group Debt:
ANGI Group Senior Notes 500,000 500,000
Less: unamortized debt issuance costs 4,902 5,448
Total ANGI Group long-term debt 495,098 494,552
Total long-term debt, net $ 2,026,404 $ 2,046,237 The Company's international cash can be repatriated without significant tax consequences.
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Cash Flow Information
In summary, IAC's cash flows are as follows:
Nine Months Ended September 30,
2022 2021
(In thousands)
Net cash (used in) provided by:
Operating activities attributable to continuing operations $ (101,493) $ 209,629
Investing activities attributable to continuing operations $ (294,148) $ (216,553)
Financing activities attributable to continuing operations $ (101,239) $ (369,105)
Net cash provided by operating activities attributable to continuing operations
consists of net earnings adjusted for non-cash items, and the effect of changes
in working capital. Non-cash adjustments include the unrealized loss (gain) on
the investment in MGM , deferred income taxes, amortization of intangibles,
unrealized increase in the estimated fair value of a warrant, stock-based
compensation expense, provision for credit losses, depreciation, goodwill
impairment, pension and postretirement benefit expense, non-cash lease expense
(including ROU asset impairments), and net losses (gains) on investments in
equity securities.
2022
Adjustments to net losses attributable to continuing operations consist primarily of an unrealized loss on the investment inMGM of$970.1 million , amortization of intangibles of$234.0 million , stock-based compensation expense of$92.5 million , provision of credit losses of$87.7 million , depreciation of$86.9 million , goodwill impairment of$86.7 million , pension and postretirement benefit expense of$78.1 million , non-cash lease expense (including ROU asset impairments) of$56.9 million , and net losses on investments in equity securities of$10.1 million , partially offset by deferred taxes of$333.2 million and an unrealized increase in the estimated fair value of a warrant of$21.3 million . The decrease from changes in working capital include decreases in accounts payable and other liabilities of$244.4 million and operating lease liabilities of$47.7 million . The decrease in accounts payable and other liabilities is due primarily to a decrease in accrued employee compensation due, in part, to change-in-control payments, partially offset by an increase in restructuring charges, at DotdashMeredith , a decrease in accrued traffic acquisition costs and related payables at Search, a payment of pre-acquisition income tax indemnification liabilities at DotdashMeredith , and a decrease in accounts payable at DotdashMeredith due primarily to timing of payments and lower spend due to the discontinuation of certain print publications. The decrease in operating lease liabilities is due to cash payments on leases net of interest accretion. Net cash used in investing activities attributable to continuing operations includes$244.3 million for the purchase of 5.7 million additional shares ofMGM and capital expenditures of$112.8 million primarily related to investments in capitalized software atAngi Inc. ,Care.com , and DotdashMeredith to support its products and services, partially offset by net proceeds from the sale of certain businesses and investments of$41.3 million , and a decrease in notes receivable of$19.5 million . Net cash used in financing activities attributable to continuing operations includes the repurchase of 1.1 million shares of IAC Class A common stock, on a settlement date basis, for$85.3 million at an average price of$77.44 per share, principal payments on DotdashMeredith Term Loan A and DotdashMeredith Term Loan B of$22.5 million , withholding taxes paid on behalf of IAC employees for stock-based awards that were net settled of$17.1 million , the repurchase of 1.0 million shares ofAngi Inc. Class A common stock, on a settlement date basis, for$8.1 million at an average price of$7.80 per share, and withholding taxes paid on behalf ofAngi Inc. employees for stock-based awards that were net settled of$5.6 million , partially offset by proceeds from the issuance ofVivian Health preferred shares, net of fees, of$34.7 million . 