IAC(IAC) - 2022 Q4 - Annual Report

PART I This part covers the company's business, risk factors, properties, and legal proceedings Item 1. Business IAC Inc. operates a diverse portfolio of category-leading businesses including Dotdash Meredith, Angi Inc., and Care.com, with a history of developing, acquiring, and spinning off internet companies. The company's strategy involves building and investing opportunistically in various sectors. Barry Diller and his family, along with CEO Joseph M. Levin, hold significant voting power, influencing corporate actions and board composition - IAC is comprised of category-leading businesses: Angi Inc., Dotdash Meredith, and Care.com, alongside other early-stage to established businesses[14] - IAC has a history of transforming into a leading Internet company through development, building, acquisition, and distribution of businesses to stockholders, including past separations of Ticketmaster, Hotels.com, Expedia, Match.com, LendingTree, and TripAdvisor[15][16][17] - Recent significant transactions include the acquisition of Care.com (Feb 2020), spin-off of Match Group (June 2020), spin-off of Vimeo (May 2021), acquisition of Meredith Holdings Corp. (Dec 2021) to form Dotdash Meredith, and investment in Vivian Health (Apr 2022)[19][20][21] - As of February 10, 2023, Barry Diller, his spouse, and stepson collectively hold approximately 41.3% of IAC's total outstanding voting power through Common Stock and Class B Common Stock[23] - A voting agreement with CEO Joseph M. Levin grants him influence over his board election and specified 'Contingent Matters' (material acquisitions/dispositions, new lines of business, spin-offs)[24][26] Overview This section provides a general introduction to IAC's business model and strategic approach Description of IAC Businesses This section details the operations and characteristics of IAC's primary business segments Dotdash Meredith This section describes the operations and market position of the Dotdash Meredith segment Angi Inc. This section describes the operations and market position of the Angi Inc. segment Search This section describes the operations and market position of the Search segment Emerging & Other This section describes the operations and market position of the Emerging & Other segment Intellectual Property This section outlines the company's intellectual property assets and protection strategies Government Regulation This section discusses the regulatory environment impacting the company's operations Human Capital This section details the company's approach to human resources and employee management Additional Information This section provides supplementary information relevant to the business overview Item 1A. Risk Factors IAC faces various risks, including the effectiveness and cost-efficiency of marketing efforts, particularly reliance on search engines and digital app stores. Dependence on Google for a significant portion of revenue and cash flow poses a substantial risk due to potential policy changes or agreement termination. The company's success also hinges on the continued migration of markets online, ability to develop mobile products, and sensitivity to economic downturns affecting advertising and consumer spending. Operational risks include maintaining quality service professional networks, the Angi Inc. brand integration's impact on search, and the ability to access and use personal data. Governance risks stem from concentrated voting power, and financial risks relate to indebtedness and potential dilution from equity awards. Geopolitical conflicts and cyberattacks also present significant threats - Marketing efforts, including significant expenditures on search engine marketing, social media, and offline advertising, may not be successful or cost-effective, and third-party platform policies can restrict advertising[127][128] - Heavy reliance on free search engine marketing means changes in search engine algorithms, methodologies, or display layouts can negatively impact traffic and increase marketing costs[129][130] - A meaningful portion of consolidated revenue and net cash from operations is attributable to a services agreement with Google, which expires on March 31, 2024, and is subject to unilateral policy updates by Google that could adversely affect revenue and operations[133][134][136][137] - Success depends on the continued migration of markets (e.g., home services, care services) online and the growth of online advertising, as traditional offline methods remain competitive[141][142][143] - Advertising revenue is a significant portion of consolidated revenue, making the company sensitive to general economic events, recessionary concerns, rising interest rates, and increased inflation[147] - The Angi Inc. brand integration initiative has incurred substantial costs and negatively impacted organic search placement, with organic search results declining year-over-year and remaining below pre-March 2021 levels[155][156] - The processing, storage, use, and disclosure of personal data are subject to evolving and often conflicting domestic and foreign laws (e.g., GDPR, CCPA), which could lead to liabilities, increased compliance costs, and reputational harm[101][103][185] - Mr. Diller, his family, and Mr. Levin collectively hold significant voting power (approx. 