IAC INC. Acquisition of Meredith:
OnDecember 1, 2021 ,Dotdash Media Inc. (formerly known asAbout Inc. , "Dotdash"), a wholly owned subsidiary ofIAC/InterActiveCorp ("IAC"), completed the acquisition of Meredith Holdings Corporation ("Meredith"), which holds Meredith Corporation's national media business, which is comprised of its digital and magazine businesses, and its corporate operations. The parent of the combined entity isDotdash Meredith, Inc. ("Dotdash Meredith").
Vimeo Spin-off:
OnMay 25, 2021 , IAC completed the spin-off of its full stake in Vimeo to IAC shareholders (which we refer to as the "Spin-off"). Following the Spin-off,Vimeo, Inc. (formerlyVimeo Holdings, Inc. ("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 . MTCH Separation: OnDecember 19, 2019 ,IAC/InterActiveCorp ("Old IAC") entered into a Transaction Agreement (as amended, the "Transaction Agreement") withMatch Group, Inc. ("Old MTCH"),IAC Holdings, Inc. ("New IAC" or the "Company"), a direct wholly-owned subsidiary of Old IAC, andValentine Merger Sub LLC , an indirect wholly-owned subsidiary of Old IAC. OnJune 30, 2020 , the businesses of Old MTCH were separated from the remaining businesses of Old IAC through a series of transactions that resulted in the pre-transaction stockholders of Old IAC owning shares in two, separate public companies-(1) Old IAC, which was renamedMatch Group, Inc. ("New Match") and which owns the businesses of Old MTCH and certain Old IAC financing subsidiaries, and (2) New IAC, which was renamedIAC/InterActiveCorp , and which owns Old IAC's other businesses-and the pre-transaction stockholders of Old MTCH (other than Old IAC) owning shares in New Match. This transaction is referred to as the "MTCH Separation."
Defined Terms and Operating Metrics:
Unless otherwise indicated or as the context otherwise requires, certain terms used in this annual report, which include the principal operating metrics we use in managing our business, are defined below:
Reportable Segments (for additional information see " Note 13-Segment Information " to the accompanying notes to the financial statements included in " Item 8-Financial Statements and Supplementary Data "):
•Dotdash Meredith - one of the largest digital and print publisher in America. From mobile to magazines, nearly 200 million people trust us to help them make decisions, take action, and find inspiration. Dotdash Meredith'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. At
•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.Care.com acquired Lifecare, a leading provider of family care benefits, onOctober 27, 2020 ; 38
-------------------------------------------------------------------------------- •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), Language (iTranslate, Grammatica), Weather (Clime: NOAA Weather Radar Live, Weather Live), Business (PDF Hero, Scan Hero), Health (Daily Burn, Window - Intermittent Fasting) and Lifestyle (Blossom, Pixomatic); and
•Bluecrew,
Dotdash Meredith
•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, who distribute our business-to-business customized browser-based applications and who integrate our paid listings into their websites and (ii) the amortization of fees paid to Apple and Google related to the distribution of apps and the facilitation of in-app purchases of product features. Traffic acquisition costs include payment of amounts based on revenue share and other arrangements. Cost of revenue also includes 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 forCare.com customer care and support functions, production, distribution and editorial costs at Dotdash Meredith, payments made to workers staffed byBluecrew , payments made to care providers for Care For Business, credit card processing fees, hosting fees, roofing material costs associated with Angi Roofing, content costs, and production costs related toIAC Films . •Selling and marketing expense - consists primarily of advertising expenditures, which include online marketing, including through search engines and social media sites, fees paid to third parties that distribute our direct-to-consumer downloadable desktop applications, offline marketing, which is primarily television advertising, partner-related payments to those who direct traffic to the brands within ourAngi Inc. segment, and compensation expense (including stock-based compensation expense) and other employee-related costs for sales force and marketing personnel, subscription acquisition costs related to Dotdash Meredith, and outsourced personnel and consulting costs. 39 -------------------------------------------------------------------------------- •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), provision for credit losses, fees for professional services (including transaction-related costs related to the MTCH Separation, the Spin-off, and acquisitions), software license and maintenance costs, rent expense and facilities cost, 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 8-Long-term Debt " in the accompanying notes to the financial statements included in " Item 8-Financial Statements and Supplementary Data "):
•Dotdash Meredith Term Loan A - dueDecember 1, 2026 . The outstanding balance of the Dotdash Meredith Term Loan A is$350.0 million atDecember 31, 2021 . AtDecember 31, 2021 , the Dotdash Meredith Term Loan A bore interest at adjusted term secured overnight financing rate ("Adjusted Term SOFR") plus 2.00%, or 2.15%, and has quarterly principal payments. •Dotdash Meredith Term Loan B - dueDecember 1, 2028 . The outstanding balance of the Dotdash Meredith Term Loan B is$1.25 billion atDecember 31, 2021 . AtDecember 31, 2021 , the Dotdash Meredith Term Loan B bore interest at Adjusted Term SOFR, subject to a minimum of 0.50%, plus 4.00%, or 4.50%, and has quarterly principal payments.
•Dotdash Meredith Revolving Facility - Dotdash Meredith's
•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, commencingFebruary 15, 2021 .
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 earnings attributable to IAC shareholders to operating
loss to Adjusted EBITDA for the years ended
MANAGEMENT OVERVIEW
IAC today is comprised of Dotdash Meredith,
As used herein, "IAC," the "Company," "we," "our" or "us" and similar terms
refer to
40
--------------------------------------------------------------------------------For a more detailed description of the Company's operating businesses, see
"Description of IAC Businesses" included in " Item 1-Business ."
Sources of Revenue
Dotdash Meredith revenue consists of digital and print revenue. Digital revenue consists principally of display advertising, performance marketing, and licensing and other revenue. Print revenue consists principally of subscription, newsstand, print advertising, and performance marketing revenue. Display advertising revenue is generated primarily through digital display advertisements sold directly by Dotdash Meredith's sales team and through programmatic advertising networks. Performance marketing revenue includes commissions generated through affiliate commerce, affinity marketing, and performance marketing channels. Affiliate commerce and performance marketing commission revenue is generated when Dotdash Meredith refers users to commerce partner websites resulting in a purchase or transaction, or generated on a cost-per-click, cost-per-lead, or some other cost-per-action basis. Affinity marketing programs partner with third parties to market and place magazine subscriptions online for both Dotdash Meredith and third-party publisher titles where Dotdash Meredith acts as an agent. Commissions are earned when a subscriber name has been provided to the publisher and any free trial period is completed. Licensing and other revenue primarily includes revenue generated through brand and content licensing agreements. Brand licensing generates royalties from multiple long-term trademark licensing agreements with retailers, manufacturers, publishers, and service providers. Print subscription revenue is derived from the sale of magazines and books to consumers. Most of Dotdash Meredith's subscription sales are prepaid at the time of order and may be canceled at any time for a refund of the pro rata portion of the initial subscription. Newsstand revenue is related to single copy magazines or bundles of single copy magazines to wholesalers for resale on newsstands. Publications sold to magazine wholesalers are sold with the right to receive credit from Dotdash Meredith for magazines returned to the wholesaler by retailers. Print advertising revenue relates to the sale of advertising in magazines directly to advertisers or through advertising agencies, which is recognized when the magazine issue is published, which is the issue's on-sale date. Angi Ads and Leads Revenue is primarily derived from (i) advertising revenue, which includes revenue from service professionals under contract for advertising, (ii) consumer connection revenue, which is comprised of fees paid by service professionals for consumer matches (regardless of whether the service professional ultimately provides the requested service), and (iii) membership subscription revenue from service professionals and consumers. Consumer connection revenue varies based upon several factors, including the service requested, product experience offered, and geographic location of service. Angi Services revenue is primarily comprised of revenue from jobs (i) sourced through the "Book Now" feature, which lets consumers complete booking the entire transaction digitally for work that is completed physically, (ii) under managed projects (including Angi Roofing), which are home improvement projects, and (iii) through retail partnerships for installation of furniture or other household items. The Search segment consists ofAsk Media Group and the Desktop business.Ask Media Group and Desktop revenue consist principally of advertising revenue, which is generated primarily through the display of paid listings in response to search queries. The majority of the paid listings displayed are supplied to us byGoogle Inc. ("Google") pursuant to our services agreement withAsk Media Group also earns revenue from display advertisements (sold directly and through programmatic advertising networks). Desktop revenue also includes fees paid by subscribers for downloadable desktop applications, as well as display advertisements. Included in the Emerging & Other segment areCare.com andMosaic Group .Care.com generates revenue through subscription fees from families and caregivers to its suite of products and services, as well as through annual contracts with corporate employers who provide access toCare.com's suite of products and services as an employee benefit and through contracts with businesses that recruit employees through its platform.Mosaic Group revenue consists primarily of fees paid by subscribers for downloadable mobile applications distributed through theApple App Store andGoogle Play Store and directly to consumers, as well as display advertisements. Revenue for the remaining businesses within the Emerging & Other segment is generated primarily through marketplace services, advertising, media production and distribution, and subscriptions. 41 --------------------------------------------------------------------------------
Services Agreement with
A meaningful portion of the Company's revenue (and a substantial portion of IAC's net cash from operating activities attributable to continuing operations that it can freely access) is attributable to the Services Agreement. In addition, the Company earns certain other advertising revenue fromDecember 31, 2021 , 2020 and 2019, total revenue earned from$755.1 million ,$556.1 million and$732.1 million , respectively, representing 20%, 20%, and 29%, respectively, of the Company's revenue. The related accounts receivable totaled$89.1 million and$61.9 million atDecember 31, 2021 and 2020, respectively.
