Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Acquisition of Meredith:
On December 1, 2021, Dotdash Media Inc. (formerly known as About Inc., and referred to herein as "Dotdash"), a wholly-owned subsidiary of IAC Inc. (formerly known as IAC/InterActiveCorp, and referred to herein as "IAC" or the "Company"), completed the acquisition of Meredith Holdings Corporation ("Meredith"), the former subsidiary of Meredith Corporation, comprising its digital and magazine businesses and its corporate operations. The parent of the combined entity is Dotdash Meredith, Inc. ("Dotdash Meredith").
Vimeo Spin-off:
On May 25, 2021, IAC completed the spin-off of its full stake in Vimeo, Inc. (formerly Vimeo Holdings, Inc. ("Vimeo")) to IAC shareholders (which we refer to as the “Spin-off”). Following the Spin-off, Vimeo became an independent, separately traded public company. Therefore, Vimeo is presented as a discontinued operation within the Company's financial statements for all periods.
MTCH Separation:
On December 19, 2019, IAC/InterActiveCorp ("Old IAC") entered into a Transaction Agreement (as amended, the "Transaction Agreement") with Match Group, Inc. ("Old MTCH"), IAC Holdings, Inc. ("New IAC"), a direct wholly-owned subsidiary of Old IAC, and Valentine Merger Sub LLC, an indirect wholly-owned subsidiary of Old IAC. On June 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 renamed Match Group, Inc. ("New Match") and which owns the businesses of Old MTCH and certain Old IAC financing subsidiaries, and (2) New IAC, which was renamed IAC/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:
•Dotdash Meredith - one of the largest digital and print publishers in America. From mobile to magazines, nearly 200 million people trust us to help them make decisions, take action, and find inspiration. 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. In the fourth quarter of 2022, the Angi Inc. segment presentation was changed to reflect its four operating segments, which now include: (i) Ads and Leads, (ii) Services, (iii) Roofing and (iv) International (includes Europe and Canada). Angi Inc.'s financial information for prior periods has been recast to conform to the current period presentation. At December 31, 2022, the Company’s economic interest and voting interest in Angi Inc. were 84.1% and 98.1%, respectively.
•Search - consists of Ask Media Group, a collection of websites providing general search services and information, and Desktop, which includes our direct-to-consumer downloadable desktop applications and our business-to-business partnership operations.
•Emerging & Other - consists of:
◦Care.com, a leading online destination for families to connect with caregivers for their children, aging parents, pets and homes and for caregivers to connect with families seeking care services. 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, on October 27, 2020;
◦Mosaic Group, a leading developer and provider of global subscription mobile applications. Mosaic Group has a portfolio of some of the largest and most popular applications in the following verticals: Communications (RoboKiller, TapeACall, Trapcall), Language (iTranslate, Speak & Translate), Weather (Clime: NOAA Weather Radar Live, Weather Live), Business (PDF Hero, Scan Hero) and Lifestyle (Blossom, Pixomatic) and, for periods prior to its sale on July 12, 2022, Daily Burn; and
◦Vivian Health, The Daily Beast, IAC Films, Newco (an IAC incubator) and, for periods prior to its sale on November 9, 2022, Bluecrew.
Dotdash Meredith
•Digital Revenue - consists principally of advertising, performance marketing, and licensing and other revenue.
•Dotdash 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, advertising, newsstand, and performance marketing revenue.
Angi Inc.
•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.
•Services Revenue - primarily reflects domestic revenue from pre-priced offerings by which the consumer requests services through an Angi Inc. platform and Angi Inc. engages a service professional to perform the service.
•Roofing Revenue - primarily reflects revenue from the roof replacement business offering by which the consumer purchases services directly from Angi Inc. and Angi Inc. engages a service professional to perform the service.
•International Revenue - primarily reflects revenue generated within the International segment (comprised of businesses in Europe and Canada), including consumer connection revenue for consumer matches and membership subscription revenue from service professionals and consumers.
•Service Requests - are (i) fully completed and submitted domestic service requests for connections with Ads and Leads service professionals, (ii) contacts to Ads and Leads service professionals generated via the service professional directory from unique users in unique categories (such that multiple contacts from the same user in the same category in the same day are counted as one Service Request), and (iii) requests to book Services jobs in the period.
•Monetized Transactions - are (i) Service Requests that are matched to a paying Ads and Leads service professional in the period and (ii) completed and in-process Service jobs in the period; a single Service Request can result in multiple monetized transactions.
Operating Costs and Expenses:
•Cost of revenue (exclusive of depreciation) - consists primarily of traffic acquisition costs, which include (i) payments made to partners who direct traffic to our Ask Media Group websites and who distribute our business-to-business customized browser-based applications 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 production, distribution and editorial costs at Dotdash Meredith, payments made to independent third-party service professionals who performed work contracted under Services or Roofing arrangements, compensation expense (including stock-based compensation expense) and other employee-related costs, roofing material and third-party contactor costs associated with Roofing, credit card processing fees, payments made to workers staffed by Bluecrew, for periods prior to its sale on November 9, 2022, hosting fees, and payments made to care providers for Care For Business.
•Selling and marketing expense - consists primarily of advertising expenditures, which include online marketing, including fees paid to search engines, social media sites, other online marketing platforms, app platforms and partner-related payments to those who direct traffic to the brands within our Angi Inc. segment, offline marketing, which is primarily television advertising, compensation expense (including stock-based compensation expense) and other employee-related costs for sales force and marketing personnel, subscription acquisition costs related to Dotdash Meredith, and outsourced personnel and consulting costs.
•General and administrative expense - consists primarily of compensation expense (including stock-based compensation expense) and other employee-related costs for personnel engaged in executive management, finance, legal, tax, human resources and customer service functions (except for Care.com, which includes customer service costs within "Cost of revenue" in the statement of operations), fees for professional services (including transaction-related costs related to the acquisition of Meredith, the Spin-off, the MTCH Separation, and other acquisitions), provision for credit losses, rent expense and facilities cost, software license and maintenance costs, and acquisition-related contingent consideration fair value adjustments (described below). The customer service function at Angi 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.
•Dotdash Meredith Term Loan A - due December 1, 2026. The outstanding balance of the Dotdash Meredith Term Loan A is $332.5 million and $350.0 million at December 31, 2022 and 2021, respectively, and bore interest at an adjusted term secured overnight financing rate ("Adjusted Term SOFR") plus 2.25% and 2.00%, or 5.91% and 2.15%, at December 31, 2022 and 2021, respectively. The Dotdash Meredith Term Loan A has quarterly principal payments.
•Dotdash Meredith Term Loan B - due December 1, 2028. The outstanding balance of the Dotdash Meredith Term Loan B is $1.24 billion and $1.25 billion at December 31, 2022 and 2021, respectively, and bore interest at Adjusted Term SOFR, subject to a minimum of 0.50%, plus 4.00%, or 8.22% and 4.50% at December 31, 2022 and 2021, respectively. The Dotdash Meredith Term Loan B has quarterly principal payments.
•Dotdash Meredith Revolving Facility - Dotdash Meredith's $150 million revolving credit facility expires on December 1, 2026. At December 31, 2022 and 2021, there were no outstanding borrowings under the Dotdash Meredith Revolving Facility.
•ANGI Group Senior Notes - on August 20, 2020, ANGI Group, LLC ("ANGI Group"), a direct wholly-owned subsidiary of Angi Inc., issued $500 million of its 3.875% Senior Notes due August 15, 2028, with interest payable February 15 and August 15 of each year.
Non-GAAP financial measure:
•Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") - is a non-GAAP financial measure. See "Principles of Financial Reporting" for the definition of Adjusted EBITDA and a reconciliation of net (loss) earnings attributable to IAC shareholders to operating (loss) to Adjusted EBITDA for the years ended December 31, 2022, 2021 and 2020. MANAGEMENT OVERVIEW
As used herein, "IAC," the "Company," "we," "our" or "us" and similar terms refer to IAC Inc. and its subsidiaries (unless the context requires otherwise).
Sources of Revenue
Dotdash Meredith
Digital
Dotdash Meredith revenue consists of digital and print revenue. Digital revenue consists principally of advertising, performance marketing, and licensing and other revenue. Print revenue consists principally of subscription, advertising, project and other, newsstand and performance marketing revenue.
Advertising revenue is generated primarily through digital advertisements sold by Dotdash Meredith's sales team directly to the advertisers or through advertising agencies 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 brands refer consumers to commerce partner websites resulting in a purchase or transaction. Affinity marketing programs are arrangements where Dotdash Meredith acts as an agent for both Dotdash Meredith and the third-party publishers to market and place magazine subscriptions online. 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 relates to the sale of Dotdash Meredith's print magazines. 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. Advertising revenue relates to the sale of advertising in magazines directly to advertisers or through advertising agencies. Revenue is recognized on the magazine issue’s on-sale date, which is the date the magazine is published. Project and other revenue relates to other revenue streams that are primarily project based and may relate to any one or combination of the following activities: audience targeted advertising, custom publishing, content strategy and development, email marketing, social media, database marketing and search engine optimization. Newsstand revenue is related to single copy magazines or bundles of single copy magazines sold 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. Performance marketing revenue principally consists of affinity marketing revenue through which Dotdash Meredith places magazine subscriptions for third-party publishers.
Angi Inc.
Ads and Leads revenue includes consumer connection revenue for consumer matches, revenue from service professionals under contract for advertising and 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. Services revenue primarily reflects pre-priced offerings by which the consumer requests services through Services platforms and Angi Inc. engages a service professional to perform the service. Roofing revenue primarily reflects revenue from the roof replacement business offering by which the consumer purchases services directly from the Roofing business and Angi Inc. then engages a service professional to perform the service. International revenue primarily reflects consumer connection revenue for consumer matches and membership subscription from service professionals and consumers.
From January 1, 2020 through December 31, 2022, Services recorded revenue on a gross basis. Effective January 1, 2023, Angi Inc. modified the Services terms and conditions so that the service professional, rather than Angi Inc., has the contractual relationship with the consumer to deliver the service and Angi Inc.'s performance obligation to the consumer is to connect them with the service professional. This change in contractual terms requires net revenue accounting treatment effective January 1, 2023. There is no impact to operating income or Adjusted EBITDA.
Search
The Search segment consists of Ask 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 by Google Inc. ("Google") pursuant to our services agreement with Google, described below under "Services Agreement with Google (the "Services Agreement")." Ask 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.
Emerging and Other
Included in the Emerging & Other segment are Care.com and Mosaic 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 to Care.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 the Apple App Store and Google Play Store and fees received directly from 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.
Services Agreement with Google (the "Services Agreement")
The Company and Google are parties to an amended Services Agreement which expires on March 31, 2024 and provides for an automatic renewal for an additional one-year period absent a notice of non-renewal from either party on or before March 31, 2023. The Company earns certain other advertising revenue from Google that is not attributable to the Services Agreement. A meaningful portion of the Company’s net cash from operating activities attributable to continuing operations that it can freely access is attributable to revenue earned pursuant to the Services Agreement and other revenue earned from Google.
For the years ended December 31, 2022, 2021 and 2020, total revenue earned from Google was $701.5 million, $755.1 million and $556.1 million, respectively, representing 13%, 20%, and 20%, respectively, of the Company's revenue. The total revenue earned from the Services Agreement for the years ended December 31, 2022, 2021 and 2020, was $514.8 million, $661.3 million and $498.3 million, respectively, representing 10%, 18% and 18%, respectively, of the Company's total revenue. The related accounts receivable totaled $74.1 million and $89.1 million at December 31, 2022 and 2021, respectively.
The revenue attributable to the Services Agreement is earned by Ask Media Group and the Desktop business, which comprise the Search segment. For the years ended December 31, 2022, 2021 and 2020, revenue earned from the Services Agreement was $424.3 million, $542.1 million and $344.8 million, respectively, within Ask Media Group, and $90.5 million, $119.1 million and $153.5 million, respectively, within the Desktop business.
The Services Agreement requires that the Company comply with certain guidelines promulgated by Google. Google may generally unilaterally update its policies and guidelines without advance notice. These updates may be specific to the Services Agreement or could be more general and thereby impact the Company as well as other companies. These policy and guideline updates have in the past and could in the future require modifications to, or prohibit and/or render obsolete certain of our products, services and/or business practices, which have been and could be costly to address or negatively impact revenue and have had and in the future could have an adverse effect on our financial condition and results of operations. As described below, Google has made changes to the policies under the Services Agreement and has also made industry-wide changes that have negatively impacted the Desktop business-to-consumer (“B2C”) business. Google may make changes in the future that could impact the revenue earned from Google, including under the Services Agreement.
Certain industry-wide policy changes became effective on August 27, 2020. These industry-wide changes, combined with increased enforcement of policies under the Services Agreement, have had a negative impact on the results of operations of the B2C business. During the fourth quarter of 2020, Google suspended services with respect to some B2C’s products and may do so with respect to other products in the future. As a result, the B2C business elected to modify certain marketing strategies in early January 2021. Subsequently, Google informed us of another policy change in the first quarter of 2021 that became effective on May 10, 2021. We anticipated that this Google policy change would eliminate our ability to successfully introduce and market new B2C products that would be profitable. Therefore, we undertook cost reduction measures and effectively eliminated all marketing of B2C products beginning in March 2021. This elimination of marketing positively impacted profitability starting in the second quarter of 2021 because revenue from B2C products is earned over multiple periods beyond just the period in which the initial marketing is incurred. Following the cessation of the introduction of new products in March 2021, the B2C revenue stream relates solely to the then existing installed base of products. We expect future revenue and profits of the B2C business to decline significantly.
During the year ended December 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 by Google and other browsers. The effects of COVID-19 on monetization were an additional factor.
Angi Inc.'s Brand Integration Initiative
In March 2021, ANGI Homeservices Inc. changed its name to Angi 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.
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 initially adversely affected the placement and ranking of Angi Inc. websites, particularly Angi.com, in organic search results. Organic search results have been declining year-over-year and are still below pre-March 2021 levels. The shift of marketing to support Angi, away from HomeAdvisor, powered by Angi, has had and continues to have a negative effect on the efficiency of its search engine marketing efforts. Angi Inc. will continue to optimize the efficiency and conversion of marketing to HomeAdvisor to maintain profitable demand generation to that domain for the foreseeable future but they do expect the trend of declining traffic to continue due to sustained marketing emphasis in favor of Angi.
Angi Services Investment
Services was launched in August 2019, and Angi Inc. invested significantly since its inception through 2022. Angi Inc.'s investment in Services peaked in the first quarter of 2022 and Angi Inc. saw both positive and negative trends on profits from the Services offerings since inception. Angi Inc. expects a positive year-over-year trend to continue through 2023 as it focuses on less complex services and more profitable business offerings.
Dotdash Meredith Restructuring Charges
For the year ended December 31, 2022, Dotdash Meredith incurred a total of $80.2 million of restructuring charges, including $55.9 million of severance and related costs. The restructuring charges for the year ended December 31, 2022 include $21.3 million of impairment charges related to the consolidation of certain leased spaces following the Meredith acquisition, consisting of impairments of $14.3 million and $7.0 million of a right-of-use asset ("ROU asset") and related leasehold improvements and furniture and equipment, respectively, which are included in "General and administrative expense" and "Depreciation," respectively, in the statement of operations.
In the first quarter of 2022, Dotdash Meredith announced its plans to discontinue certain print publications and the shutdown of PeopleTV to focus the portfolio and further enable investments toward digital growth. Dotdash Meredith also announced a voluntary retirement program in the first quarter of 2022 for employees who met certain age and service requirements. In December 2022, Dotdash Meredith management committed to a reduction in force plan, which was announced in late January 2023, to better align its cost structure given the difficult market and current economic uncertainty.
Distribution, Marketing and Advertiser Relationships
We pay traffic acquisition costs, which consist of payments made to partners who direct traffic to our Ask 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 of apps and the facilitation of Mosaic Group's subscription-based 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 COVID-19 pandemic and the various responses to it created significant volatility, uncertainty and economic disruption. Recently there has been a return to normal societal interactions, including the way the Company operates its businesses.
Angi Inc.
As previously disclosed, the impact of COVID-19 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 Angi Inc. experienced a rebound in Service Requests from mid-2020 through early 2021, Service Requests started to decline in May 2021 and have continued to decline during 2022 due, in part, to COVID-19 measures that were more widely in place in prior periods. Angi Inc.'s ability to monetize service requests rebounded modestly in the second half of 2021 and the first half of 2022; however, that improved monetization plateaued in the third quarter of 2022 and is now in line with monetization rates experienced pre-COVID-19.
Dotdash Meredith
Digital advertising and performance marketing revenue at Dotdash, excluding Meredith, declined in 2022, compared to 2021 due in part to lower traffic to its sites compared to prior year COVID-19 traffic highs. Post-acquisition, Meredith has experienced a similar impact to its digital advertising revenue.
Search
In the quarter ended March 31, 2020, the Company determined that the effects of COVID-19 were a contributing indicator of possible impairment for certain of its assets and identified impairments at the Desktop reporting unit of $212.0 million and $21.4 million related to goodwill and certain indefinite-lived intangible assets, respectively.
In the quarter ended September 30, 2020, the Company recorded additional 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 Google (the "Services Agreement")" above for additional information.
Other
In addition to the impairments at Search, in the quarter ended March 31, 2020, the Company identified impairments of $51.5 million of certain equity securities without readily determinable fair values, and $7.5 million of a note receivable and a warrant related to certain investees as a result of the effects of COVID-19.
Future Outlook
The extent to which developments related to the COVID-19 pandemic and measures designed to curb its spread continue to impact the Company’s business, financial condition and results of operations will depend on future developments, all of which are highly uncertain and many of which are beyond the Company’s control, including the continuing spread of COVID-19, the severity of resurgences of COVID-19 caused by variant strains of the virus, the effectiveness of vaccines and attitudes toward receiving them, materials and supply chain constraints, labor shortages, the scope of governmental and other restrictions on travel, discretionary services and other activity, and public reactions to these developments.
Results of Operations for the Years Ended December 31, 2022, 2021 and 2020.
Revenue
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | $ Change | | % Change | | 2021 | | $ Change | | % Change | | 2020 |
| (Dollars in thousands) |
Dotdash Meredith | | | | | | | | | | | | | |
Digital | $ | 931,482 | | | $ | 564,348 | | | 154 | % | | $ | 367,134 | | | 153,381 | | | 72% | | $ | 213,753 | |
Print | 1,026,128 | | | 934,126 | | | 1,015 | % | | 92,002 | | | 92,002 | | | N/A | | — | |
Intersegment eliminations | (22,911) | | | (20,048) | | | (700) | % | | (2,863) | | | (2,863) | | | N/A | | — | |
Total Dotdash Meredith | 1,934,699 | | | 1,478,426 | | | 324 | % | | 456,273 | | | 242,520 | | | 113% | | 213,753 | |
Angi Inc. | | | | | | | | | | | | | |
Domestic | | | | | | | | | | | | | |
Ads and Leads | 1,282,061 | | | 54,987 | | | 4 | % | | 1,227,074 | | | 8,319 | | | 1% | | 1,218,755 | |
Services | 381,256 | | | 91,308 | | | 31 | % | | 289,948 | | | 127,409 | | | 78% | | 162,539 | |
Roofing | 137,509 | | | 69,481 | | | 102 | % | | 68,028 | | | 68,028 | | | N/A | | — | |
Intersegment eliminations | (10,340) | | | (8,433) | | | (442) | % | | (1,907) | | | (1,907) | | | N/A | | — | |
Total Domestic | 1,790,486 | | | 207,343 | | | 13 | % | | 1,583,143 | | | 201,849 | | | 15% | | 1,381,294 | |
International | 101,038 | | | (1,257) | | | (1) | % | | 102,295 | | | 15,664 | | | 18% | | 86,631 | |
Total Angi Inc. | 1,891,524 | | | 206,086 | | | 12 | % | | 1,685,438 | | | 217,513 | | | 15% | | 1,467,925 | |
Search | 731,431 | | | (141,915) | | | (16) | % | | 873,346 | | | 260,072 | | | 42% | | 613,274 | |
Emerging & Other | 685,956 | | | 781 | | | — | % | | 685,175 | | | 215,416 | | | 46% | | 469,759 | |
Intersegment eliminations | (8,330) | | | (7,725) | | | (1,278) | % | | (605) | | | (430) | | | (244)% | | (175) | |
Total | $ | 5,235,280 | | | $ | 1,535,653 | | | 42 | % | | $ | 3,699,627 | | | $ | 935,091 | | | 34% | | $ | 2,764,536 | |
________________________
N/A = Not applicable
For the year ended December 31, 2022 compared to the year ended December 31, 2021
•Dotdash Meredith revenue increased 324% to $1.9 billion due to the contribution of $1.5 billion from Meredith, acquired December 1, 2021, partially offset by decreases of $11.8 million, or 11%, in Dotdash Performance Marketing Revenue and $7.0 million, or 4%, in Dotdash Advertising Revenue. The decrease in Dotdash Performance Marketing Revenue was due to primarily to declines in both affiliate commerce commission revenue and performance marketing commission revenue due primarily to lower traffic to its sites compared to the prior year COVID-19 traffic highs. The decrease in Dotdash Advertising Revenue was due primarily to a decrease in advertising sold through its sales team and lower programmatic rates.
•Angi Inc. revenue increased 12% to $1.9 billion driven by increases of $91.3 million, or 31%, from Services, $69.5 million or 102% from Roofing and $55.0 million, or 4%, from Ads and Leads partially offset by a decrease of $1.3 million, or 1%, from International.
◦The increase in Services was due primarily to an increase in average revenue per Monetized Transactions due to higher average-order-value jobs in complex service categories and an increase in Monetized Transactions during 2022 compared to 2021, as well as price increases in certain job categories.
◦The increase in Roofing was due primarily to the inclusion of revenue for twelve months in the current year compared to six months in the prior year.
◦The increase in Ads and Leads was due primarily to price increases implemented during the second quarter of 2022 and the anniversary of the Angi Inc. brand integration, described above under "Angi Inc. Brand Integration Initiative," that began in March 2021.
◦The decrease in International was due primarily to the unfavorable impact of the strengthening of the U.S. dollar relative to the Euro and British Pound.
•Search revenue decreased 16% to $731.4 million due to decreases of $101.5 million, or 14% from Ask Media Group and $40.4 million, or 29%, from Desktop. The decrease from Ask Media Group was due to a reduction in marketing from affiliate partners driving fewer visitors to ad supported search and content websites. The decrease from Desktop was due primarily to the Google policy changes announced in the prior year described above under "Services Agreement with Google (the "Services Agreement")."
•Emerging & Other revenue increased slightly to $686.0 million due primarily to a 10% increase at Care.com and growth from Vivian Health, partially offset by lower revenue at Mosaic Group, IAC Films, Bluecrew, which was sold on November 9, 2022, and Daily Beast.
For the year ended December 31, 2021 compared to the year ended December 31, 2020
•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 Advertising Revenue and $28.1 million, or 37%, higher Performance Marketing Revenue. The growth in Dotdash 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 $127.4 million, or 78%, from Services, $68.0 million from Roofing, $15.7 million, or 18%, from International and $8.3 million, or 1%, from Ads and Leads.
◦The increase in Services was due primarily to increased Monetized Transactions during 2021 compared to 2020.
◦Roofing was acquired on July 1, 2021 and contributed $68.0 million in revenue in 2021.
◦The increase in International was due primarily 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.
◦The increase in Ads and Leads was due primarily to an increase in advertising revenue, partially offset by the disposition of a business in the second quarter of 2021.
•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 from Ask Media Group 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 from Desktop 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 increases from IAC Films, Bluecrew, Vivian Health, and The Daily Beast.
Cost of revenue (exclusive of depreciation shown separately below)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | $ Change | | % Change | | 2021 | | $ Change | | % Change | | 2020 |
| (Dollars in thousands) |
Cost of revenue (exclusive of depreciation shown separately below) | $ | 1,922,697 | | | $ | 626,415 | | | 48 | % | | $ | 1,296,282 | | | $ | 550,917 | | | 74% | | $ | 745,365 | |
As a percentage of revenue | 37% | | | | | | 35% | | | | | | 27% |
For the year ended December 31, 2022 compared to the year ended December 31, 2021
Cost of revenue in 2022 increased from 2021 due primarily to increases of $680.9 million from Dotdash Meredith and $112.2 million from Angi Inc., partially offset by a decrease of $145.8 million from Search.
•The Dotdash Meredith increase was due primarily to an increase of $673.9 million of expense from the inclusion of Meredith for twelve months in the current year compared to one month in the prior year, and an increase of $8.7 million in compensation expense related to increased editorial headcount at Dotdash. Included in Meredith's expense is $23.6 million of restructuring costs primarily related to the reorganization of the Dotdash Meredith business described above under "Dotdash Meredith Restructuring Charges."
•The Angi Inc. increase was due primarily to increases of $64.1 million from Services and $49.4 million from Roofing.
◦The Services increase was due primarily to an increase in payments to third-party professional service providers resulting from growth in the business.
◦The Roofing increase was due primarily to the inclusion of roofing materials and third-party contractor costs for twelve months in the current year compared to six months in the prior year.
•The Search decrease was due primarily to a decrease in traffic acquisition costs of $159.7 million at Ask Media Group, partially offset by an increase in traffic acquisition costs of $15.1 million at Desktop. The decrease in traffic acquisition costs at Ask Media Group was due primarily to a decrease in the proportion of revenue earned from affiliate partners who direct traffic to our websites. The increase in traffic acquisition costs at Desktop was a result of higher revenue share rates resulting in higher expense compared to the prior year.
For the year ended December 31, 2021 compared to the year ended December 31, 2020
Cost of revenue in 2021 increased from 2020 due to increases of $255.8 million from Search, $152.6 million from Angi Inc., $88.8 million from Dotdash Meredith and $53.8 million from Emerging & Other.
•The Search increase was primarily due to an increase of $240.9 million in traffic acquisition costs at Ask Media Group resulting from the increase in revenue.
•The Angi Inc. increase was due primarily to increases of $104.8 million from Services and $51.2 million from Roofing.
◦The Services increase was due primarily to organic growth resulting in increased payments to third-party professional service providers.
◦The Roofing increase was due to its acquisition on July 1, 2021.
•The Dotdash Meredith increase was due primarily to $63.6 million of expense from the inclusion of Meredith, and increases of $12.0 million in compensation expense related to increased headcount and $10.4 million in third-party content creation costs. The increased investment in third-party 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 by Bluecrew 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, at IAC Films due to theatrical releases, partially offset by a decrease of $12.7 million at Care.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, |
| 2022 | | $ Change | | % Change | | 2021 | | $ Change | | % Change | | 2020 |
| (Dollars in thousands) |
Selling and marketing expense | $ | 1,925,750 | | | $ | 563,450 | | | 41 | % | | $ | 1,362,300 | | | $ | 196,844 | | | 17% | | $ | 1,165,456 | |
As a percentage of revenue | 37% | | | | | | 37% | | | | | | 42% |
For the year ended December 31, 2022 compared to the year ended December 31, 2021
Selling and marketing expense in 2022 increased from 2021 due to increases of $480.8 million from Dotdash Meredith, $37.1 million from Search, $29.4 million from Angi Inc., and $24.7 million from Emerging & Other.
•The Dotdash Meredith increase was due principally to an increase of $475.0 million of expense from the inclusion of Meredith for twelve months in the current year compared to one month in the prior year. Included in Meredith's expense is $16.6 million of restructuring costs primarily related to the reorganization of the Dotdash Meredith business described above under "Dotdash Meredith Restructuring Charges."
•The Search increase was due primarily to an increase of $60.1 million in online marketing at Ask Media Group, partially offset by a decrease of $24.1 million at Desktop. The increase at Ask Media Group was due primarily to increases in both search engine marketing and ad placement spend on social media sites. The decrease at Desktop was due to the elimination of all marketing of its B2C products beginning in early March 2021 due primarily to the Google policy changes in the fourth quarter of 2020 and the first quarter of 2021 described above under "Services Agreement with Google (the "Services Agreement").
•The Angi Inc. increase was due primarily to increases of $19.0 million from Roofing, $13.6 million from Services and $11.9 million from Ads and Leads, partially offset by a decrease of $4.9 million from Other (unallocated corporate costs).
◦The Roofing increase was due primarily to the inclusion of expense for twelve months in the current year compared to six months in the prior year.
◦The Services increase was due primarily to increases in compensation expense of $19.4 million, outsourced personnel costs of $2.2 million and software maintenance costs of $1.6 million, partially offset by a decrease of $9.5 million in advertising expense. The increase in compensation expense was primarily due to higher headcount. The increase in outsourced personnel costs was primarily due to costs for improving the customer service experience. The increase in software maintenance cost was primarily due to general maintenance. The decrease in advertising expense was due primarily to decreases in service professional marketing and search engine marketing spend and was due primarily to high advertising costs in 2021 to promote Services.
◦The Ads and Leads increase was due primarily to increases in advertising expense of $20.9 million and software maintenance costs of $3.5 million, partially offset by a decrease of $10.3 million in compensation expense. The increase in advertising expense was due primarily to an increase of $23.3 million in online marketing spend due primarily to the continued brand integration initiative at the beginning of 2022 and increased costs to obtain service requests later in 2022. The increase in software maintenance costs was due primarily to general maintenance. The decrease in compensation is primarily due to lower headcount.
◦The Other (unallocated corporate costs) decrease of $4.9 million was due primarily to a decrease in lease expense of $5.4 million as a result of Angi Inc. repurposing and reducing its real estate footprint in 2021.
•The Emerging & Other increase was due primarily to increases of $10.0 million in compensation expense and $3.8 million in online marketing at Care.com, $5.2 million in marketing spend at IAC Films, $5.1 million in compensation expense and $3.6 million in online marketing at Vivian Health, partially offset by a decrease of $7.2 million in advertising expense at Mosaic Group. The increase in compensation expense at both Care.com and Vivian Health was due primarily to higher headcount. The increase in marketing spend at IAC Films was primarily related to Everything Everywhere All at Once. The increase in online marketing at Care.com was primarily due to efforts to increase their customer base.
For the year ended December 31, 2021 compared to the year ended December 31, 2020
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 of $77.7 million from Ads and Leads, $21.7 million from Services, $14.0 million from Roofing and $8.9 million from Other (unallocated corporate expenses).
◦The Ads and Leads increase was due primarily to increases in advertising expense of $60.1 million and compensation expense of $27.8 million, partially offset by decreases in lease expense of $11.6 million. The increase in advertising expense was due primarily to increases of $49.6 million in online marketing spend and $9.7 million in television spend. The increase in online marketing spend was attributable to the brand integration initiative. The increase in television spend in 2021 reflects the normalization of spending levels as compared to the cost cutting initiatives during 2020 due to the impact of COVID-19. The increase in compensation expense was due primarily to increased commission expense. The decrease in lease expense was due primarily to the repurposing of lease locations in 2021.
◦The Services increase was due primarily to increases in consulting fees of $9.1 million, compensation expense of $7.0 million and advertising expense of $4.1 million. The increase in consulting fees was due primarily to various sales initiatives. The increase in compensation expense was due to an increase in sales force headcount. The increase in advertising expense was primarily due to $3.9 million in online marketing spend attributable to the brand integration.
◦The Roofing increase was due to its acquisition on July 1, 2021.
◦The Other (unallocated corporate costs) increase was due primarily to an increase in lease expense of $8.0 million due to the repurposing of lease locations in 2021.
•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.
•The Emerging & Other increase was due primarily to increases of $26.7 million in online marketing and television spend at Care.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 at Care.com and Vivian Health, respectively, each due primarily to higher headcount. The increase in online marketing and television spend at Care.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 in January 2021 and the subsequent elimination of all marketing of its B2C products beginning in early March 2021 due primarily to the Google policy changes in the fourth quarter of 2020 and the first quarter of 2021 described above under "Services Agreement with Google (the "Services Agreement")," partially offset by an increase of $28.3 million in online marketing at Ask Media Group.
General and administrative expense
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | $ Change | | % Change | | 2021 | | $ Change | | % Change | | 2020 |
| (Dollars in thousands) |
General and administrative expense | $ | 977,274 | | | $ | 179,826 | | | 23 | % | | $ | 797,448 | | | $ | 52,213 | | | 7% | | $ | 745,235 | |
As a percentage of revenue | 19% | | | | | | 22% | | | | | | 27% |
For the year ended December 31, 2022 compared to the year ended December 31, 2021
General and administrative expense in 2022 increased from 2021 due to increases of $125.6 million from Dotdash Meredith and $68.4 million from Angi Inc., partially offset by a decrease of $15.6 million from Corporate.
•The Dotdash Meredith increase was due primarily to an increase of $115.3 million of expense from the inclusion of Meredith for twelve months in the current year compared to one month in the prior year, a $14.3 million impairment of a ROU asset related to the consolidation of certain leased spaces following the Meredith acquisition, and an increase of $13.9 million in compensation expense, partially offset by a decrease of $20.3 million in professional fees at Dotdash. During 2022, Dotdash Meredith incurred $28.1 million in restructuring costs, including the $14.3 million impairment described above, related to the reorganization of Dotdash Meredith's business described above under "Dotdash Meredith Restructuring Charges" and $6.8 million in transaction-related costs, of which $5.7 million was incurred at Meredith, associated with its acquisition. The increase in compensation expense at Dotdash was due primarily to an increase in stock-based compensation expense. The decrease in professional fees at Dotdash was due to the inclusion in 2021 of $25.2 million of transaction-related costs in connection with the Meredith transaction. Expense in 2021 includes $53.3 million in transaction-related costs at Meredith associated with its acquisition, including charges related to double-trigger change in control payments.
•The Angi Inc. increase was due primarily to increases of $27.8 million from Services, $23.7 million from Ads and Leads, $16.2 million from Roofing and $9.3 million from Other (unallocated corporate costs), partially offset by a decrease of $8.6 million from International.
◦The Services increase was due primarily to an increase of $16.7 million in compensation expense, $8.8 million in legal expense and $2.2 million in software license and maintenance expense. The increase in compensation expense was due primarily to increases of $10.5 million in stock-based compensation expense resulting from management departures in 2022 and new awards granted in 2022, and $6.2 million in wage-related expenses due to higher headcount. The increase in legal expense was due primarily to accruals for certain legal matters in the fourth quarter of 2022. The increase in software license and maintenance expense is due to general maintenance.
◦The Ads and Leads increase was due primarily to increases of $16.4 million in the provision for credit losses, $4.3 million in outsourced personnel costs, $5.7 million in legal expense and $2.0 million in software and maintenance expense, partially offset by a decrease of $0.5 million in compensation expense. The increase in the provision for credit losses was due primarily to higher revenue. The increase in outsourced personnel costs was due primarily to the use of outsourced firms to support customer service needs. The increase in legal expense was due primarily to accruals for certain legal matters in the third and fourth quarters of 2022. The decrease in compensation expense was primarily due to a decrease of $5.1 million resulting from lower headcount, partially offset by an increase of $4.5 million in stock-based compensation.
◦The Roofing increase was due primarily to the inclusion of expense for twelve months in the current year compared to six months in the prior year.
◦The Other (unallocated corporate costs) increase was due primarily to an increase of $14.4 million in compensation expense, partially offset by a decrease of $7.3 million of impairment charges of ROU assets and related leasehold improvements and furniture and equipment. The increase in compensation expense was due primarily to an increase of $12.9 million in wage-related expense due to higher headcount and $1.6 million in stock-based compensation expense. The increase in stock-based compensation expense is the result of the reversal of previously recognized stock-based compensation as a result of the forfeiture of unvested awards due to management departures in 2021 and 2022, and new awards granted in 2022. The decrease in impairments of ROU assets and related leasehold improvements and furniture and equipment was due primarily to Angi Inc. reducing its real estate footprint in 2021.
◦The International decrease was due primarily to the inclusion in compensation expense, in 2021, of $7.0 million in charges related to the acquisition of the remaining interests in MyBuilder at a premium to fair value.