41.3%), enabling them to influence board composition and corporate actions, which could discourage potential mergers or takeovers[160][161] - Total debt outstanding was approximately $2.1 billion as of December 31, 2022, primarily from Dotdash Meredith Term Loans (variable rate) and ANGI Group Senior Notes (fixed rate), exposing the company to interest rate risk and covenants that restrict business operations[163][164][165][169][380] Risk Factors Related to Our Business, Operations and Ownership This section details risks associated with the company's core business, operational activities, and ownership structure Risk Factors Related to Our Liquidity, Indebtedness and Dilution This section outlines risks concerning the company's financial liquidity, debt obligations, and potential shareholder dilution General Risk Factors This section addresses broad, overarching risks that could impact the company's overall performance Item 1B. Unresolved Staff Comments This section states that there are no unresolved staff comments applicable to the company - Not applicable[191] Item 2. Properties IAC's facilities, primarily leased, are considered adequate for current and near-term needs, consisting of executive, administrative, operations, data, and sales offices across the U.S. and internationally. The corporate headquarters is in New York, and Dotdash Meredith owns buildings in Des Moines, Iowa - IAC's facilities, mostly leased, are adequate for current and near-term needs, including executive, administrative, operations, data, and sales offices in the U.S. and abroad[192] - The company's corporate headquarters is a nearly 200,000 square foot facility in New York, New York[193] - Dotdash Meredith owns approximately 389,000 square feet of buildings in Des Moines, Iowa, which were part of Meredith Holdings Corp.'s former corporate campus[193] Item 3. Legal Proceedings IAC and its subsidiaries are involved in various legal proceedings in the ordinary course of business. A significant ongoing matter is a shareholder class action and derivative lawsuit challenging the terms of the MTCH Separation, alleging unfairness to Match Group public shareholders and undue influence by IAC and Mr. Diller. The complaint was dismissed by the Chancery Court in September 2022, but the plaintiffs filed an appeal to the Delaware Supreme Court - IAC and its subsidiaries are parties to various lawsuits, including property, personal injury, contract, intellectual property, shareholder derivative actions, and class action lawsuits[194] - A shareholder class action and derivative lawsuit, In re Match Group, Inc. Derivative Litigation, challenges the MTCH Separation terms, alleging breach of fiduciary duty by IAC and Mr. Diller[196][197] - The Chancery Court dismissed the consolidated complaint with prejudice on September 1, 2022, but the plaintiffs have appealed to the Delaware Supreme Court[199] - IAC believes the allegations are without merit and will continue to vigorously defend against them[200] Item 4. Mine Safety Disclosures This section states that there are no mine safety disclosures applicable to the company - Not applicable[201] PART II This part covers market information, financial performance, and disclosures about market risk and financial statements Item 5. Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities IAC's common stock trades on NASDAQ under 'IAC', while Class B common stock has no public market. As of February 10, 2023, there were approximately 850 holders of record for common stock and four for Class B. The company does not anticipate paying cash dividends in the near future. During Q4 2022, IAC did not issue unregistered equity securities or purchase its common stock, with 6.9 million shares remaining under its repurchase authorization - IAC common stock is quoted on the Nasdaq Global Select Market under the ticker symbol "IAC"; there is no public trading market for IAC Class B common stock[204] - As of February 10, 2023, there were approximately 850 holders of record of IAC common stock and four holders of record of IAC Class B common stock[205] - The company does not currently expect to pay cash or other dividends to common or Class B common stockholders in the near future[206] - During the quarter ended December 31, 2022, IAC did not issue or sell any shares of IAC common stock or other equity securities in unregistered transactions[207] - IAC did not purchase any shares of its common stock during Q4 2022. As of December 31, 2022, 6,934,494 shares remained available for repurchase under the June 2020 authorization[208] Item 6. Reserved This item is reserved