The total revenue earned from the Services Agreement for the years ended
The revenue attributable to the Services Agreement is earned byAsk Media Group and the Desktop business, both within the Search segment. For the years endedDecember 31, 2021 , 2020 and 2019, revenue earned from the Services Agreement was$542.1 million ,$344.8 million and$385.9 million , respectively, withinAsk Media Group , and$119.1 million ,$153.5 million and$291.1 million , respectively, within the Desktop business. EffectiveAugust 1, 2021 , the Company andMarch 31, 2023 toMarch 31, 2024 and to provide 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 believes that the amended agreement, taken as a whole, is comparable to its previously existing agreement withJuly 1, 2019 andAugust 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 year endedDecember 31, 2020 , the Company reassessed the fair values of the Desktop reporting unit and the related indefinite-lived intangible assets and recorded goodwill and intangible asset impairments of$265.1 million and$32.2 million , respectively. The reduction in the Company's fair value estimates was due to lower consumer queries, increasing challenges in monetization and the reduced ability to market profitably due to policy changes implemented byJanuary 2021 . Subsequently,May 10, 2021 . We anticipated that thisMarch 2021 . This elimination of marketing has positively impacted profitability in 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. For the year endedDecember 31, 2021 , B2C revenue declined by$55.5 million to$77.7 million , while Desktop operating income, excluding the goodwill and intangible asset impairment charges in 2020, increased by$32.5 million to$49.7 million , versus the year endedDecember 31, 2020 . Beyond 2021, we expect the revenue and profits of the B2C business and Desktop, respectively, to decline significantly.
InMarch 2021 ,ANGI Homeservices Inc. changed its name toAngi Inc. and updated one of its leading websites and brands,Angie's List , to Angi, 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. 42 --------------------------------------------------------------------------------Angi 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 has adversely affected the placement and ranking ofAngi Inc. websites, particularly Angi.com, in organic search results as Angi does not have the same domain history asAngie's List . In addition,Angi Inc. shifted marketing to support Angi, away from HomeAdvisor, which has negatively affected the efficiency of its search engine marketing efforts. Since the beginning of the integration process, these efforts have had a pronounced negative impact on service requests from organic search results and viaAngi Inc.'s mobile applications, which in turn has resulted in increased paid search engine marketing to generate service requests. These factors have increased marketing spend and reduced revenue during the year endedDecember 31, 2021 , materially more than expected at the launch of the brand initiative inMarch 2021 .Angi Inc. expects the pronounced negative impact to organic search results, increased paid search engine marketing costs, and reduced monetization from our mobile applications to continue until such time as the new brand establishes search engine optimization ranking and consumer awareness is established.
Angi Services was launched inAugust 2019 andAngi Inc. has invested significantly in Angi Services and expects to continue to do so going forward.Angi Inc. expects significant future revenue growth at Angi Services as it expands the business, refines the overall experience, and increases penetration in certain geographies and service categories. This increased investment in Angi Services has contributed to losses forAngi Inc. for the year endedDecember 31, 2021 and this investment is expected to continue through at least 2023.
InFebruary 2022 , the Company announced its plans to discontinue certain print publications, consisting ofEntertainment Weekly , InStyle, EatingWell, Health, Parents, and People en Español, with theApril 2022 issues of these publications being their final print editions. Dotdash Meredith plans on investing in its remaining print magazines, which include PEOPLE,Better Homes & Gardens , and Southern Living, by among other things enhancing paper quality and trim sizes.
Dotdash Meredith plans to invest
Distribution, Marketing and Advertiser Relationships
We pay traffic acquisition costs, which consist of payments made to partners who direct traffic to ourAsk Media Group websites, who distribute our business-to-business customized browser-based applications and who integrate our paid listings into their websites, and fees paid to Apple and Google related to the distribution and the facilitation of in-app purchases of product features. We also pay to market and distribute our services on third-party distribution channels, such as Google and other search engines and social media websites such as Facebook. With the acquisition of Meredith we also pay subscription acquisition costs, which represent commission payments to third-party agents to sell magazine subscriptions within our print business. 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.
COVID-19 Update
The impact on the Company from the COVID-19 pandemic and the measures designed to contain its spread has been varied and volatile.
43
--------------------------------------------------------------------------------
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 in the second half of 2020 and through early 2021,
service requests started to decline in May 2021 compared to the comparable
months of 2020 as a result of the surge in 2020 and due to impacts of the Angi
Inc.'s Brand Integration Initiative described above. Moreover, many service
professionals' businesses have been adversely impacted by labor and material
constraints and many service professionals have and continue to have limited
capacity to take on new business, which continues to negatively impact the
ability of these businesses to monetize the slightly increased level of service
requests. Although Angi Inc.'s ability to monetize service requests rebounded
modestly in the second half of 2021, it still has not returned to levels it
experienced pre-COVID-19. No assurances can be provided that Angi Inc. will
continue to be able to improve monetization, or that service professionals'
businesses and, as a consequence, its revenue and profitability will not
continue to be adversely impacted in the future. The Search segment has
experienced an increase in revenue in the year ended December 31, 2021 compared
to the prior year due, in part, to lower advertising rates in 2020 due to the
impact of COVID-19.
The volatile nature of our operating results in 2020 due to COVID-19 will impact the comparability of our year-over-year results of operations.
In the quarter endedMarch 31, 2020 , the Company determined that the effects of COVID-19 were an indicator of possible impairment for certain of its assets and identified the following impairments:
•a
•a
•a
•a
In the quarter endedSeptember 30, 2020 , the Company recorded impairments of$53.2 million and$10.8 million related to the goodwill and intangible assets, respectively, of the Desktop reporting unit. These impairments were due in part to the effects of COVID-19 on monetization. Refer to "Services Agreement with
Results of Operations for the Years Ended
The following discussion should be read in conjunction with " Item 8-Financial Statements and Supplementary Data ." For a discussion regarding our financial condition and results of operations for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 , please refer to " Management's Discussion and Analysis of Financial Condition and Results of Operations " and the annual audited consolidated and combined financial statements of the Company and notes thereto filed on the Current Report on Form 8-K with theSecurities Exchange Commission onJune 1, 2021 . Revenue Years Ended December 31, 2021 $ Change % Change 2020 (Dollars in thousands) Dotdash Meredith Digital$ 367,134 $ 153,381 72 %$ 213,753 Print 92,002 92,002 N/A - Intra-segment eliminations (2,863) (2,863) N/A - Total Dotdash Meredith 456,273 242,520 113 % 213,753 Angi Inc. 1,685,438 217,513 15 % 1,467,925 Search 873,346 260,072 42 % 613,274 Emerging & Other 685,175 215,416 46 % 469,759
Inter-segment eliminations (605) (430) (244) %
(175)
Total $ 3,699,627 $ 935,091 34 % $ 2,764,536
________________________
N/A = Not applicable
•Dotdash Meredith revenue increased 113% to $456.3 million due to the
contribution of $169.9 million from Meredith, acquired December 1, 2021 , growth
from Dotdash of $44.5 million , or 32%, in Display Advertising Revenue and
$28.1 million , or 37%, higher Performance Marketing Revenue. The growth in
Dotdash Display Advertising Revenue was driven by an increase in advertising
sold at higher rates in 2021 through its direct sales and programmatic channels
as the prior year rates were negatively impacted by COVID-19. The increase in
Dotdash Performance Marketing Revenue was due primarily to growth in both
affiliate commerce commission revenue and performance marketing commission
revenue due to increased online sales and new performance marketing products.
•Angi Inc. revenue increased 15% to $1.7 billion driven by increases of
$195.4 million , or 120%, in Angi Services Revenue, $11.7 million , or 1%, in Angi
Ads and Leads Revenue and $10.4 million , or 14%, at the European businesses. The
increase in Angi Services Revenue is due primarily to organic growth and, to a
lesser extent, from Angi Roofing, acquired July 1, 2021 . The increase in Angi
Ads and Leads Revenue is due primarily to an increase in advertising revenue of
$25.5 million or 11%. The revenue increase at the European businesses was due to
strong growth across all of its markets due to increased consumer demand and the
favorable impact of the weakening of the U.S. dollar relative to the Euro and
British Pound.
•Search revenue increased 42% to $873.3 million due to growth of $301.0 million ,
or 70%, from Ask Media Group , partially offset by a decrease of $40.9 million ,
or 23%, from Desktop. The increase in Ask Media Group revenue was due to higher
and more efficient marketing driving increased visitors to ad supported search
and content websites and an increase in advertising rates in 2021 as the prior
year rates were negatively impacted by COVID-19. The decrease in Desktop revenue
was due primarily to the Google policy changes announced in the fourth quarter
of 2020 and the first quarter of 2021 described above under "Services Agreement
with Google (the "Services Agreement")."
•Emerging & Other revenue increased 46% to $685.2 million due primarily to the
contribution and growth of Care.com , acquired February 11, 2020 , the addition of
Lifecare, acquired by Care.com in October 2020 , and increased revenue from IAC
Films , Bluecrew , Vivian Health , and The Daily Beast .
45
--------------------------------------------------------------------------------Cost of revenue (exclusive of depreciation shown separately below)
Years Ended December 31,
2021 $ Change % Change 2020
(Dollars in thousands)
Cost of revenue (exclusive of depreciation shown
separately below) $ 1,306,972 $ 556,286 74 % $ 750,686
As a percentage of revenue 35% 27%
Cost of revenue in 2021 increased from 2020 due to increases of $255.8 million
from Search, $152.6 million from Angi Inc. , $94.1 million from Dotdash Meredith,
and $53.8 million from Emerging & Other.