65 -------------------------------------------------------------------------------- Table of Contents 2021 Adjustments to net earnings attributable to continuing operations consist primarily of$687.2 million of an unrealized gain on the investment inMGM , an unrealized increase in the estimated fair value of a warrant of$102.3 million , and net gains on investments in equity securities of$45.0 million , partially offset by deferred income taxes$150.6 million , provision for credit losses of$66.4 million , stock-based compensation expense of$57.8 million , depreciation of$54.1 million , amortization of intangibles of$44.5 million , and non-cash lease expense (including ROU asset impairments) of$24.5 million . The increase from changes in working capital primarily consists of an increase in accounts payable and other liabilities of$103.8 million , an increase in deferred revenue of$39.9 million and a decrease in other assets of$19.0 million , partially offset by an increase in accounts receivable of$114.6 million , a decrease in operating lease liabilities of$20.5 million and a decrease in income taxes payable and receivable of$6.0 million . The increase in accounts payable and other liabilities is due primarily to increases in accrued traffic acquisition costs and related payables at Search, an increase in accrued advertising and related payables atAngi Inc. and accrued roofing material costs related toAngi Roofing atAngi Inc. The increase in deferred revenue is due primarily to timing of cash received related to various production deals atIAC Films , growth in subscription sales atCare.com , as well as an increase in annual memberships and customer deposits for Angi Services jobs atAngi Inc. The decrease in other assets is due to decreases in capitalized downloadable search toolbar costs at Search and capitalized sales commissions atAngi Inc. The increase in accounts receivable is due primarily to revenue growth atAngi Inc. primarily attributable to Angi Services, and Search, partially offset by timing of cash receipts atCare.com . The decrease in operating lease liabilities is due to cash payments on leases net of interest accretion. The decrease in income taxes payable and receivable is due primarily to the release of income tax reserves due to statue expirations and income tax payments in excess of income tax accruals. Net cash used in investing activities attributable to continuing operations includes the cash distribution to IAC related to the spin-off of Vimeo of$333.2 million , capital expenditures of$69.4 million primarily related to investments in capitalized software atAngi Inc. to support its products and services, and a payment of$12.7 million related to the purchase of a 50% interest in an aircraft at Corporate, acquisitions of$25.4 million , principally related to the Angi Roofing acquisition atAngi Inc. , and purchases of investments of$23.9 million , primarily related to Turo, partially offset by maturities of marketable debt securities of$225.0 million . Net cash used in financing activities attributable to continuing operations includes$220.0 million for the prepayment of the remaining balance of theANGI Group Term Loan, which otherwise would have matured onNovember 5, 2023 ,$56.1 million for withholding taxes paid on behalf ofAngi Inc. employees for stock-based awards that were net settled,$35.4 million for the repurchase of 3.2 million shares ofAngi Inc. Class A common stock, on a settlement date basis, at an average price of$11.06 per share,$35.1 million for withholding taxes paid on behalf of IAC employees for stock-based awards that were net settled and$24.7 million for the purchase of redeemable noncontrolling interests.
Discontinued Operations
Net cash provided by discontinued operations of
Liquidity and Capital Resources
Financing Arrangements
For a detailed description of long-term debt, see " Note 6-Long-term Debt " to the financial statements included in " Item 1. Consolidated Financial Statements ."
Investment in MGM Resorts International
In the first and third quarters of 2022, the Company purchased a total of
5.7 million additional shares of
Share Repurchase Authorizations and Activity
During the nine months endedSeptember 30, 2022 , IAC repurchased 1.1 million shares of its common stock, on a trade date basis, at an average price of$77.44 per share, or$85.3 million in aggregate. AtSeptember 30, 2022 , IAC has 6.9 million shares remaining in its share repurchase authorization. 66 -------------------------------------------------------------------------------- Table of Contents During the nine months endedSeptember 30, 2022 ,Angi Inc. repurchased 1.0 million shares of its Class A common stock, on a trade date basis, at an average price of$7.80 per share, or$8.1 million in aggregate. AtSeptember 30, 2022 Angi Inc. has 15.0 million shares remaining in its share repurchase authorization.IAC andAngi Inc. may purchase their shares over an indefinite period of time on the open market and in privately negotiated transactions, depending on those factors management deems relevant at any particular time, including, without limitation, market conditions, share price and future outlook.