and contains no content Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides a comprehensive analysis of IAC's financial condition and results of operations for the years ended December 31, 2022, 2021, and 2020. It details significant corporate events like the Meredith acquisition, Vimeo spin-off, and MTCH separation, and defines key operating metrics and segments. The discussion covers revenue trends across Dotdash Meredith, Angi Inc., Search, and Emerging & Other segments, highlighting the impact of acquisitions, brand integrations, and Google policy changes. It also analyzes operating costs, non-GAAP measures like Adjusted EBITDA, and the company's financial position, liquidity, and capital resources, including debt, cash flows, and critical accounting policies - IAC completed the acquisition of Meredith Holdings Corporation on December 1, 2021, forming Dotdash Meredith, and spun off Vimeo Inc. on May 25, 2021, and Match Group Inc. on June 30, 2020[210][211][212] - The company's reportable segments are Dotdash Meredith (digital and print publishing), Angi Inc. (home services), Search (Ask Media Group and Desktop), and Emerging & Other (Care.com, Mosaic Group, Vivian Health, The Daily Beast, IAC Films, Newco)[213] Total Revenue by Segment (in thousands) | Segment | 2022 | 2021 | 2020 | | :------------------ | :--------- | :--------- | :--------- | | Dotdash Meredith | $1,934,699 | $456,273 | $213,753 | | Angi Inc. | $1,891,524 | $1,685,438 | $1,467,925 | | Search | $731,431 | $873,346 | $613,274 | | Emerging & Other | $685,956 | $685,175 | $469,759 | | Intersegment elim. | $(8,330) | $(605) | $(175) | | Total | $5,235,280 | $3,699,627 | $2,764,536 | - Dotdash Meredith revenue increased 324% in 2022 due to the Meredith acquisition, but Dotdash's performance marketing and advertising revenue decreased due to lower traffic post-COVID-19 highs[255] - Angi Inc. revenue increased 12% in 2022, driven by Services (31%), Roofing (102%), and Ads and Leads (4%), partially offset by a 1% decrease in International due to unfavorable foreign exchange rates[255][258] - Search revenue decreased 16% in 2022, primarily due to reduced marketing from affiliate partners at Ask Media Group and Google policy changes impacting the Desktop business[258] Operating Loss by Segment (in thousands) | Segment | 2022 | 2021 | 2020 | | :------------------ | :--------- | :--------- | :--------- | | Dotdash Meredith | $(188,091) | $7,176 | $50,241 | | Angi Inc. | $(126,305) | $(76,513) | $(6,368) | | Search | $83,398 | $108,334 | $(248,711) | | Emerging & Other | $(106,154) | $(22,738) | $(70,896) | | Corporate | $(137,619) | $(153,326) | $(261,929) | | Total | $(474,771) | $(137,067) | $(537,663) | Adjusted EBITDA by Segment (in thousands) | Segment | 2022 | 2021 | 2020 | | :------------------ | :--------- | :--------- | :--------- | | Dotdash Meredith | $152,149 | $33,622 | $66,206 | | Angi Inc. | $45,079 | $27,865 | $172,804 | | Search | $83,486 | $108,381 | $51,344 | | Emerging & Other | $(1,643) | $33,383 | $(37,699) | | Corporate | $(79,521) | $(95,985) | $(147,433) | | Total | $199,550 | $107,266 | $105,222 | - Operating loss increased by $337.7 million to $474.8 million in 2022, primarily due to increased amortization of intangibles, goodwill impairment charges ($112.8 million), and higher depreciation and stock-based compensation[281] - Adjusted EBITDA increased 86% to $199.6 million in 2022, driven by Dotdash Meredith's higher revenue and decreased transaction-related costs, and Angi Inc.'s revenue growth[287][290] Cash, Cash Equivalents, and Marketable Securities (in thousands) | Category | December 31, 2022 | December 31, 2021 | | :-------------------------------------------------- | :------------------ | :------------------ | | Dotdash Meredith cash and cash equivalents | $123,866 | $233,393 | | Angi Inc. cash and cash equivalents | $321,155 | $428,136 | | IAC (excl. Dotdash Meredith and Angi Inc.) cash and cash equivalents | $972,369 | $1,457,201 | | Marketable securities (United States) | $239,373 | $19,788 | | Total cash and cash equivalents and marketable securities | $1,656,763 | $2,138,518 | Total Long-Term Debt, Net (in thousands) | Category | December 31, 2022 | December 31, 2021 | | :-------------------------- | :------------------ | :------------------ | | Dotdash Meredith long-term debt, net | $1,524,475 | $1,551,685 | | ANGI Group long-term debt, net | $495,285 | $494,552 | | Total long-term debt, net | $2,019,760 | $2,046,237 | - The company generated negative cash flows from operating activities attributable to continuing operations of $82.8 million for the year ended December 31, 2022[313][335] - Dotdash Meredith's Consolidated Net Leverage Ratio exceeded 4.0 to 1.0 for the test period ended December 31, 2022, which could limit its ability to pay dividends or incur incremental secured indebtedness[336] Acquisition of Meredith This section details the strategic acquisition of Meredith Holdings Corporation