•The Search increase was primarily due to an increase of
•The Angi Inc. increase was due primarily to organic growth from Angi Services resulting in increased payments to third-party professional service providers and$51.2 million of costs attributable to the inclusion of Angi Roofing, primarily for roofing materials and third-party contractors. •The Dotdash Meredith increase was due primarily to$63.6 million of expense from the inclusion of Meredith, and increases of$17.4 million in compensation expense related to increased headcount and$7.0 million in third-party content creation costs. The increased investment in content creation costs is due primarily to contractors working on projects related to content updates and improvements, video content production, and writer and expert fees. •The Emerging & Other increase was due primarily to$22.1 million in payments made to workers staffed byBluecrew resulting from an increase in revenue,$16.2 million of expense from the inclusion of Lifecare, and$13.5 million and$8.8 million in production costs and participation payments, respectively, atIAC Films due to recent theatrical releases, partially offset by a decrease of$12.7 million atCare.com related to a change from gross to net revenue recognition for certain Care For Business contracts.
Selling and marketing expense
Years Ended December 31,
2021 $ Change % Change 2020
(Dollars in thousands)
Selling and marketing expense $ 1,362,300 $ 196,844 17 % $ 1,165,456
As a percentage of revenue 37% 42%
Selling and marketing expense in 2021 increased from 2020 due to increases of
$121.1 million from Angi Inc. , $65.7 million from Dotdash Meredith, and $54.7
million from Emerging & Other, partially offset by a decrease of $44.2 million
from Search.
•The Angi Inc. increase was due primarily to increases in advertising expense of
$66.2 million and compensation expense of $33.2 million , expense of $14.0
million from the inclusion of Angi Roofing, and an increase in consulting costs
of $12.2 million . The increase in advertising expense was due primarily to
increases of $58.5 million in online marketing and $6.9 million in television
spend. The increase in online marketing spend is attributable to the brand
integration initiative described above under "Angi Inc.'s Brand Integration
Initiative." The increase in television spend in 2021 reflects the return to
historical spending levels as compared to the cost cutting initiatives during
2020 due to the impact of COVID-19 as well as continued efforts related to the
brand integration initiative. The increase in compensation expense was due
primarily to increased commission expense and an increase in sales force
headcount, partially offset by lower compensation expense in France due to
headcount reductions in 2020. The increase in consulting costs was due primarily
to various sales initiatives at Angi Services.
•The Dotdash Meredith increase was due primarily to $45.8 million of expense
from the inclusion of Meredith, and increases in online advertising expense of
$11.4 million and compensation expense of $6.3 million . The increase in online
advertising expense is due primarily to an increase relative to depressed levels
in 2020 due to COVID-19. The increase in compensation expense was primarily due
to higher headcount.
46-------------------------------------------------------------------------------- •The Emerging & Other increase was due primarily to increases of$26.7 million in online marketing and television spend atCare.com ,$7.3 million in television spend at Mosaic,$4.8 million in expense from the inclusion of Lifecare, and increases of$4.2 million and$2.3 million in compensation expense atCare.com andVivian Health , respectively, each due primarily to higher headcount. The increase in online marketing and television spend atCare.com is due primarily to efforts to increase its customer base. •The Search decrease was due primarily to a decrease in marketing of$73.7 million at Desktop as it substantially reduced marketing of its B2C products inJanuary 2021 and the subsequent elimination of all marketing of its B2C products beginning in earlyMarch 2021 due primarily to the$28.3 million in online marketing atAsk Media Group .
General and administrative expense
Years Ended December 31,
2021 $ Change % Change 2020
(Dollars in thousands)
General and administrative expense $ 797,448 $ 52,213 7 % $ 745,235
As a percentage of revenue 22% 27%
General and administrative expense in 2021 increased from 2020 due to increases
of $102.4 million from Dotdash Meredith, $33.1 million from Emerging & Other,
and $31.7 million from Angi Inc. , partially offset by decreases of $108.0
million from Corporate and $7.0 million from Search.
•The Dotdash Meredith increase was due primarily to $75.0 million of expense
from the inclusion of Meredith and $25.2 million in transaction-related costs at
Dotdash related to the Meredith transaction. Included in Meredith's expense is
$53.3 million in transaction-related costs associated with its acquisition,
including charges related to double-trigger change in control payments.
•The Emerging & Other increase was due primarily to a change of $21.9 million in
acquisition-related contingent consideration fair value adjustments (expense of
$15.0 million in 2021 compared to income of $6.9 million in 2020) due to the
amount of contingent consideration to be paid out in connection with a previous
Mosaic Group acquisition, $11.4 million of expense from the inclusion of
Lifecare, and an increase of $7.8 million in compensation expense at Care.com
due primarily to an increase in headcount, partially offset by a decrease of
$7.1 million in compensation expense at Mosaic Group .
•The Angi Inc. increase was due primarily to an increase of $27.7 million in
professional fees, $10.8 million of expense from the inclusion of Angi Roofing,
$9.6 million in one-time costs related to Angi Inc. reducing its real estate
footprint in 2021, increases of $8.4 million in the provision for credit losses,
and $7.2 million in software and maintenance costs, partially offset by a
decrease of $37.9 million in compensation expense. The increase in professional
fees was due primarily to an increase in outsourced personnel costs and, to a
lesser extent, legal fees, consulting costs, and recruiting fees. The increase
in outsourced personnel costs is due primarily to an increase in call volume
related to Angi Inc.'s customer service function. The real estate related costs
are the result of impairments of right-of-use lease assets, leasehold
improvements and furniture and equipment associated with office space Angi Inc.
vacated. The increase in the provision for credit losses is primarily due to
higher Angi Services revenue as the provision for credit losses as a percentage
of revenue has remained relatively flat. The increase in software licenses and
maintenance costs is due to increased investment in software to support Angi
Inc.'s customer service function. The decrease in compensation expense was due
primarily to a decrease in stock-based compensation expense of $54.6 million and
severance costs recorded in the European business in 2020 associated with
headcount reductions in France , partially offset by $15.6 million in wage
related expenses resulting primarily from wage increases and $7.0 million in
charges related to the acquisition of the remaining interests in MyBuilder at a
premium to fair value. The decrease in stock-based compensation expense was due
primarily to $30.8 million in stock appreciation rights expense recognized in
2020 which was not incurred in 2021 as the awards became fully vested in 2020
and a net decrease of $7.7 million due to the reversal of previously recognized
expense related to unvested awards that were forfeited due to management
departures in the first quarter of 2021, partially offset by the issuance of new
equity awards since 2020.
47-------------------------------------------------------------------------------- •The Corporate decrease was due primarily to a decrease of$56.7 million in stock-based compensation expense, a$25.0 million contribution to the IAC Fellows endowment included in the prior year period, a decrease in transaction-related costs ($19.7 million and$2.2 million related to the MTCH Separation and the Spin-off, respectively, in 2020 compared to$6.2 million in connection with the Spin-off in 2021) and the prior year period reflecting higher employer payroll taxes related toMatch Group stock option exercises by IAC employees. The decrease in stock-based compensation expense is due primarily to the inclusion in 2020 of$54.8 million in modification charges related to the MTCH Separation and the forfeiture of certain equity awards in 2021, partially offset by the issuance of new equity awards since 2020. •The Search decrease was due primarily to decreases of$5.8 million in compensation expense and$2.2 million in lease expense at Desktop. The decrease in compensation expense is primarily due to a reduction in headcount and the decrease in lease expense is primarily due to the early termination of a lease agreement in 2020.
Product development expense
Years Ended December 31,
2021 $ Change % Change 2020
(Dollars in thousands)
Product development expense $ 220,120 $ 40,106 22 % $ 180,014
As a percentage of revenue 6%
7%
Product development expense in 2021 increased from 2020 due to increases of
•The Emerging & Other increase was due primarily to increases of$8.4 million and$5.9 million in compensation expense and outsourced personnel costs, respectively, atCare.com ,$4.5 million in expense from the inclusion of Lifecare, and$1.8 million in compensation expense atVivian Health . The increase in compensation expense at bothCare.com andVivian Health is primarily due to increases in headcount. The increase in outsourced personnel costs atCare.com is primarily due to enhancing existing product offerings and developing new products. •The Dotdash Meredith increase was due primarily to$7.9 million of expense from the inclusion of Meredith and an increase of$5.3 million in compensation expense. The increase in compensation expense is due to higher headcount to aid in new and enhanced user experiences on its websites. Depreciation Years Ended December 31, 2021 $ Change % Change 2020 (Dollars in thousands) Depreciation$ 75,015 $ 6,192 9 %$ 68,823 As a percentage of revenue 2% 2% Depreciation in 2021 increased from 2020 due primarily to the investments inAngi Inc.'s capitalized software and$3.9 million of expense from the inclusion of Meredith, partially offset by the inclusion in 2020 of write-offs of leasehold improvements as a result of early lease terminations atDesktop and Mosaic Group . 48
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Operating income (loss)
Years Ended December 31,
2021 $ Change % Change 2020
(Dollars in thousands)
Dotdash Meredith
Digital $ 73,980 $ 23,739 47 % $ 50,241
Print (6,527) (6,527) N/A -
Other (60,277) (60,277) N/A -
Total Dotdash Meredith 7,176 (43,065) (86) % 50,241
Angi Inc. (76,513) (70,145) (1,102) % (6,368)
Search 108,334 357,045 NM (248,711)
Emerging & Other (22,738) 48,158 68 % (70,896)
Corporate (153,326) 108,603 41 % (261,929)
Total $ (137,067) $ 400,596 75 % $ (537,663)
As a percentage of revenue (4)% (19)%
________________________
NM = Not meaningful.