•The Corporate decrease was due primarily to a decrease of $10.3 million in compensation expense due primarily to a decrease in bonuses and payroll taxes, and the inclusion in 2021 of $6.2 million of transaction-related costs in connection with the Spin-off.
For the year ended December 31, 2021 compared to the year ended December 31, 2020
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 increases of $32.5 million from Ads and Leads, $16.2 million from Services, $10.8 million from Roofing, and $9.5 million from International, partially offset by a decrease of $37.3 million from Other (unallocated corporate costs).
◦The Ads and Leads increase was due primarily to increases in compensation expense of $10.4 million, outsourced personnel costs of $8.6 million, software license and maintenance expense of $5.7 million, legal expense of $3.5 million and recruiting fees of $2.5 million. The increase in compensation expense was due primarily to annual wage and headcount increases. The increase in outsourced personnel costs was due primarily to an increase in call volume related to its customer booking assistance function. The increase in software license and maintenance expense was due primarily to increased investment in software to support its customer services function.
◦The Services increase was due primarily to increases in the provision for credit losses of $7.8 million, outsourced personnel costs of $5.7 million and $2.9 million in legal expense. The increase in the provision for credit losses was primarily due to higher revenue as the provision for credit losses as a percentage of revenue remained relatively flat. The increase in outsourced personnel costs was due primarily to an increase in call volume related to its customer booking assistance function.
◦The Roofing increase was due to its acquisition on July 1, 2021.
◦The International increase was due primarily to increases of $6.1 million in compensation expense and $1.7 million in consulting fees. The increase in compensation expense was primarily due to $7.0 million in charges related to the acquisition of the remaining interests in MyBuilder at a premium to fair value, partially offset by severance costs recorded in the European business in 2020 associated with headcount reductions in France. The increase in consulting fees was related to corporate restructuring.
◦The Other (unallocated corporate costs) decrease was due primarily to a decrease in compensation expense of $53.3 million, partially offset by increases of $9.6 million in one-time costs related to Angi Inc. reducing its real estate footprint in 2021 and consulting fees of $1.5 million. The decrease in compensation expense was primarily due to a $50.6 million decrease in stock-based compensation expense. The decrease in stock-based compensation expense was due primarily to $30.8 million in stock appreciation rights expense recognized during the twelve months ended December 31, 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 2021, partially offset by the issuance of new equity awards since 2020. The real estate related costs are the result of impairments of ROU assets associated with office space Angi Inc. vacated.
•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 to Match 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, |
| 2022 | | $ Change | | % Change | | 2021 | | $ Change | | % Change | | 2020 |
| (Dollars in thousands) |
Product development expense | $ | 332,873 | | | $ | 102,063 | | | 44 | % | | $ | 230,810 | | | $ | 45,475 | | | 25% | | $ | 185,335 | |
As a percentage of revenue | 6% | | | | | | 6% | | | | | | 7% |
For the year ended December 31, 2022 compared to the year ended December 31, 2021
Product development expense in 2022 increased from 2021 due to increases of $92.3 million from Dotdash Meredith and $12.6 million from Emerging & Other, partially offset by a decrease of $4.9 million from Search.
•The Dotdash Meredith increase was due primarily to an increase of $78.3 million of expense from the inclusion of Meredith for twelve months in the current year compared to one month in the prior year, and an increase of $13.1 million in compensation expense at Dotdash due primarily to higher headcount.
•The Emerging & Other increase was due primarily to increases of $7.0 million and $5.9 million in compensation expense at Care.com and Vivian Health, respectively. The increase in compensation expense at Care.com was due to higher headcount. The increase in compensation expense at Vivian Health was due primarily to higher headcount and a $2.4 million charge related to the sale of equity interests held by certain members of its management and the settlement of certain employee stock-based awards in conjunction with the equity raise in the second quarter of 2022.
•The Search decrease was due primarily to a decrease of $6.2 million in compensation expense due primarily to the reduction in headcount following the cessation of new B2C products described above under "Services Agreement with Google (the "Services Agreement")", partially offset by an increase of $2.1 million in outsourced personnel costs at Ask Media Group due to various product initiatives.
For the year ended December 31, 2021 compared to the year ended December 31, 2020
Product development expense in 2021 increased from 2020 due to increases of $24.7 million from Emerging & Other and $19.6 million from Dotdash Meredith.
•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, at Care.com, $4.5 million in expense from the inclusion of Lifecare, and $1.8 million in compensation expense at Vivian Health. The increase in compensation expense at both Care.com and Vivian Health is primarily due to increases in headcount. The increase in outsourced personnel costs at Care.com is primarily due to enhancing existing product offerings and developing new products.
•The Dotdash Meredith increase was due primarily to an increase of $10.6 million in compensation expense at Dotdash and $7.9 million of expense from the inclusion of Meredith. 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, |
| 2022 | | $ Change | | % Change | | 2021 | | $ Change | | % Change | | 2020 |
| (Dollars in thousands) |
Depreciation | $ | 130,986 | | | $ | 55,971 | | | 75 | % | | $ | 75,015 | | | $ | 6,192 | | | 9% | | $ | 68,823 | |
As a percentage of revenue | 3% | | | | | | 2% | | | | | | 2% |
For the year ended December 31, 2022 compared to the year ended December 31, 2021
Depreciation in 2022 increased from 2021 due primarily to an increase of $28.3 million of expense from the inclusion of Meredith for twelve months in the current year compared to one month in the prior year, an increase in expense of $19.0 million at Angi Inc. primarily related to the impairment of certain capitalized software projects that are no longer being utilized as Angi Inc. transitions away from certain business offerings in Services, and the impairment of leasehold improvements and furniture and equipment at Dotdash Meredith of $7.0 million related to the consolidation of certain leased spaces, as described above under "Dotdash Meredith Restructuring Charges."
For the year ended December 31, 2021 compared to the year ended December 31, 2020
Depreciation in 2021 increased from 2020 due primarily to the investments in Angi 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 at Desktop and Mosaic Group.
Operating (loss) income
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | $ Change | | % Change | | 2021 | | $ Change | | % Change | | 2020 |
| (Dollars in thousands) |
Dotdash Meredith | | | | | | | | | | | | | |
Digital | $ | (66,629) | | | $ | (140,609) | | | NM | | $ | 73,980 | | | $ | 23,739 | | | 47 | % | | $ | 50,241 | |
Print | (54,448) | | | (47,921) | | | (734) | % | | (6,527) | | | (6,527) | | | N/A | | — | |
Other | (67,014) | | | (6,737) | | | (11) | % | | (60,277) | | | (60,277) | | | N/A | | — | |
Total Dotdash Meredith | (188,091) | | | (195,267) | | | NM | | 7,176 | | | (43,065) | | | (86) | % | | 50,241 | |
Angi Inc. | | | | | | | | | | | | | |
Domestic | | | | | | | | | | | | | |
Ads and Leads | 85,593 | | | 20,108 | | | 31 | % | | 65,485 | | | (67,880) | | | (51) | % | | 133,365 | |
Services | (95,166) | | | (31,182) | | | (49) | % | | (63,984) | | | (19,392) | | | (43) | % | | (44,592) | |
Roofing | (50,685) | | | (42,089) | | | (490) | % | | (8,596) | | | (8,596) | | | N/A | | — | |
Other | (61,794) | | | (5,598) | | | (10) | % | | (56,196) | | | 28,478 | | | 34 | % | | (84,674) | |
Total Domestic | (122,052) | | | (58,761) | | | (93) | % | | (63,291) | | | (67,390) | | | NM | | 4,099 | |
International | (4,253) | | | 8,969 | | | 68 | % | | (13,222) | | | (2,755) | | | (26) | % | | (10,467) | |
Total Angi Inc. | (126,305) | | | (49,792) | | | (65) | % | | (76,513) | | | (70,145) | | | (1,102) | % | | (6,368) | |
Search | 83,398 | | | (24,936) | | | (23) | % | | 108,334 | | | 357,045 | | | NM | | (248,711) | |
Emerging & Other | (106,154) | | | (83,416) | | | (367) | % | | (22,738) | | | 48,158 | | | 68 | % | | (70,896) | |
Corporate | (137,619) | | | 15,707 | | | 10 | % | | (153,326) | | | 108,603 | | | 41 | % | | (261,929) | |
Total | $ | (474,771) | | | $ | (337,704) | | | (246) | % | | $ | (137,067) | | | $ | 400,596 | | | 75 | % | | $ | (537,663) | |
| | | | | | | | | | | | | |
As a percentage of revenue | (9)% | | | | | | (4)% | | | | | | (19)% |
________________________
NM = Not meaningful.
For the year ended December 31, 2022 compared to the year ended December 31, 2021
Operating loss increased $337.7 million to $474.8 million, despite the increase of $92.3 million in Adjusted EBITDA, described below, due primarily to an increase of $232.9 million in amortization of intangibles, goodwill impairment charges of $112.8 million, and increases of $56.0 million in depreciation and $44.0 million in stock-based compensation expense, partially offset by a change in acquisition-related contingent consideration fair value adjustments (income of $0.6 million in 2022 compared to expense of $15.0 million in 2021). The increase in amortization of intangibles was due primarily to the acquisition of Meredith, partially offset by lower expense at Care.com due to certain intangible assets becoming fully amortized. The goodwill impairment charges relate to impairments of $86.7 million at Mosaic Group in the second quarter of 2022 and $26.0 million at Roofing in the fourth quarter of 2022. The goodwill impairment at Mosaic Group was a result of the projected reduction in future revenue and profits from the business and lower trading multiples of a selected peer group of companies. The goodwill impairment at Roofing is due to the business exiting certain markets and the projected reduction in future profits. The increase in depreciation was due primarily to the inclusion of Meredith for twelve months in the current year compared to one month in the prior year, an increase in expense at Angi Inc. primarily related to the impairment of certain capitalized software projects that are no longer being utilized as Angi Inc. transitions away from certain business offerings in Services, and the impairment of leasehold improvements and furniture and equipment at Dotdash Meredith of $7.0 million related to the consolidation of certain leased spaces, as described above under "Dotdash Meredith Restructuring Charges." The increase in stock-based compensation expense was due primarily to the reversal of previously recognized stock-based compensation expense due to forfeitures from management departures in 2021, the acceleration of awards related to management departures in 2022 and new awards granted since the first quarter of 2022.
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 the $153.6 million of goodwill at Mosaic Group. There is one indefinite-lived intangible asset at Dotdash Meredith Digital with a value of approximately $126.0 million for which the excess of fair value over carrying value is less than 20%.
At December 31, 2022, there was $322.4 million of unrecognized compensation cost, net of estimated forfeitures, related to all equity-based awards, which is expected to be recognized over a weighted average period of approximately 4.5 years.
For the year ended December 31, 2021 compared to the year ended December 31, 2020
Operating loss declined $400.6 million from a loss of $537.7 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, 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.
Adjusted EBITDA
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | $ Change | | % Change | | 2021 | | $ Change | | % Change | | 2020 |
| (Dollars in thousands) |
Dotdash Meredith | | | | | | | | | | | | | |
Digital | $ | 186,696 | | | $ | 95,517 | | | 105 | % | | $ | 91,179 | | | $ | 24,973 | | | 38 | % | | $ | 66,206 | |
Print | 31,135 | | | 28,496 | | | 1,080 | % | | 2,639 | | | 2,639 | | | N/A | | — | |
Other | (65,682) | | | (5,486) | | | (9) | % | | (60,196) | | | (60,196) | | | N/A | | — | |
Total Dotdash Meredith | 152,149 | | | 118,527 | | | 353 | % | | 33,622 | | | (32,584) | | | (49) | % | | 66,206 | |
Angi Inc. | | | | | | | | | | | | | |
Domestic | | | | | | | | | | | | | |
Ads and Leads | 168,952 | | | 32,692 | | | 24 | % | | 136,260 | | | (94,537) | | | (41) | % | | 230,797 | |
Services | (52,126) | | | (3,923) | | | (8) | % | | (48,203) | | | (18,950) | | | (65) | % | | (29,253) | |
Roofing | (21,400) | | | (13,889) | | | (185) | % | | (7,511) | | | (7,511) | | | N/A | | — | |
Other | (49,866) | | | (3,800) | | | (8) | % | | (46,066) | | | (22,196) | | | (93) | % | | (23,870) | |
Total Domestic | 45,560 | | | 11,080 | | | 32 | % | | 34,480 | | | (143,194) | | | (81) | % | | 177,674 | |
International | (481) | | | 6,134 | | | 93 | % | | (6,615) | | | (1,745) | | | (36) | % | | (4,870) | |
Total Angi Inc. | 45,079 | | | 17,214 | | | 62 | % | | 27,865 | | | (144,939) | | | (84) | % | | 172,804 | |
Search | 83,486 | | | (24,895) | | | (23) | % | | 108,381 | | | 57,037 | | | 111 | % | | 51,344 | |
Emerging & Other | (1,643) | | | (35,026) | | | NM | | 33,383 | | | 71,082 | | | NM | | (37,699) | |
Corporate | (79,521) | | | 16,464 | | | 17 | % | | (95,985) | | | 51,448 | | | 35 | % | | (147,433) | |
Total | $ | 199,550 | | | $ | 92,284 | | | 86 | % | | $ | 107,266 | | | $ | 2,044 | | | 2 | % | | $ | 105,222 | |
| | | | | | | | | | | | | |
As a percentage of revenue | 4% | | | | | | 3% | | | | | | 4% |
For the year ended December 31, 2022 compared to the year ended December 31, 2021
•Dotdash Meredith Adjusted EBITDA increased 353% to $152.1 million, due to higher revenue, and a decrease in transaction-related costs ($7.1 million in 2022 compared to $78.5 million in 2021, inclusive of costs related to change-in-control payments), partially offset by $80.2 million in restructuring charges associated with the Meredith acquisition described above under "Dotdash Meredith Restructuring Charges."
•Angi Inc. Adjusted EBITDA increased 62% to $45.1 million due primarily to an increase of $32.7 million from Ads and Leads and a decrease of $6.1 million in International Adjusted EBITDA losses, partially offset by increased Adjusted EBITDA losses of $13.9 million from Roofing, $3.9 million from Services and $3.8 million from Other (corporate unallocated costs).
◦The Ads and Leads Adjusted EBITDA increase was due primarily to higher revenue of $55.0 million, partially offset by increases in general and administrative expense of $23.7 million and selling and marketing of $11.9 million, which are described above.
◦The International Adjusted EBITDA loss decrease was due primarily to a decrease of $8.6 million in general and administrative expense, due to the inclusion in compensation expense in 2021 of $7.0 million in charges related to the acquisition of the remaining interests in MyBuilder at a premium to fair value.
◦The Services Adjusted EBITDA loss increase was due primarily to increases in general and administrative expense of $27.8 million and selling and marketing expense of $13.6 million, partially offset by higher revenue of $91.3 million.
◦The Roofing Adjusted EBITDA loss increase was due primarily to the inclusion of expense for twelve months in the current year compared to six months in the prior year, and to a lesser extent, higher selling and marketing and general and administrative expenses relative to 2021.
◦The Other (unallocated corporate costs) Adjusted EBITDA loss increased was due primarily to an increase in general and administrative expense, which is described above.
•Search Adjusted EBITDA decreased $24.9 million to $83.5 million due primarily to a decrease in Ask Media Group revenue and an increase in online marketing and a decrease in Desktop revenue and an increase in traffic acquisition costs as a result of higher revenue share rates resulting in higher expense compared to the prior year.
•Emerging & Other Adjusted EBITDA decreased $35.0 million to a loss of $1.6 million due primarily to a $9.8 million charge at Vivian Health related to the sale of equity interests held by certain members of its management and the settlement of certain employee stock-based awards in conjunction with the equity raise in the second quarter of 2022, lower profits at IAC Films and Mosaic Group and increased losses at Newco, Daily Beast and Bluecrew, which was sold on November 9, 2022, partially offset by higher profits at Care.com.
•Corporate Adjusted EBITDA loss decreased 17% to $79.5 million due primarily to a decrease in compensation expense due primarily to decreases in bonuses and payroll taxes and the inclusion in 2021 of $6.2 million of transaction-related costs in connection with the Spin-off.
For the year ended December 31, 2021 compared to the year ended December 31, 2020
•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 due primarily to a decrease of $94.5 million from Ads and Leads, increased Adjusted EBITDA losses of $22.2 million, $19.0 million and $1.7 million from Other (unallocated corporate costs), Services and International, respectively, and $7.5 million in Adjusted EBITDA losses from Roofing.
◦Ads and Leads Adjusted EBITDA decreased 41% to $136.3 million despite higher revenue, due primarily to increases in selling and marketing expense, and general and administrative expense, which are described above.
◦The Other (unallocated corporate costs) Adjusted EBITDA loss increase was due primarily to $9.6 million in one-time costs related to Angi Inc. reducing its real estate footprint in 2021.
◦The Services Adjusted EBITDA loss increase was due primarily to an increase in advertising expense attributable to the brand integration initiative.
◦Roofing was acquired on July 1, 2021 and contributed Adjusted EBITDA losses of $7.5 million.
◦The International Adjusted EBITDA loss increase was due primarily to an increase in compensation expense resulting from $7.0 million in charges related to the acquisition of the remaining interests in MyBuilder at a premium to fair.
•Search Adjusted EBITDA increased 111% to $108.4 million due to an increase in Ask Media Group revenue and the decrease of $73.7 million in marketing at Desktop as it substantially reduced marketing of its B2C products in January 2021 and the subsequent elimination of all marketing of B2C products beginning in early March 2021 as a result of Google policy changes.
•Emerging & Other Adjusted EBITDA increased $71.1 million to $33.4 million from a loss of $37.7 million due primarily to increased profits at Care.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 at IAC 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 to Match Group stock option exercises by IAC employees.
Interest expense
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | $ Change | | % Change | | 2021 | | $ Change | | % Change | | 2020 |
| (Dollars in thousands) |
Interest expense | $ | 110,165 | | | $ | 75,901 | | | 222 | % | | $ | 34,264 | | | $ | 18,098 | | | 112% | | $ | 16,166 | |
For the year ended December 31, 2022 compared to the year ended December 31, 2021
Interest expense in 2022 increased from 2021 due primarily to the Dotdash Meredith Term Loans incurred in December 2021, partially offset by the decrease resulting from the repayment of the ANGI Group Term Loan during the second quarter of 2021 and the write-off of deferred financing costs in 2021 associated with the termination of a bridge facility entered into by IAC in connection with the Meredith transaction.
For the year ended December 31, 2021 compared to the year ended December 31, 2020
Interest expense in 2021 increased from 2020 due primarily to the issuance of the ANGI Group Senior Notes in August 2020, the Dotdash Meredith Term Loans borrowings 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. 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 because the ANGI Group Term Loan was repaid in its entirety during the second quarter of 2021.
Unrealized (loss) gain on investment in MGM Resorts International
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | $ Change | | % Change | | 2021 | | $ Change | | % Change | | 2020 |
| (Dollars in thousands) |
Unrealized (loss) gain on investment in MGM Resorts International | $ | (723,515) | | | $ | (1,512,798) | | | NM | | $ | 789,283 | | | $ | (51,267) | | | (6) | % | | $ | 840,550 | |
The Company's investment in MGM is accounted for as a marketable equity security and the unrealized loss in the year ended December 31, 2022 and the unrealized gains in the years ended December 31, 2021 and 2020, were due to changes in the price of MGM as reported on the New York Stock Exchange. In 2020, the Company purchased 59.0 million shares of MGM for $1.0 billion and, in the first and third quarters of 2022, the Company purchased additional shares totaling 5.7 million for $244.3 million.
Other (expense) income, net | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| (Dollars in thousands) |
| | | | | |
Net periodic pension benefit costs, other than the service cost component(a) | $ | (206,422) | | | $ | (17,858) | | | $ | — | |
Unrealized (decrease) increase in the estimated fair value of a warrant | (62,495) | | | 104,018 | | | (1,213) | |
Unrealized (loss) gain related to marketable equity securities | (20,342) | | | 18,788 | | | — | |
Foreign exchange (losses) gains, net(b) | (8,503) | | | (13,636) | | | 674 | |
Net realized gain (loss) on sales of businesses, investments and upward (downward) adjustments to the carrying value of equity securities without readily determinable fair values(c)(d) | 59,299 | | | 18,874 | | | (40,050) | |
Interest income | 24,916 | | | 1,351 | | | 7,177 | |
Realized gain on the sale of a marketable equity security | — | | | 7,174 | | | — | |
Loss on extinguishment of debt(e) | — | | | (1,110) | | | — | |
COVID-19 related impairments on a note receivable and a warrant related to certain investees | — | | | — | | | (7,517) | |
Other | (4,238) | | | (5,747) | | | (1,632) | |
Other (expense) income, net | $ | (217,785) | | | $ | 111,854 | | | $ | (42,561) | |
| | | | | |
$ Change | $ | (329,639) | | | $ | 154,415 | | | |
% Change | NM | | NM | | |
_____________________
(a) Includes net pre-tax actuarial losses of $213.4 million and $7.1 million for the years ended December 31, 2022 and 2021, respectively, related to Meredith's funded pension plans in the U.K., consisting of the IPC Pension Scheme, and the U.S. See "Note 13—Pension and Postretirement Benefit Plans" for additional information.
(b) Includes $10.0 million in foreign exchange losses primarily related to the substantial liquidation of certain foreign subsidiaries in the year ended December 31, 2021.
(c) Includes a gain of approximately $132.2 million on the sale of BlueCrew in the year ended December 31, 2022. On November 9, 2022, the Company completed the sale of BlueCrew, which was included in the Emerging & Other segment, to EmployBridge, a provider of light industrial staffing solutions, for cash and stock with the Company becoming a minority shareholder in the combined company.
(d) Includes upward and downward adjustments to the carrying value of equity securities without readily determinable fair values. For the years ended December 31, 2022, 2021 and 2020, the Company recorded net (downward) and upward adjustments of $(89.1) million, $8.9 million and $(51.5) million, respectively. Downward adjustments for the year ended December 31, 2020 related to impairments due to COVID-19.
(e) Represents the write-off of deferred debt issuance costs related to the ANGI Group Term Loan, which was repaid in its entirety during the second quarter of 2021.
Income tax benefit (provision)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | $ Change | | % Change | | 2021 | | $ Change | | % Change | | 2020 |
| (Dollars in thousands) |
Income tax benefit (provision) | $ | 331,087 | | | $ | 470,077 | | | NM | | $ | (138,990) | | | $ | (184,697) | | | NM | | $ | 45,707 | |
Effective income tax rate | 22% | | | | | | 19% | | | | | | NM |
In 2022, the effective income tax rate was higher than the statutory rate of 21% due primarily to state taxes and research credits, offset by the non-deductible portion of the Mosaic Group goodwill impairment charge.
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, |
| 2022 | | $ Change | | % Change | | 2021 | | $ Change | | % Change | | 2020 |
| (Dollars in thousands) |
Net loss attributable to noncontrolling interests | $ | (22,285) | | | $ | (13,723) | | | 160 | % | | $ | (8,562) | | | $ | (7,422) | | | (651)% | | $ | (1,140) | |
Net loss attributable to noncontrolling interests in 2022, 2021 and 2020 primarily represents the publicly-held interest in Angi Inc.'s losses.
Net loss attributable to noncontrolling interests in 2022 and 2021 also includes noncontrolling interest in a subsidiary that primarily holds investments in equity securities. The subsidiary recorded net unrealized losses in 2022 and net realized gains in 2021.
PRINCIPLES OF FINANCIAL REPORTING
The Company reports Adjusted EBITDA as a supplemental measure to U.S. generally accepted accounting principles ("GAAP"). This measure is one of the primary metrics by which we evaluate the performance of our businesses, and our internal budgets are based and may impact management compensation. We believe that investors should have access to, and we are obligated to provide, the same set of tools that we use in analyzing our results. This non-GAAP measure should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results. The Company endeavors to compensate for the limitations of the non-GAAP measure presented by providing the comparable GAAP measure with equal or greater prominence and descriptions of the reconciling items, including quantifying such items, to derive the non-GAAP measure. We encourage investors to examine the reconciling adjustments between the GAAP and non-GAAP measure, which we discuss below.
Definition of Non-GAAP Measure
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") is defined as operating income excluding: (1) stock-based compensation expense; (2) depreciation; and (3) acquisition-related items consisting of (i) amortization of intangible assets and impairments of goodwill and intangible assets, if applicable, and (ii) gains and losses recognized on changes in the fair value of contingent consideration arrangements. We believe this measure is useful for analysts and investors as this measure allows a more meaningful comparison between our performance and that of our competitors. Adjusted EBITDA has certain limitations because it excludes the impact of these expenses.
The following table reconciles net (loss) earnings attributable to IAC shareholders to operating loss to Adjusted EBITDA: | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| (In thousands) |
Net (loss) earnings attributable to IAC shareholders | $ | (1,170,170) | | | $ | 597,547 | | | $ | 269,726 | |
Add back: | | | | | |
Net loss attributable to noncontrolling interests | (22,285) | | | (8,562) | | | (1,140) | |
(Earnings) loss from discontinued operations, net of taxes | (2,694) | | | 1,831 | | | 21,281 | |
Income tax (benefit) provision | (331,087) | | | 138,990 | | | (45,707) | |
Other expense (income), net | 217,785 | | | (111,854) | | | 42,561 | |
Unrealized loss (gain) on investment in MGM Resorts International | 723,515 | | | (789,283) | | | (840,550) | |
Interest expense | 110,165 | | | 34,264 | | | 16,166 | |
Operating loss | (474,771) | | | (137,067) | | | (537,663) | |
Add back: | | | | | |
Stock-based compensation expense | 123,476 | | | 79,487 | | | 188,995 | |
Depreciation | 130,986 | | | 75,015 | | | 68,823 | |
Amortization of intangibles | 307,718 | | | 74,839 | | | 126,839 | |
Acquisition-related contingent consideration fair value adjustments | (612) | | | 14,992 | | | (6,918) | |
Goodwill impairment | 112,753 | | | — | | | 265,146 | |
Adjusted EBITDA | $ | 199,550 | | | $ | 107,266 | | | $ | 105,222 | |
Non-Cash Expenses That Are Excluded from Our Non-GAAP Measure
Stock-based compensation expense consists of expense associated with awards that were granted under various IAC stock and annual incentive plans and expense related to awards issued by certain subsidiaries of the Company. These expenses are not paid in cash and we view the economic costs of stock-based awards to be the dilution to our share base; we also include the related shares in our fully diluted shares outstanding for GAAP earnings per share using the treasury stock method. The Company is currently settling all stock-based awards on a net basis; IAC remits the required tax-withholding amounts for net-settled awards from its current funds.
Depreciation is a non-cash expense relating to our capitalized software, equipment, leasehold improvements and buildings and is computed using the straight-line method to allocate the cost of depreciable assets to operations over their estimated useful lives, or, in the case of leasehold improvements, the lease term, if shorter.
Amortization of intangible assets and impairments of goodwill and intangible assets are non-cash expenses related primarily to acquisitions. At the time of an acquisition, the identifiable definite-lived intangible assets of the acquired company, such as advertiser relationships, technology, licensee relationships, trade names, content, service professional relationships, customer lists and user base, and subscriber relationships, are valued and amortized over their estimated lives. Value is also assigned to acquired indefinite-lived intangible assets, which comprise trade names and trademarks, and goodwill that are not subject to amortization. An impairment is recorded when the carrying value of an intangible asset or goodwill exceeds its fair value. We believe that intangible assets represent costs incurred by the acquired company to build value prior to acquisition and the related amortization and impairments of intangible assets or goodwill, if applicable, are not ongoing costs of doing business.
Gains and losses recognized on changes in the fair value of contingent consideration arrangements are accounting adjustments to report contingent consideration liabilities at fair value. These adjustments can be highly variable and are excluded from our assessment of performance because they are considered non-operational in nature and, therefore, are not indicative of current or future performance or the ongoing cost of doing business.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
Financial Position
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| (In thousands) |
Dotdash Meredith cash and cash equivalents: | | | |
United States | $ | 109,000 | | | $ | 218,612 | |
All other countries | 14,866 | | | 14,781 | |
Total Dotdash Meredith cash and cash equivalents | 123,866 | | | 233,393 | |
| | | |
Angi Inc. cash and cash equivalents: | | | |
United States | 311,422 | | | 404,277 | |
All other countries | 9,733 | | | 23,859 | |
Total cash and cash equivalents | 321,155 | | | 428,136 | |
| | | |
| | | |
| | | |
IAC (excluding Dotdash Meredith and Angi Inc.) cash and cash equivalents and marketable securities: | | | |
United States | 939,168 | | | 1,408,828 | |
All other countries | 33,201 | | | 48,373 | |
Total cash and cash equivalents | 972,369 | | | 1,457,201 | |
Marketable securities (United States) | 239,373 | | | 19,788 | |
Total IAC (excluding Dotdash Meredith and Angi Inc.) cash and cash equivalents and marketable securities | 1,211,742 | | | 1,476,989 | |
| | | |
Total cash and cash equivalents and marketable securities | $ | 1,656,763 | | | $ | 2,138,518 | |
| | | |
Dotdash Meredith Debt: | | | |
Dotdash Meredith Term Loan A | $ | 332,500 | | | $ | 350,000 | |
Dotdash Meredith Term Loan B | 1,237,500 | | | 1,250,000 | |
Total Dotdash Meredith long-term debt | 1,570,000 | | | 1,600,000 | |
Less: current portion of Dotdash Meredith long-term debt | 30,000 | | | 30,000 | |
Less: original issue discount | 5,310 | | | 6,176 | |
Less: unamortized debt issuance costs | 10,215 | | | 12,139 | |
Total Dotdash Meredith long-term debt, net | 1,524,475 | | | 1,551,685 | |
| | | |
ANGI Group Debt: | | | |
ANGI Group Senior Notes | 500,000 | | | 500,000 | |
| | | |
| | | |
Less: unamortized debt issuance costs | 4,715 | | | 5,448 | |
Total ANGI Group long-term debt, net | 495,285 | | | 494,552 | |
| | | |
Total long-term debt, net | $ | 2,019,760 | | | $ | 2,046,237 | |
The Company's international cash can be repatriated without significant tax consequences. During the year ended December 31, 2022, international cash repatriated to the U.S. was not material.
Cash Flow Information
In summary, IAC's cash flows are as follows: | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| (In thousands) |
Net cash (used in) provided by: | | | | | |
Operating activities attributable to continuing operations | $ | (82,791) | | | $ | 118,900 | | | $ | 113,379 | |
Investing activities attributable to continuing operations | $ | (494,808) | | | $ | (2,907,503) | | | $ | (1,872,183) | |
Financing activities attributable to continuing operations | $ | (112,651) | | | $ | 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 and the effect of changes in working capital. Non-cash adjustments include the unrealized loss (gain) on the investment in MGM, deferred income taxes, amortization of intangibles, goodwill impairment, pension and postretirement benefit expense, stock-based compensation expense, depreciation, provision for credit losses, unrealized decrease (increase) in the estimated fair value of a warrant, non-cash lease expense (including ROU asset impairments), and net (gains) losses on sales of businesses and investments in equity securities.
2022
Adjustments to net loss attributable to continuing operations consist primarily of an unrealized loss on the investment in MGM of $723.5 million, amortization of intangibles of $307.7 million, pension and postretirement benefit expense of $210.0 million, depreciation of $131.0 million, stock-based compensation expense of $123.5 million, provision of credit losses of $116.6 million, goodwill impairment of $112.8 million, non-cash lease expense (including ROU asset impairments) of $70.9 million and an unrealized decrease in the estimated fair value of a warrant of $62.5 million, partially offset by deferred taxes of $337.8 million and net gains on sales of businesses and investments in equity securities of $39.0 million. The decrease from changes in working capital include a decrease in accounts payable and other liabilities of $247.9 million, an increase in accounts receivable of $66.7 million, a decrease in operating lease liabilities of $63.8 million and a decrease in deferred revenue of $11.0 million. The decrease in accounts payable and other liabilities is due primarily to (i) a decrease in accrued employee compensation due, in part, to change-in-control payments, partially offset by an increase in restructuring charges, at Dotdash Meredith, (ii) a decrease in accrued traffic acquisition costs and related payables at Search, (iii) a decrease in accounts payable at Dotdash Meredith due primarily to timing of payments and lower spend due to the discontinuation of certain print publications, (iv) a payment of pre-acquisition income tax indemnification liabilities at Dotdash Meredith and (v) a decrease in customer deposit liabilities at Dotdash Meredith due, in part, to the discontinuation of certain print publications. The increase in accounts receivable is due primarily to revenue growth at Angi Inc., primarily attributable to Services, and an increase in revenue related to various production deals at IAC Films, partially offset by a decrease in revenue at Search and a decrease at Dotdash Meredith primarily due to the discontinuation of certain publications, reduced circulation of other publications and continued secular declines at Print and decreases in performance marketing and advertising revenue at Digital. The decrease in operating lease liabilities is due to cash payments on leases net of interest accretion. The decrease in deferred revenue is due primarily to timing of the utilization of services provided through Care for Business at Care.com, lower annual memberships at Angi Inc., primarily at Ads and Leads, and a decrease in Digital licensing contracts at Dotdash Meredith.
Net cash used in investing activities attributable to continuing operations includes $244.3 million for the purchase of 5.7 million additional shares of MGM, $233.9 million for the purchase of marketable debt securities and capital expenditures of $139.8 million primarily related to investments in capitalized software at Angi Inc., Care.com, and Dotdash Meredith, partially offset by net proceeds from the sale of certain businesses and investments of $90.8 million and a decrease in notes receivable of $19.5 million.
Net cash used in financing activities attributable to continuing operations includes the repurchase of 1.1 million shares of IAC common stock, on a settlement date basis, for $85.3 million at an average price of $77.44 per share, principal payments on Dotdash Meredith Term Loan A and Dotdash Meredith Term Loan B of $30.0 million, withholding taxes paid on behalf of IAC employees, excluding Angi Inc., for stock-based awards that were net settled of $18.1 million, withholding taxes paid on behalf of Angi Inc. employees for stock-based awards that were net settled of $8.8 million and the repurchase of 1.0 million shares of Angi Inc. Class A common stock, on a settlement date basis, for $8.1 million at an average price of $7.80 per share, partially offset by proceeds from the issuance of Vivian Health preferred shares, net of fees, of $34.7 million.
2021
Adjustments to net earnings attributable to continuing operations consist primarily of an unrealized gain on the investment in MGM of $789.3 million, an unrealized increase in the estimated fair value of a warrant of $104.0 million and net gains on sales of businesses and investments in equity securities of $44.8 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 ROU 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 $154.9 million and a decrease in operating lease liabilities of $31.0 million, partially offset by an increase in accounts payable and other liabilities of $90.3 million and an increase in deferred revenue of $8.3 million. The increase in accounts receivable is due primarily to revenue growth at Angi Inc., primarily attributable to 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 at Angi Inc., (iii) accrued sales returns at Angi Inc., (iv) accrued professional fees at Dotdash Meredith, primarily related to transaction-related costs associated with the acquisition of Meredith, and (v) 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 at Care.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 Roofing at Angi 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 at Angi 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 on November 5, 2023, withholding taxes paid on behalf of IAC employees, excluding Angi Inc., for stock-based awards that were net settled of $96.0 million, withholding taxes paid on behalf of Angi Inc. employees for stock-based awards that were net settled of $61.9 million, the repurchase of 3.2 million shares of Angi 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.
2020
Adjustments to net earnings from continuing operations consist primarily of an unrealized gain on the investment in MGM of $840.6 million and deferred income taxes of $18.4 million, partially offset by goodwill impairment of $265.1 million, stock-based compensation expense of $189.0 million, amortization of intangibles of $126.8 million, including impairments of $32.2 million, provision for credit losses of $78.9 million, depreciation of $68.8 million, net losses on sales of businesses and investments in equity securities of $40.1 million, including $51.5 million of impairments of certain equity securities without readily determinable fair values, and non-cash lease expense (including ROU impairments) of $30.0 million. The decrease from changes in working capital primarily consists of an increase in accounts receivable of $128.6 million, a decrease in operating lease liabilities of $29.8 million, an increase in other assets of $23.4 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 $42.4 million and an increase in deferred revenue of $25.1 million. The increase in accounts receivable is primarily due to revenue growth at Angi 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 at Angi Inc. and capitalized production costs of various production deals at IAC 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) accrued sales returns at Angi Inc., (iv) third-party accrued interest at Angi Inc. and (v) accrued advertising and related payables at Angi Inc. and Mosaic. The increase in deferred revenue is due primarily to growth in subscription sales at Care.com.