and its financial implications Vimeo Spin-off This section describes the separation of Vimeo Inc. as an independent public company MTCH Separation This section outlines the spin-off of Match Group Inc. and its impact on IAC's structure Defined Terms and Operating Metrics This section defines key financial terms and operating metrics used in the analysis Management Overview This section provides management's perspective on the company's performance and strategic direction Results of Operations for the Years Ended December 31, 2022, 2021 and 2020. This section analyzes the company's financial performance over the past three fiscal years Principles of Financial Reporting This section outlines the accounting principles and policies applied in financial reporting Financial Position, Liquidity and Capital Resources This section assesses the company's balance sheet, cash flows, and funding capabilities Item 7A. Quantitative and Qualitative Disclosures About Market Risk IAC is exposed to equity price risk from its investment in MGM Resorts International, interest rate risk from variable-rate debt, and foreign currency exchange risk from international operations. A $2.00 change in MGM's share price would result in a $129.4 million unrealized gain or loss. A 100-basis point change in Adjusted Term SOFR would alter annual interest expense on Dotdash Meredith Term Loans by $15.8 million. Foreign currency exposure is not currently hedged but could become significant with international growth - IAC's investment in MGM Resorts International (64.7 million shares, 17.1% ownership as of Dec 31, 2022) exposes it to equity price risk. A $2.00 increase or decrease in MGM's share price would result in an unrealized gain or loss of $129.4 million[377][379][596] - The company's $1.6 billion variable-rate Dotdash Meredith Term Loans expose it to interest rate risk. A 100-basis point increase or decrease in Adjusted Term SOFR would change annual interest expense by $15.8 million[380][381] - Fixed-rate ANGI Group Senior Notes ($500.0 million) are subject to fair value changes with market interest rate fluctuations; a 100-basis point change would alter fair value by $23.3 million[380][382] - International operations (8% of total revenue in 2022) expose the company to foreign currency exchange risk, but this exposure has not been material enough to warrant hedging[383][384][385][386] Item 8. Financial Statements and Supplementary Data This section presents the audited consolidated and combined financial statements of IAC Inc. and its subsidiaries for the years ended December 31, 2022, 2021, and 2020. It includes the Report of Independent Registered Public Accounting Firm, balance sheets, statements of operations, comprehensive operations, shareholders' equity, and cash flows. The accompanying notes provide detailed information on the company's organization, significant accounting policies, business combinations, goodwill and intangible assets, restructuring charges, financial instruments, leases, long-term debt, shareholders' equity, comprehensive income, segment information, stock-based compensation, pension plans, income taxes, earnings per share, discontinued operations, financial statement details, contingencies, and related party transactions - Ernst & Young LLP provided an unqualified opinion on the consolidated and combined financial statements for the period ended December 31, 2022, and on the effectiveness of internal control over financial reporting[389][390][810][811] - Critical audit matters included auditing management's assessment of measurement period adjustments for the Meredith acquisition and the quantitative impairment assessment for Mosaic goodwill and Meredith's indefinite-lived intangible assets, due to inherent judgments and estimates[397][400] Consolidated Balance Sheet Highlights (in thousands) | Item | December 31, 2022 | December 31, 2021 | | :-------------------------------------------------- | :------------------ | :------------------ | | Cash and cash equivalents | $1,417,390 | $2,118,730 | | Marketable securities | $239,373 | $19,788 | | Total current assets | $2,561,135 | $3,076,219 | | Goodwill | $3,030,168 | $3,226,610 | | Investment in MGM Resorts International | $2,170,182 | $2,649,442 | | Total assets | $10,393,635 | $12,302,593 | | Total current liabilities | $1,079,988 | $1,381,503 | | Long-term debt, net | $2,019,760 | $2,046,237 | | Total IAC shareholders' equity | $5,931,614 | $7,175,226 | Consolidated and Combined Statement of Operations Highlights (in thousands) | Item | 2022 | 2021 | 2020 | | :-------------------------------------------------- | :--------- | :--------- | :--------- | | Revenue | $5,235,280 | $3,699,627 | $2,764,536 | | Total operating costs and expenses | $5,710,051 | $3,836,694 | $3,302,199 | | Operating loss | $(474,771) | $(137,067) | $(537,663) | | Net (loss) earnings attributable to IAC shareholders | $(1,170,170) | $597,547 | $269,726 | | Basic (loss) earnings per share | $(13.55) | $6.70 | $3.16 | | Diluted (loss) earnings per share | $(13.55) | $6.31 | $2.97 | Consolidated and Combined Statement of Cash Flows Highlights (in thousands) | Item | 2022 | 2021 | 2020 | | :-------------------------------------------------- | :--------- | :--------- | :--------- | | Net cash (used in) provided by operating activities attributable to continuing operations | $(82,791) | $118,900 | $113,379 | | Net cash used in investing activities attributable to continuing operations | $(494,808) | $(2,907,503) | $(1,872,183) | | Net cash (used in) provided by financing activities attributable to continuing operations | $(112,651) | $1,115,737 | $4,202,665 | | Net (decrease) increase in cash and cash equivalents and restricted cash | $(695,795) | $(1,355,246) | $2,636,378 | Report of Independent Registered Public Accounting Firm This section presents the independent auditor's report on the company's financial statements and internal controls Consolidated Balance Sheet This section presents the company's consolidated financial position at specific points in time Consolidated and Combined Statement of Operations This section presents the company's consolidated and combined financial performance over specific periods Consolidated and Combined Statement of Comprehensive Operations This section presents the company's consolidated and combined comprehensive income and loss Consolidated Statement of Shareholders' Equity This section presents changes in the company's shareholders' equity over specific periods Consolidated and Combined Statement of Cash Flows This section presents the company's consolidated and combined cash inflows and outflows from operating, investing, and financing activities Note 1—Organization This note details the company's organizational structure and reporting entities Note 2—Summary of Significant Accounting Policies This note outlines the key accounting principles and methods used in preparing the financial statements Note 3—Business Combinations This note provides details on the company's acquisitions and their financial impact Note 4—Goodwill and Intangible Assets This note details the company's goodwill and other intangible assets, including impairment assessments Note 5—Dotdash Meredith Restructuring Charges, Transaction-Related Expenses and Change-in-Control Payments This note details restructuring charges, transaction expenses, and change-in-control payments related to Dotdash Meredith Note 6—Financial Instruments and Fair Value Measurements This note describes the company's financial instruments and their fair value measurements Note 7—Leases This note provides information on the company's lease arrangements and related accounting Note 8—Long-Term Debt This note details the company's long-term debt obligations and their terms Note 9—Shareholders' Equity This note provides information on the components of the company's shareholders' equity Note 10—Accumulated Other Comprehensive (Loss) Income This note details the components of accumulated other comprehensive income or loss Note 11—Segment Information This note provides financial information for the company's reportable operating segments Note 12—Stock-Based Compensation This note details the company's stock-based compensation plans and related expenses Note 13—Pension and Postretirement Benefit Plans This note provides information on the company's pension and postretirement benefit plans Note 14—Income Taxes This note details the company's income tax provisions, deferred taxes, and effective tax rates Note 15—(Loss) Earnings Per Share This note provides the calculation of basic and diluted earnings per share Note 16—Discontinued Operations This note details the financial results and assets/liabilities of discontinued operations Note 17—Financial Statement Details This note provides supplementary details for various line items in the financial statements Note 18—Contingencies This note describes the company's legal and other contingencies Note 19—Related Party Transactions This note details transactions between the company and its related parties Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure This section states that there are no changes in or disagreements with accountants on accounting and financial disclosure applicable to the company - Not applicable[800] Item 9A. Controls and Procedures IAC's management, including the Chairman, CEO, and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2022. The internal control over financial reporting was also assessed as effective based on the COSO framework. No material changes in internal control over financial reporting occurred during Q4 2022 - Management, including the Chairman, CEO, and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[802] - Management assessed the effectiveness of the company's internal control over financial reporting as effective as of December 31, 2022, based on the COSO 2013 framework[803][804] - Ernst & Young LLP audited and expressed