Operating loss decreased $400.6 million to a loss of $137.1 million due
primarily to the inclusion in 2020 of a goodwill impairment of $265.1 million
and $32.2 million in indefinite-lived intangible asset impairments at Search
related to the Desktop business, a decrease of $109.5 million in stock-based
compensation expense, a decrease of $19.8 million in amortization of
intangibles, excluding the $32.2 million Desktop impairment noted above, and an
increase in Adjusted EBITDA of $2.0 million described below, partially offset by
a change of $21.9 million in acquisition-related contingent consideration fair
value adjustments (expense of $15.0 million in 2021 compared to income of $6.9
million in 2020) and an increase of $6.2 million in depreciation. The goodwill
and the indefinite-lived intangible asset impairments in 2020 at the Desktop
business were primarily due to lower consumer queries, increasing challenges in
monetization and the reduced ability to market profitably due to browser policy
changes implemented by Google and other browsers. The effects of COVID-19 on
monetization were an additional factor. The remaining decrease in amortization
of intangibles of $19.8 million was due principally to certain intangible assets
becoming fully amortized during 2020, partially offset by an increase in
amortization related to the acquisitions of Meredith and Lifecare. The decrease
in stock-based compensation expense was due primarily to the inclusion in 2020
of $55.7 million in modification charges related to the MTCH Separation, the
forfeiture of certain equity awards in 2021 and stock appreciation rights
expense recognized in 2020, which was not incurred in 2021, partially offset by
the issuance of new equity awards since 2020. The increase in depreciation was
due primarily to the investments in Angi Inc. capitalized software and expense
from the inclusion of Meredith.
See " Note 2-Summary of Significant Accounting Policies " in the accompanying
notes to the financial statements included in " Item 8-Financial Statements and
Supplementary Data " for a detailed description of goodwill and
indefinite-lived intangible asset impairments.
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
$243.0 million . There are no indefinite-lived intangible assets for which the
most recent estimate of the excess fair value over carrying value is less than
20%.
At December 31, 2021 , there was $365.1 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 5.1
years.
49--------------------------------------------------------------------------------
Adjusted EBITDA
Years Ended December 31,
2021 $ Change % Change 2020
(Dollars in thousands)
Dotdash Meredith
Digital $ 91,179 $ 24,973 38 % $ 66,206
Print 2,639 2,639 N/A -
Other (60,196) (60,196) N/A -
Total Dotdash Meredith 33,622 (32,584) (49) % 66,206
Angi Inc. 27,865 (144,939) (84) % 172,804
Search 108,381 57,037 111 % 51,344
Emerging & Other 33,383 71,082 NM (37,699)
Corporate (95,985) 51,448 35 % (147,433)
Total $ 107,266 $ 2,044 2 % $ 105,222
As a percentage of revenue 3% 4%
For a reconciliation of net earnings attributable to IAC shareholders to operating loss to Adjusted EBITDA, see " Principles of Financial Reporting
."
For a reconciliation of operating income (loss) to Adjusted EBITDA for the Company's reportable segments, see " Note 13-Segment Information " in the accompanying notes to the financial statements included in " Item 8-Financial Statements and Supplementary Data ."
•Dotdash Meredith Adjusted EBITDA decreased 49% to$33.6 million , despite higher revenue, due primarily to$25.2 million in transaction-related costs in connection with the Meredith transaction, increases in compensation expense, advertising expense, and third-party content creation costs, and losses from Meredith due primarily to$53.3 million in transaction-related costs associated with its acquisition, including charges related to double-trigger change in control payments. •Angi Inc. Adjusted EBITDA decreased 84% to$27.9 million , despite higher revenue, due primarily to increases in cost of revenue due primarily to the growth of Angi Services, including$51.2 million of costs attributable to the inclusion of Angi Roofing, advertising expense attributable to the brand integration initiative described above under "Angi Inc.'s Brand Integration Initiative," compensation expense due to increased commission expense and headcount,$9.6 million in one-time costs as a result ofAngi Inc. reducing its real estate footprint, and$7.0 million in charges related to the acquisition of the remaining interests inMyBuilder at a premium to fair value. •Search Adjusted EBITDA increased 111% to$108.4 million due to an increase inAsk Media Group revenue and the decrease of$73.7 million in marketing at Desktop as it substantially reduced marketing of its B2C products inJanuary 2021 and the subsequent elimination of all marketing of B2C products beginning in earlyMarch 2021 as a result of$71.1 million to$33.4 million from a loss of$37.7 million due primarily to increased profits atCare.com as 2020 included$34.0 million in transaction-related items from its acquisition (including$17.3 million in deferred revenue write-offs and$16.7 million in transaction-related costs), and profits in the current year compared to losses in the prior year atIAC Films . •Corporate Adjusted EBITDA loss decreased 35% to$96.0 million due primarily to the inclusion in 2020 of the$25.0 million contribution to the IAC Fellows endowment, a decrease in transaction-related costs ($19.7 million and$2.2 million related to the MTCH Separation and the Spin-off, respectively, in 2020 compared to$6.2 million in connection with the Spin-off in 2021), and the prior year period reflecting higher employer payroll taxes related toMatch Group stock option exercises by IAC employees. 50 --------------------------------------------------------------------------------
Interest expense
Years Ended December 31,
2021 $ Change % Change 2020
(Dollars in thousands)
Interest expense $ 34,264 $ 18,098 112 % $ 16,166
Interest expense in 2021 increased from 2020 due primarily to the issuance of
the ANGI Group Senior Notes in August 2020 , the write-off of deferred debt
issuance costs associated with the termination of the ANGI Group Revolving
Facility in August 2021 , the borrowings of the Dotdash Meredith Term Loans and
commitment fees relating to the Dotdash Meredith Revolving Facility in December
2021 , and the write-off of deferred financing costs associated with the
termination of a bridge facility entered into by IAC in connection with the
Meredith transaction, partially offset by a decrease in interest expense due to
the repayment of the ANGI Group Term Loan during the second quarter of 2021 and
the inclusion in 2020 of the write-off of deferred financing costs as a result
of the termination of the IAC Group Credit Facility in October 2020 . Interest
expense was further impacted by a decrease in interest expense on the ANGI Group
Term Loan due to lower interest rates and the decrease in the average
outstanding balance compared to the prior year period.
Unrealized gain on investment in MGM Resorts International
Years Ended December 31,
2021 $ Change % Change 2020
(Dollars in thousands)
Unrealized gain on investment in MGM Resorts
International $ 789,283 $ (51,267) (6) % $ 840,550 The Company recognized unrealized gains of
Other income (expense), net
Years Ended December 31,
2021 2020
(Dollars in thousands)
Unrealized increase (decrease) in the estimated fair value of a warrant $ 104,018 $ (1,213) Unrealized gain related to an investment following its initial public offering
18,788 -
Upward adjustments to the carrying value of equity securities without readily determinable fair values
8,892 -
Realized gain on the sale of a marketable equity security 7,174 -
Realized gains related to the sale of investments 5,773 10,373
Realized gains related to the sale of business 4,209 1,061
Interest income 1,351 7,177
Net periodic pension benefit costs, other than the service cost component
(17,858) -
Foreign exchange (losses) gains, net (a) (13,636) 674
Loss on the extinguishment of debt (b) (1,110) -
Impairments related to COVID-19 (c) - (59,001)
Other (5,747) (1,632)
Other income (expense), net $ 111,854 $ (42,561)
$ Change $ 154,415
% Change NM
_____________________
(a) Includes
(b) 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. (c) Includes$51.5 million in impairments related to investments in equity securities without readily determinable fair values and$7.5 million in impairments of a note receivable and a warrant related to certain investees in the year endedDecember 31, 2020 . 51 --------------------------------------------------------------------------------
Income tax (provision) benefit
Years Ended December 31,
2021 $ Change % Change 2020
(Dollars in thousands)
Income tax (provision) benefit $ (138,990) $ (184,697) NM $ 45,707
Effective income tax rate 19% NM
For further details of income tax matters, see " Note 3-Income Taxes " in the
accompanying notes to the financial statements included in " Item 8-Financial
Statements and Supplementary Data ."
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, an increase in the
valuation allowance on beginning-of-the-year deferred tax assets related to the
Spin-off, and non-deductible transaction-related items associated with the
acquisition of Meredith.
In 2020, the income tax benefit was due primarily to excess tax benefits generated by the exercise and vesting of stock-based awards, partially offset by the non-deductible portion of the Desktop impairment.
Net loss attributable to noncontrolling interests
Years Ended December 31,
2021 $ Change % Change 2020
(Dollars in thousands)
Net loss attributable to noncontrolling interests
651 % $ (1,140)
Net loss attributable to noncontrolling interests in 2021 and 2020 primarily
represents the publicly-held interest in Angi Inc.'s losses. Net loss
attributable to noncontrolling interests in 2021 also includes a third party
interest in a subsidiary that holds two marketable equity securities that the
Company recorded gains on in 2021. The Company sold its shares in one of the
investments in the third quarter of 2021.