Net cash used in investing activities attributable to continuing operations includes $1.0 billion for the purchase of 59.0 million shares of MGM, cash used for acquisitions and investments of $686.4 million, which is primarily related to the Care.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 at Angi 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 and Electus 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 the ANGI Group Senior Notes of $500.0 million, partially offset by withholding taxes paid on behalf of IAC employees, excluding Angi Inc., for stock-based awards that were net settled of $85.1 million, withholding taxes paid on behalf of Angi Inc. employees for stock-based awards that were net settled of $64.1 million, the repurchase of 8.5 million shares of Angi 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 ended December 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.
Liquidity and Capital Resources
Financing Arrangements
Investment in MGM Resorts International
In 2020, the Company purchased 59.0 million shares of MGM for $1.0 billion and, in the first and third quarters of 2022, the Company purchased a total of 5.7 million additional shares for $244.3 million. Following these purchases, the Company owns 64.7 million shares, representing a 17.1% ownership interest in MGM as of December 31, 2022.
Share Repurchase Authorizations and Activity
During the year ended December 31, 2022, IAC repurchased 1.1 million shares of its common stock, on a trade date basis, at an average price of $77.44 per share, or $85.3 million in aggregate. At December 31, 2022, IAC has 6.9 million shares remaining in its share repurchase authorization.
During the year ended December 31, 2022, Angi Inc. repurchased 1.0 million shares of its Class A common stock, on a trade date basis, at an average price of $7.80 per share, or $8.1 million in aggregate. At December 31, 2022, Angi Inc. has 15.0 million shares remaining in its share repurchase authorization.
IAC and Angi Inc. may purchase their shares and debt instruments 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, price and future outlook.
Outstanding Stock-based Awards
IAC and Angi 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 or Angi 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 or Angi Inc., as applicable, on the employee's behalf. All awards are being settled currently on a net basis.
The following table summarizes (i) the aggregate intrinsic value of IAC options, Angi Inc. options, Angi Inc. stock settled stock appreciation rights, IAC and Angi Inc. non-publicly traded subsidiary denominated stock settled stock appreciation rights and (ii) the aggregate fair value (based on stock prices as of February 10, 2023) of IAC 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:
| | | | | | | | | | | | | | | | | | | | | | | |
| Aggregate intrinsic value / fair value of awards outstanding | | Estimated withholding taxes payable on vested shares and shares that will vest by December 31, 2023 | | Estimated withholding taxes payable on shares that will vest after December 31, 2023 | | Estimated IAC shares to be issued |
| (In thousands) |
IAC | | | | | | | |
Stock settled stock appreciation rights denominated in shares of certain non-publicly traded IAC subsidiaries other than Angi Inc. subsidiaries (a) | $ | 33,007 | | | $ | 12,074 | | | $ | 4,430 | | | 318 | |
IAC denominated stock options (b) | 105,745 | | | 52,872 | | | — | | | 1,018 | |
IAC RSUs (c) | 74,037 | | | 109 | | | 35,757 | | | 735 | |
IAC restricted stock (d) | — | | | — | | | — | | | — | |
Total IAC outstanding employee stock-based awards | 212,789 | | | 65,055 | | | 40,187 | | | 2,071 | |
| | | | | | | |
Angi Inc. | | | | | | | |
Angi Inc. RSUs | 58,925 | | | 7,465 | | | 21,390 | | | |
Angi Inc. stock appreciation rights | 80 | | | 40 | | | — | | | See footnote (f) below |
Other Angi Inc. equity awards (a)(e) | 72 | | | 36 | | | — | | | See footnote (f) below |
Total Angi Inc. outstanding employee stock-based awards | 59,077 | | | 7,541 | | | 21,390 | | | |
Total outstanding employee stock-based awards | $ | 271,866 | | | $ | 72,596 | | | $ | 61,577 | | | |
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(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 on February 10, 2023 were settled on a gross basis, i.e., through the issuance of a number of IAC common shares equal to the number of stock options exercised, the Company would have issued 2.8 million common shares and would have received $39.3 million in cash proceeds.
(c) Approximately 80% of the estimated withholding taxes payable on RSUs that will vest after December 31, 2023 is related to awards that are scheduled to cliff vest in 2025, the five-year anniversary of the grant date.
(d) On November 5, 2020, the Company granted 3.0 million shares of IAC restricted common stock to its CEO, that cliff vest on the ten-year anniversary of the grant date based on satisfaction of IAC's stock price targets and continued employment through the vesting date. The IAC stock price is currently below the minimum price threshold to earn the award.
(e) Includes Angi Inc. stock options and subsidiary denominated equity.
(f) Pursuant to the employee matters agreement between IAC and Angi Inc., certain stock appreciation rights of Angi Inc. and equity awards denominated in shares of Angi Inc.'s subsidiaries may be settled in either shares of Angi 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 of Angi Inc. common stock.
Contractual Obligations
The Company has material purchase obligations, which represent legally binding agreements to purchase goods and services that specify all significant terms. Future payments under these agreements at December 31, 2022 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amount of Commitment Expiration Per Period |
| Less Than 1 Year | | 1-3 Years | | 3-5 Years | | More Than 5 Years | | Total Amounts Committed |
| (In thousands) |
Purchase obligations | $ | 114,607 | | | $ | 72,205 | | | $ | 113 | | | $ | — | | | $ | 186,925 | |
Purchase obligations include future payments of (i) $85.0 million related to a three-year cloud computing arrangement, with payments of $42.0 million expected to be made within the next twelve months and the remaining payments of approximately $43.0 million expected to be made by September 2024, (ii) $49.0 million related to advertising that will primarily run in 2023, (iii) $11.0 million related to office productivity and email tools, and (iv) $5.2 million related to research tools.
Capital Expenditures
The Company anticipates that it will need to make capital expenditures in connection with the development and expansion of its operations. The Company's 2023 capital expenditures are expected to be lower than 2022 capital expenditures of $139.8 million by approximately 45% to 50% due, in part, to lower capital expenditures related to the development of capitalized software at Angi Inc. and Care.com.
Change-in-Control Payments
In December 2021, Dotdash Meredith recorded $60.1 million in change-in-control payments, which were triggered by the acquisition and the terms of certain former executives’ contracts. On July 1, 2022, Dotdash Meredith made $83.1 million in change-in-control payments, which included amounts accrued in December 2021, as well as amounts previously accrued that became payable following the change in control. On October 3, 2022, Dotdash Meredith made the final $4.3 million in change-in-control payments.
Liquidity Assessment
On a consolidated basis, the Company generated negative cash flows from operating activities attributable to continuing operations of $82.8 million for the year ended December 31, 2022; excluding the negative cash flows from operating activities of $104.8 million generated by Dotdash Meredith and the positive cash flows from operating activities of $27.1 million generated by Angi Inc., the Company generated negative cash flows from operating activities of $5.0 million.
At December 31, 2022, the Company's consolidated cash, cash equivalents and marketable securities, excluding MGM, were $1.7 billion, of which $321.2 million and $123.9 million was held by Angi Inc. and Dotdash Meredith, respectively. The Company's consolidated debt includes approximately $1.6 billion, which is a liability of Dotdash Meredith, and $500.0 million, which is a liability of ANGI Group, a subsidiary of Angi Inc. The Dotdash Meredith Credit Agreement contains covenants that would limit Dotdash Meredith’s ability to pay dividends, incur incremental secured indebtedness, or make distributions or certain investments 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; this ratio was exceeded for the test period ended December 31, 2022. The Dotdash Meredith Credit Agreement also permits the Company to contribute, and the Company may contribute, cash to Dotdash Meredith to provide additional liquidity, including to ensure that Dotdash Meredith does not exceed certain Consolidated Net Leverage Ratios for any test period, as further defined in the Dotdash Meredith Credit Agreement. In connection with the capital contributions, Dotdash Meredith may make distributions to IAC in amounts not more than any such capital contributions, provided that no default has occurred and is continuing. Such capital contributions and subsequent distributions, if made, would impact the Consolidated Net Leverage Ratios of Dotdash Meredith. Angi Inc. is an independent public company with its own public shareholders and board of directors and has no obligation to provide the Company with funds. As a result, the Company cannot freely access the cash of Angi Inc. and its subsidiaries.
The Company's liquidity could be negatively affected by a decrease in demand for its products and services due to economic or other factors, including COVID-19.
The Company believes Angi Inc.'s and Dotdash Meredith's existing cash, cash equivalents and expected positive cash flows from operations and the Company's existing cash and cash equivalents, excluding Angi Inc. and Dotdash Meredith, will be sufficient to fund their respective normal operating requirements, including capital expenditures, debt service, the payment of withholding taxes paid on behalf of employees for net-settled stock-based awards, and investing and other commitments for the next twelve months. The Company may need to raise additional capital through future debt or equity financing to make acquisitions and investments. Additional financing may not be available on terms favorable to the Company, or at all, and may also be impacted by any disruptions in the financial markets. The indebtedness at Dotdash Meredith and Angi Inc. could further limit the Company's ability to raise additional financing.
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 with U.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 ended December 31, 2021 and 2020, respectively. There were no acquisitions made in the year ended December 31, 2022. 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(s) 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 the goodwill is allocated to an existing reporting unit. Acquisitions within the Emerging & Other reportable segment, such as Care.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 on December 1, 2021 and the allocation of purchase price to the assets acquired and liabilities assumed, the determination of the reporting units and the allocation of goodwill to the reporting units were finalized during the fourth quarter of 2022. See "Note 3—Business Combinations" in the accompanying notes to the financial statements included in "Item 8—Financial Statements and Supplementary Data" for a description 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, licensee and subscriber relationships, certain acquired trade names and trademarks, digital content and acquired technology, or indefinite lived, such as certain 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.
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 may 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 Goodwill and Indefinite-Lived Intangible Assets
The carrying value of goodwill is $3.0 billion and $3.2 billion at December 31, 2022 and 2021, respectively. Indefinite-lived intangible assets, which consist of the Company's acquired trade names and trademarks, have a carrying value of $631.1 million and $679.1 million at December 31, 2022 and 2021, respectively.
Goodwill and indefinite-lived intangible assets are assessed annually for impairment as of October 1 or more frequently if an event occurs or circumstances change that would 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 of October 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 of October 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 to the extent that this also results in a change in reporting units. 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.
In the fourth quarter of 2022, the Angi Inc. segment presentation was changed to reflect its four new operating segments, which now include (i) Ads and Leads, (ii) Services, (iii) Roofing and (iv) International (includes Europe and Canada). Goodwill was allocated to reflect the new segment presentation. The allocation of goodwill to Roofing and Canada reflects their respective historical carrying values because of the lack of operational integration with Angi North America; the allocation of the remaining goodwill to Ads and Leads and Services was based upon their relative fair values as of October 1, 2022.
As required, a quantitative assessment was performed and the goodwill of Angi Inc. reporting units was tested before and after the change in reporting units; this test resulted in an impairment of $26.0 million due to Roofing exiting certain markets and a projected reduction in future profits from the business which reduced its fair value.
For the Company's annual goodwill test at October 1, 2022, a qualitative assessment of the Dotdash Meredith Digital, Care.com and Vivian 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 Company prepared valuations of the Digital and Print reporting units within the Dotdash Meredith reportable segment (the Print reporting unit has no goodwill), the Care.com and the Vivian Health reporting units, which are primarily used in connection with the issuance and/or settlement of equity awards that are denominated in the equity of these businesses during the year ended December 31, 2022. The valuations were prepared time proximate to, however, not as of, October 1, 2022. The fair value of each of these businesses in these valuations was in excess of its October 1, 2022 carrying value.
The Company's Dotdash Meredith Print, Ask Media Group, Desktop, The Daily Beast, IAC Films and Newco reporting units have no goodwill as of October 1, 2022. On November 9, 2022, the Company completed the sale of Bluecrew at a value in excess of its carrying amount.
In the second quarter of 2022, the Company reassessed the fair value of the Mosaic Group reporting unit (included in the Emerging & Other segment) and recorded an impairment of $86.7 million as a result of the projected reduction in future revenue and profits from the business and lower trading multiples of a selected peer group of companies. The Company prepared a quantitative assessment as of October 1, 2022; this test resulted in no additional impairment as its carrying value approximates its fair value. Any subsequent declines in the fair value of Mosaic Group will result in additional goodwill impairment charges to the extent the carrying value exceeds the fair value.
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 the $153.6 million of goodwill at Mosaic Group.
The fair value of the Company's reporting units is determined using both an income approach based on discounted cash flows ("DCF") and a market approach when it tests goodwill for impairment, either on an interim basis or annual basis as of October 1 each year. The Company uses the same approach in determining the fair value of its businesses in connection with its non-public subsidiary denominated stock-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 Mosaic Group reporting unit were 16.0% and 15.0% in 2022 and 2021, respectively. The discount rates used in the quantitative test for determining the fair value of the Ads and Leads, Services, Roofing, and International reporting units in 2022 were 12.0%, 15.0%, 16.0%, and 18.5%, respectively. 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 12.0% to 18.5% in 2022 and 10.0% to 40.0% in 2021, and the royalty rates used ranged from 1.0% to 8.0% in 2022 and 1.0% to 5.0% in 2021.
If the carrying value of an indefinite-lived intangible asset exceeds its estimated fair value, an impairment equal to the excess is recorded. There is one indefinite-lived intangible asset at Dotdash Meredith Digital with a value of approximately $126.0 million for which the excess of fair value over carrying value is less than 20%.
The October 1, 2022 annual assessment of goodwill and indefinite-lived intangible assets did not identify any further impairments.
The October 1, 2021 annual assessment of goodwill and indefinite-lived intangible assets did not identify any impairments.
In the quarter ended March 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, respectively, of the Desktop reporting unit.
In the quarter ended September 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 Google and other browsers. The effects of COVID-19 on monetization were an additional factor.
The October 1, 2020 annual assessment of goodwill and indefinite-lived intangible assets did not identify any further impairments.
Impairment charges recorded on indefinite-lived intangibles are included in "Amortization of intangibles" in the accompanying statement of operations.
Recoverability and Estimated Useful Lives of Long-Lived Assets
We review the carrying value of all long-lived assets, comprising ROU assets, capitalized software, equipment, leasehold improvements and buildings, 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 $1.5 billion and $1.8 billion at December 31, 2022 and 2021, 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. At December 31, 2022 and 2021, the balance of the Company's net deferred tax liability is $74.7 million and $383.2 million, respectively.
The Company evaluates and accounts for uncertain tax positions using a two-step approach. Recognition (step one) occurs when the Company concludes that a tax position, based solely on its technical merits, is more likely than not to be sustainable upon examination. Measurement (step two) determines the amount of benefit that is greater than 50% likely to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. De-recognition of a tax position that was previously recognized would occur when the Company subsequently determines that a tax position no longer meets the more-likely-than-not threshold of being sustained. This measurement step is inherently difficult and requires subjective estimations of such amounts to determine the probability of various possible outcomes. At December 31, 2022 and 2021, the Company has unrecognized tax benefits, including interest and penalties, of $16.6 million and $18.0 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 through June 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
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 in IAC 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 or Angi 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, which is defined below, resulted in the conversion of previously issued Home Advisor and Angie’s List awards into Angi 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 or Angi Inc. shares, as applicable. In addition, certain former Angi Inc. subsidiary denominated awards and Angi Inc. stock appreciation rights can be settled in IAC or Angi Inc. awards at the Company’s election. These features increase the complexity of our earnings per share calculations.
The stock-based compensation expense reflected in our statement 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 of Angi 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. New awards granted to the Company's Corporate employees and the employees of Angi Inc. have been restricted stock units ("RSUs"), performance-based RSUs, market-based RSUs and restricted stock since April 2018 and January 2018, respectively. 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 IAC 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.
The principal form of equity awards to the employees and management of its non-publicly traded subsidiaries is stock settled stock appreciation rights that are denominated in the equity of the relevant subsidiary of the Company or Angi Inc., in the case of its International business, which are settleable in shares of the Company or Angi Inc. as applicable. The value of the stock settled stock appreciation rights is tied to the value of the common stock of these subsidiaries. Accordingly, these interests only have value to the extent the relevant business appreciates in value above the initial value utilized to determine the exercise price and these interests can have substantial value in the event of significant appreciation. The grant date value of these stock settled stock appreciation rights is measured at grant date, using a Black-Scholes option pricing model and, for those with a market condition, a lattice model, at fair value and is expensed over the vesting term.
The Company estimates the fair value of stock options upon issuance or modification (including those modified in connection with the MTCH Separation, the Spin-off and the Combination) using a Black-Scholes option pricing model and, for those with a market condition, a lattice model. No new stock options were issued by the Company in the years ended December 31, 2022, 2021 and 2020, respectively.
Investments in Equity Securities
The Company invests in equity securities as part of its investment strategy. Our equity securities, other than those of our consolidated subsidiaries and those accounted for under the equity method, are accounted for at fair value or under the measurement alternative of 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 (expense) income, 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 (expense) income, net" in the statement of operations.
The carrying value of the Company’s equity securities without readily determinable fair values is $323.5 million and $324.6 million at December 31, 2022 and 2021, respectively, which is included in "Long-term investments" in the balance sheet. As described in the "COVID-19 Update" section, in the quarter ended March 31, 2020 the Company recognized unrealized impairments or downward adjustments of $51.5 million related to certain equity securities without readily determinable fair values.
At December 31, 2022, the Company has two investments in marketable equity securities, other than the investment in MGM Resorts International ("MGM"). The Company had one investment in a marketable equity security at December 31, 2021. These marketable equity securities are carried at fair value following the investees’ initial public offerings ("IPO"). Prior to the IPOs, these investments were accounted for as equity securities without readily determinable fair values. The Company recorded net unrealized pre-tax losses of $20.3 million for these investments during the year ended December 31, 2022 and an unrealized pre-tax gain of $18.8 million for the year ended December 31, 2021 for the investment that went public in the third quarter of 2021. The Company sold its shares in another marketable equity security in the third quarter of 2021 and recorded a realized gain of $7.2 million on the sale. The unrealized and realized pre-tax losses and gains related to these investments are included in "Other (expense) income, net" in the statement of operations.
In 2020, the Company purchased 59.0 million shares of MGM for $1.0 billion and, in the first and third quarters of 2022, the Company purchased additional shares totaling 5.7 million for $244.3 million. Following these purchases, the Company owns 64.7 million shares, representing a 17.1% ownership interest in MGM as of December 31, 2022. 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 on that last trading day in the reporting period and any unrealized gains or losses are included in the statement of operations. For the years ended December 31, 2022, 2021 and 2020, the Company recorded an unrealized pre-tax loss of $723.5 million and unrealized pre-tax gains of $789.3 million and $840.5 million, respectively, on its investment in MGM. The cumulative unrealized net pre-tax gain through December 31, 2022 is $906.3 million. At December 31, 2022 and 2021, the carrying value of the Company's investment in MGM, which includes the cumulative unrealized pre-tax gains, was $2.2 billion and $2.6 billion, respectively.
Recent Accounting Pronouncements
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of IAC Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of IAC Inc. and subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated and combined statements of operations, comprehensive operations, shareholders’ and parent’s equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and the financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated and combined financial statements”). In our opinion, the consolidated and combined financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 1, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated and combined financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
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Acquisition of Meredith Holdings Corporation |
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Description of the Matter | As described in Note 3 to the consolidated and combined financial statements, on December 1, 2021 the Company completed the acquisition of Meredith Holdings Corporation (“Meredith”) in an all-cash transaction for approximately $2.7 billion. As disclosed in Note 2 to the consolidated and combined financial statements, the purchase price of the acquisition is attributed to the assets acquired and liabilities assumed based on their fair values at the date of acquisition, including identifiable intangible assets that either arise from a contractual or legal right or are separable from goodwill. The Company completed the purchase accounting for the Meredith acquisition in the current period, which resulted in the recognition of material measurement period adjustments.
Auditing management’s assessment of the appropriateness of measurement period adjustments for the Meredith acquisition was challenging given the inherent judgements and estimates involved. Auditing the finalization of the allocation of purchase price required complex auditor judgment due to the significant measurement uncertainty in determining the fair value of assets acquired and liabilities assumed. |
How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s controls over its accounting for the business combination. For example, we tested controls over the Company’s process to identify measurement period adjustments to the assets acquired and liabilities assumed, including the estimated fair value of the acquired intangible assets.
Our audit procedures included, among others, validating that the adjustments recorded to the closing balance sheet were appropriately identified, recognized, and measured in accordance with ASC 805. For example, we assessed the valuation methodologies and significant assumptions used by management related to the identified intangible assets, including performing sensitivity analyses of significant assumptions to evaluate the change in the fair value of the asset resulting from changes in assumption. We involved internal valuation specialists to assist in evaluating the methodologies used and significant assumptions applied in developing the fair value estimates, including those relating to intangible assets.
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Quantitative Impairment Assessment for Mosaic Goodwill and Meredith's Indefinite Lived Intangible Assets |
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Description of the Matter | As of December 31, 2022, the Company’s goodwill and indefinite-lived intangible asset balances were $3.0 billion and $631.1 million, respectively. As disclosed in Note 2 to the consolidated and combined financial statements, goodwill and indefinite-lived intangible assets are assessed annually for impairment using either a qualitative or quantitative approach as of October 1, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit or an indefinite-lived intangible asset below its carrying value. Auditing management’s quantitative impairment test for goodwill and indefinite-lived intangible assets was challenging given the inherent judgements and estimates involved. Management’s quantitative impairment tests were complex and judgmental due to the measurement uncertainty in estimating the fair value of the reporting unit for goodwill and the fair value of indefinite-lived intangible assets. Specifically, the fair value estimate of the Company’s Mosaic reporting unit was sensitive to assumptions such as the discount rate, revenue growth rates and the projected cash flow terminal growth rate. The fair value estimates for Meredith’s indefinite-lived intangible assets were sensitive to assumptions such as discount rates, revenue growth rates, royalty rates and projected cash flow terminal growth rates. These assumptions are affected by factors such as expected future industry or economic conditions.
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How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s controls over its goodwill and indefinite-lived intangible assets impairment review process. For example, we tested controls over management’s review of the significant assumptions used to estimate the fair values of the reporting unit for goodwill and the indefinite-lived intangible assets, including projected financial information.
To test the estimated fair value of the Mosaic reporting unit and Meredith’s indefinite-lived intangible assets, our audit procedures included, among others, assessing the methodologies and testing the significant assumptions and underlying data used by the Company. We evaluated the Company’s underlying forecast and budget information by comparing the significant assumptions to current industry and economic trends, changes in the Company’s business model and assessed the historical accuracy of management’s estimates. For example, we evaluated management’s forecasted revenue to identify, understand and evaluate changes as compared to historical results. We performed sensitivity analyses of significant assumptions to evaluate the change in the estimated fair value of the Mosaic reporting unit for goodwill and Meredith’s indefinite-lived intangible assets resulting from changes in the assumptions. In addition, we involved an internal valuation specialist to assist in evaluating the methodologies and significant assumptions applied in developing the fair value estimates.
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/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2019.
New York, New York
March 1, 2023
IAC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET | | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| (In thousands, except par value amounts) |
ASSETS | | | |
Cash and cash equivalents | $ | 1,417,390 | | | $ | 2,118,730 | |
Marketable securities | 239,373 | | | 19,788 | |
Accounts receivable, net | 607,809 | | | 695,513 | |
Other current assets | 296,563 | | | 242,188 | |
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Total current assets | 2,561,135 | | | 3,076,219 | |
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Capitalized software, equipment, leasehold improvements, buildings and land, net | 510,614 | | | 570,525 | |
Goodwill | 3,030,168 | | | 3,226,610 | |
Intangible assets, net of accumulated amortization | 1,170,041 | | | 1,414,892 | |
Investment in MGM Resorts International | 2,170,182 | | | 2,649,442 | |
Long-term investments | 325,721 | | | 327,838 | |
Other non-current assets | 625,774 | | | 1,037,067 | |
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TOTAL ASSETS | $ | 10,393,635 | | | $ | 12,302,593 | |
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LIABILITIES AND SHAREHOLDERS' EQUITY | | | |
LIABILITIES: | | | |
Current portion of long-term debt | $ | 30,000 | | | $ | 30,000 | |
Accounts payable, trade | 133,105 | | | 203,173 | |
Deferred revenue | 157,124 | | | 165,451 | |
Accrued expenses and other current liabilities | 759,759 | | | 982,879 | |
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Total current liabilities | 1,079,988 | | | 1,381,503 | |
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Long-term debt, net | 2,019,760 | | | 2,046,237 | |
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Deferred income taxes | 76,276 | | | 385,890 | |
Other long-term liabilities | 617,842 | | | 721,262 | |
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Redeemable noncontrolling interests | 27,235 | | | 18,741 | |
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Commitments and contingencies | | | |
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SHAREHOLDERS' EQUITY: | | | |
Common Stock, $0.0001 par value; authorized 1,600,000 shares; 84,184 and 83,922 shares issued and 83,083 and 83,922 shares outstanding at December 31, 2022 and 2021, respectively | 8 | | | 8 | |
Class B common stock, $0.0001 par value; authorized 400,000 shares; 5,789 shares issued and outstanding at December 31, 2022 and 2021, respectively | 1 | | | 1 | |
Additional paid-in capital | 6,295,080 | | | 6,265,669 | |
(Accumulated deficit) retained earnings | (265,019) | | | 905,151 | |
Accumulated other comprehensive (loss) income | (13,133) | | | 4,397 | |
Treasury stock, 1,101 shares at December 31, 2022 | (85,323) | | | — | |
Total IAC shareholders' equity | 5,931,614 | | | 7,175,226 | |
Noncontrolling interests | 640,920 | | | 573,734 | |
Total shareholders' equity | 6,572,534 | | | 7,748,960 | |
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 10,393,635 | | | $ | 12,302,593 | |
IAC INC. AND SUBSIDIARIES
CONSOLIDATED AND COMBINED STATEMENT OF OPERATIONS
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| (In thousands, except per share data) |
Revenue | $ | 5,235,280 | | | $ | 3,699,627 | | | $ | 2,764,536 | |
Operating costs and expenses: | | | | | |
Cost of revenue (exclusive of depreciation shown separately below) | 1,922,697 | | | 1,296,282 | | | 745,365 | |
Selling and marketing expense | 1,925,750 | | | 1,362,300 | | | 1,165,456 | |
General and administrative expense | 977,274 | | | 797,448 | | | 745,235 | |
Product development expense | 332,873 | | | 230,810 | | | 185,335 | |
Depreciation | 130,986 | | | 75,015 | | | 68,823 | |
Amortization of intangibles | 307,718 | | | 74,839 | | | 126,839 | |
Goodwill impairment | 112,753 | | | — | | | 265,146 | |
Total operating costs and expenses | 5,710,051 | | | 3,836,694 | | | 3,302,199 | |
Operating loss | (474,771) | | | (137,067) | | | (537,663) | |
Interest expense | (110,165) | | | (34,264) | | | (16,166) | |
Unrealized (loss) gain on investment in MGM Resorts International | (723,515) | | | 789,283 | | | 840,550 | |
Other (expense) income, net | (217,785) | | | 111,854 | | | (42,561) | |
(Loss) earnings from continuing operations before income taxes | (1,526,236) | | | 729,806 | | | 244,160 | |
Income tax benefit (provision) | 331,087 | | | (138,990) | | | 45,707 | |
Net (loss) earnings from continuing operations | (1,195,149) | | | 590,816 | | | 289,867 | |
Earnings (loss) from discontinued operations, net of taxes | 2,694 | | | (1,831) | | | (21,281) | |
Net (loss) earnings | (1,192,455) | | | 588,985 | | | 268,586 | |
Net loss attributable to noncontrolling interests | 22,285 | | | 8,562 | | | 1,140 | |
Net (loss) earnings attributable to IAC shareholders | $ | (1,170,170) | | | $ | 597,547 | | | $ | 269,726 | |
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Per share information from continuing operations: | | | | | |
Basic (loss) earnings per share | $ | (13.58) | | | $ | 6.72 | | | $ | 3.40 | |
Diluted (loss) earnings per share | $ | (13.58) | | | $ | 6.33 | | | $ | 3.20 | |
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Per share information attributable to IAC Common Stock and Class B common stock shareholders: |
Basic (loss) earnings per share | $ | (13.55) | | | $ | 6.70 | | | $ | 3.16 | |
Diluted (loss) earnings per share | $ | (13.55) | | | $ | 6.31 | | | $ | 2.97 | |
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Stock-based compensation expense by function: | | | | | |
Cost of revenue | $ | 47 | | | $ | 57 | | | $ | 118 | |
Selling and marketing expense | 8,293 | | | 5,009 | | | 5,265 | |
General and administrative expense | 99,993 | | | 67,664 | | | 177,451 | |
Product development expense | 15,143 | | | 6,757 | | | 6,161 | |
Total stock-based compensation expense | $ | 123,476 | | | $ | 79,487 | | | $ | 188,995 | |
IAC INC. AND SUBSIDIARIES
CONSOLIDATED AND COMBINED STATEMENT OF COMPREHENSIVE OPERATIONS
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| (In thousands) |
Net (loss) earnings | $ | (1,192,455) | | | $ | 588,985 | | | $ | 268,586 | |
Other comprehensive (loss) income, net of income taxes: | | | | | |
Change in foreign currency translation adjustment | (18,829) | | | 10,466 | | | 7,810 | |
Change in unrealized gains and losses on available-for-sale marketable debt securities | 53 | | | (2) | | | 2 | |
Total other comprehensive (loss) income, net of income taxes | (18,776) | | | 10,464 | | | 7,812 | |
Comprehensive (loss) income, net of income taxes | (1,211,231) | | | 599,449 | | | 276,398 | |
Components of comprehensive loss (income) attributable to noncontrolling interests: | | | | | |
Net loss attributable to noncontrolling interests | 22,285 | | | 8,562 | | | 1,140 | |
Change in foreign currency translation adjustment attributable to noncontrolling interests | 1,235 | | | 93 | | | (1,718) | |
| | | | | |
Comprehensive loss (income) attributable to noncontrolling interests | 23,520 | | | 8,655 | | | (578) | |
Comprehensive (loss) income attributable to IAC shareholders | $ | (1,187,711) | | | $ | 608,104 | | | $ | 275,820 | |
IAC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Year Ended December 31, 2022
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Redeemable Noncontrolling Interests | | | Common Stock, $0.0001 par value | | Class B Common Stock, $0.0001 par value | | | | | | Additional Paid-in Capital | | Retained Earnings (Accumulated Deficit) | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock | | Total IAC Shareholders' Equity | | Noncontrolling Interests | | Total Shareholders' Equity |
| | | $ | | Shares | | $ | | Shares | | | | | | | | | | | | | | |
| | | | (In thousands) |
Balance at December 31, 2021 | $ | 18,741 | | | | $ | 8 | | | 83,922 | | | $ | 1 | | | 5,789 | | | | | | | | | | | $ | 6,265,669 | | | $ | 905,151 | | | $ | 4,397 | | | $ | — | | | $ | 7,175,226 | | | $ | 573,734 | | | $ | 7,748,960 | |
Net loss | (2,130) | | | | — | | | — | | | — | | | — | | | | | | | | | | | — | | | (1,170,170) | | | — | | | — | | | (1,170,170) | | | (20,155) | | | (1,190,325) | |
Other comprehensive loss | — | | | | — | | | — | | | — | | | — | | | | | | | | | | | — | | | — | | | (17,541) | | | — | | | (17,541) | | | (1,235) | | | (18,776) | |
Stock-based compensation expense | — | | | | — | | | — | | | — | | | — | | | | | | | | | | | 70,808 | | | — | | | — | | | — | | | 70,808 | | | 55,891 | | | 126,699 | |
Issuance of common stock pursuant to stock-based awards, net of withholding taxes | — | | | | — | | | 262 | | | — | | | — | | | | | | | | | | | (16,905) | | | — | | | — | | | — | | | (16,905) | | | — | | | (16,905) | |
Issuance of Angi Inc. common stock pursuant to stock-based awards, net of withholding taxes | — | | | | — | | | — | | | — | | | — | | | | | | | | | | | (12,276) | | | — | | | 11 | | | — | | | (12,265) | | | 3,638 | | | (8,627) | |
Purchase of IAC treasury stock | — | | | | — | | | — | | | — | | | — | | | | | | | | | | | — | | | — | | | — | | | (85,323) | | | (85,323) | | | — | | | (85,323) | |
Purchase of Angi Inc. treasury stock | — | | | | — | | | — | | | — | | | — | | | | | | | | | | | (8,144) | | | — | | | — | | | — | | | (8,144) | | | — | | | (8,144) | |
Distribution to and purchase of noncontrolling interests | (1,179) | | | | — | | | — | | | — | | | — | | | | | | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Adjustment of noncontrolling interests to fair value | 24,229 | | | | — | | | — | | | — | | | — | | | | | | | | | | | (24,229) | | | — | | | — | | | — | | | (24,229) | | | — | | | (24,229) | |
Issuance of Vivian Health preferred shares, net of fees, and the reclassification and creation of noncontrolling interest and subsequent adjustment to liquidation value | (11,782) | | | | — | | | — | | | — | | | — | | | | | | | | | | | 17,818 | | | — | | | — | | | — | | | 17,818 | | | 36,882 | | | 54,700 | |
Adjustment to noncontrolling interests resulting from the reorganization of a foreign subsidiary | — | | | | — | | | — | | | — | | | — | | | | | | | | | | | 7,580 | | | — | | | — | | | — | | | 7,580 | | | (7,835) | | | (255) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other | (644) | | | | — | | | — | | | — | | | — | | | | | | | | | | | (5,241) | | | — | | | — | | | — | | | (5,241) | | | — | | | (5,241) | |
Balance at December 31, 2022 | $ | 27,235 | | | | $ | 8 | | | 84,184 | | | $ | 1 | | | 5,789 | | | | | | | | | | | $ | 6,295,080 | | | $ | (265,019) | | | $ | (13,133) | | | $ | (85,323) | | | $ | 5,931,614 | | | $ | 640,920 | | | $ | 6,572,534 | |
IAC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' AND COMBINED STATEMENT OF PARENT'S EQUITY
Years Ended December 31, 2021 and 2020
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Redeemable Noncontrolling Interests | | | Common Stock, $.0001 par value | | Class B Common Stock, $.0001 par value | | Common Stock, $0.001 par value | | Class B Common Stock, $0.001 par value | | Additional Paid-in Capital | | Retained Earnings | | Invested Capital | | Accumulated Other Comprehensive (Loss) Income | | Total IAC Shareholders' Equity and Invested Capital | | Noncontrolling Interests | | Total Parent's / Shareholders' Equity |
| | | $ | | Shares | | $ | | Shares | | $ | | Shares | | $ | | Shares | | |
| | | | (In thousands) |
Balance at December 31, 2019 | $ | 43,818 | | | | $ | — | | | — | | | $ | — | | | — | | | $ | — | | | — | | | $ | — | | | — | | | $ | — | | | $ | — | | | $ | 2,547,251 | | | $ | (12,226) | | | $ | 2,535,025 | | | $ | 470,121 | | | $ | 3,005,146 | |
Net (loss) earnings | (1,434) | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 694,042 | | | (424,316) | | | — | | | 269,726 | | | 294 | | | 270,020 | |
Other comprehensive income, net of income taxes | 439 | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 6,094 | | | 6,094 | | | 1,279 | | | 7,373 | |
Stock-based compensation expense | 15 | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 40,870 | | | — | | | 72,891 | | | — | | | 113,761 | | | 85,267 | | | 199,028 | |
Distribution to and purchase of noncontrolling interests | (3,515) | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1,115) | | | (1,115) | |
Issuance of Angi Inc. common stock pursuant to stock-based awards, net of withholding taxes | — | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (62,169) | | | — | | | 1,248 | | | (38) | | | (60,959) | | | (3,183) | | | (64,142) | |
Purchase of Angi Inc. treasury stock | — | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (9,273) | | | — | | | (54,859) | | | — | | | (64,132) | | | — | | | (64,132) | |