Outstanding Stock-based Awards
IAC andAngi Inc. may settle stock options, stock settled stock appreciation rights, restricted stock units ("RSUs") and restricted stock on a gross or a net basis based upon factors deemed relevant at the time. To the extent that equity awards are settled on a net basis, the holders of the awards receive shares of IAC orAngi Inc. , as applicable, with a value equal to the fair value of the award on the vest date for RSUs and restricted stock and with a value equal to the intrinsic value of the award upon exercise for stock options or stock settled appreciation rights less, in each case, an amount equal to the required cash tax withholding payment, which will be paid by IAC orAngi Inc. , as applicable, on the employee's behalf. All awards are being settled currently on a net basis. Certain previously issuedAngi Inc. stock appreciation rights are settleable in either shares ofAngi Inc. common stock or shares of IAC common stock at IAC's option. If settled in IAC common stock,Angi Inc. reimburses IAC in shares ofAngi Inc.'s common stock. The following table summarizes (i) the aggregate intrinsic value of IAC options,Angi Inc. options,Angi Inc. stock settled stock appreciation rights,IAC andAngi Inc. non-publicly traded subsidiary denominated stock settled stock appreciation rights and (ii) the aggregate fair value (based on stock prices as ofNovember 4, 2022 ) ofIAC and Angi Inc. RSUs and IAC restricted stock outstanding as of that date; assuming these awards were net settled on that date, the withholding taxes that would be paid by the Company on behalf of employees upon exercise or vesting that would be payable (assuming these equity awards are net settled with a 50% tax rate), and the shares that would have been issued are as follows: Estimated Estimated withholding taxes withholding taxes payable on vested payable on shares Aggregate intrinsic shares and shares that will vest value / fair value that will vest by after of awards September 30, September 30, Estimated IAC outstanding 2023 2023 shares to be issued (In thousands) IAC Stock settled stock appreciation rights denominated in shares of certain non-publicly traded IAC subsidiaries other thanAngi Inc. subsidiaries (a) $ 42,732$ 15,058 $ 6,308 472 IAC denominated stock options (b) 88,476 44,238 - 977 IAC RSUs (c) 65,161 654 30,804 745 IAC restricted stock (d) - - - - Total IAC outstanding employee stock-based awards 196,369 59,950 37,112 2,194 Angi Inc. Angi Inc. stock appreciation See footnote (f) rights - - - below Other Angi Inc. equity awards See footnote (f) (a)(e) 40,582 4,971 14,906 below TotalAngi outstanding employee stock-based awards 40,582 4,971 14,906 Total outstanding employee stock-based awards $ 236,951$ 64,921 $ 52,018 _____________________ (a) The number of shares ultimately needed to settle these awards and the cash withholding tax obligation may vary significantly as a result of the determination of the fair value of the relevant subsidiary at the time of exercise. In addition, the number of shares required to settle these awards will be impacted by movement in the stock price of IAC. 67
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(b) The Company has the discretion to settle these awards net of withholding tax and exercise price (which is represented in the table above) or settle on a gross basis and require the award holder to pay its share of the withholding tax, which he or she may do by selling IAC common shares. Assuming all IAC stock options outstanding onNovember 4, 2022 were settled on a gross basis, i.e., through the issuance of a number of IAC common shares equal to the number of stock options exercised, the Company would have issued 2.8 million common shares and would have received$39.8 million in cash proceeds. These amounts reflect adjustments made to IAC awards upon the completion of the Spin-off. (c) Approximately 80% of the estimated withholding taxes payable on shares that will vest afterSeptember 30, 2023 is related to awards that are scheduled to cliff vest in 2025, the five-year anniversary of the grant date. (d) OnNovember 5, 2020 , the Company granted 3.0 million shares of IAC restricted common stock to its CEO, that cliff vest on the ten-year anniversary of the grant date based on satisfaction of IAC's stock price targets and continued employment through the vesting date. The IAC stock price is currently below the minimum price threshold to earn the award.