52
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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, on which our
internal budgets are based and by which management is compensated. We believe
that investors should have access to, and we are obligated to provide, the same
set of tools that we use in analyzing our results. This non-GAAP measure should
be considered in addition to results prepared in accordance with GAAP, but
should not be considered a substitute for or superior to GAAP results. 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 earnings attributable to IAC shareholders to operating loss to Adjusted EBITDA:
Years Ended December 31,
2021 2020
(In thousands)
Net earnings attributable to IAC shareholders $ 597,547 $ 269,726 Add back:
Net loss attributable to noncontrolling interests (8,562) (1,140) Loss from discontinued operations, net of tax 1,831 21,281 Income tax provision (benefit) 138,990 (45,707) Other (income) expense, net (111,854) 42,561 Unrealized gain on investment in MGM Resorts International (789,283) (840,550) Interest expense 34,264 16,166 Operating loss (137,067) (537,663) Add back: Stock-based compensation expense 79,487 188,995 Depreciation 75,015 68,823 Amortization of intangibles 74,839 126,839
Acquisition-related contingent consideration fair value adjustments
14,992 (6,918)
Goodwill impairment - 265,146
Adjusted EBITDA $ 107,266 $ 105,222 For a reconciliation of operating (loss) income to Adjusted EBITDA for the Company's reportable segments, see " Note 13-Segment Information " in the accompanying notes to the financial statements included in " Item 8-Financial Statements and Supplementary Data ."
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 buildings, capitalized
software, leasehold improvements 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.
53
--------------------------------------------------------------------------------
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, licensee relationships,
trade names, technology, subscriber relationships, service professional
relationships, customer lists and user base, memberships and content, are valued
and amortized over their estimated lives. Value is also assigned to acquired
indefinite-lived intangible assets, which comprise trade names and trademarks,
and goodwill that are not subject to amortization. An impairment is recorded
when the carrying value of an intangible asset or goodwill exceeds its fair
value. We believe that intangible assets represent costs incurred by the
acquired company to build value prior to acquisition and the related
amortization and 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.
54
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FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
Financial Position
December 31,
2021 2020
(In thousands)
Dotdash Meredith cash and cash equivalents:
United States $ 218,612 $ -
All other countries 14,781 612
Total Dotdash Meredith cash and cash equivalents 233,393 612
Angi Inc. cash and cash equivalents and marketable debt
securities:
United States 404,277 793,679
All other countries 23,859 19,026
Total cash and cash equivalents 428,136 812,705
Marketable debt securities (United States) - 49,995
862,700
IAC (excluding
1,408,828 2,466,404
All other countries 48,373 86,455 Total cash and cash equivalents 1,457,201
2,552,859
Marketable securities (United States) 19,788 174,984
Total IAC (excluding
1,476,989 2,727,843
Total cash and cash equivalents and marketable securities
$ 3,591,155 Dotdash Meredith Debt: Dotdash Meredith Term Loan A$ 350,000 $ - Dotdash Meredith Term Loan B 1,250,000 - Total Dotdash Meredith long-term debt 1,600,000 - Less: current portion of Dotdash Meredith long-term debt 30,000 - Less: original issue discount 6,176 - Less: unamortized debt issuance costs 12,139 - Total Dotdash Meredith long-term debt, net 1,551,685 - ANGI Group Debt: ANGI Group Senior Notes 500,000 500,000 ANGI Group Term Loan - 220,000Total ANGI Group long-term debt 500,000 720,000 Less: unamortized debt issuance costs 5,448 7,723Total ANGI Group long-term debt, net 494,552 712,277 Total long-term debt, net$ 2,046,237 $ 712,277
The Company's international cash can be repatriated without significant tax
consequences. During the year ending
For a detailed description of long-term debt, see " Note 8-Long-term Debt " in the accompanying notes to the financial statements included in " Item 8-Financial Statements and Supplementary Data ."
55
--------------------------------------------------------------------------------Cash Flow Information
In summary, IAC's cash flows are as follows:
Years Ended December 31,
2021 2020
(In thousands)
Net cash provided by (used in):
Operating activities attributable to continuing operations $ 118,900 $ 113,379
Investing activities attributable to continuing operations $ (2,907,503) $ (1,872,183)
Financing activities attributable to continuing operations $ 1,115,737 $ 4,202,665
Net cash provided by operating activities attributable to continuing operations
consists of net earnings adjusted for non-cash items, the effect of changes in
working capital, and acquisition-related contingent consideration payments (to
the extent greater than the liability initially recognized at the time of
acquisition). Non-cash adjustments include the unrealized gain on the investment
in MGM , goodwill impairments, stock-based compensation expense, deferred income
taxes, amortization of intangibles, unrealized (increase) decrease in the
estimated fair value of a warrant, provision for credit losses, depreciation,
net (gains) losses on investments in equity securities, non-cash lease expense
(including right-of-use asset impairments), and pension and postretirement
benefit expense.
2021
Adjustments to net earnings attributable to continuing operations consist primarily of an unrealized gain on the investment inMGM of$789.3 million , an unrealized increase in the estimated fair value of a warrant of$104.0 million , and net gains on investments in equity securities of$40.6 million , partially offset by deferred taxes of$133.4 million , provision of credit losses of$89.9 million , stock-based compensation expense of$79.5 million , depreciation of$75.0 million , amortization of intangibles of$74.8 million , non-cash lease expense (including right-of-use asset impairments) of$35.7 million , and pension and postretirement benefit expense of$18.2 million . The decrease from changes in working capital primarily consists of an increase in accounts receivable of$157.0 million and a decrease in operating lease liabilities of$31.0 million , partially offset by an increase in accounts payable and other liabilities of$82.8 million and an increase in deferred revenue of$8.3 million . The increase in accounts receivable is due primarily to revenue growth atAngi Inc. , primarily attributable to Angi Services, and an increase at Search due primarily to revenue growth, partially offset by timing of cash receipts. The decrease in operating lease liabilities is due to cash payments on leases net of interest accretion. The increase in accounts payable and other liabilities is due primarily to increases in (i) accrued traffic acquisition costs and related payables at Search, (ii) accrued advertising and related payables atAngi Inc. , (iii) accrued professional fees at Dotdash Meredith, primarily related to transaction-related costs associated with the acquisition of Meredith, and (iv) customer deposit liability due to the inclusion of Meredith, partially offset by a decrease in accrued compensation costs due primarily to a decrease in deferred payroll tax payments under the Coronavirus Aid, Relief, and Economic Security Act, and payments of cash bonuses. The increase in deferred revenue is due primarily to the growth in subscription sales atCare.com . Net cash used in investing activities attributable to continuing operations includes cash used for acquisitions of$2.7 billion , principally related to the acquisitions of Meredith at Dotdash for$2.7 billion and Angi Roofing atAngi Inc. for$25.4 million , the cash distribution related to the spin-off of Vimeo of$333.2 million , capital expenditures of$90.2 million primarily related to investments in capitalized software atAngi Inc. to support its products and services and payment of$12.7 million related to the purchase of a 50% interest in an aircraft at Corporate, and purchases of investments of$24.3 million , primarily related to Turo, partially offset by maturities of marketable debt securities of$225.0 million and net proceeds from the sale of businesses and investments of$16.5 million , primarily related to the sales of certain investments. Net cash provided by financing activities attributable to continuing operations includes the borrowings of Dotdash Meredith Term Loans of$1.6 billion , partially offset by a prepayment of the ANGI Group Term Loan of$220.0 million , which otherwise would have matured onNovember 5, 2023 , withholding taxes paid on behalf of IAC employees for stock-based awards that were net settled of$96.0 million , withholding taxes paid on behalf ofAngi Inc. employees for stock-based awards that were net settled of$61.9 million , the repurchase of 3.2 million shares ofAngi Inc. Class A common stock, on a settlement date basis, for$35.4 million at an average price of$11.06 per share, the purchase of redeemable noncontrolling interests of$30.3 million , and debt issuance costs of$23.5 million , primarily related to the Dotdash Meredith Term Loans and Dotdash Meredith Revolving Facility. 56
--------------------------------------------------------------------------------
2020
Adjustments to net earnings from continuing operations consist primarily of$840.6 million of the unrealized gain on the investment inMGM and$18.4 million of deferred income taxes, partially offset by a$265.1 million goodwill impairment,$189.0 million of stock-based compensation expense,$126.8 million of amortization of intangibles, including impairments of$32.2 million ,$78.9 million of provision for credit losses,$68.8 million of depreciation,$41.1 million of losses on equity securities, net, which includes$51.5 million of impairments of certain equity securities without readily determinable fair values, and non-cash lease expense (including right-of-use asset impairments) of$30.0 million . The decrease from changes in working capital primarily consists of an increase in accounts receivable of$131.7 million , a decrease in operating lease liabilities of$29.8 million , an increase in other assets of$24.8 million , and a decrease in income taxes payable and receivable of$11.6 million , partially offset by an increase in accounts payable and other liabilities of$36.0 million and an increase in deferred revenue of$25.1 million . The increase in accounts receivable is primarily due to revenue growth atAngi Inc. ,Care.com , and Dotdash. The decrease in operating lease liabilities is due to cash payments on leases net of interest accretion. The increase in other assets is primarily due to increases in capitalized sales commissions atAngi Inc. and capitalized production costs of various production deals atIAC Films , partially offset by a decrease in capitalized downloadable search toolbar costs at Search. The decrease in income taxes payable and receivable is due primarily to the settlement of audits and 2020 income tax payments in excess of 2020 income tax accruals. The increase in accounts payable and other liabilities is primarily due to increases in: (i) accrued traffic acquisition costs at Search, (ii) accrued employee compensation due, in part to the deferral of payroll tax payments under the Coronavirus Aid, Relief, and Economic Security Act, partially offset by timing of payments of cash bonuses, (iii) third-party accrued interest atAngi Inc. , and (iv) accrued advertising and related payables atAngi Inc. and Mosaic. The increase in deferred revenue is due primarily to growth in subscription sales atCare.com . Net cash used in investing activities attributable to continuing operations includes$1.0 billion for the purchase of 59.0 million shares ofMGM , cash used for investments and acquisitions of$686.4 million , which is primarily related to theCare.com acquisition, purchases (net of maturities) of marketable debt securities of$174.8 million , and capital expenditures of$60.7 million , which is primarily related to investments in capitalized software atAngi Inc. to support their products and services, and leasehold improvements, partially offset by a decrease in notes receivable-related party of$54.8 million , and proceeds from the sale of businesses and investments of$26.1 million , which are primarily related to the sales of Dictionary andElectus in 2018, a portion of the proceeds of which were held in escrow and received in 2020, and the sales of certain investments. Net cash provided by financing activities attributable to continuing operations includes cash transfers from Old IAC to the Company pursuant to the terms of the MTCH Separation of$1.7 billion and cash merger consideration of$837.9 million paid by Old IAC in connection with the MTCH Separation, proceeds related to the sale of Old IAC Class M common stock of$1.4 billion , and proceeds from the issuance of theANGI Group Senior Notes of$500.0 million , partially offset by withholding taxes paid on behalf of IAC employees for stock-based awards that were net settled of$85.1 million , withholding taxes paid on behalf ofAngi Inc. employees for stock-based awards that were net settled of$64.1 million , the repurchase of 8.5 million shares ofAngi Inc. Class A common stock, on a settlement date basis, for$63.7 million at an average price of$7.47 per share, principal payments on ANGI Group Term Loan of$27.5 million , including prepayment of the$13.8 million of principal payments that were otherwise due in 2021, debt issuance costs of$6.5 million , and the purchase of redeemable noncontrolling interests of$4.3 million .