Proceeds from the sale of Old IAC Class M common stock from New Match | — | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 1,408,298 | | | — | | | — | | | — | | | 1,408,298 | | | — | | | 1,408,298 | |
Net increase in Old IAC's investment in the Company prior to the MTCH Separation | — | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 1,685,995 | | | — | | | 1,685,995 | | | — | | | 1,685,995 | |
Cash merger consideration paid by Old IAC | — | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 837,913 | | | — | | | 837,913 | | | — | | | 837,913 | |
Capitalization as a result of the MTCH Separation | — | | | | — | | | — | | | — | | | — | | | 79 | | | 79,343 | | | 6 | | | 5,789 | | | 4,661,231 | | | — | | | (4,661,316) | | | — | | | — | | | — | | | — | |
Noncontrolling interest created in an acquisition | 1,121 | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Issuance of Vimeo common stock and creation of noncontrolling interest, net of fees | 8,299 | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 141,301 | | | — | | | — | | | — | | | 141,301 | | | — | | | 141,301 | |
Adjustment of noncontrolling interests to fair value | 183,315 | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (178,508) | | | — | | | (4,807) | | | — | | | (183,315) | | | — | | | (183,315) | |
Issuance of common stock pursuant to stock-based awards, net of withholding taxes | — | | | | — | | | — | | | — | | | — | | | 1 | | | 633 | | | — | | | — | | | (83,383) | | | — | | | — | | | — | | | (83,382) | | | — | | | (83,382) | |
Issuance of restricted stock | — | | | | — | | | — | | | — | | | — | | | 3 | | | 3,000 | | | — | | | — | | | (3) | | | — | | | — | | | — | | | — | | | — | | | — | |
Adjustment to the capitalization of tax accounts as a result of the MTCH Separation | — | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (8,259) | | | — | | | — | | | — | | | (8,259) | | | — | | | (8,259) | |
Other | (66) | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (491) | | | — | | | — | | | — | | | (491) | | | 690 | | | 199 | |
Balance at December 31, 2020 | $ | 231,992 | | | | $ | — | | | — | | | $ | — | | | — | | | $ | 83 | | | 82,976 | | | $ | 6 | | | 5,789 | | | $ | 5,909,614 | | | $ | 694,042 | | | $ | — | | | $ | (6,170) | | | $ | 6,597,575 | | | $ | 553,353 | | | $ | 7,150,928 | |
Net earnings (loss) | 1,732 | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 597,547 | | | — | | | — | | | 597,547 | | | (10,294) | | | 587,253 | |
Other comprehensive income (loss), net of income taxes | 515 | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 10,519 | | | 10,519 | | | (608) | | | 9,911 | |
Stock-based compensation expense | — | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 59,283 | | | — | | | — | | | — | | | 59,283 | | | 33,057 | | | 92,340 | |
Issuance of common stock pursuant to stock-based awards, net of withholding taxes | — | | | | — | | | 564 | | | — | | | — | | | — | | | 382 | | | — | | | — | | | (98,691) | | | — | | | — | | | — | | | (98,691) | | | — | | | (98,691) | |
Issuance of Angi Inc. common stock pursuant to stock-based awards, net of withholding taxes | — | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (59,619) | | | — | | | — | | | 10 | | | (59,609) | | | (1,614) | | | (61,223) | |
Purchase of Angi Inc. treasury stock | — | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (35,959) | | | — | | | — | | | — | | | (35,959) | | | — | | | (35,959) | |
Issuance of Vimeo common stock and creation of noncontrolling interest, net of fees | 40,785 | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 258,965 | | | — | | | — | | | — | | | 258,965 | | | — | | | 258,965 | |
Distribution to and purchase of noncontrolling interests | (29,769) | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (570) | | | (570) | |
Adjustment of noncontrolling interests to fair value | 777,688 | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (777,688) | | | — | | | — | | | — | | | (777,688) | | | — | | | (777,688) | |
Recapitalization of IAC upon Vimeo spin-off | — | | | | 8 | | | 83,358 | | | 1 | | | 5,789 | | | (83) | | | (83,358) | | | (6) | | | (5,789) | | | 80 | | | — | | | — | | — | — | | | — | | | — | | | — | |
Spin-off IAC's investment in Vimeo | — | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (38) | | | (386,438) | | | — | | — | 38 | | | (386,438) | | | — | | | (386,438) | |
Elimination of Vimeo's noncontrolling interests | (1,002,324) | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 1,002,324 | | | — | | | — | | | — | | | 1,002,324 | | | — | | | 1,002,324 | |
Change in the MTCH Separation tax account distribution | — | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 7,640 | | | — | | | — | | | — | | | 7,640 | | | — | | | 7,640 | |
Other | (1,878) | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (242) | | | — | | | — | | | — | | | (242) | | | 410 | | | 168 | |
Balance at December 31, 2021 | $ | 18,741 | | | | $ | 8 | | | 83,922 | | | $ | 1 | | | 5,789 | | | $ | — | | | — | | | $ | — | | | — | | | $ | 6,265,669 | | | $ | 905,151 | | | $ | — | | | $ | 4,397 | | | $ | 7,175,226 | | | $ | 573,734 | | | $ | 7,748,960 | |
IAC INC. AND SUBSIDIARIES
CONSOLIDATED AND COMBINED STATEMENT OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| (In thousands) |
Cash flows from operating activities attributable to continuing operations: | | | | | |
Net (loss) earnings | $ | (1,192,455) | | | $ | 588,985 | | | $ | 268,586 | |
Less: Earnings (loss) from discontinued operations, net of tax | 2,694 | | | (1,831) | | | (21,281) | |
Net (loss) earnings attributable to continuing operations | (1,195,149) | | | 590,816 | | | 289,867 | |
Adjustments to reconcile net (loss) earnings to net cash (used in) provided by operating activities attributable to continuing operations: | | | | | |
Stock-based compensation expense | 123,476 | | | 79,487 | | | 188,995 | |
Amortization of intangibles | 307,718 | | | 74,839 | | | 126,839 | |
Depreciation | 130,986 | | | 75,015 | | | 68,823 | |
Provision for credit losses | 116,553 | | | 89,893 | | | 78,931 | |
Goodwill impairment | 112,753 | | | — | | | 265,146 | |
Deferred income taxes | (337,758) | | | 133,377 | | | (18,356) | |
Unrealized loss (gain) on investment in MGM Resorts International | 723,515 | | | (789,283) | | | (840,550) | |
(Gains) losses on sales of businesses and investments in equity securities, net | (38,956) | | | (44,835) | | | 40,051 | |
Unrealized decrease (increase) in the estimated fair value of a warrant | 62,495 | | | (104,018) | | | 3,219 | |
Non-cash lease expense (including right-of-use asset impairments) | 70,922 | | | 35,737 | | | 30,026 | |
Pension and postretirement benefit expense | 209,991 | | | 18,212 | | | — | |
Other adjustments, net | 17,963 | | | 45,302 | | | 6,214 | |
Changes in assets and liabilities, net of effects of acquisitions and dispositions: | | | | | |
Accounts receivable | (66,706) | | | (154,887) | | | (128,600) | |
Other assets | 8,920 | | | 4,185 | | | (23,367) | |
Operating lease liabilities | (63,843) | | | (30,995) | | | (29,841) | |
Accounts payable and other liabilities | (247,912) | | | 90,265 | | | 42,422 | |
Income taxes payable and receivable | (6,739) | | | (2,506) | | | (11,580) | |
Deferred revenue | (11,020) | | | 8,296 | | | 25,140 | |
Net cash (used in) provided by operating activities attributable to continuing operations | (82,791) | | | 118,900 | | | 113,379 | |
Cash flows from investing activities attributable to continuing operations: | | | | | |
Acquisitions, net of cash acquired | — | | | (2,699,643) | | | (685,216) | |
Capital expenditures | (139,753) | | | (90,210) | | | (60,726) | |
Proceeds from maturities of marketable debt securities | — | | | 225,000 | | | 475,000 | |
Purchases of marketable debt securities | (233,928) | | | — | | | (649,828) | |
Cash distribution related to the spin-off of IAC's investment in Vimeo | — | | | (333,184) | | | — | |
Net proceeds from the sale of businesses and investments | 90,767 | | | 16,451 | | | 26,055 | |
Purchases of investment in MGM Resorts International | (244,256) | | | — | | | (1,019,608) | |
Purchases of investments | (3,036) | | | (24,290) | | | (1,152) | |
Decrease in notes receivable | 19,497 | | | — | | | — | |
Decrease in notes receivable—related party | — | | | — | | | 54,828 | |
Other, net | 15,901 | | | (1,627) | | | (11,536) | |
Net cash used in investing activities attributable to continuing operations | (494,808) | | | (2,907,503) | | | (1,872,183) | |
Cash flows from financing activities attributable to continuing operations: | | | | | |
Principal payments on Dotdash Meredith Term Loans | (30,000) | | | — | | | — | |
Proceeds from the issuance of Dotdash Meredith Term Loans | — | | | 1,600,000 | | | — | |
Proceeds from the issuance of ANGI Group Senior Notes | — | | | — | | | 500,000 | |
Principal payments on ANGI Group Term Loan | — | | | (220,000) | | | (27,500) | |
| | | | | |
Debt issuance costs | (785) | | | (23,548) | | | (6,484) | |
Proceeds from the issuance of Vivian Health preferred shares, net of fees | 34,700 | | | — | | | — | |
Purchase of IAC treasury stock | (85,323) | | | — | | | — | |
Purchase of Angi Inc. treasury stock | (8,144) | | | (35,403) | | | (63,674) | |
Proceeds from the exercise of IAC stock options | — | | | 1,496 | | | — | |
| | | | | |
Withholding taxes paid on behalf of IAC employees on net settled stock-based awards | (18,068) | | | (95,983) | | | (85,103) | |
Withholding taxes paid on behalf of Angi Inc. employees on net settled stock-based awards | (8,827) | | | (61,908) | | | (64,079) | |
Purchase of noncontrolling interests | (1,179) | | | (30,339) | | | (4,280) | |
Cash merger consideration paid by Old IAC in connection with the MTCH Separation | — | | | — | | | 837,913 | |
Transfers from Old IAC for periods prior to the MTCH Separation | — | | | — | | | 1,706,479 | |
Proceeds from the sale of Old IAC Class M common stock | — | | | — | | | 1,408,298 | |
Other, net | 4,975 | | | (18,578) | | | 1,095 | |
Net cash (used in) provided by financing activities attributable to continuing operations | (112,651) | | | 1,115,737 | | | 4,202,665 | |
Total cash (used in) provided by continuing operations | (690,250) | | | (1,672,866) | | | 2,443,861 | |
Net cash provided by operating activities attributable to discontinued operations | — | | | 18,053 | | | 41,202 | |
Net cash provided by investing activities attributable to discontinued operations | — | | | 7,602 | | | 42 | |
Net cash provided by financing activities attributable to discontinued operations | — | | | 293,577 | | | 149,254 | |
Total cash provided by discontinued operations | — | | | 319,232 | | | 190,498 | |
Effect of exchange rate changes on cash and cash equivalents and restricted cash | (5,545) | | | (1,612) | | | 2,019 | |
Net (decrease) increase in cash and cash equivalents and restricted cash | (695,795) | | | (1,355,246) | | | 2,636,378 | |
Cash and cash equivalents and restricted cash at beginning of period | 2,121,864 | | | 3,477,110 | | | 840,732 | |
Cash and cash equivalents and restricted cash at end of period | $ | 1,426,069 | | | $ | 2,121,864 | | | $ | 3,477,110 | |
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
NOTE 1—ORGANIZATION
Company overview
IAC today is comprised of category leading businesses, including Dotdash Meredith, Angi Inc. and Care.com, as well as others ranging from early stage to established businesses.
As used herein, “IAC,” the “Company,” “we,” “our,” “us” and other similar terms refer to IAC Inc. (formerly known as IAC/InterActiveCorp) and its subsidiaries (unless the context requires otherwise).
Dotdash Meredith
On December 1, 2021, Dotdash Media Inc. (formerly known as About Inc., and referred to herein as "Dotdash"), a wholly-owned subsidiary of IAC, completed the acquisition of Meredith Holdings Corporation ("Meredith"), the former subsidiary of Meredith Corporation, comprising its digital and magazine businesses and its corporate operations. The parent of the combined entity is Dotdash Meredith, Inc. ("Dotdash Meredith"). See “Note 3—Business Combinations” for a description of the acquisition of Meredith. Dotdash Meredith is one of the largest digital and print publishers in America. From mobile to magazines, nearly 200 million people trust us to help them make decisions, take action, and find inspiration. 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.
Dotdash Meredith has two operating segments: (i) Digital, which includes its digital, mobile and licensing operations; and (ii) Print, which includes its magazine subscription and newsstand operations.
Angi Inc.
Angi Inc., formerly ANGI Homeservices Inc., is 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. During the year ended December 31, 2022, over 220,000 domestic service professionals actively sought consumer leads, completed jobs, or advertised work through Angi Inc. platforms. Additionally, consumers turned to at least one Angi Inc. business to find a service professional for approximately 29 million projects during the year ended December 31, 2022. At December 31, 2022, IAC’s economic interest and voting interest in Angi Inc. were 84.1% and 98.1%, respectively.
In the fourth quarter of 2022, the Angi Inc. segment presentation was changed to reflect its four operating segments, which now include (i) Ads and Leads, (ii) Services, (iii) Roofing and (iv) International (includes Europe and Canada), and operates under multiple brands including Angi, HomeAdvisor, Handy, Total Home Roofing and Angi Roofing. Angi Inc.'s financial information for prior periods has been recast to conform to the current period presentation. Roofing, includes the business Angi Inc. acquired on July 1, 2021 known as Total Home Roofing. Ads and Leads provides service professionals the capability to engage with potential customers, including quoting, invoicing and payment services, and provides consumers with tools and resources to help them find local, pre-screened and customer-rated service professionals nationwide for home repair, maintenance and improvement projects. Services consumers can request household services directly through the Angi Inc. platform and Angi Inc. fulfills the request through the use of independently established home services providers engaged in a trade, occupation and/or business that customarily provides such services. The matching and pre-priced booking services and related tools and directories are provided to consumers free of charge. Roofing provides roof replacement and repair services through its wholly-owned subsidiary Angi Roofing, LLC business.
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
Search
The Search segment consists of Ask Media Group and the Desktop business. Ask Media Group is a collection of websites providing general search services and information. The Desktop business includes our direct-to-consumer downloadable desktop applications and our business-to-business partnership operations. Ask Media Group’s websites include, among others: Ask.com, a search site with a variety of fresh and contemporary content (celebrities, culture, entertainment, travel and general knowledge); Reference.com, a search and general knowledge content site that provides content across select vertical categories (history, business and finance and geography, among other verticals); Consumersearch.com, a search and content website that provides content designed to simplify the product research process; and Shopping.net, a vertical shopping search site, each of which contains a mix of search services and/or content targeted to various user or segment demographics.
Emerging & Other
Our Emerging & Other segment primarily includes:
•Care.com, a leading online destination for families to connect with caregivers for their children, aging parents, pets and homes and for caregivers to connect with families seeking care services. 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, on October 27, 2020;
•Mosaic Group, a leading developer and provider of global subscription mobile applications. Mosaic Group has a portfolio of some of the largest and most popular applications in the following verticals: Communications (RoboKiller, TapeACall, Trapcall), Language (iTranslate, Speak & Translate), Weather (Clime: NOAA Weather Radar Live, Weather Live), Business (PDF Hero, Scan Hero) and Lifestyle (Blossom, Pixomatic); and, for periods prior to its sale on July 12, 2022, Daily Burn;
•Vivian Health, a platform to efficiently connect healthcare professionals with job opportunities;
•The Daily Beast, a website dedicated to news, commentary, culture and entertainment that publishes original reporting and opinion from its roster of full-time journalists and contributors;
•IAC Films, a provider of production and producer services for feature films, primarily for initial sale and distribution through theatrical releases and video-on-demand services in the United States ("U.S.") and internationally;
•Newco, IAC’s incubator platform, which currently spans healthcare, social gaming, home services and consumer marketplaces; and
•Bluecrew, a technology driven staffing platform exclusively for flexible W-2 work, which was sold on November 9, 2022.
Vimeo Spin-off:
On May 25, 2021, IAC completed the spin-off of its full stake in Vimeo, Inc. (formerly Vimeo Holdings, Inc. ("Vimeo")) to IAC shareholders (which we refer to as the “Spin-off”). Following the Spin-off, Vimeo became an independent, separately traded public company. Therefore, Vimeo is presented as a discontinued operation within the Company's financial statements for all periods. See “Note 16—Discontinued Operations” for additional details.
MTCH Separation:
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
On December 19, 2019, IAC/InterActiveCorp ("Old IAC") entered into a Transaction Agreement (as amended, the "Transaction Agreement") with Match Group, Inc. ("Old MTCH"), IAC Holdings, Inc. ("New IAC"), a direct wholly-owned subsidiary of Old IAC, and Valentine Merger Sub LLC, an indirect wholly-owned subsidiary of Old IAC. On June 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 renamed Match Group, Inc. ("New Match") and which owns the businesses of Old MTCH and certain Old IAC financing subsidiaries, and (2) New IAC, which was renamed IAC/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."
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company prepares its consolidated and combined financial statements (collectively referred to herein as "financial statements") in accordance with U.S. generally accepted accounting principles ("GAAP").
The Company's financial statements were prepared on a consolidated basis beginning June 30, 2020 and on a combined basis for periods prior thereto. The difference in presentation is due to the fact that the final steps of the legal reorganization, including the contribution to New IAC of all the entities that comprise the Company following the MTCH Separation, were not completed until June 30, 2020. The preparation of the financial statements on a combined basis for periods prior to June 30, 2020 allows for the financial statements to be presented on a consistent basis for all periods presented.
The historical combined financial statements of the Company have been derived from the historical accounting records of Old IAC. The combined financial statements reflect the historical financial position, results of operations and cash flows of the entities comprising the Company since their respective dates of acquisition by Old IAC and the allocation to the Company of certain Old IAC corporate expenses based on the historical accounting records of Old IAC through June 30, 2020. The consolidated financial statements include the accounts of the Company, all entities that are wholly-owned by the Company and all entities in which the Company has a controlling financial interest. For the purpose of the combined financial statements, income taxes have been computed as if the entities comprising the Company filed tax returns on a standalone, separate basis for periods prior to the MTCH Separation.
All intercompany transactions and balances between and among the Company and its subsidiaries have been eliminated. All intercompany transactions between (i) the Company and (ii) Old IAC and its subsidiaries for periods prior to the MTCH Separation were considered to be effectively settled for cash at the time the transaction was recorded. The total net effect of the settlement of these intercompany transactions is reflected in the statement of cash flows as a financing activity and in the statement of parent's equity as “Invested capital.”
In management's opinion, the assumptions underlying the historical financial statements of the Company, including the basis on which the expenses have been allocated from Old IAC, are reasonable. However, the allocations may not reflect the expenses that the Company would have incurred as an independent, stand-alone company for the periods presented.
COVID-19 Update
The COVID-19 pandemic and the various responses to it created significant volatility, uncertainty and economic disruption. Recently there has been a return to normal societal interactions, including the way the Company operates its businesses.
Angi Inc.
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
As previously disclosed, the impact of COVID-19 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 Angi Inc. experienced a rebound in service requests from mid-2020 through early 2021, service requests started to decline in May 2021 and have continued to decline during 2022 due, in part, to COVID-19 measures that were more widely in place in prior periods. Angi Inc.'s ability to monetize service requests rebounded modestly in the second half of 2021 and the first half of 2022; however, that improved monetization plateaued in the third quarter of 2022 and is now in line with monetization rates experienced pre-COVID-19.
Dotdash Meredith
Digital advertising and performance marketing revenue at Dotdash, excluding Meredith, declined in 2022, compared to 2021 due in part to lower traffic to its sites compared to prior year COVID-19 traffic highs. Post-acquisition, Meredith has experienced a similar impact to its digital advertising revenue.
Search
In the quarter ended March 31, 2020, the Company determined that the effects of COVID-19 were a contributing indicator of possible impairment for certain of its assets and identified impairments at the Desktop reporting unit of $212.0 million and $21.4 million related to goodwill and certain indefinite-lived intangible assets, respectively.
In the quarter ended September 30, 2020, the Company recorded additional 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 Google (the "Services Agreement")" below for additional information.
Other
In addition to the impairments at Search, in the quarter ended March 31, 2020, the Company identified impairments of $51.5 million of certain equity securities without readily determinable fair values, and $7.5 million of a note receivable and a warrant related to certain investees as a result of the effects of COVID-19.
Future Outlook
The extent to which developments related to the COVID-19 pandemic and measures designed to curb its spread continue to impact the Company’s business, financial condition and results of operations will depend on future developments, all of which are highly uncertain and many of which are beyond the Company’s control, including the continuing spread of COVID-19, the severity of resurgences of COVID-19 caused by variant strains of the virus, the effectiveness of vaccines and attitudes toward receiving them, materials and supply chain constraints, labor shortages, the scope of governmental and other restrictions on travel, discretionary services and other activity, and public reactions to these developments.
Accounting Estimates
Management of the Company is required to make certain estimates, judgments and assumptions during the preparation of its financial statements in accordance with GAAP. These estimates, judgments and assumptions impact the reported amounts of assets, liabilities, revenue and expenses and the related disclosure of assets and liabilities. Actual results could differ from these estimates.
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
On an ongoing basis, the Company evaluates its estimates, judgments and assumptions, including those related to: the fair values of cash equivalents and marketable debt and equity securities; the carrying value of accounts receivable, including the determination of the allowance for credit losses; the determination of the customer relationship period for certain costs to obtain a contract with a customer; the carrying value of right-of-use assets ("ROU assets"); the useful lives and recoverability of capitalized software, equipment, leasehold improvements and buildings and definite-lived intangible assets; the fair value of assets acquired and liabilities assumed as a result of acquisitions and the allocation of purchase price thereto; the recoverability of goodwill and indefinite-lived intangible assets; the fair value of equity securities without readily determinable fair values; contingencies; the fair value of acquisition-related contingent consideration arrangements; unrecognized tax benefits; the valuation allowance for deferred income tax assets; pension and postretirement benefit expenses, including actuarial assumptions regarding discount rates, expected returns on plan assets, inflation and healthcare costs; and the fair value of and forfeiture rates for stock-based awards, among others. The Company bases its estimates, judgments and assumptions on historical experience, its forecasts and budgets and other factors that the Company considers relevant.
Revenue Recognition
The Company accounts for a contract with a customer when it has approval and commitment from all parties, the rights of the parties and payment terms are identified, the contract has commercial substance and collectability of consideration is probable. Revenue is recognized when control of the promised services or goods is transferred to the Company’s customers and in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services or goods.
Transaction Price
The objective of determining the transaction price is to estimate the amount of consideration the Company is due in exchange for its services or goods, including amounts that are variable. Contracts may include sales incentives, such as volume discounts or rebates, which are accounted for as variable consideration when estimating the transaction price. The Company also maintains a liability for potential future refunds and customer credits, which is recorded as a reduction of revenue. All estimates of variable consideration are based upon historical experience and customer trends. The Company determines the total transaction price, including an estimate of any variable consideration, at contract inception and reassesses this estimate each reporting period.
The Company excludes from the measurement of transaction price all taxes assessed by governmental authorities that are both (i) imposed on and concurrent with a specific revenue-producing transaction and (ii) collected from customers. Accordingly, such tax amounts are not included as a component of revenue or cost of revenue.
Arrangements with Multiple Performance Obligations
The Company’s contracts with customers may include multiple performance obligations. For such arrangements, the Company allocates revenue to each performance obligation based on its relative standalone selling price. The Company generally determines standalone selling prices based on the prices charged to customers, which are directly observable or an estimate if not directly observable.
Practical Expedients and Exemptions
For contracts that have an original duration of one year or less, the Company uses the practical expedient available under Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers, applicable to such contracts and does not consider the time value of money.
In addition, as permitted under the practical expedient available under ASU No. 2014-09, the Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less, (ii) contracts with variable consideration that is tied to sales-based or usage-based royalties, allocated entirely to unsatisfied performance obligations, or to a wholly unsatisfied promise accounted for under the series guidance, and (iii) contracts for which the Company recognizes revenue at the amount which it has the right to invoice for services performed.
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
Costs to Obtain a Contract with a Customer
The Company uses a portfolio approach to assess the accounting treatment of the incremental costs to obtain a contract with a customer. The Company recognizes an asset if we expect to recover those costs. To the extent that these costs are capitalized, the resultant asset is amortized on a systematic basis consistent with the pattern of the transfer of the services to which the asset relates. The Company has determined that certain costs, primarily commissions paid to employees pursuant to certain sales incentive programs and mobile app store fees, meet the requirements to be capitalized as a cost of obtaining a contract.
Commissions Paid to Employees Pursuant to Sales Incentive Programs
The Company has determined that commissions paid to employees pursuant to certain sales incentive programs meet the requirements to be capitalized as the incremental costs to obtain a contract with a customer. When customer renewals are expected and the renewal commission is not commensurate with the initial commission, the average customer life includes renewal periods. Capitalized commissions paid to employees pursuant to these sales incentive programs are amortized over the estimated customer relationship period and are included in "Selling and marketing expense" in the statement of operations. The Company calculates the anticipated customer relationship period as the average customer life, which is based on historical data.
For sales incentive programs where the anticipated customer relationship period is one year or less, the Company has elected the practical expedient to expense the commissions as incurred. Effective October 1, 2022, the Ads business, within Angi Inc., elected to expense commissions upon review of the duration of the related customer relationship periods which have been determined to be less than a year.
App Store Fees
The Company pays fees to the Apple App Store and the Google Play Store for the distribution of our paid mobile apps. The Company capitalizes and amortizes mobile app store fees related to subscriptions over the term of the applicable subscription. The amortization of mobile app store fees is included in "Cost of revenue" in the statement of operations.
The following table presents the capitalized costs to obtain a contract with a customer for the years ended December 31, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 |
| Sales Commissions | | | | App Store Fees | | Total | | Sales Commissions | | | | App Store Fees | | Total |
| (In thousands) |
Current | $ | 39,590 | | | | | $ | 8,266 | | | $ | 47,856 | | | $ | 39,669 | | | | | $ | 9,023 | | | $ | 48,692 | |
Non-current | 5,667 | | | | | — | | | 5,667 | | | 6,086 | | | | | — | | | 6,086 | |
Total | $ | 45,257 | | | | | $ | 8,266 | | | $ | 53,523 | | | $ | 45,755 | | | | | $ | 9,023 | | | $ | 54,778 | |
During the years ended December 31, 2022, 2021 and 2020, the Company recognized expense of $95.5 million, $125.9 million and $101.3 million, respectively, related to the amortization of capitalized costs to obtain a contract with a customer.
The current and non-current capitalized costs to obtain a contract with a customer are included in "Other current assets" and "Other non-current assets," respectively, in the balance sheet.
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
Commissions Paid to Third-Party Agent Sales of Magazine Subscriptions
Dotdash Meredith uses third-party agents to obtain certain subscribers. The agents are paid a commission, which can be as much as the subscription price charged to the subscriber. Dotdash Meredith subscriptions do not have substantive termination penalties; therefore, the contract term is determined on an issue-by-issue basis. Accordingly, these commissions do not qualify for capitalization because there is no contract with a customer until a copy is served to a customer; therefore, these costs are expensed when the publication is sent to the customer. Dotdash Meredith recognizes a liability to the extent the commission is refundable to the third-party agent. Dotdash Meredith expenses additional amounts paid to agents (such as per subscriber bounties) to acquire subscribers as incurred. Expenses related to third-party agent sales of magazine subscriptions are included in "Selling and marketing expense" in the statement of operations.
Dotdash Meredith
Dotdash Meredith revenue consists of digital and print revenue. Digital revenue consists principally of advertising, performance marketing and licensing and other revenue. Print revenue consists principally of subscription, advertising, projects and other, newsstand, and performance marketing revenue.
Digital
Advertising
Advertising revenue is generated primarily through digital advertisements sold by Dotdash Meredith's sales team directly to the advertisers or through advertising agencies and through programmatic advertising networks. Performance obligations consist of delivering advertisements with a promised number of actions related to the ads, such as impressions or clicks, or displaying advertisements for an agreed upon amount of time. The price is determined by an agreed-upon pricing model such as CPM (cost-per-1,000 impressions), CPC (cost-per-click) or flat fees.
The Company recognizes revenue over time as performance obligations are satisfied. Revenue is recognized using an output method based on actions delivered or time elapsed depending on the nature of the performance obligation. The Company considers the right to receive consideration from a customer to correspond directly with the value to the customer of our performance completed to date. The customer is invoiced in the month following the month that the advertisements are delivered.
Performance Marketing
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 brands refer consumers to commerce partner websites resulting in a purchase or transaction. Performance marketing and affiliate commerce partners are invoiced monthly.
Affinity marketing programs are arrangements where Dotdash Meredith acts as an agent for both Dotdash Meredith and third-party publishers to market and place magazine subscriptions online. Commissions are earned when a subscriber name has been provided to the publisher and any free trial period is completed. Dotdash Meredith net settles with the third-party publishers monthly.
Licensing and Other Revenue
Licensing revenue includes symbolic licenses, which include direct-to-retail product partnerships based on Dotdash Meredith's brands, and functional licenses, which consist of certain content licensing agreements. Revenues from symbolic licenses are in the form of a royalty based on the sale or usage of the branded product, which is recognized over time when the sale or use occurs. Generally, revenues are accrued based on estimated sales and adjusted as actual sales are reported by partners. These adjustments are typically recorded within three months of the initial estimates and have not been material. Minimum guarantees, if applicable, are generally recognized as revenue over the term of the applicable contract.
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NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
Revenue from functional licenses is recognized as Dotdash Meredith's content is delivered or access to the content is granted. Revenue from functional licenses is recognized at a point-in-time when access to the completed content is granted to the partner.
Print
Subscription Revenue
Subscription revenue relates to the sale of Dotdash Meredith print magazines. Subscriptions do not have substantive termination penalties; therefore, the contract term is determined on an issue-by-issue basis. Most of the 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. Accordingly, amounts received from prepaid subscriptions are recorded as a customer deposit liability rather than as deferred revenue. The delivery of each issue is determined to be a distinct performance obligation that is satisfied; revenue is recognized when the publication is sent to the customer.
Advertising
Advertising revenue relates to the sale of advertising in magazines directly to advertisers or through advertising agencies. Revenue is recognized on the magazine issue’s on-sale date, which is the date the magazine is published. The customer is invoiced, net of agency commissions, once the advertisements are published under normal industry trade terms.
Project and Other Revenue
Project and other revenue relates to other revenue streams that are primarily project based and may relate to any one or combination of the following activities: audience targeted advertising, custom publishing, content strategy and development, email marketing, social media, database marketing and search engine optimization. Depending on the contractual arrangement, revenue is recognized either as the purchased advertising is run on third-party platforms, or over the contractual period as the products do not have an alternate use to the Company or its other clients. Payment terms vary based on the nature of the contract.
Newsstand Revenue
Newsstand revenue is related to single copy magazines or bundles of single copy magazines sold 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. Revenue is recognized on the issue's on-sale date as the date aligns most closely with the date that control is transferred to the customer. Wholesalers are invoiced a percentage of estimated final sales the month after the issue’s initial on-sale date. Generally, the previously estimated revenue is adjusted based upon the final sales, which occur when the final amounts are settled under normal industry terms.
Performance Marketing
Performance marketing principally consists of affinity marketing revenue through which Dotdash Meredith places magazine subscriptions for third-party publishers. Dotdash Meredith net settles with these third parties monthly.
Angi Inc.
Ads and Leads Revenue
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
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. Consumer connection revenue varies based upon several factors, including the service requested, product experience offered, and geographic location of service. Consumer connection revenue is generally billed one week following a consumer match, with payment due upon receipt of invoice. Angi Inc. maintains a liability for potential credits issued to services providers. Revenue is also derived from (i) sales of time-based website, mobile and call center advertising to service professionals, (ii) service professional membership subscription fees, (iii) membership subscription fees from consumers and (iv) other services. Angi Inc. service professionals generally pay for advertisements in advance on a monthly or annual basis at the option of the service professional, with the average advertising contract term being approximately one year. Angi website, mobile and call center advertising revenue is recognized ratably over the contract term. Revenue from the sale of advertising in the Angie’s List Magazine is recognized in the period in which the publication is distributed. Service professional membership subscription revenue is initially deferred upon receipt of payment and is recognized using the straight-line method over the applicable subscription period, which is typically one year. Angi Inc. prepaid consumer membership subscription fees are recognized as revenue using the straight-line method over the term of the applicable subscription period, which is typically one year.
Services Revenue
Primarily reflects domestic revenue from pre-priced offerings by which the consumer requests services through Services platforms and Angi Inc. engages a service professional to perform the service. Consumers are billed when a job is scheduled through the Services platform. Billing practices are governed by the contract terms of each project as negotiated with the consumer. Billings do not necessarily correlate with revenue recognized over time as this is based on the timing of when the consumer receives the promised services.
From January 1, 2020 through December 31, 2022, Services recorded revenue on a gross basis. Effective January 1, 2023, Angi Inc. modified the Services terms and conditions so that the service professional, rather than Angi Inc., has the contractual relationship with the consumer to deliver the service and Angi Inc.'s performance obligation to the consumer is to connect them with the service professional. This change in contractual terms requires net revenue accounting treatment effective January 1, 2023. There is no impact to operating income or Adjusted EBITDA.
Roofing Revenue
Primarily reflects revenue from the roof replacement business offering by which the consumer purchases services directly from the Roofing business and Angi Inc. then engages a service professional to perform the service. Consumers typically pay when a job is completed and revenue is recognized based on the Company's progress in satisfying the roofing service.
International Revenue
Primarily reflects revenue generated within the International segment (comprised of businesses in Europe and Canada), including consumer connection revenue for consumer matches and membership subscription revenue from service professionals and consumers.
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NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
Search
Ask Media Group revenue consists primarily of advertising revenue generated principally through the display of paid listings in response to search queries, as well as from display advertisements appearing alongside content on its various websites and, to a lesser extent, affiliate commerce commission revenue. Paid listings are advertisements displayed on search results pages that generally contain a link to advertiser websites. The majority of the paid listings displayed by Ask Media Group is supplied to us by Google Inc. (“Google”) pursuant to our services agreement with Google. Pursuant to this agreement, Ask Media Group businesses transmit search queries to Google, which in turn transmits a set of relevant and responsive paid listings back to these businesses for display in search results. This ad-serving process occurs independently of, but concurrently with, the generation of algorithmic search results for the same search queries. Google paid listings are displayed separately from algorithmic search results and are identified as sponsored listings on search results pages. Paid listings are priced on a price-per-click basis and when a user submits a search query through an Ask Media Group business and then clicks on a Google paid listing displayed in response to the query, Google bills the advertiser that purchased the paid listing and shares a portion of the fee charged to the advertiser with the Ask Media Group business. The Company recognizes paid listing revenue from Google when it delivers the user’s click. In cases where the user’s click is generated due to the efforts of a third-party distributor, we recognize the amount due from Google as revenue and record a revenue share or other payment obligation to the third-party distributor as traffic acquisition costs.
Revenue from display advertising is generated through advertisements sold through programmatic advertising networks. Affiliate commerce commission revenue is generated when an Ask Media Group property refers users to commerce partner websites resulting in a purchase or transaction.