(e) Includes stock options, RSUs and subsidiary denominated equity.
(f) Pursuant to the employee matters agreement betweenIAC andAngi Inc. , certain stock appreciation rights ofAngi, Inc. and equity awards denominated in shares ofAngi Inc.'s subsidiaries may be settled in either shares ofAngi Inc. common stock or IAC common stock. To the extent shares of IAC common stock are issued in settlement of these awards,Angi Inc. is obligated to reimburse IAC for the cost of those shares by issuing shares ofAngi Inc. common stock.
Contractual Obligations
In the third quarter of 2022, the Company entered into a three-year cloud computing contract with payments of$84.0 million expected to be made within the next twelve months and the remaining payments of approximately$43.0 million expected to be made bySeptember 2024 . AtSeptember 30, 2022 , there have been no other material changes outside of the ordinary course of business to the Company's contractual obligations since the disclosures for the year endedDecember 31, 2021 , included in the Company's Annual Report on Form 10-K.
Capital and Other Expenditures
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 2022 capital expenditures are expected to be higher than 2021 capital expenditures of$90.2 million by approximately 55% to 60%, primarily due to the development of capitalized software to support products and services atAngi Inc. , DotdashMeredith , andCare.com , partially offset by a decrease in capital expenditures at Corporate due to the purchase of a 50% interest in an aircraft in 2021. Change-in-Control Payments InDecember 2021 , DotdashMeredith recorded$60.1 million in change-in-control payments, which were triggered by the acquisition and the terms of certain former executives' contracts. OnJuly 1, 2022 , DotdashMeredith made$83.1 million in change-in-control payments, which included amounts accrued inDecember 2021 , as well as amounts previously accrued that became payable following the change in control. OnOctober 3, 2022 , DotdashMeredith made the final$4.3 million in change-in-control payments.
Liquidity Assessment
AtSeptember 30, 2022 , the Company's consolidated cash, cash equivalents, and marketable equity securities, excludingMGM , were$1.6 billion , of which$328.8 million and$139.3 million was held byAngi Inc. and DotdashMeredith , respectively. The Company's consolidated debt includes approximately$1.6 billion , which is a liability ofDotdash Meredith, Inc. , a subsidiary of IAC, and$500.0 million , which is a liability ofANGI Group , a subsidiary ofAngi Inc. On a consolidated basis, the Company generated negative cash flows from operating activities of$101.5 million for the nine months endedSeptember 30, 2022 . For the nine months endedSeptember 30, 2022 , the Company generated negative cash flows from operating activities of$13.2 million , excluding the negative cash flows from operating activities of$99.7 million generated by DotdashMeredith and the positive cash flows from operating activities of$11.4 million generated byAngi Inc. Angi Inc. 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 ofAngi Inc. and its subsidiaries. In addition, the DotdashMeredith Credit Agreement contains covenants that would limit DotdashMeredith 's ability to pay dividends, incur incremental secured indebtedness, or make distributions or certain investments in the event a default has occurred or if DotdashMeredith 's consolidated net leverage ratio (as defined in the DotdashMeredith Credit Agreement) exceeds 4.0 to 1.0; this ratio was exceeded for the test period endedSeptember 30, 2022 .
The Company's liquidity could be negatively affected by a decrease in demand for its products and services due to economic or other factors, including COVID-19.
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The Company believes Angi Inc.'s and Dotdash Meredith 's existing cash and cash
equivalents and expected positive cash flows from operations and the Company's
existing cash and cash equivalents, excluding Angi Inc. and Dotdash Meredith ,
will be sufficient to fund their respective 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 next twelve months. The Company may need to raise
additional capital through future debt or equity financing to make additional
acquisitions and investments beyond the next twelve months. Additional financing
may not be available on terms favorable to the Company or at all, and may also
be impacted by any disruptions in the financial markets. The indebtedness at
Dotdash Meredith and Angi Inc. , could further limit the Company's ability to
raise incremental financing.
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