Discontinued Operations
Net cash provided by discontinued operations in the years endedDecember 31, 2021 and 2020 of$319.2 million and$190.5 million , respectively, relates to the operations of Vimeo. The Company does not expect cash flows from discontinued operations following the Spin-off. 57 --------------------------------------------------------------------------------
Liquidity and Capital Resources
Acquisition of Meredith
As discussed above, on
Financing Arrangements
Dotdash Meredith Term Loans and Dotdash Meredith Revolving Facility
OnDecember 1, 2021 ,Dotdash Meredith, Inc. entered into the Dotdash Meredith Credit Agreement, which provides for (a) the five-year$350 million Dotdash Meredith Term Loan A, (b) the seven-year$1.25 billion Dotdash Meredith Term Loan B and (c) the five-year$150 million Dotdash Meredith Revolving Facility. The proceeds of the Dotdash Meredith Term Loans were used to fund a portion of the purchase price for the acquisition of Meredith and pay related fees and expenses. The outstanding balances on the Dotdash Meredith Term Loan A and Dotdash Meredith Term Loan B were$350.0 million and$1.25 billion and bore interest at 2.15% and 4.50% atDecember 31, 2021 , respectively. Interest payments are due at least quarterly through maturity of the Dotdash Meredith Term Loans. The Dotdash Meredith Term Loan A requires quarterly principal payments of$4.4 million throughDecember 31, 2024 ,$8.8 million throughDecember 31, 2025 and$13.1 million thereafter through maturity. The Dotdash Meredith Term Loan B requires quarterly payments of$3.1 million through maturity. CommencingDecember 31, 2022 , pursuant to the Dotdash Meredith Credit Agreement, the Dotdash Meredith Term Loan B may require additional annual principal payments as part of an excess cash flow sweep provision, the amount of which, in part, is governed by the net leverage ratio. There were no outstanding borrowings under the Dotdash Meredith Revolving Facility atDecember 31, 2021 . The annual commitment fee on undrawn funds is based on the consolidated net leverage ratio, as defined in the Dotdash Meredith Credit Agreement, most recently reported and was 35 basis points atDecember 31, 2021 . Any borrowings under the Dotdash Meredith Revolving Facility would bear interest, at Dotdash Meredith's option, at either a base rate or term benchmark rate, plus an applicable margin, which is based on Dotdash Meredith's net leverage ratio. CommencingMarch 31, 2022 , the Dotdash Meredith Credit Agreement requires Dotdash Meredith to maintain a consolidated net leverage ratio as of the last day of each quarter of no greater than 5.5 to 1.0 provided that either (i)$1.00 or more is drawn under the Dotdash Meredith Revolving Facility or Dotdash Meredith Term Loan A, or (ii) the outstanding face amount of undrawn letters of credit, other than cash collateralized letters of credit at 102%, exceeds$25 million , subject to certain increases for qualifying material acquisitions.
The obligations under the Dotdash Meredith Credit Agreement are guaranteed by certain of Dotdash Meredith's wholly-owned subsidiaries, and are secured by substantially all of the assets of Dotdash Meredith and certain of its subsidiaries.
ANGI Group Debt
As of
The
58
--------------------------------------------------------------------------------Investment in MGM Resorts International
OnFebruary 16, 2022 , the Company purchased an additional 4.5 million shares ofMGM for$202.5 million . Following this purchase, the Company owns approximately 63.5 million shares, representing a 14.4% ownership interest inMGM as ofFebruary 16, 2022 .
Share Repurchase Authorizations and Activity
At
During the year endedDecember 31, 2021 ,Angi Inc. repurchased 3.2 million shares of its Class A common stock, on a trade date basis, at an average price of$11.06 per share, or$35.4 million in aggregate. FromJanuary 1, 2022 throughFebruary 11, 2022 ,Angi Inc. repurchased an additional 1.0 million shares at an average price of$7.80 , or$8.1 million in aggregate.Angi Inc. has 15.0 million shares remaining in its share repurchase authorization as ofFebruary 11, 2022 .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. 59
-------------------------------------------------------------------------------- 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 ofFebruary 11, 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 withholding taxes payable Estimated on vested withholding shares and taxes payable Aggregate intrinsic shares that on shares that value / fair value will vest by will vest after of awards December 31, December 31, Estimated IAC outstanding 2022 2022 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) $ 53,633$ 17,418 $ 9,398 201 IAC denominated stock options (b) 345,579 172,790 - 1,296 IAC RSUs (c) 224,126 7,073 101,479 867 IAC restricted stock (d) 209,766 - 104,883 786 Total IAC outstanding employee stock-based awards 833,104 197,281 215,760 3,150 Angi Inc. Angi Inc. stock appreciation See footnote (f) rights 5,309 2,654 - below Other Angi Inc. equity awards See footnote (f) (a)(e) 131,743 13,951 51,089 below Total Angi outstanding employee stock-based awards 137,052 16,605 51,089 Total outstanding employee stock-based awards $ 970,156$ 213,886 $ 266,849 _______________ (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. (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 onFebruary 11, 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 2.9 million common shares and would have received$40.5 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 afterDecember 31, 2022 is related to awards that are scheduled to cliff vest in 2025, the five-year anniversary of the grant date.
(d) On
(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.
For a detailed description of employee stock-based awards, see " Note 12-Stock-Based Compensation " in the accompanying notes to the financial statements included in " Item 8-Financial Statements and Supplementary Data ."
60
--------------------------------------------------------------------------------Contractual Obligations
The Company enters into various contractual arrangements as a part of its continued operations. AtDecember 31, 2021 , material obligations discussed in the accompanying notes to the financial statements included in " Item 8-Financial Statements and Supplementary Data , included principal and interest payments on the Company's long-term debt discussed above and in " Note 8-Long-Term Debt ," operating leases discussed in " Note 14-Leases ," and pension and postretirement benefits discussed in " Note 17-Pension and Postretirement Benefit Plans ." In addition, atDecember 31, 2021 , the Company has material purchase obligations which represent legally binding agreements to purchase goods and services that specify all significant terms. These obligations are discussed in " Note 15-Commitments and Contingencies " in the accompanying notes to the financial statements included in " Item 8-Financial Statements and Supplementary Data ."