Desktop revenue largely consists of advertising revenue generated principally through the display of paid listings in response to search queries. The majority of the paid listings displayed are supplied to us by Google in the manner, and pursuant to the services agreement with Google, described above. Fees related to display advertisements are recognized when an advertisement is displayed. To a lesser extent, Desktop revenue also includes fees paid by subscribers for downloadable desktop applications as well as display advertisements. Fees for subscription downloadable desktop applications are generally recognized over the term of the applicable subscription period, which is primarily monthly.
Emerging & Other
Care.com generates revenue primarily through subscription fees from families and caregivers for its suite of products and services, as well as through annual contracts with employers who provide access to Care.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 the Apple App Store and Google Play Store and fees received directly from consumers, as well as display advertisements. Fees related to subscription downloadable mobile applications are initially deferred and generally recognized either over the term of the subscription period, which is up to one year, for those applications that must be connected to our servers to function, or at the time of the sale when the software license is delivered. Fees related to display advertisements are recognized when an advertisement is displayed.
Vivian Health revenue consists of subscription revenue, which is generated through recruiting agencies that seek access to qualified healthcare professionals and is recognized at the earlier of the full delivery of the promised services or over the length of the subscription period.
The Daily Beast revenue consists of advertising revenue, which is generated primarily through display advertisements (sold directly and through programmatic advertising networks), and to a lesser extent, subscription revenue and affiliate commerce commission revenue. The performance obligations, timing of customer payments, and methods of revenue recognition are generally consistent with action-based advertising and time-based advertising revenue, as described above.
Revenue of IAC Films is generated primarily through media production and distribution. Production revenue is recognized when control is transferred to the customer to broadcast or exhibit.
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
Sold on November 9, 2022, Bluecrew revenue consisted of service revenue, which was generated through staffing workers and recognized as control of the promised services was transferred to our customers.
Accounts Receivables, Net of the Allowance for Credit Losses
Accounts receivable include amounts billed and currently due from customers. The allowance for credit losses is based upon a number of factors, including the length of time accounts receivable are past due, the Company’s previous loss history, the specific customer’s ability to pay its obligation and any other forward-looking data regarding customers' ability to pay that is available. Customer payments that are not collected in advance of the transfer of promised services or goods are generally due no later than 30 days from invoice date, with the exception of invoices at Dotdash Meredith, which vary by revenue stream as described above.
Deferred Revenue
Deferred revenue consists of payments that are received or are contractually due in advance of the Company’s performance obligation. The Company’s deferred revenue is reported on a contract-by-contract basis at the end of each reporting period. The Company classifies deferred revenue as current when the remaining term or expected completion of its performance obligation is one year or less. The current and non-current deferred revenue balances were $157.1 million and $0.2 million, respectively, at December 31, 2022, and $165.5 million and $0.4 million, respectively, at December 31, 2021. Included in the current deferred revenue balance at December 31, 2021 is $22.9 million related to Meredith, acquired December 1, 2021. During the year ended December 31, 2022, the Company recognized $152.0 million of revenue that was included in the deferred revenue balance at December 31, 2021. In addition to the revenue recognized, $7.3 million of the December 31, 2021 deferred revenue balance was reclassified to other balance sheet accounts and $1.1 million related to a business that was sold in 2022. During the year ended December 31, 2021, the Company recognized $132.2 million of revenue that was included in the deferred revenue balance at December 31, 2020. The current and non-current deferred revenue balances were $137.7 million and $0.7 million, respectively, at December 31, 2020. Non-current deferred revenue is included in “Other long-term liabilities” in the balance sheet.
Cash and Cash Equivalents
Cash and cash equivalents include cash and short-term investments, with maturities of less than 91 days from the date of purchase. Domestically, cash equivalents primarily consist of AAA rated government money market funds and treasury discount notes. Internationally, cash equivalents primarily consist of AAA rated government money market funds and time deposits.
Accounting for Investments in Debt Securities
At times the Company invests in marketable debt securities with active secondary or resale markets to ensure portfolio liquidity to fund current operations or satisfy other cash requirements as needed. Marketable debt securities are adjusted to fair value each quarter, and the unrealized gains and losses, net of tax, are included in accumulated other comprehensive income (loss) as a separate component of shareholders’ equity. The specific-identification method is used to determine the cost of debt securities sold and the amount of unrealized gains and losses reclassified out of accumulated other comprehensive income (loss) into earnings. The Company also invests in non-marketable debt securities as part of its investment strategy. We review our debt securities for impairment each reporting period. The Company recognizes an unrealized loss on debt securities in net earnings when the impairment is determined to be other-than-temporary. Factors we consider in making such determination include the duration, severity and reason for the decline in value and the potential recovery and our intent to sell the debt security. We also consider whether we will be required to sell the security before recovery of its amortized cost basis and whether the amortized cost basis cannot be recovered because of credit losses. If an impairment is considered to be other-than-temporary, the debt security will be written down to its fair value and the loss will be recognized within "Other (expense) income, net" in the statement of operations. At December 31, 2022 marketable debt securities consist of treasury discount notes of $235.1 million. There were no marketable debt securities at December 31, 2021.
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
Certain Risks and Concentrations
Services Agreement with Google (the "Services Agreement")
The Company and Google are parties to an amended Services Agreement which expires on March 31, 2024 and provides for an automatic renewal for an additional one-year period absent a notice of non-renewal from either party on or before March 31, 2023. The Company earns certain other advertising revenue from Google that is not attributable to the Services Agreement. A meaningful portion of the Company’s net cash from operating activities attributable to continuing operations that it can freely access is attributable to revenue earned pursuant to the Services Agreement and other revenue earned from Google.
For the years ended December 31, 2022, 2021 and 2020, total revenue earned from Google was $701.5 million, $755.1 million and $556.1 million, respectively, representing 13%, 20% and 20%, respectively, of the Company's revenue. The total revenue earned from the Services Agreement for the years ended December 31, 2022, 2021 and 2020, was $514.8 million, $661.3 million and $498.3 million, respectively, representing 10%, 18% and 18%, respectively, of the Company's total revenue. The related accounts receivable totaled $74.1 million and $89.1 million at December 31, 2022 and 2021, respectively.
The revenue attributable to the Services Agreement is earned by Ask Media Group and the Desktop business, which comprise the Search segment. For the years ended December 31, 2022, 2021 and 2020, revenue earned from the Services Agreement was $424.3 million, $542.1 million and $344.8 million, respectively, within Ask Media Group, and $90.5 million, $119.1 million and $153.5 million, respectively, within the Desktop business.
The Services Agreement requires that the Company comply with certain guidelines promulgated by Google. Google may generally unilaterally update its policies and guidelines without advance notice. These updates may be specific to the Services Agreement or could be more general and thereby impact the Company as well as other companies. These policy and guideline updates have in the past and could in the future require modifications to, or prohibit and/or render obsolete certain of our products, services and/or business practices, which have been and could be costly to address or negatively impact revenue and have had and in the future could have an adverse effect on our financial condition and results of operations. As described below, Google has made changes to the policies under the Services Agreement and has also made industry-wide changes that have negatively impacted the Desktop business-to-consumer (“B2C”) business. Google may make changes in the future that could impact the revenue earned from Google, including under the Services Agreement.
Certain industry-wide policy changes became effective on August 27, 2020. These industry-wide changes, combined with increased enforcement of policies under the Services Agreement, have had a negative impact on the results of operations of the B2C business. During the fourth quarter of 2020, Google suspended services with respect to some B2C’s products and may do so with respect to other products in the future. As a result, the B2C business elected to modify certain marketing strategies in early January 2021. Subsequently, Google informed us of another policy change in the first quarter of 2021 that became effective on May 10, 2021. We anticipated that this Google policy change would eliminate our ability to successfully introduce and market new B2C products that would be profitable. Therefore, we undertook cost reduction measures and effectively eliminated all marketing of B2C products beginning in March 2021. This elimination of marketing positively impacted profitability starting in the second quarter of 2021 because revenue from B2C products is earned over multiple periods beyond just the period in which the initial marketing is incurred. Following the cessation of the introduction of new products in March 2021, the B2C revenue stream relates solely to the then existing installed base of products. We expect future revenue and profits of the B2C business to decline significantly.
During the year ended December 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 by Google and other browsers. The effects of COVID-19 on monetization were an additional factor.
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
Credit Risk
The Company has counterparty credit risk exposure to the private limited life insurance company, which issued the annuity contracts held by the IPC Pension Scheme. In addition, cash and cash equivalents are maintained with financial institutions and are in excess of any applicable third-party insurance limits, such as the Federal Deposit Insurance Corporation and the Securities Investor Protection Corporation.
Other Risks
The Company is subject to certain risks and concentrations including dependence on third-party technology providers and exposure to risks associated with online commerce security.
Capitalized Software, Equipment, Leasehold Improvements, Buildings and Land
Capitalized software, equipment, leasehold improvements, buildings and land are recorded at cost or at fair value to the extent acquired in a business combination. Repairs and maintenance costs are expensed as incurred. Amortization of leasehold improvements, which is included in "Depreciation" in the statement of operations, and depreciation are computed using the straight-line method over the estimated useful lives of the assets, or, in the case of leasehold improvements, the lease term, if shorter. | | | | | |
Asset Category | Estimated Useful Lives |
Capitalized software and computer equipment | 2 to 3 Years |
Furniture and other equipment | 3 to 12 Years |
Buildings and leasehold improvements | 3 to 39 Years |
The Company capitalizes certain internal use software costs including external direct costs utilized in developing or obtaining the software and compensation for personnel directly associated with the development of the software. Capitalization of such costs begins when the preliminary project stage is complete and ceases when the project is substantially complete and ready for its intended purpose. The net book value of capitalized internal use software is $155.7 million and $131.6 million at December 31, 2022 and 2021, respectively.
For the year ended December 31, 2022, the net book value of capitalized internal use software at Dotdash Meredith decreased $26.7 million as a result of the reclassification of acquired capitalized software to definitive intangible assets in connection with the completion of purchase accounting related to the acquisition of Meredith during the fourth quarter of 2022. See "Note 3—Business Combination" for further discussion of the purchase accounting for the Meredith acquisition. In addition, in the fourth quarter of 2022, Angi Inc. recognized a write-off of $15.5 million related to capitalized software for projects discontinued. Business Combinations and Contingent Consideration Arrangements
The purchase price of each acquisition is attributed to the assets acquired and liabilities assumed based on their fair values at the date of acquisition, including identifiable intangible assets that either arise from a contractual or legal right or are separable from goodwill. The Company usually obtains the assistance of outside valuation experts to assist in the allocation of purchase price to the identifiable intangible assets acquired. While outside valuation experts may be used, management has 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) that is expected to benefit from the business combination as of the acquisition date. The acquisition of Meredith closed on December 1, 2021 and the allocation of purchase price to the assets acquired and liabilities assumed, the determination of the reporting units and the allocation of goodwill to the reporting units were finalized during the fourth quarter of 2022. See "Note 3—Business Combinations" for a description of the accounting for this business combination.
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
In connection with certain business combinations, the Company has entered into contingent consideration arrangements that are determined to be part of the purchase price. Each of these arrangements is initially recorded at its fair value at the time of the acquisition and reflected at current fair value for each subsequent reporting period thereafter until settled. Generally, our contingent consideration arrangements are based upon financial performance and/or operating metric targets. The Company generally 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. Significant changes in the specified forecasted financial or operating metrics can result in a significantly higher or lower fair value measurement. The changes in the remeasured fair value of the contingent consideration arrangements during each reporting period, including the accretion of the discount, if applicable, are recognized in "General and administrative expense" in the statement of operations. See "Note 6—Financial Instruments and Fair Value Measurements" for a discussion of contingent consideration arrangements. Goodwill and Indefinite-Lived Intangible Assets
Dotdash Meredith's operating segments and reporting units are Digital and Print. Angi Inc.'s Ads and Leads, Services, Roofing and International are separate operating segments and reporting units. Ask Media Group and Desktop are separate reporting units within the Search reportable segment. Within the Company's Emerging & Other reportable segment, Mosaic Group, Care.com, Bluecrew, prior to its sale on November 9, 2022, Vivian Health, The Daily Beast, IAC Films, and Newco are separate operating segments and reporting units. Goodwill is tested for impairment at the reporting unit level. The Company's Dotdash Meredith Print, Ask Media Group, Desktop, The Daily Beast, IAC Films and Newco reporting units have no goodwill as of October 1, 2022. On November 9, 2022, the Company completed the sale of Bluecrew at a value in excess of its carrying amount. See "Note 11—Segment Information" for additional information regarding the Company's method of determining operating and reportable segments. The Company assesses goodwill and indefinite-lived intangible assets, which are certain trade names and trademarks, for impairment annually at October 1 or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit or the fair value of an indefinite-lived intangible asset below its carrying value.
When the Company elects to perform a qualitative assessment and concludes it is not more likely than not that the fair value of the reporting unit is less than its carrying value, no further assessment of that reporting unit's goodwill is necessary; otherwise, a quantitative assessment is performed and the fair value of the reporting unit is determined. If the carrying value of the reporting unit exceeds its estimated fair value, a goodwill impairment equal to the excess is recorded.
In the fourth quarter of 2022, the Angi Inc. segment presentation was changed to reflect its four new operating segments, which now include (i) Ads and Leads, (ii) Services, (iii) Roofing and (iv) International (includes Europe and Canada). Goodwill was allocated to reflect the new segment presentation. The allocation of goodwill to Roofing and Canada reflects their respective historical carrying values because of the lack of operational integration with Angi North America; the allocation of the remaining goodwill to Ads and Leads and Services was based upon their relative fair values as of October 1, 2022.
As required, a quantitative assessment was performed and the goodwill of Angi Inc. reporting units was tested before and after the change in reporting units; this test resulted in an impairment of $26.0 million due to Roofing exiting certain markets and a projected reduction in future profits from the business, which reduced its fair value.
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
For the Company's annual goodwill test at October 1, 2022, a qualitative assessment of the Dotdash Meredith Digital, Care.com and Vivian 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 Company prepared valuations of the Digital and Print reporting units within the Dotdash Meredith reportable segment (the Print reporting unit has no goodwill), the Care.com and the Vivian Health reporting units, which are primarily used in connection with the issuance and/or settlement of equity awards that are denominated in the equity of these businesses during the year ended December 31, 2022. The valuations were prepared time proximate to, however, not as of, October 1, 2022. The fair value of each of these businesses in these valuations was in excess of its October 1, 2022 carrying value.
In the second quarter of 2022, the Company reassessed the fair value of the Mosaic Group reporting unit (included in the Emerging & Other segment) and recorded an impairment of $86.7 million as a result of the projected reduction in future revenue and profits from the business and lower trading multiples of a selected peer group of companies. The Company prepared a quantitative assessment as of October 1, 2022; this test resulted in no additional impairment as its carrying value approximates its fair value. Any subsequent declines in the fair value of Mosaic Group will result in additional goodwill impairment charges to the extent the carrying value exceeds the fair value.
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 the $153.6 million of goodwill at Mosaic Group.
The fair value of the Company's reporting units is determined using both an income approach based on discounted cash flows ("DCF") and a market approach when it tests goodwill for impairment, either on an interim basis or annual basis as of October 1 each year. The Company uses the same approach in determining the fair value of its businesses in connection with its non-public subsidiary denominated stock-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 Mosaic Group reporting unit were 16.0% and 15.0% in 2022 and 2021, respectively. The discount rates used in the quantitative test for determining the fair value of the Ads and Leads, Services, Roofing and International reporting units in 2022 were 12.0%, 15.0%, 16.0% and 18.5%, respectively. Determining fair value using a market approach considers multiples of financial metrics based on both acquisitions and trading multiples of a selected peer group of companies. From the comparable companies, a representative market multiple is determined, which is applied to financial metrics to estimate the fair value of a reporting unit. To determine a peer group of companies for our respective reporting units, we considered companies relevant in terms of consumer use, monetization model, margin and growth characteristics, and brand strength operating in their respective sectors.
While the Company has the option to qualitatively assess whether it is more likely than not that the fair values of its indefinite-lived intangible assets are less than their carrying values, the Company's policy is to determine the fair value of each of its indefinite-lived intangible assets annually as of October 1, in part, because the level of effort required to perform the quantitative and qualitative assessments is essentially equivalent. 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 12.0% to 18.5% in 2022 and 10.0% to 40.0% in 2021, and the royalty rates used ranged from 1.0% to 8.0% in 2022 and 1.0% to 5.0% in 2021.
If the carrying value of an indefinite-lived intangible asset exceeds its estimated fair value, an i mpairment equal to the excess is recorded. There is one indefinite-lived intangible asset at Dotdash Meredith Digital with a value of approximately $126.0 million for which the excess of fair value over carrying value is less than 20%.
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
The October 1, 2022 annual assessment of goodwill and indefinite-lived intangible assets did not identify any further impairments.
The October 1, 2021 annual assessment of goodwill and indefinite-lived intangible assets did not identify any impairments.
In the quarter ended March 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, respectively, of the Desktop reporting unit.
In the quarter ended September 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 Google and other browsers. The effects of COVID-19 on monetization were an additional factor.
The October 1, 2020 annual assessment of goodwill and indefinite-lived intangible assets did not identify any further impairments.
Impairment charges recorded on indefinite-lived intangibles are included in "Amortization of intangibles" in the accompanying statement of operations.
Long-Lived Assets and Intangible Assets with Definite Lives
Long-lived assets, which consist of ROU assets, capitalized software, equipment, leasehold improvements and buildings and intangible assets with definite lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The carrying value of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If the carrying value is deemed not to be recoverable, an impairment loss is recorded equal to the amount by which the carrying value of the long-lived asset exceeds its fair value. During the year ended December 31, 2022, the Company recorded impairment charges of $14.3 million of an ROU asset and $7.0 million of the related leasehold improvements and furniture and equipment. See "Note 5—Dotdash Meredith Restructuring Charges, Transaction-Related Expenses and Change-in-Control Payments" for additional information. Amortization of definite-lived intangible assets is computed either on a straight-line basis or is based on the pattern in which the economic benefits of the asset are expected to be realized. Accounting for Investments in Equity Securities
The Company's equity securities, other than those of its consolidated subsidiaries and those accounted for under the equity method, are accounted for at fair value or under the measurement alternative of ASU No. 2016-01, 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 the Company considers 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 its investments in equity securities, which require judgment and the use of estimates. When the Company's 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.
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
The Company accounts for investments in the common stock or in-substance common stock of entities in which the Company has the ability to exercise significant influence over the operating and financial matters of the investee, but does not have a controlling financial interest, using the equity method. At December 31, 2022 and 2021, the Company had one investment accounted for using the equity method, which is included in "Long-term investments" in the balance sheet.
Fair Value Measurements
The Company categorizes its financial instruments measured at fair value into a fair value hierarchy that prioritizes the inputs used in pricing the asset or liability. The three levels of the fair value hierarchy are:
•Level 1: Observable inputs obtained from independent sources, such as quoted market prices for identical assets and liabilities in active markets.
•Level 2: Other inputs, which are observable directly or indirectly, such as quoted market prices for similar assets or liabilities in active markets, quoted market prices for identical or similar assets or liabilities in markets that are not active and inputs that are derived principally from or corroborated by observable market data. The fair values of the Company’s Level 2 financial assets are primarily obtained from observable market prices for identical underlying securities that may not be actively traded. Certain of these securities may have different market prices from multiple market data sources, in which case an average market price is used.
•Level 3: Unobservable inputs for which there is little or no market data and require the Company to develop its own assumptions, based on the best information available in the circumstances, about the assumptions market participants would use in pricing the assets or liabilities. See "Note 6—Financial Instruments and Fair Value Measurements" for a discussion of fair value measurements made using Level 3 inputs. Assets measured at fair value on a nonrecurring basis
The Company's non-financial assets, such as goodwill, intangible assets, ROU assets and capitalized software, equipment, leasehold improvements and buildings, are adjusted to fair value only when an impairment is recognized. The Company's financial assets, comprising equity securities without readily determinable fair values, are adjusted to fair value when observable price changes are identified or an impairment is recognized. Such fair value measurements are based predominantly on Level 3 inputs. Refer to "Goodwill and Indefinite-Lived Intangible Assets" for a description of the Angi Roofing and Mosaic Group goodwill impairment charges recorded in the fourth and second quarters of 2022, respectively.
Advertising Costs
Advertising costs are expensed in the period incurred (when the advertisement first runs for production costs that are initially capitalized) and represent online marketing, including fees paid to search engines, social media sites and third parties that distribute our B2C downloadable applications, which ceased beginning in March 2021, offline marketing, which is primarily television advertising, partner-related payments to those who direct traffic to the brands within our Angi Inc. segment, and direct-mail costs for magazine subscription acquisition efforts within our Dotdash Meredith segment. Advertising expense is $1.0 billion, $877.0 million and $796.7 million for the years ended December 31, 2022, 2021 and 2020, respectively.
Legal Costs
Legal costs are expensed as incurred.
Original Issue Discount, Debt Issuance Costs and Deferred Financing Costs
Costs incurred to obtain financing are deferred and amortized to "Interest expense" in the statement of operations over the related financing period using the effective interest method. The Company records debt issuance costs as a direct reduction of the carrying value of the related debt. Financing costs related to the undrawn revolving credit facility are included in "Other non-current assets" in the balance sheet.
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
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. The Company records interest, net of any applicable related income tax benefit, for uncertain tax positions as a component of income tax expense. The Company elects to recognize the tax on Global Intangible Low-Taxed Income as a period expense in the period the tax is incurred.
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.
The Company was included within Old IAC’s tax group for purposes of federal and consolidated state income tax return filings through June 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.
Pensions and Postretirement Benefits
In connection with the acquisition of Meredith, the Company assumed the obligations under its pension plans. Pension benefits for the domestic plans are generally based on formulas that reflect pay credits allocated to participants’ accounts based on years of benefit service and annual pensionable earnings. The domestic plans are frozen with respect to new participants and the qualified plan was terminated effective December 31, 2022, and therefore, will have no future service costs. There were no active participants in the international plans so there are no future service cost for the international plans.
The Company utilizes a mark-to-market approach to account for pension and postretirement benefits. Under this approach, the Company recognizes changes in the fair value of plan assets and actuarial gains or losses in the fourth quarter of each fiscal year or whenever a plan is required to be remeasured. Events requiring a plan remeasurement are recognized in the quarter in which the remeasurement event occurs. The remaining components of pension and other postretirement plan net periodic benefit costs are recorded on a quarterly basis.
The discount rates utilized for the domestic plans and unqualified (unfunded) United Kingdom ("U.K.") plan was based on the investment yields of high-quality corporate bonds available in the marketplace with maturities equal to projected cash flows of future benefit payments as of the measurement date. Following the annuity contract transaction in the U.K. described in "Note 13—Pension and Postretirement Benefit Plans," the approach for setting the discount rate for the IPC Pension Scheme was changed from a high-quality corporate bond basis to an effective insurance settlement rate, using the estimated discount rates inherent in the annuity contracts at each measurement date. This approach is consistent with the determination of the discount rate under the prior annuity contract entered into in May 2020. The Company does not expect future contributions to be made into these plans as a result of the annuity contract entered into with a private limited life insurance company related to the qualified international pension plan and the determination to freeze and terminate the qualified domestic pension plan. The Company's non-qualified plans are funded as payments, which can include the purchase of annuity contracts, are made. In addition, the Company provides health care and life insurance benefits for certain employees upon their retirement, the expected costs of which are accrued over the periods that the employees render services and are funded as claims are paid. See "Note 13—Pension and Postretirement Benefit Plans" for additional information.
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
Earnings Per Share
Basic net earnings (loss) per share ("EPS") is computed by dividing net earnings (loss) attributable to holders of IAC common stock and Class B common stock by the weighted-average number of shares of common stock and Class B common stock outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if stock options and other commitments to issue common stock were exercised or equity awards vested resulting in the issuance of common stock that could share in the earnings of the Company. Undistributed earnings allocated to the participating security is subtracted from earnings in determining earnings attributable to holders of IAC common stock and Class B common stock for EPS. See "Note 15—(Loss) Earnings Per Share" for additional information on dilutive securities. Foreign Currency Translation and Transaction Gains and Losses
The financial position and operating results of foreign entities whose primary economic environment is based on their local currency are consolidated using the local currency as the functional currency. These local currency assets and liabilities are translated at the rates of exchange as of the balance sheet date, and local currency revenue and expenses of these operations are translated at average rates of exchange during the period. Translation gains and losses are included in accumulated other comprehensive income as a component of shareholders' and parent's equity. Transaction gains and losses resulting from assets and liabilities denominated in a currency other than the functional currency are included in the statement of operations as a component of "Other (expense) income, net". See "Note 17—Financial Statement Details" for additional information regarding foreign currency exchange gains and losses. Translation gains and losses relating to foreign entities that are liquidated or substantially liquidated are reclassified out of accumulated other comprehensive income (loss) into earnings. During the years ended December 31, 2022, 2021 and 2020, losses of less than $0.1 million and $10.0 million and gains of $0.1 million, respectively, were reclassified into earnings and included in "Other (expense) income, net" in the statement of operations.
Stock-Based Compensation
Stock-based compensation is measured at the grant date based on the fair value of the award and is generally expensed over the requisite service period. See "Note 12—Stock-Based Compensation" for a discussion of the Company's stock-based compensation plans. Redeemable Noncontrolling Interests
Noncontrolling interests in the subsidiaries of the Company are ordinarily reported on the balance sheet within shareholders' equity, separately from the Company's equity. However, securities that are redeemable at the option of the holder and not solely within the control of the issuer must be classified outside of shareholders' equity. Accordingly, all noncontrolling interests that are redeemable at the option of the holder are presented outside of shareholders' and parent's equity in the balance sheet.
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
In connection with the acquisition of certain subsidiaries, management of these businesses has retained an ownership interest. The Company is party to fair value put and call arrangements with respect to these interests. These put and call arrangements allow management of these businesses to require the Company to purchase their interests or allow the Company to acquire such interests at fair value, respectively. The put arrangements do not meet the definition of a derivative instrument as the put agreements do not provide for net settlement. These put and call arrangements become exercisable by the Company and the counterparty at various dates in the future. There were no arrangements exercised during the year ended December 31, 2022. Two of these arrangements were exercised during the year ended December 31, 2021 and one of these arrangements was exercised during the year ended December 31, 2020. These put arrangements are exercisable by the counterparty outside the control of the Company. Accordingly, to the extent that the fair value of these interests exceeds the value determined by normal noncontrolling interest accounting, the value of such interests is adjusted to fair value with a corresponding adjustment to additional paid-in capital or invested capital. During the years ended December 31, 2022, 2021 and 2020, the Company recorded adjustments of $24.2 million, $777.7 million and $183.3 million, respectively (of which $777.3 million and $171.0 million were related to Vimeo during 2021 and 2020, respectively), to increase these interests to fair value. Fair value determinations require high levels of judgment and are based on various valuation techniques, including market comparables and discounted cash flow projections.
Recent Accounting Pronouncements
There are no recently issued accounting pronouncements that are expected to have a material effect on the results of operations, financial condition or cash flows of the Company.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
NOTE 3—BUSINESS COMBINATIONS
Dotdash Meredith
On December 1, 2021, Dotdash acquired Meredith under the terms of an agreement (the "Merger Agreement") dated as of October 6, 2021. At the effective time of the merger, each outstanding share of common stock of Meredith (other than certain excluded shares) was converted into the right to receive $42.18 in cash. Pursuant to the Merger Agreement, Meredith equity awards were cancelled, and in exchange each holder received such holder’s portion of the merger consideration as set forth in the Merger Agreement, less the per share exercise price in the case of stock options. The Company accounted for this acquisition as a business combination under the acquisition method of accounting. The Company completed the purchase accounting for the Meredith acquisition during the fourth quarter of 2022.
The total purchase price was calculated and allocated as follows:
| | | | | |
| Meredith |
| (In thousands) |
Common stock of Meredith | $ | 1,931,376 | |
Cash payment used to settle a portion of Meredith debt | 625,000 | |
Cash settlement of all outstanding vested equity awards and deferred compensation | 130,089 | |
Total purchase price | $ | 2,686,465 | |
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
The table below summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition:
| | | | | |
| Meredith |
| (In thousands) |
Cash and cash equivalents | $ | 12,436 | |
Accounts receivable | 334,891 | |
Other current assets | 123,081 | |
Leasehold improvements, equipment, buildings, land and capitalized software | 258,197 | |
Goodwill | 1,513,824 | |
Intangible assets | 1,175,459 | |
Other non-current assets | 676,777 | |
Total assets | 4,094,665 | |
Customer deposit liability | (144,136) | |
Other current liabilities | (435,268) | |
Deferred income taxes | (268,999) | |
Other non-current liabilities | (559,797) | |
Net assets acquired | $ | 2,686,465 | |
The Company acquired Meredith because it is complementary to Dotdash. The purchase was based on the expected future financial performance of Meredith under Dotdash leadership, not on the value of the net identifiable assets at the time of acquisition. This resulted in a significant portion of the purchase price being attributed to goodwill. The purchase price attributed to goodwill is not tax deductible.
The fair values of the identifiable intangible assets acquired at the date of acquisition are as follows:
| | | | | | | | | | | |
| Meredith |
| (In thousands) | | Useful Life (Years) |
Indefinite-lived trade names and trademarks | $ | 388,550 | | | Indefinite-lived |
Advertiser relationships | 297,000 | | | 5 |
Licensee relationships | 171,000 | | | 3-6 |
Digital content | 96,200 | | | 2-3 |
Trade name and trademarks | 80,500 | | | 1-29(a) |
Subscriber relationships | 76,009 | | | 1-2 |
Developed technology | 66,200 | | | 2-3 |
Total identifiable intangible assets acquired | $ | 1,175,459 | | | |
_____________________
(a) Approximately $19 million of the total trade names and trademarks represents digital trade names and trademarks that Dotdash Meredith has the contractual right to use for 29 years. The remaining definite-lived trade names and trademarks have an estimated useful life that range from 1 to 5 years.
Accounts receivable, other current assets, leasehold improvements, equipment, buildings, land and capitalized software, other non-current assets, customer deposit liability, other current liabilities, and other non-current liabilities of Meredith were reviewed and adjusted to their fair values at the date of acquisition, as necessary. Accounts receivable was adjusted for $3.4 million of gross contractual amounts that were not collected. Contingencies, including indemnification liabilities related to pre-acquisition income tax and non-income tax liabilities, of $60.0 million are included in net assets acquired. The fair value of contingencies represents an estimate of amounts to be paid and an assessment of probability.
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
The fair values of trade names and trademarks were determined using an income approach that utilized a relief from royalty methodology. The fair values of advertiser, licensee and subscriber relationships were determined using an income approach that utilized an excess earnings methodology. The fair values of digital content and developed technology were determined using a cost to replace methodology. The valuations of these intangible assets incorporate significant unobservable inputs and require significant judgment and estimates, including the amount and timing of future cash flows and the determination of royalty and discount rates.
Care.com
On February 11, 2020, the Company acquired Care.com, a leading online destination for families to easily connect with caregivers, for a total purchase price of $626.9 million, which includes cash consideration of $587.0 million paid by the Company and the settlement of all outstanding vested employee equity awards for $40.0 million paid by Care.com prior to the completion of the acquisition. The Company completed the purchase accounting for the Care.com acquisition during the first quarter of 2021.
Unaudited pro forma financial information
The unaudited pro forma financial information in the table below presents the results of the Company, Meredith, and Care.com, as if these acquisitions had occurred on January 1, 2020 and January 1, 2019, respectively. The unaudited pro forma financial information includes adjustments required under the acquisition method of accounting and is presented for informational purposes only and is not necessarily indicative of the results that would have been achieved had these acquisitions occurred on the aforementioned dates. For the years ended December 31, 2021 and 2020, pro forma adjustments include an increase in amortization expense of $135.9 million and $149.5 million, respectively, related to intangible asset adjustments in purchase accounting. To present transaction-related costs in the beginning of the earliest comparative period presented, pro forma adjustments include a reduction in transaction-related costs of $130.8 million for the year ended December 31, 2021.
| | | | | | | | |
| Years Ended December 31, |
| 2021 | 2020 |
| (In thousands, except per share data) |
Revenue | $ | 5,599,334 | | $ | 4,840,324 | |
Net earnings (loss) from continuing operations | $ | 650,189 | | $ | (85,372) | |
Basic earnings (loss) per share from continuing operations | $ | 7.39 | | $ | (0.99) | |
Diluted earnings (loss) per share from continuing operations | $ | 6.95 | | $ | (0.99) | |
Net earnings (loss) attributable to IAC shareholders | $ | 656,920 | | $ | (100,847) | |
Basic earnings (loss) per share attributable to IAC shareholders | $ | 7.36 | | $ | (1.18) | |
Diluted earnings (loss) per share attributable to IAC shareholders | $ | 6.93 | | $ | (1.18) | |
NOTE 4—GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets, net are as follows:
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| (In thousands) |
Goodwill | $ | 3,030,168 | | | $ | 3,226,610 | |
Intangible assets with indefinite lives | 631,097 | | | 679,149 | |
Intangible assets with definite lives, net of accumulated amortization | 538,944 | | | 735,743 | |
Total goodwill and intangible assets, net | $ | 4,200,209 | | | $ | 4,641,502 | |
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
The following table presents the balance of goodwill by reportable segment, including the changes in the carrying value of goodwill, for the year ended December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2021 | | | | Deductions | | Reporting Unit Allocation Adjustment | | Impairment | | Foreign Exchange Translation | | Balance at December 31, 2022 |
| (In thousands) |
Dotdash Meredith | | | | | | | | | | | | | |
Digital | $ | 1,567,843 | | | | | $ | (70,201) | | | — | | | — | | | $ | — | | | $ | 1,497,642 | |
Total Dotdash Meredith | 1,567,843 | | | | | (70,201) | | | — | | | — | | | — | | | 1,497,642 | |
| | | | | | | | | | | | | |
Angi Inc. | | | | | | | | | | | | | |
Angi Inc. | 916,375 | | | | | (816) | | | (903,469) | | | — | | | (12,090) | | | — | |
Ads and Leads | — | | | | | — | | | 761,571 | | | — | | | — | | | 761,571 | |
Services | — | | | | | — | | | 51,095 | | | — | | | — | | | 51,095 | |
Roofing | — | | | | | — | | | 26,005 | | | (26,005) | | | — | | | — | |
International | — | | | | | — | | | 64,798 | | | — | | | 5,821 | | | 70,619 | |
Total Angi Inc. | 916,375 | | | | | (816) | | | — | | | (26,005) | | | (6,269) | | | 883,285 | |
| | | | | | | | | | | | | |
Emerging & Other | 742,392 | | | | | (6,403) | | | — | | | (86,748) | | | — | | | 649,241 | |
Total | $ | 3,226,610 | | | | | $ | (77,420) | | | $ | — | | | $ | (112,753) | | | $ | (6,269) | | | $ | 3,030,168 | |
Deductions at Dotdash Meredith are primarily due to adjustments to the fair values of certain assets acquired and liabilities assumed related to Meredith, acquired by Dotdash on December 1, 2021, and the sale of a business at Dotdash Meredith. Deductions at Angi Inc. are due to working capital adjustments recorded in the second quarter of 2022 related to Total Home Roofing (“Roofing”), acquired on July 1, 2021. Deductions at the Emerging & Other segment are due to the sales of Bluecrew and the Daily Burn business at Mosaic Group.
In the fourth quarter of 2022, the Angi Inc. segment presentation was changed to reflect its four new operating segments, which now include (i) Ads and Leads, (ii) Services, (iii) Roofing and (iv) International (includes Europe and Canada). Goodwill was allocated to reflect the new segment presentation. The allocation of goodwill to Roofing and Canada reflects their respective historical carrying values because of the lack of operational integration with Angi North America; the allocation of the remaining goodwill to Ads and Leads and Services was based upon their relative fair values as of October 1, 2022.