an unqualified opinion on the effectiveness of IAC's internal control over financial reporting as of December 31, 2022[804][810] - No changes in internal controls over financial reporting materially affected, or are reasonably likely to materially affect, the company's internal controls during the quarter ended December 31, 2022[807] Item 9B. Other Information This section states that there is no other information applicable to the company - Not applicable[818] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This section states that there are no disclosures regarding foreign jurisdictions that prevent inspections applicable to the company - Not applicable[819] PART III This part covers corporate governance, executive compensation, security ownership, related party transactions, and principal accountant fees Item 10. Directors, Executive Officers and Corporate Governance This section incorporates by reference information from IAC's 2023 Annual Meeting of Stockholders proxy statement regarding directors, executive officers, Section 16(a) compliance, and corporate governance, including the Code of Business Conduct and Ethics - Information on directors, executive officers, and Section 16(a) compliance is incorporated by reference from the 2023 Proxy Statement[823] - Information on corporate governance and the Code of Business Conduct and Ethics is also incorporated by reference[823] Item 11. Executive Compensation This section incorporates by reference information from IAC's 2023 Annual Meeting of Stockholders proxy statement concerning executive and director compensation, pay ratio disclosure, and compensation committee matters - Information on executive and director compensation and pay ratio disclosure is incorporated by reference from the 2023 Proxy Statement[824] - Information regarding compensation committee matters is also incorporated by reference, with the 'Compensation Committee Report' furnished rather than incorporated[824] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section incorporates by reference information from IAC's 2023 Annual Meeting of Stockholders proxy statement regarding security ownership of beneficial owners and management, as well as securities authorized for issuance under equity compensation plans - Information on security ownership of certain beneficial owners and management is incorporated by reference from the 2023 Proxy Statement[825] - Details on securities authorized for issuance under equity compensation plans are also incorporated by reference[825] Item 13. Certain Relationships and Related Transactions, and Director Independence This section incorporates by reference information from IAC's 2023 Annual Meeting of Stockholders proxy statement regarding certain relationships, related person transactions, and director independence determinations - Information regarding certain relationships and related person transactions is incorporated by reference from the 2023 Proxy Statement[826] - Director independence determinations are also incorporated by reference from the 2023 Proxy Statement[826] Item 14. Principal Accountant Fees and Services This section incorporates by reference information from IAC's 2023 Annual Meeting of Stockholders proxy statement regarding fees paid to the independent registered public accounting firm and the pre-approval policies for their services - Information on fees paid to the independent registered public accounting firm is incorporated by reference from the 2023 Proxy Statement[827] - Details on the pre-approval policies and procedures for audit and non-audit services are also incorporated by reference[827] PART IV This part details exhibits, financial statement schedules, and the Form 10-K summary status Item 15. Exhibits and Financial Statement Schedules This section lists all documents filed as part of the report, including the consolidated and combined financial statements, the Report of Independent Registered Public Accounting Firm, and various exhibits. The exhibits include merger agreements, separation agreements, credit agreements, stock and incentive plans, employment agreements, and certifications, with some confidential information omitted - The report includes consolidated and combined financial statements, the Report of Independent Registered Public Accounting Firm, and Schedule II Valuation and Qualifying Accounts[830][831][832] - Exhibits include key agreements such as the Agreement and Plan of Merger for Meredith, Separation Agreement with Vimeo, Transaction Agreement for MTCH Separation, and the Credit Agreement for Dotdash Meredith[835][836][837][838][839][840][841][842][843][844] - Other exhibits cover corporate governance documents, stock and annual incentive plans, employment agreements, and certifications by executive officers[835][836][837][838][839][840][841][842][843][844][845][846] Item 16. Form 10-K Summary This section indicates that no Form 10-K Summary is provided - No Form 10-K Summary is provided[847]