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 20% to 30%, primarily due to the development of capitalized software to support products and services atDotdash Meredith and Angi Inc. Liquidity Assessment AtDecember 31, 2021 , the Company's consolidated cash, cash equivalents, and marketable equity securities, excludingMGM , was$2.1 billion , of which$428.1 million and$233.4 million was held byAngi Inc. and Dotdash Meredith, respectively. After giving effect to the purchase of the additional 4.5 million shares ofMGM for$202.5 million onFebruary 16, 2022 , the cash held by the Company atDecember 31, 2021 , exclusive of cash held by Angi and Dotdash Meredith, would have been$1.3 billion . The Company's consolidated debt includes$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. The Company generated$118.9 million of operating cash flows for the year endedDecember 31, 2021 , of which$11.2 million and$6.2 million was generated byDotdash Meredith andAngi Inc. , respectively.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 terms of the Dotdash Meredith Credit Agreement contain covenants that would limit Dotdash Meredith's ability to pay dividends or make distributions in the event a default has occurred or if Dotdash Meredith's consolidated net leverage ratio (as defined in the Dotdash Meredith Credit Agreement) exceeds 4.0 to 1.0. There were no such limitations atDecember 31, 2021 . The Company's liquidity could be negatively affected by a decrease in demand for its products and services due to COVID-19 or other factors. As described in the "COVID-19 Update" section above, to date, the COVID-19 outbreak and measures designed to curb its spread have adversely impacted the Company's businesses. The Company believes its existing cash, cash equivalents, marketable debt securities, 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 may need to raise additional capital through future debt or equity financing to make additional acquisitions and investments. Additional financing may not be available on terms favorable to the Company or at all, which may also be impacted by any disruptions in the financial markets caused by COVID-19 or otherwise. The indebtedness at the Company's subsidiaries could further limit its ability to raise incremental financing. 61 -------------------------------------------------------------------------------- CRITICAL ACCOUNTING POLICIES AND ESTIMATES The following disclosure is provided to supplement the descriptions of IAC's accounting policies contained in " Note 2-Summary of Significant Accounting Policies " in the accompanying notes to the financial statements included in " Item 8-Financial Statements and Supplementary Data " in regard to significant areas of judgment. Management of the Company is required to make certain estimates, judgments and assumptions during the preparation of its financial statements in accordance withU.S. generally accepted accounting principles ("GAAP"). These estimates, judgments and assumptions impact the reported amount of assets, liabilities, revenue and expenses and the related disclosure of 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 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, which are generally referred to in GAAP as business combinations, are an important part of the Company's growth strategy. The Company invested$2.7 billion and$685.2 million in acquisitions in the years endedDecember 31, 2021 and 2020, 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. Management makes two critical determinations at the time of an acquisition: (1) the reporting unit that will benefit from the acquisition and to which goodwill will be assigned and (2) the allocation of the purchase price of the acquired business to the assets acquired and the liabilities assumed based upon their fair values. The reporting unit determination is important beyond the initial allocation of purchase price because future impairment assessments of goodwill, as described below, are performed at the reporting unit level. Historically, when the Company's acquisitions have been complementary to existing reporting units, for example, the 2021 acquisition of Total Home Roofing byAngi Inc. , the goodwill is allocated to an existing reporting unit. Acquisitions within the Emerging & Other reportable segment, such asCare.com in 2020, usually result in the creation of a new reporting unit because it is a standalone business with unique product offerings, management or target markets, for example. The acquisition of Meredith closed onDecember 1, 2021 . The allocation of purchase price to the assets acquired and liabilities assumed and determination of the reporting units for Meredith is still in process of being assessed. Once that is completed the determination of fair value of the reporting units will need to be determined so that goodwill can be allocated. Therefore, the allocation of goodwill for the acquisition of Meredith is not complete as ofDecember 31, 2021 . See " Note 5-Business Combinations " in the accompanying notes to the financial statements included in " Item 8-Financial Statements and Supplementary Data " for a description of the preliminary status of the accounting for this business combination. The allocation of purchase price to the assets acquired and liabilities assumed is based upon their fair values and is complex because of the judgments involved in determining these values. The determination of purchase price and the fair value of monetary assets acquired and liabilities assumed is typically the least complex aspect of the Company's accounting for business combinations due to management's experience and/or the inherently lower level of judgment required. Due to the higher degree of complexity associated with the valuation of acquired intangible assets, the Company usually obtains the assistance of outside valuation experts in the allocation of purchase price to the identifiable intangible assets acquired, which can be both definite-lived, such as advertiser/customer relationships and acquired technology, or indefinite lived, such as acquired trade names and trademarks. While outside valuation experts may be used, management has the ultimate responsibility for the valuation methods, models and inputs used and the resulting purchase price allocation. The excess purchase price over the value of net tangible and identifiable intangible assets acquired is recorded as goodwill and is assigned to the reporting unit(s) expected to benefit from the business combination as of the acquisition date. 62 -------------------------------------------------------------------------------- In connection with certain business combinations, the Company has entered into contingent consideration arrangements that are determined to be part of the purchase price. The premise underlying the accounting for contingent consideration arrangements is that there are divergent views as to the acquired company's valuation between the Company and the selling shareholders of the acquiree. Therefore, a model is developed with future payments of a portion of the purchase price linked to one or more financial (e.g., revenue and/or profit performance) and/or operating (e.g., number of subscribers) metrics that will be achieved over a specified time frame in the future based upon the performance of the business. In keeping with the accounting guidance for business combinations, each of these arrangements is initially recorded at its fair value at the time of the acquisition and the fair value is included in the aggregate purchase price. 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 financial statements. The number of scenarios used is typically greater for longer-term arrangements. The contingent consideration arrangements are reassessed and reflected at current fair values for each subsequent reporting period thereafter until settled. 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 and administrative expense" in the statement of operations. Significant changes in the specified forecasted financial or operating metrics can result in a significantly higher or lower fair value measurement, which can result in volatility of general and administrative expense as the resulting remeasurement gains and losses are recorded.
Recoverability of
The carrying value of goodwill is$3.2 billion and$1.7 billion atDecember 31, 2021 and 2020, respectively. Indefinite-lived intangible assets, which consist of the Company's acquired trade names and trademarks, have a carrying value of$679.1 million and$246.9 million atDecember 31, 2021 and 2020, respectively.Goodwill and indefinite-lived intangible assets are assessed annually for impairment as ofOctober 1 or more frequently if an event occurs or circumstances change that would indicate that it is more likely than not that the fair value of a reporting unit or the fair value of an indefinite-lived intangible asset has declined 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; if the conclusion 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 reporting unit, as ofOctober 1 . GAAP provides a not all-inclusive set of examples of macroeconomic, industry, market and company specific factors for entities to consider in performing the qualitative assessment described above; management considers the factors it deems relevant in making its more likely than not assessments. While the Company also has the option under GAAP to qualitatively assess whether it is more likely than not that the fair values of its indefinite-lived intangible assets are less than their carrying values, the Company's policy is to determine the fair value of each of its indefinite-lived intangible assets annually as ofOctober 1 , in part, because the level of effort required to perform the quantitative and qualitative assessments is essentially equivalent. If the conclusion of our qualitative assessment is that there are indicators of impairment and a quantitative test is required, the annual or interim quantitative test of the recovery of goodwill involves a comparison of the estimated fair value of the Company's reporting unit that is being tested to its carrying value. If the estimated fair value of a reporting unit exceeds its carrying value, goodwill of the reporting unit is not impaired. If the carrying value of a reporting unit exceeds its estimated fair value, a goodwill impairment equal to the excess is recorded. The Company's annual assessment of the recovery of goodwill begins with management's reassessment of its operating segments and reporting units. A reporting unit is an operating segment or one level below an operating segment, which is referred to as a component. This reassessment of reporting units is also made each time the Company changes its operating segments. If the goodwill of a reporting unit is allocated to newly formed reporting units, the allocation is usually made to each reporting unit based upon their relative fair values. For the Company's annual goodwill test atOctober 1, 2021 , a qualitative assessment of theAngi Inc. ,Care.com ,Bluecrew andVivian Health 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:
•Angi Inc.'s
•The Company prepared valuations of theCare.com ,Bluecrew andVivian Health reporting units primarily in connection with the issuance and/or settlement of equity awards that are denominated in the equity of these businesses during the year endedDecember 31, 2021 . The valuations were prepared time proximate to, however, not as of,October 1, 2021 . The fair value of each of these businesses was in excess of itsOctober 1, 2021 carrying value. 63 --------------------------------------------------------------------------------
For the Company's annual goodwill test at
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$243.0 million . The fair value of the Company's reporting units (except forAngi Inc. described above) is determined using both an income approach based on discounted cash flows ("DCF") and a market approach when it tests goodwill for impairment, either on an interim basis or annual basis as ofOctober 1 each year. The Company uses the same approach in determining the fair value of its businesses in connection with its non-public subsidiary denominated stock-based compensation plans, which can be a significant factor in the decision to apply the qualitative assessment rather than a quantitative test. 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 was 15.0% in both 2021 and 2020 (for theMosaic Group reporting unit). Determining fair value using a market approach considers multiples of financial metrics based on both acquisitions and trading multiples of a selected peer group of companies. From the comparable companies, a representative market multiple 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. The Company determines the fair value of indefinite-lived intangible assets using an avoided royalty DCF valuation analysis. Significant judgments inherent in this analysis include the selection of appropriate royalty and discount rates and estimating the amount and timing of expected future cash flows. The discount rates used in the DCF analyses are intended to reflect the risks inherent in the expected future cash flows generated by the respective intangible assets. The royalty rates used in the DCF analyses are based upon an estimate of the royalty rates that a market participant would pay to license the Company's trade names and trademarks. 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's annual indefinite-lived impairment assessment ranged from 10.0% to 40.0% in 2021 and 11.5% to 25.0% in 2020, and the royalty rates used ranged from 1.0% to 5.0% in 2021 and 1.0% to 5.5% in 2020. If the carrying value of an indefinite-lived intangible asset exceeds its estimated fair value, an impairment equal to the excess is recorded. There are no indefinite-lived intangible assets for which the most recent estimate of the excess fair value over carrying value is less than 20%.
The
In the quarter endedMarch 31, 2020 , the Company determined that the effects of COVID-19 were an indicator of possible impairment for certain of its reporting units and indefinite-lived intangible assets and identified impairments of$212.0 million and$21.4 million related to the goodwill and certain indefinite-lived intangible assets of the Desktop reporting unit. In the quarter endedSeptember 30, 2020 , the Company reassessed the fair values of the Desktop reporting unit and the related indefinite-lived intangible assets and recorded impairments equal to the remaining carrying value of the goodwill of$53.2 million and$10.8 million related to the intangible assets. The reduction in the Company's fair value estimates of the Desktop business in the first and third quarters of 2020 was primarily due to lower consumer queries, increasing challenges in monetization and the reduced ability to market profitably due to policy changes implemented by
The
Impairment charges recorded on indefinite-lived intangibles are included in "Amortization of intangibles" in the accompanying statement of operations.