As required, the goodwill of Angi Inc. reporting units was tested before and after the change in reporting units; this test resulted in an impairment of $26.0 million due to Roofing exiting certain markets and a projected reduction in future profits from the business, which reduced its fair value.
In the second quarter of 2022, the Company reassessed the fair value of the Mosaic Group reporting unit (included in the Emerging & Other segment) and recorded an impairment of $86.7 million as a result of the projected reduction in future revenue and profits from the business and lower trading multiples of a selected peer group of companies.
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
The following table presents the balance of goodwill by reportable segment, including the changes in the carrying value of goodwill, for the year ended December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2020 | | Additions | | Deductions | | | | Foreign Exchange Translation | | Balance at December 31, 2021 |
| (In thousands) |
Dotdash Meredith | | | | | | | | | | | |
Digital | $ | — | | | $ | 1,567,843 | | | $ | — | | | | | $ | — | | | $ | 1,567,843 | |
Total Dotdash Meredith | — | | | 1,567,843 | | | — | | | | | — | | | 1,567,843 | |
| | | | | | | | | | | |
Angi Inc. | 892,133 | | | 26,822 | | | — | | | | | (2,580) | | | 916,375 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Emerging & Other | 767,969 | | | — | | | (25,376) | | | | | (201) | | | 742,392 | |
Total | $ | 1,660,102 | | | $ | 1,594,665 | | | $ | (25,376) | | | | | $ | (2,781) | | | $ | 3,226,610 | |
Additions relate to the acquisitions of Meredith at Dotdash Meredith and Roofing at Angi Inc. Deductions are primarily related to the allocation of acquired attributes related to the acquisition of Care.com (included in the Emerging & Other segment).
The December 31, 2022 and 2021 goodwill balance reflects accumulated impairment losses of $981.3 million and $198.3 million at Search and Dotdash Meredith, respectively. The December 31, 2022 goodwill balance also reflects an impairment loss of $86.7 million at Mosaic Group (included in the Emerging & Other segment) and $26.0 million at Angi Inc. As a result of impairments recorded in 2020, the Search reportable segment has no goodwill.
At December 31, 2022 and 2021, intangible assets with definite lives are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Gross Carrying Amount | | Accumulated Amortization | | Net | | Weighted-Average Useful Life |
| (In thousands) | | (Years) |
Advertiser relationships | $ | 297,000 | | | $ | (87,199) | | | $ | 209,801 | | | 5.0 |
Technology | 198,224 | | | (171,660) | | | 26,564 | | | 3.5 |
Licensee relationships | 171,000 | | | (45,152) | | | 125,848 | | | 4.9 |
Trade names | 120,711 | | | (37,677) | | | 83,034 | | | 9.2 |
Content | 106,639 | | | (61,407) | | | 45,232 | | | 2.9 |
Service professional relationships | 97,658 | | | (97,537) | | | 121 | | | 3.0 |
Customer lists and user base | 68,575 | | | (41,868) | | | 26,707 | | | 6.4 |
Subscriber relationships | 61,200 | | | (39,563) | | | 21,637 | | | 1.9 |
Total | $ | 1,121,007 | | | $ | (582,063) | | | $ | 538,944 | | | 4.7 |
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Gross Carrying Amount | | Accumulated Amortization | | Net | | Weighted-Average Useful Life |
| (In thousands) | | (Years) |
Advertiser relationships | $ | 334,000 | | | $ | (6,386) | | | $ | 327,614 | | | 5.2 |
Technology | 133,318 | | | (106,415) | | | 26,903 | | | 4.2 |
Licensee relationships | 150,000 | | | (2,923) | | | 147,077 | | | 4.9 |
Trade names | 145,598 | | | (18,224) | | | 127,374 | | | 5.1 |
Content | 10,439 | | | (10,439) | | | — | | | 3.4 |
Service professional relationships | 98,789 | | | (97,877) | | | 912 | | | 3.0 |
Customer lists and user base | 68,730 | | | (32,606) | | | 36,124 | | | 6.4 |
Subscriber relationships | 73,700 | | | (3,961) | | | 69,739 | | | 2.0 |
Total | $ | 1,014,574 | | | $ | (278,831) | | | $ | 735,743 | | | 4.6 |
At December 31, 2022, amortization of intangible assets with definite lives for each of the next five years and thereafter is estimated to be as follows:
| | | | | |
Years Ending December 31, | (In thousands) |
2023 | $ | 208,245 | |
2024 | 133,884 | |
2025 | 84,476 | |
2026 | 69,057 | |
2027 | 15,142 | |
Thereafter | 28,140 | |
Total | $ | 538,944 | |
NOTE 5—DOTDASH MEREDITH RESTRUCTURING CHARGES, TRANSACTION-RELATED EXPENSES AND CHANGE-IN-CONTROL PAYMENTS
Restructuring Charges
In the first quarter of 2022, Dotdash Meredith announced its plans to discontinue certain print publications and the shutdown of PeopleTV to focus the portfolio and further enable investments toward digital growth. Dotdash Meredith also announced a voluntary retirement program in the first quarter of 2022 for employees who met certain age and service requirements. In addition, actions were taken to improve efficiencies in 2022 following the Meredith acquisition, including vacating leased office space.
In December 2022, Dotdash Meredith management committed to a reduction in force plan to better align its cost structure given the difficult market and current economic uncertainty. Dotdash Meredith announced the plan in late January 2023, which resulted in $17.5 million of expense for the year ended December 31, 2022; the related accrual is reflected in the December 31, 2022 balance sheet.
For the year ended December 31, 2022, the Company incurred a total of $80.2 million of restructuring charges, including $55.9 million of severance and related costs. The restructuring charges for the year ended December 31, 2022 include $21.3 million of impairment charges related to the consolidation of certain leased spaces following the Meredith acquisition, consisting of impairments of $14.3 million and $7.0 million of a ROU asset and related leasehold improvements and furniture and equipment, respectively, which are included in "General and administrative expense" and "Depreciation," respectively, in the statement of operations.
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
The costs are allocated as follows in the statement of operations:
| | | | | |
| December 31, 2022 |
| (In thousands) |
Cost of revenue | $ | 24,527 | |
Selling and marketing expense | 17,174 | |
General and administrative expense | 28,096 | |
Product development expense | 3,435 | |
Depreciation | 7,006 | |
Total | $ | 80,238 | |
A summary of the costs incurred and payments made during the year ended December 31, 2022 and related accruals as of December 31, 2022 are presented below:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Digital | | Print | | Other (a) | | Total |
| (In thousands) |
Restructuring charges | | | | | | | |
Costs incurred | $ | 39,225 | | | $ | 33,432 | | | $ | 7,581 | | | $ | 80,238 | |
Payments | (6,966) | | | (20,952) | | | (3,192) | | | (31,110) | |
Non-cash (b) | (21,309) | | | (425) | | | — | | | (21,734) | |
Restructuring accruals as of December 31, 2022 | $ | 10,950 | | | $ | 12,055 | | | $ | 4,389 | | | $ | 27,394 | |
_____________________
(a) Other comprises unallocated corporate expenses, which are corporate overhead expenses not attributable to the Digital or Print segments.
(b) Includes $21.3 million impairment of ROU assets, leasehold improvements and furniture and equipment and $0.4 million related to the write-off of inventory.
Dotdash Meredith anticipates the estimated remaining costs associated with the 2022 restructuring events will be approximately $0.3 million, which primarily relate to unallocated corporate overhead, and together with the $27.4 million accrued as of December 31, 2022, will be paid by December 31, 2023 from existing cash on hand. The remaining costs are related to the voluntary retirement program.
Transaction-Related Expenses
For the years ended December 31, 2022 and 2021, Dotdash Meredith incurred $7.1 million and $30.2 million, respectively, of transaction-related expenses related to the acquisition of Meredith, other than costs related to change-in-control payments.
Change-in-Control Payments
In December 2021, Dotdash Meredith recorded $60.1 million in change-in-control payments, which were triggered by the acquisition and the terms of certain former executives’ contracts. On July 1, 2022, Dotdash Meredith made $83.1 million in change-in-control payments, which included amounts accrued in December 2021, as well as amounts previously accrued that became payable following the change-in-control. On October 3, 2022, Dotdash Meredith made the final $4.3 million in change-in-control payments.
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
NOTE 6—FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
Marketable Securities
At December 31, 2022 and 2021, the fair value of marketable securities are as follows:
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| (In thousands) |
Marketable equity securities | $ | 4,317 | | | $ | 19,788 | |
Available for sale marketable debt securities | 235,056 | | | — | |
Total marketable securities | $ | 239,373 | | | $ | 19,788 | |
At December 31, 2022, the Company has two investments in marketable equity securities, other than the investment in MGM Resorts International ("MGM"). The Company had one investment in a marketable equity security at December 31, 2021. These marketable equity securities are carried at fair value following the investees’ initial public offerings ("IPO"). Prior to the IPOs, these investments were accounted for as equity securities without readily determinable fair values. The Company recorded net unrealized pre-tax losses of $20.3 million for these investments during the year ended December 31, 2022. For the investment held at the end of 2021 the Company recorded an unrealized pre-tax gain of $18.8 million for the year ended December 31, 2021. The Company sold its shares in another marketable equity security in the third quarter of 2021 and recorded a realized gain of $7.2 million on the sale. The unrealized and realized pre-tax losses and gains related to these investments are included in "Other (expense) income, net" in the statement of operations.
At December 31, 2022, current available-for-sale marketable debt securities are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
| (In thousands) |
Treasury discount notes | $ | 234,987 | | | $ | 75 | | | $ | (6) | | | $ | 235,056 | |
Total available-for-sale marketable debt securities | $ | 234,987 | | | $ | 75 | | | $ | (6) | | | $ | 235,056 | |
The contractual maturities of debt securities classified as current available-for-sale at December 31, 2022 were within one year. There were no investments in available-for-sale marketable debt securities that had been in a continuous unrealized loss position for longer than twelve months at December 31, 2022.
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
Investment in MGM Resorts International
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| (In thousands) |
Investment in MGM Resorts International | $ | 2,170,182 | | | $ | 2,649,442 | |
In 2020, the Company purchased 59.0 million shares of MGM for $1.0 billion and, in the first and third quarters of 2022, the Company purchased additional shares totaling 5.7 million for $244.3 million. Following these purchases, the Company owns 64.7 million shares, representing a 17.1% ownership interest in MGM as of December 31, 2022. 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 on the last trading day in the reporting period and any unrealized gains or losses are included in the statement of operations. For the years ended December 31, 2022, 2021 and 2020, the Company recorded an unrealized pre-tax loss of $723.5 million and unrealized pre-tax gains of $789.3 million and $840.5 million, respectively, on its investment in MGM. The cumulative unrealized net pre-tax gain through December 31, 2022 is $906.3 million. A $2.00 increase or decrease in the share price of MGM would result in an unrealized gain or loss, respectively, of $129.4 million. At February 10, 2023, the carrying value of the Company's investment in MGM was $2.8 billion.
Long-term Investments
Long-term investments consist of:
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| (In thousands) |
Equity securities without readily determinable fair values | $ | 323,530 | | | $ | 324,649 | |
Equity method investment | 2,191 | | | 3,189 | |
Total long-term investments | $ | 325,721 | | | $ | 327,838 | |
Equity Securities without Readily Determinable Fair Values
The following table presents a summary of unrealized pre-tax gains and losses recorded in "Other (expense) income, net" in the statement of operations as adjustments to the carrying value of equity securities without readily determinable fair values held at December 31, 2022 and 2021.
| | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 |
| (In thousands) |
Upward adjustments (gross unrealized pre-tax gains) | $ | 8,245 | | | $ | 8,992 | |
Downward adjustments including impairments (gross unrealized pre-tax losses) | (97,382) | | | (100) | |
Total | $ | (89,137) | | | $ | 8,892 | |
The cumulative upward and downward adjustments (including impairments) to the carrying value of equity securities without readily determinable fair values held at December 31, 2022 were $36.9 million and $136.0 million, respectively.
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
Realized and unrealized pre-tax gains and losses for the Company's investments without readily determinable fair values for the years ended December 31, 2022, 2021 and 2020 are as follows:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| (In thousands) |
Realized pre-tax gains, net, for equity securities sold | $ | 12,434 | | | $ | 5,773 | | | $ | 1,873 | |
Unrealized pre-tax (losses) gains, net, on equity securities held | (89,137) | | | 8,892 | | | 797,565 | |
Total pre-tax (losses) gains, net recognized | $ | (76,703) | | | $ | 14,665 | | | $ | 799,438 | |
All pre-tax gains and losses on equity securities without readily determinable fair values, realized and unrealized, are recognized in "Other (expense) income, net" in the statement of operations.
Equity Method Investment
The Company owns common shares of Turo Inc. ("Turo"), a peer-to-peer car sharing marketplace. This investment is accounted for under the equity method of accounting given the Company's ownership interest at December 31, 2022 of approximately 26.6% on a fully diluted basis in the form of preferred shares, which are not common stock equivalents. The Company accounts for the equity earnings (losses) for this investment on a one quarter lag. These equity earnings (losses) were immaterial.
Fair Value Measurements
The following tables present the Company's financial instruments that are measured at fair value on a recurring basis:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Quoted Market Prices for Identical Assets in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total Fair Value Measurements |
| (In thousands) |
Assets: | | | | | | | |
Cash equivalents: | | | | | | | |
Money market funds | $ | 862,829 | | | $ | — | | | $ | — | | | $ | 862,829 | |
Treasury discount notes | — | | | 137,219 | | | — | | | 137,219 | |
Time deposits | — | | | 16,018 | | | — | | | 16,018 | |
Marketable securities: | | | | | | | |
Marketable equity securities | 4,317 | | | — | | | — | | | 4,317 | |
Treasury discount notes | — | | | 235,056 | | | — | | | 235,056 | |
Investment in MGM | 2,170,182 | | | — | | | — | | | 2,170,182 | |
Other non-current assets: | | | | | | | |
Warrant | — | | | — | | | 46,799 | | | 46,799 | |
Total | $ | 3,037,328 | | | $ | 388,293 | | | $ | 46,799 | | | $ | 3,472,420 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
`
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Quoted Market Prices for Identical Assets in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total Fair Value Measurements |
| (In thousands) |
Assets: | | | | | | | |
Cash equivalents: | | | | | | | |
Money market funds | $ | 1,660,921 | | | $ | — | | | $ | — | | | $ | 1,660,921 | |
| | | | | | | |
Time deposits | — | | | 6,057 | | | — | | | 6,057 | |
Marketable equity security | 19,788 | | | — | | | — | | | 19,788 | |
Investment in MGM | 2,649,442 | | | — | | | — | | | 2,649,442 | |
Other non-current assets: | | | | | | | |
Warrant | — | | | — | | | 109,294 | | | 109,294 | |
Total | $ | 4,330,151 | | | $ | 6,057 | | | $ | 109,294 | | | $ | 4,445,502 | |
| | | | | | | |
Liabilities: | | | | | | | |
Contingent consideration arrangements | $ | — | | | $ | — | | | $ | (612) | | | $ | (612) | |
The following table presents the changes in the Company's financial instruments that are measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
| | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 |
| Warrant | | Contingent Consideration Arrangements | | Warrant | | Contingent Consideration Arrangements |
| (In thousands) |
Balance at January 1 | $ | 109,294 | | | $ | (612) | | | $ | 5,276 | | | $ | — | |
Fair value at date of acquisition | — | | | — | | | — | | | (620) | |
Total net (losses) gains: | | | | | | | |
Fair value adjustments included in earnings | (62,495) | | | 612 | | | 104,018 | | | (14,992) | |
Settlements | — | | | — | | | — | | | 15,000 | |
Balance at December 31 | $ | 46,799 | | | $ | — | | | $ | 109,294 | | | $ | (612) | |
Warrant
As part of the Company's investment in Turo preferred shares, the Company received a warrant that is recorded at fair value each reporting period with any change included in "Other (expense) income, net" in the statement of operations. The warrant is measured using significant unobservable inputs and is classified in the fair value hierarchy table as Level 3. The warrant is included in "Other non-current assets" in the balance sheet.
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
Contingent Consideration Arrangements
At December 31, 2022, the Company has no remaining contingent consideration arrangements outstanding. At December 31, 2021, the Company had two outstanding contingent consideration arrangements related to prior business combinations. During the third quarter of 2021, the Company recorded a $15.0 million loss related to one contingent consideration arrangement, which was subsequently paid during the fourth quarter of 2021. In connection with the Meredith acquisition on December 1, 2021, the Company assumed a contingent consideration arrangement liability of $0.6 million, which was written off during the first quarter of 2022 due to a change in estimate of the liability related to this arrangement. The contingent consideration arrangement liability at December 31, 2021 is included in "Accrued expenses and other current liabilities" in the balance sheet.
Financial instruments measured at fair value only for disclosure purposes
The following table presents the carrying value and the fair value of financial instruments measured at fair value only for disclosure purposes:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 |
| Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
| (In thousands) |
Current portion of long-term debt | $ | (30,000) | | | $ | (26,700) | | | $ | (30,000) | | | $ | (29,550) | |
Long-term debt, net(a) | $ | (2,019,760) | | | $ | (1,708,413) | | | $ | (2,046,237) | | | $ | (2,061,450) | |
_____________________
(a) At December 31, 2022 and 2021, the carrying value of long-term debt, net includes unamortized original issue discount and debt issuance costs of $20.2 million and $23.8 million, respectively.
At December 31, 2022 and 2021, the fair value of long-term debt, including the current portion, is estimated using observable market prices or indices for similar liabilities, which are Level 2 inputs.
NOTE 7—LEASES
The Company leases office space, land, data center facilities and equipment used in connection with its operations under various operating leases, the majority of which contain escalation clauses.
ROU assets represent the Company’s right to use the underlying assets for the lease term and lease liabilities represent the present value of the Company’s obligation to make payments arising from these leases. ROU assets and related lease liabilities are based on the present value of fixed lease payments over the lease term using the Company's and certain of its subsidiaries' respective incremental borrowing rates on the lease commencement date, January 1, 2019 for leases that commenced prior to that date, or, in the case of acquisitions subsequent to January 1, 2019, the date of acquisition. The Company combines the lease and non-lease components of lease payments in determining ROU assets and related lease liabilities. If the lease includes one or more options to extend the term of the lease, the renewal option is considered in the lease term if it is reasonably certain the Company will exercise the option(s). Lease expense is recognized on a straight-line basis over the term of the lease. As permitted by ASC 842, leases with an initial term of twelve months or less ("short-term leases") are not recorded on the balance sheet.
Variable lease payments consist primarily of common area maintenance, utilities and taxes, which are not included in the recognition of ROU assets and related lease liabilities. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The following table presents the balances of ROU assets and lease liabilities within the balance sheet:
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | | | | |
| | | | December 31, |
Leases | | Balance Sheet Classification | | 2022 | | 2021 |
| | | | (In thousands) |
Assets: | | | | | | |
ROU assets(a) | | Other non-current assets | | $ | 428,160 | | | $ | 498,337 | |
| | | | | | |
Liabilities: | | | | | | |
Current lease liabilities | | Accrued expenses and other current liabilities | | $ | 67,192 | | | $ | 63,521 | |
Long-term lease liabilities | | Other long-term liabilities | | 518,851 | | | 578,272 | |
Total lease liabilities(a) | | | | $ | 586,043 | | | $ | 641,793 | |
_____________________
(a) The December 31, 2022 balances include ROU assets and lease liabilities of $323.3 million and $408.7 million, respectively, related to the acquisition of Meredith, which reflect $4.3 million downward and $7.1 million upward purchase accounting adjustments, respectively, that were completed during 2022. The December 31, 2021 balances include provisional ROU assets and lease liabilities of $358.6 million and $434.8 million, respectively, related to the acquisition of Meredith.
The following table presents the net lease expense within the statement of operations:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Years Ended December 31, |
Lease Expense | | Statement of Operations Classification | | 2022 | | 2021 | | 2020 |
| | | | (In thousands) |
Fixed lease expense | | Cost of revenue | | $ | 1,283 | | | $ | 1,707 | | | $ | 2,183 | |
Fixed lease expense | | Selling and marketing expense | | 6,229 | | | 9,443 | | | 12,591 | |
Fixed lease expense | | General and administrative expense | | 61,886 | | | 31,165 | | | 22,221 | |
Fixed lease expense | | Product development expense | | 999 | | | 1,756 | | | 3,016 | |
Total fixed lease expense(b) | | | | 70,397 | | | 44,071 | | | 40,011 | |
| | | | | | | | |
Variable lease expense | | Selling and marketing expense | | 199 | | | 1,087 | | | 2,314 | |
Variable lease expense | | General and administrative expense | | 16,406 | | | 8,176 | | | 7,314 | |
Variable lease expense | | Product development expense | | 89 | | | 639 | | | 934 | |
Total variable lease expense | | | | 16,694 | | | 9,902 | | | 10,562 | |
Net lease expense | | | | $ | 87,091 | | | $ | 53,973 | | | $ | 50,573 | |
_____________________
(b) Includes (i) short-term lease expense of $4.0 million, $1.4 million and $2.5 million, (ii) lease impairment charges of $2.3 million, $10.5 million and $5.8 million, (iii) sublease income of $17.1 million, $6.7 million and $5.3 million and (iv) gains (losses) on termination of leases of $3.3 million, $(0.1) million and $(1.3) million for the years ended December 31, 2022, 2021 and 2020, respectively. During the year ended December 31, 2022, the Company recorded $14.3 million of impairment charges related to the consolidation of certain leased spaces following the Meredith acquisition, which is included in "General and administrative expense" in the statement of operations as a restructuring charge. See "Note 5—Dotdash Meredith Restructuring Charges, Transaction-Related Expenses and Change-in-Control Payments" for additional information.
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
Maturities of lease liabilities at December 31, 2022(c) are summarized below:
| | | | | | | | |
Years Ended December 31, | | In thousands |
2023 | | $ | 94,270 | |
2024 | | 92,476 | |
2025 | | 87,409 | |
2026 | | 82,927 | |
2027 | | 68,637 | |
Thereafter | | 405,633 | |
Total | | 831,352 | |
Less: Interest | | 245,309 | |
Present value of lease liabilities | | $ | 586,043 | |
_____________________
(c) Lease payments exclude $4.8 million of legally binding minimum lease payments for leases signed but not yet commenced.
The following are the weighted average assumptions used for lease term and discount rate:
| | | | | | | | | | | | | | |
| | December 31, |
| | 2022 | | 2021 |
Remaining lease term | | 11.4 years | | 11.8 years |
Discount rate | | 5.22 | % | | 5.54 | % |
The following is the supplemental cash flow information:
| | | | | | | | | | | | | | | | | | | | |
| | December 31, |
| | 2022 | | 2021 | | 2020 |
| | (In thousands) |
Other Information: | | | | | | |
ROU assets obtained in exchange for lease liabilities (d) | | $ | 16,716 | | | $ | 442,205 | | | $ | 80,314 | |
Cash paid for amounts included in the measurement of lease liabilities | | $ | 93,864 | | | $ | 44,659 | | | $ | 41,377 | |
_____________________
(d) December 31, 2021 includes $437.7 million related to Meredith as of the date of its acquisition, which was adjusted upward by $7.1 million for purchase accounting adjustments during 2022.
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
NOTE 8—LONG-TERM DEBT
Long-term debt consists of:
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| (In thousands) |
Dotdash Meredith Debt | | | |
Dotdash Meredith Term Loan A ("Dotdash Meredith Term Loan A") due December 1, 2026 | $ | 332,500 | | | $ | 350,000 | |
Dotdash Meredith Term Loan B ("Dotdash Meredith Term Loan B") due December 1, 2028 | 1,237,500 | | | 1,250,000 | |
Total Dotdash Meredith long-term debt | 1,570,000 | | | 1,600,000 | |
Less: current portion of Dotdash Meredith long-term debt | 30,000 | | | 30,000 | |
Less: original issue discount | 5,310 | | | 6,176 | |
Less: unamortized debt issuance costs | 10,215 | | | 12,139 | |
Total Dotdash Meredith long-term debt, net | 1,524,475 | | | 1,551,685 | |
| | | |
ANGI Group Debt | | | |
3.875% ANGI Group Senior Notes due August 15, 2028 ("ANGI Group Senior Notes"); interest payable each February 15 and August 15 | 500,000 | | | 500,000 | |
| | | |
Less: unamortized debt issuance costs | 4,715 | | | 5,448 | |
Total ANGI Group long-term debt, net | 495,285 | | | 494,552 | |
| | | |
Total long-term debt, net | $ | 2,019,760 | | | $ | 2,046,237 | |
Dotdash Meredith Term Loans and Dotdash Meredith Revolving Facility
On December 1, 2021, Dotdash Meredith entered into a credit agreement ("Dotdash Meredith Credit Agreement"), which provides for (i) the five-year $350 million Dotdash Meredith Term Loan A, (ii) the seven-year $1.25 billion Dotdash Meredith Term Loan B (and together with Dotdash Meredith Term Loan A, the "Dotdash Meredith Term Loans") and (iii) a five-year $150 million revolving credit facility ("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 Dotdash Meredith Term Loan A bears interest at an adjusted term secured overnight financing rate ("Adjusted Term SOFR") as defined in the Dotdash Meredith Credit Agreement plus an applicable margin depending on Dotdash Meredith's most recently reported consolidated net leverage ratio, as defined in the Dotdash Meredith Credit Agreement. At December 31, 2022 and 2021, the Dotdash Meredith Term Loan A bore interest at Adjusted Term SOFR plus 2.25% and 2.00%, or 5.91% and 2.15%, respectively, and the Dotdash Meredith Term Loan B bore interest at Adjusted Term SOFR, subject to a minimum of 0.50% plus 4.00%, or 8.22% and 4.50%, respectively. Interest payments are due at least quarterly through the terms of the Dotdash Meredith Term Loans.
The Dotdash Meredith Term Loan A requires quarterly principal payments of approximately $4.4 million through December 31, 2024, $8.8 million through December 31, 2025 and approximately $13.1 million thereafter through maturity. The Dotdash Meredith Term Loan B requires quarterly payments of $3.1 million through maturity. Commencing with the delivery of the financial statements for the period ended December 31, 2022, 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 applicable net leverage ratio. No such payment is currently expected related to the period ended December 31, 2022.
There were no outstanding borrowings under the Dotdash Meredith Revolving Facility at December 31, 2022 and 2021. The annual commitment fee on undrawn funds is based on Dotdash Meredith's consolidated net leverage ratio, as defined in the Dotdash Meredith Credit Agreement, most recently reported and was 40 and 35 basis points at December 31, 2022 and 2021, respectively. 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 consolidated net leverage ratio.
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
As of the last day of any calendar quarter, if either (i) $1.00 or more of loans under the Dotdash Meredith Revolving Facility or Dotdash Meredith Term Loan A are outstanding, or (ii) the outstanding face amount of undrawn letters of credit, other than cash collateralized letters of credit at 102% of face value, exceeds $25 million, subject to certain increases for qualifying material acquisitions, then Dotdash Meredith will not permit the consolidated net leverage ratio, which ratio permits netting of up to $250 million in cash and cash equivalents, as of the last day of such quarter to exceed 5.5 to 1.0. The Dotdash Meredith Credit Agreement also contains covenants that would limit Dotdash Meredith’s ability to pay dividends, incur incremental secured indebtedness, or make distributions or certain investments in the event a default has occurred or if Dotdash Meredith’s consolidated net leverage ratio exceeds 4.0 to 1.0, subject to certain available amounts as defined in the Dotdash Meredith Credit Agreement. This ratio was exceeded for the test period ended December 31, 2022. The Dotdash Meredith Credit Agreement also permits the Company to contribute, and the Company may contribute, cash to Dotdash Meredith to provide additional liquidity, including to ensure that Dotdash Meredith does not exceed certain Consolidated Net Leverage Ratios for any test period, as further defined in the Dotdash Meredith Credit Agreement. In connection with the capital contributions, Dotdash Meredith may make distributions to IAC in amounts not more than any such capital contributions, provided that no default has occurred and is continuing. Such capital contributions and subsequent distributions, if made, would impact the Consolidated Net Leverage Ratios of Dotdash Meredith.
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
The ANGI Group Senior Notes were issued on August 20, 2020. At any time prior to August 15, 2023, these notes may be redeemed at a redemption price equal to the sum of the principal amount thereof, plus accrued and unpaid interest and a make-whole premium. Thereafter, these notes may be redeemed at the redemption prices set forth below, plus accrued and unpaid interest thereon, if any, to the applicable redemption date, if redeemed during the twelve-month period beginning on August 15 of the years indicated below:
| | | | | |
Year | Percentage |
2023 | 101.938 | % |
2024 | 100.969 | % |
2025 and thereafter | 100.000 | % |
The indenture governing the ANGI Group Senior Notes contains a covenant that would limit ANGI Group’s ability to incur liens for borrowed money in the event a default has occurred or ANGI Group’s secured leverage ratio exceeds 3.75 to 1.0 provided that ANGI Group is permitted to incur such liens under certain permitted credit facilities indebtedness notwithstanding the ratio, all as defined in the indenture. At December 31, 2022, there were no limitations pursuant thereto.
The $250 million ANGI Group Revolving Facility, which otherwise would have expired on November 5, 2023, was terminated effective August 3, 2021. No amounts were ever drawn under the ANGI Group Revolving Facility prior to its termination.
During 2021, ANGI Group prepaid the remaining balance of $220.0 million of the ANGI Group Term Loan principal, which otherwise would have matured on November 5, 2023.
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
Long-term Debt Maturities:
Long-term debt maturities at December 31, 2022 are summarized in the table below:
| | | | | |
Years Ending December 31, | (In thousands) |
2023 | $ | 30,000 | |
2024 | 30,000 | |
2025 | 47,500 | |
2026 | 275,000 | |
2027 | 12,500 | |
2028 | 1,675,000 | |
Total | 2,070,000 | |
Less: current portion of long-term debt | 30,000 | |
Less: unamortized original issue discount | 5,310 | |
Less: unamortized debt issuance costs | 14,930 | |
Total long-term debt, net | $ | 2,019,760 | |
NOTE 9—SHAREHOLDERS' EQUITY
Description of Common Stock and Class B Convertible Common Stock
Except as described herein, shares of IAC common stock and IAC Class B common stock are identical.
The holders of shares of IAC common stock and IAC Class B common stock vote together as a single class with respect to matters that may be submitted to a vote or for the consent of IAC's shareholders generally, including the election of directors. In connection with any such vote, each holder of IAC common stock is entitled to one vote for each share of IAC common stock held and each holder of IAC Class B common stock is entitled to ten votes for each share of IAC Class B common stock held. Notwithstanding the foregoing, the holders of shares of IAC common stock, acting as a single class, are entitled to elect 25% of the total number of IAC's directors, and, in the event that 25% of the total number of directors shall result in a fraction of a director, then the holders of shares of IAC common stock, acting as a single class, are entitled to elect the next higher whole number of IAC's directors. In addition, Delaware law requires that certain matters be approved by the holders of shares of IAC common stock or holders of IAC Class B common stock voting as a separate class.
Shares of IAC Class B common stock are convertible into shares of IAC common stock at the option of the holder thereof, at any time, on a share-for-share basis. Such conversion ratio will in all events be equitably preserved in the event of any recapitalization of IAC by means of a stock dividend on, or a stock split or combination of, outstanding shares of IAC common stock or IAC Class B common stock, or in the event of any merger, consolidation or other reorganization of IAC with another corporation. Upon the conversion of shares of IAC Class B common stock into shares of IAC common stock, those shares of IAC Class B common stock will be retired and will not be subject to reissue. Shares of IAC common stock are not convertible into shares of IAC Class B common stock.
The holders of shares of IAC common stock and the holders of shares of IAC Class B common stock are entitled to receive, share for share, such dividends as may be declared by IAC's Board of Directors out of funds legally available therefor. In the event of a liquidation, dissolution, distribution of assets or winding-up of IAC, the holders of shares of IAC common stock and the holders of shares of IAC Class B common stock are entitled to receive, share for share, all the assets of IAC available for distribution to its stockholders, after the rights of the holders of any IAC preferred stock have been satisfied.
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
Equity Transactions related to the Spin-Off
In connection with the Spin-Off, IAC amended its certificate of incorporation to provide for the following:
•the reclassification of each share of IAC par value $0.001 common stock into (i) one share of IAC par value $0.0001 common stock and (ii) 1/100th of a share of IAC par value $0.01 Series 1 mandatorily exchangeable preferred stock that was automatically exchanged for 1.6235 shares of Vimeo common stock and then immediately retired; and
•the reclassification of each share of IAC par value $0.001 Class B common stock into (i) one share of IAC par value $0.0001 Class B common stock and (ii) 1/100th of a share of IAC par value $0.01 Series 2 mandatorily exchangeable preferred stock that was automatically exchanged for 1.6235 shares of Vimeo Class B common stock and then immediately retired.
Common Stock Repurchases
On June 30, 2020, the Board of Directors of the Company authorized repurchases up to 8.0 million shares of common stock. During the year ended December 31, 2022, IAC repurchased 1.1 million of its common stock, on a trade date basis, at an average price of $77.44 per share, or $85.3 million in aggregate. At December 31, 2022, the Company has 6.9 million shares remaining in its share repurchase authorization.
NOTE 10—ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
The following tables present the components of accumulated other comprehensive (loss) income and items reclassified out of accumulated other comprehensive (loss) income into earnings:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2022 |
| Foreign Currency Translation Adjustment | | Unrealized Gains On Available-For-Sale Marketable Debt Securities | | Accumulated Other Comprehensive Income (Loss) |
| (In thousands) |
Balance at January 1 | $ | 4,397 | | | $ | — | | | $ | 4,397 | |
Other comprehensive (loss) income before reclassifications | (17,636) | | | 53 | | | (17,583) | |
Amounts reclassified to earnings | 42 | | | — | | | 42 | |
Net current period other comprehensive (loss) income | (17,594) | | | 53 | | | (17,541) | |
Accumulated other comprehensive loss allocated to noncontrolling interests during the period | 11 | | | — | | | 11 | |
Balance at December 31 | $ | (13,186) | | | $ | 53 | | | $ | (13,133) | |
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
| Foreign Currency Translation Adjustment | | Unrealized Gains (Losses) On Available-For-Sale Marketable Debt Securities | | Accumulated Other Comprehensive (Loss) Income |
| (In thousands) |
Balance at January 1 | $ | (6,172) | | | $ | 2 | | | $ | (6,170) | |
Other comprehensive income (loss) before reclassifications | 527 | | | (2) | | | 525 | |
Amounts reclassified to earnings | 10,032 | | | — | | | 10,032 | |
Net current period other comprehensive income (loss) | 10,559 | | | (2) | | | 10,557 | |
Accumulated other comprehensive loss allocated to noncontrolling interests during the period | 10 | | | — | | | 10 | |
Balance at December 31 | $ | 4,397 | | | $ | — | | | $ | 4,397 | |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2020 |
| Foreign Currency Translation Adjustment | | Unrealized Gains On Available-For-Sale Marketable Debt Securities | | Accumulated Other Comprehensive (Loss) Income |
| (In thousands) |
Balance at January 1 | $ | (12,226) | | | $ | — | | | $ | (12,226) | |
Other comprehensive income before reclassifications | 6,236 | | | 2 | | | 6,238 | |
Amounts reclassified to earnings | (144) | | | — | | | (144) | |
Net current period other comprehensive income | 6,092 | | | 2 | | | 6,094 | |
Accumulated other comprehensive income allocated to noncontrolling interests during the period | (38) | | | — | | | (38) | |
Balance at December 31 | $ | (6,172) | | | $ | 2 | | | $ | (6,170) | |
The amounts reclassified out of foreign currency translation adjustment into earnings for the years ended December 31, 2022, 2021 and 2020 relate to the substantial liquidation of certain international subsidiaries.
At December 31, 2022 there was less than $0.1 million of income tax provision on the accumulated other comprehensive (loss) income related to net unrealized gains on available-for-sale marketable debt securities. At December 31, 2021 and 2020, there was no income tax benefit or provision on the accumulated other comprehensive (loss) income.
NOTE 11—SEGMENT INFORMATION
The overall concept that the Company employs in determining its operating segments is to present the financial information in a manner consistent with the chief operating decision maker's view of the businesses. In addition, we consider how the businesses are organized as to segment management and the focus of the businesses with regards to the types of services or products offered or the target market. Operating segments are combined for reporting purposes if they meet certain aggregation criteria, such as the Search segment, which principally relate to the similarity of their economic characteristics, or, in the case of the Emerging & Other reportable segment, do not meet the quantitative thresholds that require presentation as separate reportable segments.
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
The following table presents revenue by reportable segment:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| (In thousands) |
Revenue: | | | | | |
Dotdash Meredith | | | | | |
Digital | $ | 931,482 | | | $ | 367,134 | | | $ | 213,753 | |
Print | 1,026,128 | | | 92,002 | | | — | |
Intersegment eliminations(a) | (22,911) | | | (2,863) | | | — | |
Total Dotdash Meredith | 1,934,699 | | | 456,273 | | | 213,753 | |
Angi Inc. | | | | | |
Domestic | | | | | |
Ads and Leads | 1,282,061 | | | 1,227,074 | | | 1,218,755 | |
Services | 381,256 | | | 289,948 | | | 162,539 | |
Roofing | 137,509 | | | 68,028 | | | — | |
Intersegment eliminations(b) | (10,340) | | | (1,907) | | | — | |
Total Domestic | 1,790,486 | | | 1,583,143 | | | 1,381,294 | |
International | 101,038 | | | 102,295 | | | 86,631 | |
Total 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 eliminations | (8,330) | | | (605) | | | (175) | |
Total | $ | 5,235,280 | | | $ | 3,699,627 | | | $ | 2,764,536 | |
The following table presents the revenue of the Company's segments disaggregated by type of service:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| (In thousands) |
Dotdash Meredith | | | | | |
Digital: | | | | | |
Advertising revenue | $ | 621,714 | | | $ | 236,660 | | | $ | 137,455 | |
Performance marketing revenue | 198,441 | | | 116,195 | | | 76,298 | |
Licensing and other revenue | 111,327 | | | 14,279 | | | — | |
Total digital revenue | 931,482 | | | 367,134 | | | 213,753 | |
Print: | | | | | |
Subscription revenue | 422,700 | | | 34,634 | | | — | |
Advertising revenue | 260,282 | | | 13,678 | | | — | |
Project and other revenue | 154,807 | | | 16,414 | | | — | |
Newsstand revenue | 132,855 | | | 19,183 | | | — | |
Performance marketing revenue | 55,484 | | | 8,093 | | | — | |
Total print revenue | 1,026,128 | | | 92,002 | | | — | |
Intersegment eliminations(a) | (22,911) | | | (2,863) | | | — | |
Total Dotdash Meredith revenue | $ | 1,934,699 | | | $ | 456,273 | | | $ | 213,753 | |
| | | | | |
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| (In thousands) |
(a) Intersegment eliminations primarily related to Digital performance marketing commissions earned for the placement of magazine subscriptions for Print. |
| | | | | |
Angi Inc. | | | | | |
Domestic | | | | | |
Ads and Leads: | | | | | |
Consumer connection revenue | $ | 954,735 | | | $ | 898,422 | | | $ | 899,175 | |
Advertising revenue | 265,466 | | | 252,206 | | | 226,505 | |
Membership subscription revenue | 60,411 | | | 68,062 | | | 74,073 | |
Other revenue | 1,449 | | | 8,384 | | | 19,002 | |
Total Ads and Leads revenue | 1,282,061 | | | 1,227,074 | | | 1,218,755 | |
Services revenue | 381,256 | | | 289,948 | | | 162,539 | |
Roofing revenue | 137,509 | | | 68,028 | | | — | |
Intersegment eliminations(b) | (10,340) | | | (1,907) | | | — | |
Total Domestic revenue | 1,790,486 | | | 1,583,143 | | | 1,381,294 | |
International | | | | | |
Consumer connection revenue | 71,851 | | | 68,686 | | | 57,692 | |
Service professional membership subscription revenue | 28,192 | | | 32,367 | | | 27,225 | |
Advertising and other revenue | 995 | | | 1,242 | | | 1,714 | |
Total International revenue | 101,038 | | | 102,295 | | | 86,631 | |
Total Angi Inc. revenue | $ | 1,891,524 | | | $ | 1,685,438 | | | $ | 1,467,925 | |
| | | | | |
(b) Intersegment eliminations related to Ads and Leads revenue earned from the sale of leads to Roofing. |
|
Search | | | | | |
Advertising revenue: | | | | | |
Google advertising revenue | $ | 525,987 | | | $ | 675,892 | | | $ | 506,077 | |
Non-Google advertising revenue | 200,435 | | | 183,427 | | | 90,286 | |
Total advertising revenue | 726,422 | | | 859,319 | | | 596,363 | |
Other revenue | 5,009 | | | 14,027 | | | 16,911 | |
Total Search revenue | $ | 731,431 | | | $ | 873,346 | | | $ | 613,274 | |
| | | | | |
Emerging & Other | | | | | |
Subscription revenue | $ | 368,401 | | | $ | 367,159 | | | $ | 303,482 | |
Marketplace revenue | 261,314 | | | 243,970 | | | 138,863 | |
Media production and distribution revenue | 31,555 | | | 44,517 | | | 3,585 | |
Advertising revenue: | | | | | |
Non-Google advertising revenue | 16,057 | | | 19,047 | | | 16,236 | |
Google advertising revenue | 2,192 | | | 2,981 | | | 3,130 | |
Total advertising revenue | 18,249 | | | 22,028 | | | 19,366 | |
Service and other revenue | 6,437 | | | 7,501 | | | 4,463 | |
Total Emerging & Other revenue | $ | 685,956 | | | $ | 685,175 | | | $ | 469,759 | |
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
Revenue by geography is based on where the customer is located. Geographic information about revenue and long-lived assets is presented below:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| (In thousands) |
Revenue: | | | | | |
United States | $ | 4,837,367 | | | $ | 3,184,653 | | | $ | 2,309,504 | |
All other countries | 397,913 | | | 514,974 | | | 455,032 | |
Total | $ | 5,235,280 | | | $ | 3,699,627 | | | $ | 2,764,536 | |
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| (In thousands) |
Long-lived assets (excluding goodwill, intangible assets and ROU assets): | | | |
United States | $ | 502,977 | | | $ | 562,628 | |
All other countries | 7,637 | | | 7,897 | |
Total | $ | 510,614 | | | $ | 570,525 | |
The following tables present operating income (loss) and Adjusted EBITDA by reportable segment:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| (In thousands) |
Operating (loss) income: | | | | | |
Dotdash Meredith | | | | | |
Digital | $ | (66,629) | | | $ | 73,980 | | | $ | 50,241 | |
Print | (54,448) | | | (6,527) | | | — | |
Other(c) | (67,014) | | | (60,277) | | | — | |
Total Dotdash Meredith(d) | (188,091) | | | 7,176 | | | 50,241 | |
Angi Inc. | | | | | |
Ads and Leads | 85,593 | | | 65,485 | | | 133,365 | |
Services | (95,166) | | | (63,984) | | | (44,592) | |
Roofing | (50,685) | | | (8,596) | | | — | |
Other(c) | (61,794) | | | (56,196) | | | (84,674) | |
International | (4,253) | | | (13,222) | | | (10,467) | |
Total 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) | |
_____________________
(c) Other comprises unallocated corporate expenses.
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| (In thousands) |
Adjusted EBITDA:(e) | | | | | |
Dotdash Meredith(f) | | | | | |
Digital | $ | 186,696 | | | $ | 91,179 | | | $ | 66,206 | |
Print | $ | 31,135 | | | $ | 2,639 | | | $ | — | |
Other(c) | $ | (65,682) | | | $ | (60,196) | | | $ | — | |
Angi Inc. | | | | | |
Ads and Leads | $ | 168,952 | | | $ | 136,260 | | | $ | 230,797 | |
Services | $ | (52,126) | | | $ | (48,203) | | | $ | (29,253) | |
Roofing | $ | (21,400) | | | $ | (7,511) | | | $ | — | |
Other(c) | $ | (49,866) | | | $ | (46,066) | | | $ | (23,870) | |
International | $ | (481) | | | $ | (6,615) | | | $ | (4,870) | |
Search | $ | 83,486 | | | $ | 108,381 | | | $ | 51,344 | |
Emerging & Other | $ | (1,643) | | | $ | 33,383 | | | $ | (37,699) | |
Corporate | $ | (79,521) | | | $ | (95,985) | | | $ | (147,433) | |
_____________________
(e) The Company's primary financial measure and GAAP segment measure is Adjusted EBITDA, which is defined as operating income: excluding: (1) stock-based compensation expense; (2) depreciation; and (3) acquisition-related items consisting of (i) amortization of intangible assets and impairments of goodwill and intangible assets, if applicable, and (ii) gains and losses recognized on changes in the fair value of contingent consideration arrangements.
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
The following tables reconcile operating (loss) income for the Company's reportable segments and net earnings attributable to IAC shareholders to Adjusted EBITDA:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2022 |
| Operating (Loss) Income(d) | | Stock-Based Compensation Expense | | Depreciation(g) | | Amortization of Intangibles | | Acquisition-related Contingent Consideration Fair Value Adjustments | | Goodwill Impairment | | Adjusted EBITDA(e)(f) |
| (In thousands) |
Dotdash Meredith | | | | | | | | | | | | | |
Digital | $ | (66,629) | | | $ | 20,596 | | | $ | 27,569 | | | $ | 205,772 | | | $ | (612) | | | $ | — | | | $ | 186,696 | |
Print | (54,448) | | | $ | 1,023 | | | $ | 12,620 | | | $ | 71,940 | | | $ | — | | | $ | — | | | $ | 31,135 | |
Other(c) | (67,014) | | | $ | 136 | | | $ | 1,196 | | | $ | — | | | $ | — | | | $ | — | | | $ | (65,682) | |
Angi Inc. | | | | | | | | | | | | | |
Ads and Leads | 85,593 | | | $ | 19,972 | | | $ | 52,737 | | | $ | 10,650 | | | $ | — | | | $ | — | | | $ | 168,952 | |
Services | (95,166) | | | $ | 18,012 | | | $ | 21,904 | | | $ | 3,124 | | | $ | — | | | $ | — | | | $ | (52,126) | |
Roofing | (50,685) | | | $ | 1,866 | | | $ | 747 | | | $ | 667 | | | $ | — | | | $ | 26,005 | | | $ | (21,400) | |
Other(c) | (61,794) | | | $ | 11,928 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | (49,866) | |
International | (4,253) | | | $ | 890 | | | $ | 2,882 | | | $ | — | | | $ | — | | | $ | — | | | $ | (481) | |
Search | 83,398 | | | $ | — | | | $ | 88 | | | $ | — | | | $ | — | | | $ | — | | | $ | 83,486 | |
Emerging & Other | (106,154) | | | $ | 507 | | | $ | 1,691 | | | $ | 15,565 | | | $ | — | | | $ | 86,748 | | | $ | (1,643) | |
Corporate (g) | (137,619) | | | $ | 48,546 | | | $ | 9,552 | | | $ | — | | | $ | — | | | $ | — | | | $ | (79,521) | |
Total | (474,771) | | | | | | | | | | | | | |
Interest expense | (110,165) | | | | | | | | | | | | | |
Unrealized loss on investment in MGM | (723,515) | | | | | | | | | | | | | |
Other expense, net | (217,785) | | | | | | | | | | | | | |
Loss from continuing operations before income taxes | (1,526,236) | | | | | | | | | | | | | |
Income tax benefit | 331,087 | | | | | | | | | | | | | |
Net loss from continuing operations | (1,195,149) | | | | | | | | | | | | | |
Earnings from discontinued operations, net of tax | 2,694 | | | | | | | | | | | | | |
Net loss | (1,192,455) | | | | | | | | | | | | | |
Net loss attributable to noncontrolling interests | 22,285 | | | | | | | | | | | | | |
Net loss attributable to IAC shareholders | $ | (1,170,170) | | | | | | | | | | | | | |
_____________________
(g) Includes stock-based compensation expense for stock-based awards granted to employees of Corporate, Search and all Emerging & Other businesses other than Vivian Health.
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
| Operating Income (Loss)(d) | | Stock-Based Compensation Expense | | Depreciation | | Amortization of Intangibles | | Acquisition-related Contingent Consideration Fair Value Arrangements | | | | Adjusted EBITDA(e) |
| (In thousands) |
Dotdash Meredith | | | | | | | | | | | | | |
Digital | $ | 73,980 | | | $ | 1,438 | | | $ | 4,257 | | | $ | 11,512 | | | $ | (8) | | | | | $ | 91,179 | |
Print | (6,527) | | | $ | — | | | $ | 1,827 | | | $ | 7,339 | | | $ | — | | | | | $ | 2,639 | |
Other(c) | (60,277) | | | $ | — | | | $ | 81 | | | $ | — | | | $ | — | | | | | $ | (60,196) | |
Angi Inc. | | | | | | | | | | | | | |
Ads and Leads | 65,485 | | | $ | 12,722 | | | $ | 46,025 | | | $ | 12,028 | | | $ | — | | | | | $ | 136,260 | |
Services | (63,984) | | | $ | 4,672 | | | $ | 7,049 | | | $ | 4,060 | | | $ | — | | | | | $ | (48,203) | |
Roofing | (8,596) | | | $ | 531 | | | $ | 221 | | | $ | 333 | | | $ | — | | | | | $ | (7,511) | |
Other(c) | (56,196) | | | $ | 10,121 | | | $ | — | | | $ | 9 | | | $ | — | | | | | $ | (46,066) | |
International | (13,222) | | | $ | 656 | | | $ | 5,951 | | | $ | — | | | $ | — | | | | | $ | (6,615) | |
Search | 108,334 | | | $ | — | | | $ | 47 | | | $ | — | | | $ | — | | | | | $ | 108,381 | |
Emerging & Other | (22,738) | | | $ | 101 | | | $ | 1,462 | | | $ | 39,558 | | | $ | 15,000 | | | | | $ | 33,383 | |
Corporate (g) | (153,326) | | | $ | 49,246 | | | $ | 8,095 | | | $ | — | | | $ | — | | | | | $ | (95,985) | |
Total | (137,067) | | | | | | | | | | | | | |
Interest expense | (34,264) | | | | | | | | | | | | | |
Unrealized gain on investment in MGM | 789,283 | | | | | | | | | | | | | |
Other income, net | 111,854 | | | | | | | | | | | | | |
Earnings from continuing operations before income taxes | 729,806 | | | | | | | | | | | | | |
Income tax provision | (138,990) | | | | | | | | | | | | | |
Net earnings from continuing operations | 590,816 | | | | | | | | | | | | | |
Loss from discontinued operations, net of tax | (1,831) | | | | | | | | | | | | | |
Net earnings | 588,985 | | | | | | | | | | | | | |
Net loss attributable to noncontrolling interests | 8,562 | | | | | | | | | | | | | |
Net earnings attributable to IAC shareholders | $ | 597,547 | | | | | | | | | | | | | |
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2020 |
| Operating Income (Loss) | | Stock-Based Compensation Expense | | Depreciation | | Amortization of Intangibles | | Acquisition-related Contingent Consideration Fair Value Adjustments | | Goodwill Impairment | | Adjusted EBITDA(e) |
| (In thousands) |
Dotdash Meredith | $ | 50,241 | | | $ | — | | | $ | 1,794 | | | $ | 14,171 | | | $ | — | | | $ | — | | | $ | 66,206 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Angi Inc. | | | | | | | | | | | | | |
Ads and Leads | 133,365 | | | $ | 14,241 | | | $ | 44,748 | | | $ | 38,443 | | | $ | — | | | $ | — | | | $ | 230,797 | |
Services | (44,592) | | | $ | 7,601 | | | $ | 3,638 | | | $ | 4,100 | | | $ | — | | | $ | — | | | $ | (29,253) | |
Roofing | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Other(c) | (84,674) | | | $ | 60,752 | | | $ | — | | | $ | 52 | | | $ | — | | | $ | — | | | $ | (23,870) | |
International | (10,467) | | | $ | 1,055 | | | $ | 4,235 | | | $ | 307 | | | $ | — | | | $ | — | | | $ | (4,870) | |
Search | (248,711) | | | $ | — | | | $ | 2,709 | | | $ | 32,200 | | | $ | — | | | $ | 265,146 | | | $ | 51,344 | |
Emerging & Other | (70,896) | | | $ | 100 | | | $ | 2,449 | | | $ | 37,566 | | | $ | (6,918) | | | $ | — | | | $ | (37,699) | |
Corporate (g) | (261,929) | | | $ | 105,246 | | | $ | 9,250 | | | $ | — | | | $ | — | | | $ | — | | | $ | (147,433) | |
Total | (537,663) | | | | | | | | | | | | | |
Interest expense | (16,166) | | | | | | | | | | | | | |
Unrealized gain on investment in MGM | 840,550 | | | | | | | | | | | | | |
Other expense, net | (42,561) | | | | | | | | | | | | | |
Earnings from continuing operations before income taxes | 244,160 | | | | | | | | | | | | | |
Income tax benefit | 45,707 | | | | | | | | | | | | | |
Net earnings from continuing operations | 289,867 | | | | | | | | | | | | | |
Loss from discontinued operations, net of tax | (21,281) | | | | | | | | | | | | | |
Net earnings | 268,586 | | | | | | | | | | | | | |
Net earnings attributable to noncontrolling interests | 1,140 | | | | | | | | | | | | | |
Net earnings attributable to IAC shareholders | $ | 269,726 | | | | | | | | | | | | | |
The following table presents capital expenditures by reportable segment:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| (In thousands) |
Capital expenditures: | | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Dotdash Meredith | $ | 12,885 | | | $ | 4,823 | | | $ | 5,445 | |
Angi Inc. | 116,352 | | | 70,215 | | | 52,488 | |
Search | 17 | | | 178 | | | 47 | |
Emerging & Other | 10,109 | | | 894 | | | 1,363 | |
Corporate | 390 | | | 14,100 | | | 1,383 | |
Total | $ | 139,753 | | | $ | 90,210 | | | $ | 60,726 | |
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
NOTE 12—STOCK-BASED COMPENSATION
IAC currently has one active plan (the "Plan") under which stock-based awards denominated in shares of or stock-based awards settleable in IAC common stock have been and may be granted. This Plan was an Old IAC plan and was adopted by the Company and became effective upon the consummation of the MTCH Separation. The Plan has a stated term of ten years. The Plan does not specify grant dates or vesting schedules of awards as those determinations have been delegated to the Compensation and Human Resources Committee of IAC's Board of Directors (the "Committee"). Each grant agreement reflects the vesting schedule for that grant as determined by the Committee. There are also outstanding stock-based awards that were granted under older plans that have since expired or been discontinued. The Plan provides for grants of stock options to acquire shares of IAC common stock (the exercise price of stock options granted will not be less than the market price of the Company's common stock on the grant date), RSUs denominated in shares of IAC common stock, including those that may be linked to the achievement of the Company's stock price, known as market-based awards ("MSUs") and those that may be linked to the achievement of a performance target, known as performance-based awards ("PSUs"), restricted stock, as well as other equity awards, including those denominated or settleable in IAC shares. The Plan authorizes the Company to grant awards to its employees, officers, directors and consultants. At December 31, 2022, there are 31.4 million IAC common shares of stock reserved for future issuance under this plan.
IAC Denominated Stock-based Awards
IAC Restricted Common Stock
On November 5, 2020, the Company entered into a new, ten-year employment agreement and a Restricted Stock Agreement ("RSA Agreement") with Joseph Levin, IAC's Chief Executive Officer ("CEO"). The RSA Agreement provides for a grant of 3,000,000 shares of IAC restricted common stock that cliff vest on the ten-year anniversary of the grant date based on satisfaction of IAC's stock price targets and Mr. Levin's continued employment through the vesting date.
Mr. Levin may request an extension of the measurement and vesting period from 10 to 12 years and IAC will consider the request in light of the circumstances.
Mr. Levin may elect to accelerate vesting of the IAC restricted shares, effective on the 6th, 7th, 8th, or 9th anniversary of the grant date, in which case performance will be measured through such date, and Mr. Levin will receive a pro-rated portion of the award (based on the years elapsed from the grant date) and any remaining shares will be forfeited. The applicable stock price goals are proportionately lower on the earlier vesting dates.
The value of the restricted common stock grant was estimated using a lattice model that incorporates a Monte Carlo simulation of IAC's stock price. The fair value of the restricted common stock grant on November 5, 2020 was $61.06 per share. The total grant date fair value of the award was $183.2 million.
In connection with the Spin-off, pursuant to the RSA Agreement, the stock price targets of the IAC restricted stock award were adjusted to reflect the effect of the Spin-off and Vimeo entered into a separate restricted stock agreement granting Mr. Levin shares of Vimeo common stock subject to the same terms and conditions of the RSA Agreement except for the stock price targets for each respective award. The total fair value of the modified IAC restricted stock award and the new Vimeo restricted stock award was $228.3 million, of which $141.1 million was allocated to the IAC restricted stock award and $87.3 million was allocated to the Vimeo restricted stock award. Both awards were estimated using a lattice model that incorporated a Monte Carlo simulation of IAC's and Vimeo's stock price on the modification date. In connection with the modified IAC restricted stock award, $10.1 million of expense had previously been recorded prior to the Spin-off and $131.0 million of expense is to be recognized over the remaining vesting period. At December 31, 2022, there is $108.7 million of unrecognized compensation cost that is left to be recognized related to this award.
IAC Restricted Stock Units
RSU awards currently outstanding generally cliff-vest after a five-year period from the grant date. There are no MSU or PSU awards outstanding at December 31, 2022 and 2021.
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
RSUs are awards in the form of phantom shares or units denominated in a hypothetical equivalent number of shares of IAC common stock and with the value of each RSU equal to the fair value of IAC common stock at the date of grant. Each RSU grant is subject to service-based vesting, where a specific period of continued employment must pass before an award vests. The expense is measured at the grant date as the fair value of IAC common stock and expensed as stock-based compensation over the vesting term.
Unvested RSUs outstanding at December 31, 2022 and changes during the period ended December 31, 2022 are as follows:
| | | | | | | | | | | |
| RSUs |
| Number of Shares | | Weighted Average Grant Date Fair Value |
| (Shares in thousands) |
Unvested at January 1 | 1,546 | | | $ | 80.38 | |
Granted | 280 | | | 114.27 | |
Vested | (284) | | | 44.87 | |
Forfeited | (84) | | | 77.27 | |
| | | |
| | | |
| | | |
| | | |
| | | |
Unvested at December 31 | 1,458 | | | $ | 93.29 | |
RSU awards are settled on a net basis, with the award holder entitled to receive IAC shares equal to the number of RSUs vesting less a number of shares with a value equal to the required cash tax withholding payment, which will be paid by the Company. The number of IAC common shares that would be required to net settle RSUs outstanding at February 10, 2023 is 0.7 million shares. In addition, withholding taxes, which will be paid by the Company on behalf of the employees upon vesting, would have been $35.9 million at February 10, 2023, assuming a 50% withholding rate.
The weighted average fair value of RSUs granted for the years ended December 31, 2022 and 2021 and for the period from the MTCH Separation through December 31, 2020, based on market prices of IAC's common stock on the grant date, was $114.27, $171.53 and $128.82, respectively.
The total fair value of RSUs that vested for the years ended December 31, 2022 and 2021 and for the period from the MTCH Separation through December 31, 2020 was $12.7 million, $15.9 million and $3.8 million, respectively. During 2020, all outstanding MSUs vested. The total fair value of MSUs that vested for the period from the MTCH Separation through December 31, 2020 was $43.6 million.
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
IAC Stock Options
All outstanding stock options are fully vested.
Stock options outstanding at December 31, 2022 and changes during the period ended December 31, 2022 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term in Years | | Aggregate Intrinsic Value |
| (Shares and intrinsic value in thousands) |
Options Outstanding at January 1 | 2,896 | | | $ | 13.98 | | | | | |
Granted | — | | | — | | | | | |
Exercised | (74) | | | 11.51 | | | | | |
Forfeited | — | | | — | | | | | |
Expired | — | | | — | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Options Outstanding at December 31 | 2,822 | | | $ | 14.05 | | | 2.7 | | $ | 85,661 | |
Options exercisable | 2,822 | | | $ | 14.05 | | | 2.7 | | $ | 85,661 | |
The aggregate intrinsic value in the table above represents the difference between IAC's closing stock price on the last trading day of 2022 and the exercise price, multiplied by the number of in-the-money options that would have been exercised had all option holders exercised their options on December 31, 2022. The total intrinsic value of IAC stock options exercised during the years ended December 31, 2022 and 2021 and for the period from the MTCH Separation through December 31, 2020 was $3.4 million, $135.1 million and $74.8 million, respectively.
The following table summarizes the information about stock options outstanding and exercisable at December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Options Outstanding | | Options Exercisable |
Range of Exercise Prices | Outstanding at December 31, 2022 | | Weighted- Average Remaining Contractual Life in Years | | Weighted- Average Exercise Price | | Exercisable at December 31, 2022 | | Weighted- Average Remaining Contractual Life in Years | | Weighted- Average Exercise Price |
| (Shares in thousands) |
Less than $10.00 | 529 | | | 2.7 | | $ | 8.54 | | | 529 | | | 2.7 | | $ | 8.54 | |
$10.01 to $15.00 | 691 | | | 2.2 | | 13.62 | | | 691 | | | 2.2 | | 13.62 | |
$15.01 to $20.00 | 1,598 | | | 2.9 | | 16.04 | | | 1,598 | | | 2.9 | | 16.04 | |
Greater than $20.01 | 4 | | | 4.6 | | 21.17 | | | 4 | | | 4.6 | | 21.17 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| 2,822 | | | 2.7 | | $ | 14.05 | | | 2,822 | | | 2.7 | | $ | 14.05 | |
The fair value of stock option awards, with the exception of market-based awards, is estimated on the grant date using the Black-Scholes option pricing model. The Black-Scholes option pricing model incorporates various assumptions, including expected volatility, risk-free interest rate and expected term.
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
The Company has the discretion to settle IAC stock options net of withholding tax and exercise price or require the award holder to pay its share of the withholding tax, which he or she may do so by selling IAC common shares. The aggregate intrinsic value of IAC's stock options outstanding as of February 10, 2023, is $105.7 million. Assuming all stock options outstanding on February 10, 2023 were net settled on that date, the Company would have issued 1.0 million common shares and would have remitted $52.9 million in cash for withholding taxes (assuming a 50% withholding rate). Assuming all stock options outstanding on February 10, 2023 were settled through the issuance of a number of IAC common shares equal to the number of stock options exercised, the Company would have issued 2.8 million common shares and would have received $39.3 million in cash proceeds.
Stock-based Awards Denominated in the Shares of Certain Subsidiaries
Non-publicly traded Subsidiaries
The following description excludes awards denominated in Angi Inc. shares.
The Company has granted stock settled stock appreciation rights to employees and management that are denominated in the equity of certain non-publicly traded subsidiaries of the Company. These equity awards vest over a period of years or upon the occurrence of certain prescribed events. The value of the stock settled stock appreciation rights is tied to the value of the common stock of these subsidiaries. Accordingly, these interests only have value to the extent the relevant business appreciates in value above the initial value utilized to determine the exercise price. These interests can have significant value in the event of significant appreciation. The fair value of these interest is generally determined by the Board of Directors of the applicable subsidiary, which will occur at various dates through 2029. These equity awards are settled on a net basis, with the award holder entitled to receive a payment in IAC common shares equal to the intrinsic value of the award at exercise less an amount equal to the required cash tax withholding payment, which will be paid by the Company. The number of IAC common shares ultimately needed to settle these awards may vary significantly from the estimated number below as a result of both movements in our stock price and a determination of fair value of the relevant subsidiary that is different than our estimate. The expense associated with these equity awards is initially measured at fair value at the grant date and is expensed as stock-based compensation over the vesting term. The number of IAC common shares that would be required to settle these interests at current estimated fair values, including vested and unvested interests, at February 10, 2023 is 0.3 million shares. Withholding taxes, which will be paid by the Company on behalf of the employees upon exercise, would have been $16.5 million at February 10, 2023, assuming a 50% withholding rate.
Angi Inc.
Angi Inc. currently settles all of its equity awards on a net basis. Certain Angi Inc. stock appreciation rights issued prior to the transaction resulting in formation of Angi Inc. in 2017 (the "Combination") are settleable in either shares of Angi 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 of its common stock. The aggregate intrinsic value of these awards outstanding at February 10, 2023 is $0.1 million; assuming these awards were net settled on that date, the withholding taxes that would be payable by Angi Inc. are less than $0.1 million, assuming a 50% withholding rate, and Angi Inc. would have issued less than 0.1 million shares. Certain equity awards denominated in shares of Angi Inc.'s subsidiaries may be settled in either shares of Angi Inc. common stock or IAC common stock at IAC's option. 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 of Angi Inc. common stock. The aggregate intrinsic value of all other Angi Inc. equity awards, including stock options, RSUs and subsidiary denominated equity at February 10, 2023 is $59.0 million; assuming these awards were net settled on that date, the withholding taxes that would be payable by Angi Inc. on behalf of the employees are $28.9 million, assuming a 50% withholding rate, and Angi Inc. would have issued 10.4 million shares of its common stock.
Modification of awards
During 2020, the Company modified certain equity awards in connection with the MTCH Separation and recognized a modification charge of $56.6 million, of which $55.7 million was recognized as stock-based compensation expense in the year ended December 31, 2020 and the remaining charge related to the modified awards was recognized over 2021 and 2022. In addition, certain other equity awards were modified during 2020 resulting in modification charges of $20.5 million in the aggregate, all of which was recorded in 2020 and $14.1 million of which was recorded by Angi Inc.
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
In connection with the Combination, the previously issued HomeAdvisor (US) stock appreciation rights were converted into Angi Inc. equity awards resulting in a modification charge of $217.7 million of which $0.9 million and $21.1 million were recognized as stock-based compensation expense in the years ended December 31, 2021 and 2020, respectively.
Forfeitures and Unrecognized Compensation Cost
The amount of stock-based compensation expense recognized in the statement of operations is net of estimated forfeitures. The forfeiture rate is estimated at the grant date based on historical experience and revised, if necessary, in subsequent periods if actual forfeitures differ from the estimated rate. The expense ultimately recorded is for the awards that vest. At December 31, 2022, there is $322.4 million of unrecognized compensation cost, net of estimated forfeitures, related to all equity-based awards, which is expected to be recognized over a weighted average period of approximately 4.5 years.
Tax Benefits
The total income tax benefit recognized in the statement of operations for the years ended December 31, 2022, 2021 and 2020 related to all stock-based compensation expense is $20.0 million, $101.8 million and $198.3 million, respectively.
The aggregate income tax benefit recognized related to the exercise of stock options for the years ended December 31, 2022, 2021 and 2020, is $1.7 million, $81.0 million, and $165.8 million, respectively. There may be some delay in the timing of the realization of the cash benefit of the income tax deductions related to stock-based compensation because it will be dependent upon the amount and timing of future taxable income and the timing of estimated income tax payments.
NOTE 13—PENSION AND POSTRETIREMENT BENEFIT PLANS
Pension and Postretirement Plans
In connection with the acquisition of Meredith, the Company assumed the obligations under Meredith’s various pension plans. The plans include U.S. noncontributory pension plans that cover substantially all employees who were employed by Meredith prior to January 1, 2018. There are two international pension plans in the U.K., including the IPC Pension Scheme ("IPC Plan"); the international plans have no active participants. The two U.S. and two U.K. plans consist of a qualified (funded) plan and a nonqualified (unfunded) plan in each country. These plans provide participants with retirement benefits in accordance with benefit provision formulas. The nonqualified pension plans provide retirement benefits to certain highly compensated employees. The Company also assumed Meredith's defined healthcare and life insurance plans that provide benefits to eligible employees upon their retirement.
On July 28, 2022, following approval by the trustees of the IPC Plan, the IPC Plan entered into an annuity contract with a private limited life insurance company covering all IPC Plan participants who were not covered by an annuity contract entered into in May 2020. The annuity contracts are designed to provide payments equal to all future designated contractual benefit payments to covered participants until the annuity contracts are settled. The value of the annuity contracts and the liabilities with respect to participants are expected to match (i.e., the full benefits have been annuitized). The Company remains responsible for paying pension benefits to the IPC Pension Scheme participants. While the Company currently does not expect to be required to make additional contributions to the IPC Pension Scheme, this may change based upon future events or as additional information becomes available.
On September 13, 2022, the board of directors of Meredith voted unanimously to freeze and terminate the U.S. funded pension plan effective December 31, 2022. All participants in this plan on the termination date continue as participants in the plan with respect to their accrued benefits until their accrued benefits are distributed to them or their beneficiaries. In addition, the participant's covered compensation was frozen effective December 31, 2022. Participants will no longer receive a benefit credit under the plan, but participants will continue to receive interest credits pursuant to the terms of the plan. The Company does not expect to have to make any contributions to the plan in the future due to its termination and overfunded status.
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
Obligations and Funded Status
Change in Net Assets/Liabilities
The following tables present changes in, and components of, the Company's net assets/liabilities for pension and other postretirement benefits:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2022 | | Year Ended December 31, 2021 |
| Pension | | Postretirement | | Pension | | Postretirement |
| Domestic | | International | | Domestic | | Domestic | | International | | Domestic |
| (In thousands) |
Change in benefit obligation | | | | | | | | | | | |
Benefit obligation, beginning of year | $ | 166,800 | | | $ | 790,663 | | | $ | 10,808 | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | |
Acquisition and related fair value adjustments (a) | 23,345 | | | — | | | — | | | 154,920 | | | 850,774 | | | 10,923 | |
Service cost | 3,562 | | | — | | | 7 | | | 368 | | | — | | | 1 | |
Interest cost | 4,372 | | | 15,014 | | | 262 | | | 224 | | | 981 | | | 22 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Net actuarial gain | (7,262) | | | (210,284) | | | (3,717) | | | (158) | | | (54,660) | | | (132) | |
Benefits paid (including lump sums) | (9,105) | | | (15,521) | | | 150 | | | (339) | | | (1,529) | | | (6) | |
Settlements | (96,100) | | | (34,374) | | | (3,037) | | | — | | | (9,361) | | | — | |
Curtailment gain | (3,060) | | | — | | | — | | | — | | | — | | | — | |
Contractual termination benefits | — | | | — | | | — | | | 11,785 | | | — | | | — | |
Plan transfer (b) | (9,564) | | | — | | | — | | | — | | | — | | | — | |
Foreign currency exchange rate impact | — | | | (77,669) | | | — | | | — | | | 4,458 | | | — | |
Benefit obligation, end of year | $ | 72,988 | | | $ | 467,829 | | | $ | 4,473 | | | $ | 166,800 | | | $ | 790,663 | | | $ | 10,808 | |
Change in plan assets | | | | | | | | | | | |
Fair value of plan assets, beginning of year | $ | 132,326 | | | $ | 1,015,274 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | |
Acquisition and related fair value adjustments (a) | 18,596 | | | — | | | — | | | 129,765 | | | 1,053,902 | | | — | |
Actual return on plan assets | (12,657) | | | (397,417) | | | — | | | 2,886 | | | (62,744) | | | — | |
Employer contributions | 44,221 | | | 122 | | | — | | | 14 | | | 29,229 | | | 6 | |
| | | | | | | | | | | |
Benefits paid (including lump sums) | (9,105) | | | (15,521) | | | — | | | (339) | | | (1,529) | | | (6) | |
Settlements | (95,182) | | | (34,374) | | | — | | | — | | | (9,361) | | | — | |
| | | | | | | | | | | |
Foreign currency exchange rate impact | — | | | (100,193) | | | — | | | — | | | 5,777 | | | — | |
Fair value of plan assets, end of year | $ | 78,199 | | | $ | 467,891 | | | $ | — | | | $ | 132,326 | | | $ | 1,015,274 | | | $ | — | |
Over (under) funded status, end of year | $ | 5,211 | | | $ | 62 | | | $ | (4,473) | | | $ | (34,474) | | | $ | 224,611 | | | $ | (10,808) | |
_____________________
(a) All pension and postretirement plans were acquired with the acquisition of Meredith on December 1, 2021. The purchase accounting for the acquisition of Meredith was completed in the fourth quarter of 2022.