64
--------------------------------------------------------------------------------Recoverability and Estimated Useful Lives of Long-Lived Assets
We review the carrying value of all long-lived assets, comprising right-of-use
assets ("ROU assets"), buildings, capitalized software, leasehold improvements
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 these long-lived assets is $1.8 billion and
$593.2 million at December 31, 2021 and 2020, respectively.
Income Taxes
The Company accounts for income taxes under the liability method, and deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying values of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided if it is determined that it is more likely than not that the deferred tax asset will not be realized. AtDecember 31, 2021 and 2020, the balance of the Company's net deferred tax liability is$383.2 million and$76.6 million , respectively. The Company evaluates and accounts for uncertain tax positions using a two-step approach. Recognition (step one) occurs when the Company concludes that a tax position, based solely on its technical merits, is more-likely-than-not to be sustainable upon examination. Measurement (step two) determines the amount of benefit that is greater than 50% likely to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. De-recognition of a tax position that was previously recognized would occur when the Company subsequently determines that a tax position no longer meets the more-likely-than-not threshold of being sustained. This measurement step is inherently difficult and requires subjective estimations of such amounts to determine the probability of various possible outcomes. AtDecember 31, 2021 and 2020, the Company has unrecognized tax benefits, including interest and penalties, of$18.0 million and$20.1 million , respectively. We consider many factors when evaluating and estimating our tax positions and unrecognized tax benefits, which may require periodic adjustment and which may not accurately anticipate actual outcomes. Although management currently believes changes to unrecognized tax benefits from period to period and differences between amounts paid, if any, upon resolution of issues raised in audits and amounts previously provided will not have a material impact on the liquidity, results of operations, or financial condition of the Company, these matters are subject to inherent uncertainties and management's view of these matters may change in the future. The ultimate amount of deferred income tax assets realized and the amounts paid for deferred income tax liabilities and unrecognized tax benefits 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. The Company was included within Old IAC's tax group for purposes of federal and consolidated state income tax return filings throughJune 30, 2020 , the date of the MTCH Separation. For periods prior thereto, the income tax benefit and/or provision was computed for the Company on an as if standalone, separate return basis and payments to and refunds from Old IAC for the Company's share of Old IAC's consolidated federal and state tax return liabilities/receivables calculated on this basis have been reflected within cash flows from operating activities in the statement of cash flows.
Stock-Based Compensation
The stock-based compensation expense reflected in our statements of operations includes expense related to equity awards issued by certain of our subsidiaries (including awards assumed in acquisitions, including the transaction resulting in the formation ofAngi Inc. in 2017, referred to as the "Combination") and, for periods prior to the MTCH Separation, an allocation of expense from Old IAC related to awards issued to the Company's employees that were granted under various Old IAC stock and annual incentive plans. The form of awards granted to the Company's employees are principally restricted stock units ("RSUs"), performance-based RSUs, market-based RSUs, restricted stock and stock options. The Company recorded stock-based compensation expense of$79.5 million and$189.0 million for the years endedDecember 31, 2021 and 2020, respectively. Included in the stock-based compensation expense for the year endedDecember 31, 2020 are modification charges of$56.0 million related to the MTCH Separation, and$28.2 million related to the modification of previously issued HomeAdvisor equity awards andAngie's List equity awards, both of which were converted intoAngi Inc. equity awards in the Combination. 65 -------------------------------------------------------------------------------- Stock-based compensation at the Company is complex due to our desire to attract, retain, inspire and reward our management team and employees at each of our subsidiaries, including those employed by recently acquired companies, by allowing them to benefit directly from the value they help to create. We accomplish these objectives, in part, by issuing equity awards denominated in the equity of our non-publicly subsidiaries as well as inIAC and Angi Inc. We further refine this approach by tailoring certain equity awards to the applicable circumstances. For example, we issue certain equity awards for which vesting is linked to the achievement of a performance target such as revenue or profits; these awards are referred to as performance-based awards. In other cases, we link the vesting of equity awards to the achievement of a value target for a subsidiary or IAC orAngi Inc.'s stock price, as applicable; these awards are referred to as market-based awards. The nature and variety of these types of equity-based awards creates complexity in our determination of stock-based compensation expense. In addition, acquisitions are an important part of the Company's growth strategy. These transactions may result in the modification of equity awards, which creates additional complexity and additional stock-based compensation expense. For example, the Combination resulted in the conversion of previously issued HomeAdvisor andAngi's awards intoAngi Inc. awards, and the recognition of additional stock-based compensation expense. In addition, our spin-offs and internal reorganizations can also lead to modifications of equity awards and result in additional complexity and stock-based compensation expense. For example, the MTCH Separation resulted in the conversion of Old IAC denominated stock options into stock options to purchase IAC common stock and stock options to purchase New Match common stock in a manner that preserved the spread value of the stock options immediately before and immediately after the adjustment, and the recognition of additional stock-based compensation expense. Finally, the means by which we settle our equity-based awards also introduces complexity into our financial reporting. We provide a path to liquidity by settling the non-public subsidiary denominated awards in IAC orAngi Inc. shares, as applicable. In addition, certain former Angi Inc. subsidiary denominated awards andAngi Inc. stock appreciation rights can be settled in IAC orAngi Inc. awards at the Company's election. These features increase the complexity of our earnings per share calculations. The Company estimated the fair value of stock options and stock appreciation rights issued (including those modified in connection with the MTCH Separation and the Combination) using a Black-Scholes option pricing model and, for those with a market condition, a lattice model. For stock options, including subsidiary denominated equity, the value of the stock option is measured at the grant date at fair value and expensed over the vesting term. The impact on stock-based compensation expense for the year endedDecember 31, 2021 , assuming a 1% increase in the risk-free interest rate, a 10% increase in the volatility factor and a one-year increase in the weighted average expected term of the outstanding options would be an increase of$3.3 million ,$5.0 million and$3.9 million , respectively. The Company also issues RSUs, performance-based RSUs, market-based RSUs and restricted stock. For RSUs, the value of the instrument is measured at the grant date as the fair value of the underlying 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 common stock and expensed as stock-based compensation over the vesting term when the performance targets are considered probable of being achieved. For market-based RSUs, a lattice model is used to estimate the value of the awards. For our currently outstanding restricted stock, a lattice model was used to estimate the fair value of the award which is based on the satisfaction of IAC's stock price targets.
Investments in
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 Financial Accounting Standards Board Accounting
Standards Update No. 2016-01, Recognition and Measurement of Financial Assets
and Liabilities, with any changes to fair value recognized in "Other income
(expense), net" in the statement of operations 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 securities of the same issuer; fair value is generally determined based
on a market approach as of the transaction date. A security will be considered
identical or similar if it has identical or similar rights to the equity
securities held by the Company. The Company reviews its investments in equity
securities without readily determinable fair values 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. When indicators of
impairment exist, the Company prepares quantitative assessments of the fair
value of our investments in equity securities, which require judgment and the
use of estimates. When our assessment indicates that the fair value of the
investment is below its carrying value, the Company writes down the investment
to its fair value and records the corresponding charge in "Other income
(expense), net" in the statement of operations.
66
--------------------------------------------------------------------------------
The carrying value of the Company's equity securities without readily
determinable fair values is $324.6 million and $296.5 million at December 31,
2021 and 2020, respectively, which is included in "Long-term investments" in the
balance sheet. As described in the "COVID-19 Update" section, in the first
quarter of 2020 the Company recognized unrealized impairments or downward
adjustments of $51.5 million related to certain equity securities without
readily determinable fair values.
The Company has one investment in a current marketable equity security at
December 31, 2021 , which is carried at fair value following the investee's
initial public offering in 2021; prior to this investee's initial public
offering, the investment was accounted for as an equity security without a
readily determinable fair value. The Company recorded an unrealized gain of
$18.8 million during the year ended December 31, 2021 for this investment. The
Company sold its shares in another marketable equity security in the third
quarter of 2021, which, prior to this investee's initial public offering, was
accounted for as an equity security without a readily determinable fair value,
and recorded a net realized gain of $7.2 million on the sale of this investment.
The realized and unrealized gains related to these investments are included in
"Other income (expense), net" in the statement of operations.
During the second and third quarters of 2020, the Company purchased 59.0 million
shares of MGM . At December 31, 2021 and 2020, the carrying value of the
Company's investment in MGM is $2.6 billion and $1.9 billion , respectively. The
fair value of the investment in MGM is remeasured each reporting period based
upon MGM's closing stock price on the New York Stock Exchange and any unrealized
gains or losses are included in the statement of operations. For the years ended
December 31, 2021 and 2020, the Company recognized unrealized gains of $789.3
million and $840.5 million , respectively, on its investment in MGM . On
February 16, 2022 , the Company purchased an additional 4.5 million shares of MGM
for $202.5 million . Following this purchase, the Company owns approximately
63.5 million shares, representing a 14.4% ownership interest in MGM as of
February 16, 2022 .
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements, see " Note 2-Summary of
Significant Accounting Policies " in the accompanying notes to the financial
statements included in " Item 8-Financial Statements and Supplementary Data ."
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