(b) Obligations and assets associated with certain former Meredith Corporation employees were transferred during 2022 to the third-party that purchased the entity on December 1, 2021.
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
Benefits paid directly from Dotdash Meredith assets are included both in employer contributions and benefits paid.
Domestic Plans
The acquisition of Meredith triggered settlement of the entire benefit obligation of one of the two unfunded plans. This plan was paid out in its entirety as was a substantial portion of the benefit obligations of the other unfunded plan. These payments are included in the $96.1 million of settlements in the table above and resulted in the overall increase in the funded status of the domestic pension plans. See "Note 5—Dotdash Meredith Restructuring Charges, Transaction-Related Expenses and Change-in-Control Payments" for additional information on the change-in-control payments. For the funded plan, higher interest rates and losses on equity securities led to a decrease in plan assets; and the higher interest rates reduced plan obligations. The gains realized on the plan's obligation did not offset the loss on assets, resulting in an overall loss for the year ended December 31, 2022. Additionally, the funded plan realized a curtailment gain as a result of the benefit freeze of the plan discussed above, but this gain was nearly offset by a loss realized for the measurement of the plan on a termination basis. The net actuarial gain included in the change in benefit obligation for the domestic postretirement plans for the year ended December 31, 2022 is the result of demographic shifts in the covered participants. International Plans
The international pension plans primarily consist of the IPC Plan. The overall decline in the funded status of the plan during the year was due to the impact of higher interest rates with the decline in the value of assets exceeding the benefit of the reduction in the plan obligation, resulting in an overall loss for the year ended December 31, 2022.
The net actuarial gain included in the change in benefit obligation for the international pension plans for the year ended December 31, 2021, is primarily a result of the increase in the discount rate used at December 31, 2021, as compared to December 1, 2021, as well as a slight decrease in the inflation assumptions over the same period, partially offset by experience losses due to certain plan participants electing a full settlement of their benefit obligation under an ongoing enhanced transfer value exercise.
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
Balance Sheet Classification
The following amounts are recognized in the December 31, 2022 and 2021 balance sheet, respectively:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2022 | | Year Ended December 31, 2021 |
| Pension | | Postretirement | | Pension | | Postretirement |
| Domestic | | International | | Domestic | | Domestic | | International | | Domestic |
| (In thousands) |
Other non-current assets | | | | | | | | | | | |
Prepaid benefit cost | $ | 9,561 | | | $ | 4,358 | | | $ | — | | | $ | 24,318 | | | $ | 231,791 | | | $ | — | |
Accrued expenses and other current liabilities | | | | | | | | | | | |
Accrued benefit liability | (698) | | | (127) | | | (475) | | | (52,523) | | | — | | | (1,146) | |
Other long-term liabilities | | | | | | | | | | | |
Accrued benefit liability | (3,652) | | | (4,169) | | | (3,998) | | | (6,269) | | | (7,180) | | | (9,662) | |
Net amount recognized | $ | 5,211 | | | $ | 62 | | | $ | (4,473) | | | $ | (34,474) | | | $ | 224,611 | | | $ | (10,808) | |
The accumulated benefit obligation for the domestic defined benefit pension plans was $72.5 million and $159.2 million at December 31, 2022 and 2021, respectively. The accumulated benefit obligation for the international defined benefit pension plans was $467.8 million and $790.7 million at December 31, 2022 and 2021, respectively.
Accumulated and Projected Benefit Obligations
The following table provides information about pension plans with projected benefit obligations and accumulated benefit obligations in excess of plan assets:
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2022 | | Year Ended December 31, 2021 |
| Domestic | | International | | Domestic | | International |
| (In thousands) |
Projected benefit obligation | $ | 4,350 | | | $ | 4,296 | | | $ | 58,789 | | | $ | 7,179 | |
Accumulated benefit obligation | $ | 3,831 | | | $ | 4,296 | | | $ | 57,669 | | | $ | 7,179 | |
Fair value of plan assets | $ | — | | | $ | — | | | $ | — | | | $ | — | |
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
Costs
The components of net periodic benefit cost (credit) recognized in the statement of operations were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2022 | | Year Ended December 31, 2021 |
| Pension | Postretirement | | Pension | Postretirement |
| Domestic | | International | | Domestic | | Domestic | | International | | Domestic |
| (In thousands) |
Service cost | $ | 3,562 | | | $ | — | | | $ | 7 | | | $ | 368 | | | $ | — | | | $ | 1 | |
Interest cost | 4,372 | | | 15,014 | | | 262 | | | 224 | | | 981 | | | 22 | |
Expected return on plan assets | (2,748) | | | (16,857) | | | — | | | (564) | | | (1,640) | | | — | |
| | | | | | | | | | | |
Actuarial loss (gain) recognition | 8,154 | | | 208,957 | | | (3,717) | | | (2,480) | | | 9,724 | | | (132) | |
Settlement | (918) | | | — | | | (3,037) | | | — | | | — | | | — | |
Contractual termination benefits | — | | | — | | | — | | | 11,785 | | | — | | | — | |
Curtailment gain | (3,060) | | | — | | | — | | | — | | | — | | | — | |
Net periodic benefit cost (credit) | $ | 9,362 | | | $ | 207,114 | | | $ | (6,485) | | | $ | 9,333 | | | $ | 9,065 | | | $ | (109) | |
The actuarial loss recognition on the international plans is the result of the decrease in the net asset position due to higher interest rates described above. The curtailment gain and settlement loss on the domestic pension and postretirement plans were triggered by the freeze and termination events described above.
The contractual termination benefit charges for the domestic plans in 2021 were related to change-in-control agreements for six executives. The change-in-control payments were triggered by IAC's acquisition of Meredith. The employment agreements for the covered executives provided for immediate vesting in any unvested benefits, as well as an additional three years of continued service, age and pay credit in each of the pension plans in which they were participants. These payments are further discussed in "Note 5—Dotdash Meredith Restructuring Charges, Transaction-Related Expenses and Change-in-Control Payments." The components of net periodic benefit cost (credit), other than the service cost component, are included in "Other (expense) income, net" in the statement of operations.
Assumptions
Benefit obligations were determined using the following weighted average assumptions:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2022 | | Year Ended December 31, 2021 |
| Pension | Postretirement | | Pension | Postretirement |
| Domestic | | International | | Domestic | | Domestic | | International | | Domestic |
Weighted average assumptions | | | | | | | | | | | |
Discount rate | 5.41 | % | | 4.13 | % | | 5.46 | % | | 2.04 | % | | 1.67 | % | | 2.61 | % |
Rate of compensation increase | 2.99 | % | | N/A | | 3.50 | % | | 2.95 | % | | N/A | | 3.50 | % |
Cash balance interest rate credit | 2.39 | % | | N/A | | N/A | | 2.13 | % | | N/A | | N/A |
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
Net periodic benefit cost (credit) were determined using the following weighted average assumptions:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2022 | | Year Ended December 31, 2021 |
| Pension | | Postretirement | | Pension | | Postretirement |
| Domestic | | International | | Domestic | | Domestic | | International | | Domestic |
Weighted average assumptions | | | | | | | | | | | |
Discount rate | 3.28 | % | | 1.67 | % | | 2.61 | % | | 2.02 | % | | 1.40 | % | | 2.52 | % |
Expected return on plan assets | 2.80 | % | | 1.90 | % | | N/A | | 6.00 | % | | 1.90 | % | | N/A |
Rate of compensation increase | 2.95 | % | | N/A | | 3.50 | % | | 2.90 | % | | N/A | | 3.50 | % |
Cash balance interest credit rate | 3.65 | % | | N/A | | N/A | | 2.04 | % | | N/A | | N/A |
The assumed healthcare trend rates used to measure the expected cost of benefits were as follows:
| | | | | | | | | | | |
| Postretirement |
| 2022 | | 2021 |
Assumed healthcare cost trend rate | | | |
Rate of increase in healthcare cost levels | | | |
Initial level | 6.25 | % | | 6.50 | % |
Ultimate level | 5.00 | % | | 5.00 | % |
Years to ultimate level | 5 | | 6 |
Since the Company utilizes the mark-to-market approach to account for pension and postretirement benefits, the expected long-term rate of return on assets has no effect on the overall amount of net periodic benefit cost (credit) recorded for the year. For 2023, the expectation for the U.K. annuity contracts represents the implied yields for those contracts, while for the domestic plan it represents the expected yield on the short-term fixed income securities held.
The value (market-related value) of plan assets is multiplied by the expected long-term rate of return on assets to compute the expected return on plan assets, a component of net periodic pension cost. The market-related value of plan assets is fair value.
Plan Assets
The targeted and weighted average asset allocations by asset category for investments held by the Company’s pension plans are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2022 | | Year Ended December 31, 2021 |
| Domestic Allocation | | International Allocation | | Domestic Allocation | | International Allocation |
| Target | | Actual | | Target | | Actual | | Target | | Actual | | Target | | Actual |
Equity securities | —% | | —% | | —% | | —% | | 62% | | 63% | | 1% | | 2% |
Fixed income securities | —% | | —% | | —% | | —% | | 38% | | 36% | | 63% | | 63% |
Other securities (b) | 100% | | 100% | | 100% | | 100% | | —% | | 1% | | 36% | | 35% |
Total | 100% | | 100% | | 100% | | 100% | | 100% | | 100% | | 100% | | 100% |
_____________________
(b) Other primarily includes cash and cash equivalents in the U.S. and insurance annuity contracts in the U.K.
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
Due to the decision to freeze and terminate the U.S. funded pension plan, the plan fiduciaries shifted the investment strategy to seek to preserve capital to protect the strong funded status, manage liquidity to align with potential benefit commencements and optimize yield to take advantage of the rising interest rate environment. The plan adopted a fixed income ladder investment strategy through which most of the plan assets are invested in U.S. Treasury securities of various maturities and a money market fund that invests mostly in U.S. Treasury securities. The objectives of the investment strategy are to minimize default and price risk of the plan assets, and liquidity risk of the plan. Prior to the determination to freeze and terminate the plan, the Company’s investment policy was to seek to maximize investment returns while balancing the Company’s tolerance for risk. The plan fiduciaries of the U.S. funded pension plan oversaw the investment allocation process by selecting investment managers, setting long-term strategic targets and monitoring asset allocations. The investment portfolio contained a diversified blend of equity and fixed-income investments, and equity investments were diversified across domestic and international stocks and between growth and value stocks and small and large capitalizations.
Prior to the purchase of the second annuity contract in the third quarter of 2022, the trustees of the IPC Pension Scheme defined benefit pension plan in the U.K delegated the day-to-day investment decisions of the IPC Plan to a large international fiduciary manager and utilized a separate investment consultant to monitor and evaluate the investment performance of the fiduciary manager. The investment objective of the IPC Plan was to invest the assets prudently to fully fund the IPC Plan over time. As a result of the insurance annuity transaction almost all of the remaining plan assets were converted into the insurance annuity and the trustees no longer required the fiduciary manager to make investment decisions.
Fair value measurements for the U.S. funded pension plan assets were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Quoted Market Prices for Identical Assets in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total Fair Value Measurements |
| (In thousands) |
| | | | | | | |
Cash and cash equivalents | $ | 78,199 | | | $ | — | | | $ | — | | | $ | 78,199 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Quoted Market Prices for Identical Assets in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total Fair Value Measurements |
| (In thousands) |
Investments in registered investment companies | | | | | | | |
Equity | $ | 65,982 | | | $ | 17,866 | | | $ | — | | | $ | 83,848 | |
Fixed income | 7,442 | | | 39,148 | | | — | | | 46,590 | |
Pooled separate accounts | — | | | 1,888 | | | — | | | 1,888 | |
Total assets at fair value | $ | 73,424 | | | $ | 58,902 | | | $ | — | | | $ | 132,326 | |
Equity securities did not include any IAC common stock at December 31, 2021.
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
Fair value measurements for the international pension plan assets were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Quoted Market Prices for Identical Assets in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total Fair Value Measurements |
| (In thousands) |
Cash and cash equivalents | $ | 7,613 | | | $ | — | | | $ | — | | | $ | 7,613 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Insurance annuity contracts | — | | | — | | | 460,278 | | | 460,278 | |
Total assets at fair value | $ | 7,613 | | | $ | — | | | $ | 460,278 | | | $ | 467,891 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Quoted Market Prices for Identical Assets in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total Fair Value Measurements |
| (In thousands) |
Cash and cash equivalents | $ | 63,245 | | | $ | — | | | $ | — | | | $ | 63,245 | |
Pooled investments | | | | | | | |
Equity | 1,154 | | | 9,728 | | | — | | | 10,882 | |
Fixed income | 6,276 | | | 45,362 | | | — | | | 51,638 | |
Other | — | | | 576,414 | | | — | | | 576,414 | |
Insurance annuity contracts | — | | | — | | | 313,095 | | | 313,095 | |
Total assets at fair value | $ | 70,675 | | | $ | 631,504 | | | $ | 313,095 | | | $ | 1,015,274 | |
At December 31, 2021, the international pension plans held investments in liability matching funds whose objective was to provide leveraged returns equal to that of the liabilities. In order to do so, these funds invested in U.K. Treasury Gilt bonds, Gilt Total Return Swaps, Repurchase Transactions, and cash or money markets to provide liquidity to meet payment obligations or post as collateral in the derivative transactions they entered. These liability matching funds were included in Other pooled investments in the table above for December 31, 2021.
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
The following table provides a reconciliation of the beginning and ending balances of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| (In thousands) |
Balance at beginning of year | $ | 313,095 | | | $ | — | |
Acquisition | — | | | 327,722 | |
Purchases | 440,606 | | | — | |
Settlements | (13,206) | | | (1,040) | |
Change in fair value | (237,248) | | | (15,326) | |
Foreign currency translation | (42,969) | | | 1,739 | |
Balance at end of year | $ | 460,278 | | | $ | 313,095 | |
There were no transfers in or out of Level 3 investments for the years ended December 31, 2022 and 2021.
Cash Flows
The Company does not have a minimum funding requirement for the qualified domestic pension plan in 2023 and does not expect to have to make any contributions to the plan in the future due to its termination.
While the Company currently does not expect to be required to make any additional contributions to the IPC Plan, the Company has deposited amounts into an escrow account for the benefit of the IPC Plan that total £5.5 million at December 31, 2022.
The following benefit payments, which will primarily be made from the funded plans, are expected to be paid:
| | | | | | | | | | | | | | | | | |
| Pension Benefits | | Postretirement Benefits |
| Domestic | | International | | Domestic |
Years Ended December 31, | (In thousands) |
2023 | $ | 17,532 | | | $ | 14,237 | | | $ | 487 | |
2024 | 56,178 | | | 15,035 | | | 451 | |
2025 | 497 | | | 15,811 | | | 426 | |
2026 | 294 | | | 16,636 | | | 394 | |
2027 | 344 | | | 17,594 | | | 373 | |
Thereafter | 2,188 | | | 101,449 | | | 1,672 | |
Net amount recognized, end of year | $ | 77,033 | | | $ | 180,762 | | | $ | 3,803 | |
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
Defined Contribution Plans
IAC/InterActiveCorp Retirement Savings Plan
IAC employees in the U.S., including employees of Dotdash hired before January 1, 2023, can elect to participate in a retirement savings program, the IAC/InterActiveCorp Retirement Savings Plan (renamed the IAC Inc. Retirement Savings Plan, effective January 1, 2023; the "IAC Plan"), that qualifies under Section 401(k) of the Internal Revenue Code. Under the IAC Plan, participating employees may contribute up to 50% of their pre-tax earnings, but not more than statutory limits. The Company matches 100% of the first 10% of an employee's eligible compensation, subject to IRS limits on the Company's matching contribution maximum, that a participant contributes to the IAC Plan, except for Angi Inc., which matches fifty cents for each dollar a participant contributes in the IAC Plan, with a maximum contribution of 3% of a participant's eligible earnings. The IAC Plan limits Company matching contributions to $10,000 per participant on an annual basis. Matching contributions to the IAC Plan for the years ended December 31, 2022, 2021 and 2020 were $25.6 million, $22.0 million and $16.9 million, respectively. Matching contributions are invested in the same manner as each participant's voluntary contributions in the investment options provided under the IAC Plan. An investment option in the IAC Plan is IAC common stock, but neither participant nor matching contributions are required to be invested in IAC common stock. The increase in matching contributions in 2022 is due primarily to an increase in employee contributions. The increase in matching contributions in 2021 is due primarily to an increase in headcount and employee contributions.
IAC also has or participates in various benefit plans, principally defined contribution plans, for its international employees. IAC's contributions to these plans for the years ended December 31, 2022, 2021 and 2020 were $1.1 million, $0.9 million and $0.7 million, respectively.
Meredith Savings and Investment Plan
In connection with the acquisition of Meredith, the Company assumed its U.S. defined contribution saving plan the Meredith Savings and Investment Plan (the "Meredith Plan"). Eligible employees may participate in the Meredith Plan, which allows eligible employees to contribute a percentage of their salary, commissions, and bonuses in accordance with plan limitations and provisions of Section 401(k) of the Internal Revenue Code and the Company makes matching contributions to the plan subject to the limits of the Meredith Plan. For period after the acquisition through December 31, 2022, the Company matched 100% of the first 4% and 50% of the next 1% of employee contributions for employees eligible for the Company’s pension benefits and 100% of the first 5% for employees ineligible for the Company’s pension benefits. Matching contributions to the Meredith Plan for the years ended December 31, 2022 and 2021 were $10.4 million and $0.8 million, respectively.
Effective January 1, 2023, Dotdash Meredith, as permitted by the relevant IAC Plan documents, merged the Meredith Plan into the IAC Plan. Participants that were previously covered under the Meredith Plan, or hired after January 1, 2023, are eligible for a company match of 100% of the first 5% of employee contributions.
NOTE 14—INCOME TAXES
U.S. and foreign (loss) earnings before income taxes and noncontrolling interests are as follows:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| (In thousands) |
U.S. | $ | (1,320,332) | | | $ | 758,538 | | | $ | 234,345 | |
Foreign | (205,904) | | | (28,732) | | | 9,815 | |
Total | $ | (1,526,236) | | | $ | 729,806 | | | $ | 244,160 | |
The components of the income tax (benefit) provision are as follows:
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| (In thousands) |
Current income tax provision (benefit): | | | | | |
Federal | $ | 777 | | | $ | (5,818) | | | $ | (29,181) | |
State | 4,712 | | | 4,751 | | | 2,326 | |
Foreign | 1,182 | | | 6,680 | | | (496) | |
Current income tax provision (benefit) | 6,671 | | | 5,613 | | | (27,351) | |
| | | | | |
Deferred income tax (benefit) provision: | | | | | |
Federal | (252,022) | | | 111,755 | | | (8,097) | |
State | (44,335) | | | 18,063 | | | (6,126) | |
Foreign | (41,401) | | | 3,559 | | | (4,133) | |
Deferred income tax (benefit) provision | (337,758) | | | 133,377 | | | (18,356) | |
Income tax (benefit) provision | $ | (331,087) | | | $ | 138,990 | | | $ | (45,707) | |
The tax effects of cumulative temporary differences that give rise to significant deferred tax assets and deferred tax liabilities are presented below. The valuation allowance relates to deferred tax assets for which it is more likely than not that the tax benefit will not be realized.
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| (In thousands) |
Deferred tax assets: | | | |
Net operating loss carryforwards | $ | 458,603 | | | $ | 557,329 | |
Long-term lease liabilities | 137,869 | | | 157,504 | |
Capitalized research & development expenditures | 74,179 | | | — | |
Tax credit carryforwards | 64,903 | | | 48,081 | |
Accrued expenses | 58,697 | | | 47,754 | |
Customer deposit liability | 22,361 | | | 56,194 | |
Other | 82,587 | | | 78,740 | |
Total deferred tax assets | 899,199 | | | 945,602 | |
Less: valuation allowance | (124,012) | | | (112,640) | |
Net deferred tax assets | 775,187 | | | 832,962 | |
| | | |
Deferred tax liabilities: | | | |
Investment in subsidiaries | (225,375) | | | (227,632) | |
Investment in MGM Resorts International | (212,390) | | | (385,818) | |
Intangible assets, net of accumulated amortization | (219,856) | | | (271,629) | |
Right-of-use assets | (100,643) | | | (122,095) | |
Capitalized software, equipment, leasehold improvements, buildings and land, net | (46,740) | | | (70,959) | |
Other | (44,922) | | | (138,029) | |
Total deferred tax liabilities | (849,926) | | | (1,216,162) | |
Net deferred tax liabilities | $ | (74,739) | | | $ | (383,200) | |
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
At December 31, 2022, the Company had federal and state net operating losses ("NOLs") of $1.5 billion and $1.1 billion, respectively, available to offset future income. Federal NOLs of $1.3 billion can be carried forward indefinitely and $0.2 billion, if not utilized, will expire at various times between 2031 and 2036. State NOLs of $0.1 billion can be carried forward indefinitely and $1.0 billion, if not utilized, will expire at various times between 2023 and 2042. Federal and state NOLs of $1.3 billion and $0.7 billion, respectively, can be used against future taxable income without restriction and the remaining NOLs will be subject to limitations under Section 382 of the Internal Revenue Code, separate return limitations, and applicable law. At December 31, 2022, the Company had foreign NOLs of $416.2 million available to offset future income. Of these foreign NOLs, $402.7 million can be carried forward indefinitely and $13.5 million, if not utilized, will expire at various times between 2025 and 2042. During 2022, the Company recognized tax benefits related to NOLs of $4.0 million. Included in this amount is $1.7 million of tax benefits of acquired attributes, which was recorded as a reduction to goodwill.
At December 31, 2022, the Company had tax credit carryforwards of $81.4 million. Of this amount, $67.2 million relates to credits for research activities, $12.2 million relates to credits for foreign taxes, and $2.0 million relates to various other credits. Of these credit carryforwards, $13.6 million can be carried forward indefinitely and $67.8 million, if not utilized, will expire between 2023 and 2042.
During 2022, the Company's valuation allowance increased by $11.4 million primarily due to a change in judgement on the realizability of foreign NOLs related to Meredith, acquired by Dotdash on December 1, 2021, and an increase in unbenefited capital losses, partially offset by a decrease in federal NOLs. At December 31, 2022, the Company had a valuation allowance of $124.0 million related to the portion of tax loss carryforwards, foreign tax credits and other items for which it is more likely than not that the tax benefit will not be realized.
A reconciliation of the income tax provision (benefit) to the amounts computed by applying the statutory federal income tax rate to earnings before income taxes is shown as follows:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| (In thousands) |
Income tax (benefit) provision at the federal statutory rate of 21% | $ | (320,510) | | | $ | 153,259 | | | $ | 51,274 | |
State income taxes, net of effect of federal tax benefit | (26,708) | | | 24,289 | | | 16,995 | |
Research credit | (19,041) | | | (5,094) | | | (6,078) | |
Non-deductible goodwill impairment | 15,764 | | | — | | | 53,012 | |
Non-deductible executive compensation | 12,359 | | | 22,358 | | | 14,219 | |
Change in valuation allowance on capital losses | 10,940 | | | 754 | | | 11,385 | |
| | | | | |
Deferred tax adjustment for enacted changes in tax laws and rates | (7,152) | | | 4,049 | | | (14,508) | |
Change in judgement on beginning of the year valuation allowance | 3,523 | | | 20,248 | | | (3,544) | |
Non-deductible expenses | 3,105 | | | 4,328 | | | 5,947 | |
Stock-based compensation | (2,155) | | | (91,729) | | | (163,633) | |
Amortizable tax basis related to intercompany transaction | — | | | — | | | (7,044) | |
Other, net | (1,212) | | | 6,528 | | | (3,732) | |
Income tax (benefit) provision | $ | (331,087) | | | $ | 138,990 | | | $ | (45,707) | |
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
A reconciliation of the beginning and ending amount of unrecognized tax benefits, including penalties but excluding interest, is as follows:
| | | | | | | | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 | | 2020 |
| (In thousands) |
Balance at January 1 | $ | 17,449 | | | $ | 18,233 | | | $ | 16,585 | |
Additions for tax positions related to the current year | 5,557 | | | 2,855 | | | 3,419 | |
Settlements | (7,100) | | | (1,427) | | | (3,733) | |
Additions for tax positions of prior years | 1,715 | | | 3,420 | | | 2,313 | |
Reductions for tax positions of prior years | (1,608) | | | (1,116) | | | — | |
Expiration of applicable statutes of limitations | — | | | (4,516) | | | (351) | |
Balance at December 31 | $ | 16,013 | | | $ | 17,449 | | | $ | 18,233 | |
The Company is routinely under audit by federal, state, local and foreign authorities in the area of income tax as a result of previously filed separate company and consolidated tax returns with Old IAC and for its tax returns filed on a standalone basis following the MTCH Separation. These audits include questioning the timing and the amount of income and deductions and the allocation of income and deductions among various tax jurisdictions. The Internal Revenue Service ("IRS") has completed its audit of Old IAC’s federal income tax returns for the years ended December 31, 2013 through 2019, which include the operations of the Company. The settlement of these tax years has been submitted to the Joint Committee of Taxation for approval. The statute of limitations for the years 2013 through 2019 has been extended to December 31, 2023. Returns filed in various other jurisdictions are open to examination for tax years beginning with 2014. Income taxes payable include unrecognized tax benefits considered sufficient to pay assessments that may result from the examination of prior year tax returns. The Company considers many factors when evaluating and estimating its tax positions and tax benefits, which may not accurately anticipate actual outcomes and, therefore, may require periodic adjustment. Although management currently believes changes in 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 Company recognizes interest and, if applicable, penalties related to unrecognized tax benefits in the income tax provision. At December 31, 2022 and 2021, accruals for interest and penalties are not material.
At December 31, 2022 and 2021, unrecognized tax benefits, including interest and penalties, were $16.6 million and $18.0 million, respectively. Unrecognized tax benefits, including interest and penalties, at December 31, 2022 decreased by $1.4 million due primarily to a reduction in foreign reserves, partially offset by research credits. If unrecognized tax benefits at December 31, 2022 are subsequently recognized, $15.4 million, net of related deferred tax assets and interest, would reduce income tax expense. The comparable amount at December 31, 2021 was $16.7 million. The Company believes that it is reasonably possible that its unrecognized tax benefits could decrease by $0.9 million by December 31, 2023 due to expected settlements of which $0.8 million would reduce the income tax provision.
As a result of the Vimeo Spin-Off, the Company’s net deferred tax liability was adjusted for tax attributes from our federal and consolidated state income tax filings that were allocated between the Company and Vimeo. The allocation of tax attributes that was recorded as of December 31, 2021 was preliminary. Following the filing of income tax returns for the year ended December 31, 2021, the allocation was finalized and an adjustment of $2.7 million was recorded to net earnings from discontinued operations in the year ended December 31, 2022.
The Company was included within Old IAC’s tax group for purposes of federal and consolidated state income tax return filings through June 30, 2020, the date of the MTCH Separation. For periods prior thereto, the income tax benefit and/or provision were 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 attributed to continuing operations" in the statement of cash flows.
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
NOTE 15—(LOSS) EARNINGS PER SHARE
The Company treats its common stock and Class B common stock as one class of stock for EPS purposes as both classes of stock participate in earnings, dividends and other distributions on the same basis. The restricted stock award ("the CEO award") granted to our CEO on November 5, 2020 is a participating security and the Company calculates basic EPS using the two-class method since those restricted shares are unvested and have a non-forfeitable dividend right in the event the Company declares a cash dividend on common shares and participate in all other distributions of the Company in the same manner as all other IAC common shares. Diluted EPS is calculated, on the most dilutive basis, which excludes awards that would be anti-dilutive, including the CEO award.
Undistributed earnings allocated to the participating security is subtracted from earnings in determining earnings attributable to holders of IAC common stock and Class B common stock for basic EPS. Basic EPS is computed by dividing net (loss) earnings attributable to holders of IAC common stock and Class B common stock by the weighted-average number of shares of common stock and Class B common stock outstanding during the period.
For the calculation of diluted EPS, net (loss) earnings attributable to holders of IAC common stock and Class B common stock is adjusted for the impact from our public subsidiary's dilutive securities, if applicable, and the reallocation of undistributed earnings allocated to the participating security by the weighted-average number of common stock and Class B common stock outstanding plus dilutive securities during the period.
The numerator and denominator of basic and diluted EPS computations for the Company’s common stock and Class B common stock are calculated as follows:
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | 2021 | 2020 |
| (In thousands, except per share data) |
Basic EPS: | | | | | |
Numerator: | | | | | |
Net (loss) earnings from continuing operations | $ | (1,195,149) | | | $ | 590,816 | | | $ | 289,867 | |
Net loss attributable to noncontrolling interests of continuing operations | 22,285 | | | 8,748 | | | 726 | |
Net earnings attributed to unvested participating security | — | | | (20,160) | | | — | |
Net (loss) earnings from continuing operations attributable to IAC Common Stock and Class B common stock shareholders | (1,172,864) | | | 579,404 | | | 290,593 | |
| | | | | |
Earnings (loss) from discontinued operations, net of taxes | 2,694 | | | (1,831) | | | (21,281) | |
Net (earnings) loss attributable to noncontrolling interests of discontinued operations | — | | | (186) | | | 414 | |
Net loss attributed to unvested participating security | — | | | 68 | | | — | |
Net loss from discontinued operations attributable to IAC Common Stock and Class B common stock shareholders | 2,694 | | | (1,949) | | | (20,867) | |
| | | | | |
Net (loss) earnings attributable to IAC Common Stock and Class B common stock shareholders | $ | (1,170,170) | | | $ | 577,455 | | | $ | 269,726 | |
| | | | | |
Denominator: | | | | | |
Weighted average basic IAC Common Stock and Class B common stock shares outstanding (a) | 86,350 | | | 86,222 | | | 85,355 | |
| | | | | |
(Loss) earnings per share: | | | | | |
(Loss) earnings per share from continuing operations attributable to IAC Common Stock and Class B common stock shareholders | $ | (13.58) | | | $ | 6.72 | | | $ | 3.40 | |
Earnings (loss) per share from discontinued operations, net of tax, attributable to IAC Common Stock and Class B common stock shareholders | 0.03 | | | (0.02) | | | (0.24) | |
(Loss) earnings per share attributable to IAC Common Stock and Class B common stock shareholders | $ | (13.55) | | | $ | 6.70 | | | $ | 3.16 | |
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | 2021 | 2020 |
| (In thousands, except per share data) |
Diluted EPS: | | | | | |
Numerator: | | | | | |
Net (loss) earnings from continuing operations | $ | (1,195,149) | | | $ | 590,816 | | | $ | 289,867 | |
Net loss attributable to noncontrolling interests of continuing operations | 22,285 | | | 8,748 | | | 726 | |
Net earnings attributed to unvested participating security | — | | | (18,981) | | | — | |
Impact from public subsidiaries' dilutive securities (b) | — | | | 406 | | | 71 | |
Net (loss) earnings from continuing operations attributable to IAC Common Stock and Class B common stock shareholders | (1,172,864) | | | 580,989 | | | 290,664 | |
| | | | | |
Earnings (loss) from discontinued operations, net of taxes | 2,694 | | | (1,831) | | | (21,281) | |
Net (earnings) loss attributable to noncontrolling interests of discontinued operations | — | | | (186) | | | 414 | |
Net loss attributed to unvested participating security | — | | | 64 | | | — | |
Net loss from discontinued operations attributable to IAC Common Stock and Class B common stock shareholders | 2,694 | | | (1,953) | | | (20,867) | |
| | | | | |
Net (loss) earnings attributable to IAC Common Stock and Class B common stock shareholders | $ | (1,170,170) | | | $ | 579,036 | | | $ | 269,797 | |
| | | | | |
| | | | | |
Denominator: | | | | | |
Weighted average basic IAC Common Stock and Class B common stock shares outstanding (a) | 86,350 | | | 86,222 | | | 85,355 | |
Dilutive securities (b)(c)(d)(e) | — | | | 5,606 | | | 5,593 | |
Denominator for earnings per share—weighted average shares (b)(c)(d)(e) | 86,350 | | | 91,828 | | | 90,948 | |
| | | | | |
(Loss) earnings per share: | | | | | |
(Loss) earnings per share from continuing operations attributable to IAC Common Stock and Class B common stock shareholders | $ | (13.58) | | | $ | 6.33 | | | $ | 3.20 | |
Earnings (loss) per share from discontinued operations, net of tax, attributable to IAC Common Stock and Class B common stock shareholders | 0.03 | | | (0.02) | | | (0.23) | |
(Loss) earnings per share attributable to IAC Common Stock and Class B common stock shareholders | $ | (13.55) | | | $ | 6.31 | | | $ | 2.97 | |
_____________________
(a) On November 5, 2020, IAC's CEO was granted a stock-based award in the form of 3.0 million shares of restricted common stock. The number of shares that ultimately vests is subject to the satisfaction of growth targets in IAC's stock price over the 10-year service condition of the award. These restricted shares have a non-forfeitable dividend right in the event the Company declares a cash dividend on its common shares and participate in all other distributions of the Company in the same manner as all other IAC common shares. Accordingly, the two-class method of calculating EPS is used. While the restricted shares are presented as outstanding shares in the balance sheet, these shares are excluded from the weighted average shares outstanding in calculating basic EPS and the allocable portion of net earnings are also excluded. Fully diluted EPS reflects the impact on earnings and fully diluted shares in the manner that is most dilutive.
(b) IAC has the option to settle certain Angi Inc. stock-based awards in its shares. For the year ended December 31, 2022, the Company had a loss from continuing operations and as a result these awards were excluded from computing dilutive earnings per share because the impact would have been anti-dilutive. For the years ended December 31, 2021 and 2020 it was more dilutive for IAC to settle these Angi Inc. equity awards. The impact on net earnings relates to the settlement of Angi Inc.'s dilutive securities in IAC common shares.
(c) For the year ended December 31, 2022, the Company had a loss from continuing operations and, as a result, approximately 7.9 million potentially dilutive securities were excluded from computing diluted EPS because the impact would have been anti-dilutive. Accordingly, the weighted average basic shares outstanding were used to compute the EPS amounts for the year ended December 31, 2022.
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(d) If the effect is dilutive, weighted average common shares outstanding include the incremental shares that would be issued upon the assumed exercise of stock options and subsidiary denominated equity and vesting of restricted common stock, restricted stock units ("RSUs") and market-based awards ("MSUs"). For the years ended December 31, 2021 and 2020, 3.0 million and 3.1 million, respectively, of potentially dilutive securities were excluded from the calculation of diluted EPS because their inclusion would have been anti-dilutive.
(e) See "Note 12—Stock-Based Compensation" for additional information on the grant of IAC restricted common stock to its CEO and equity instruments denominated in the shares of certain subsidiaries. NOTE 16—DISCONTINUED OPERATIONS
On May 25, 2021, IAC completed the Spin-off. Following the Spin-off, Vimeo became an independent, separately traded public company. Therefore, Vimeo is presented as a discontinued operation within the Company's financial statements for all periods.
During the fourth quarter of 2022, the Company allocated to Vimeo certain federal and state net operating losses based on the filing of its 2021 tax returns. The Company recorded a $2.7 million tax benefit through discontinued operations and deferred taxes to reflect this allocation.
The components of the loss from discontinued operations for the period January 1, 2021 through May 25, 2021 and the year ended December 31, 2020 in the statement of operations consisted of the following:
| | | | | | | | | | | |
| January 1 through May 25, | | Year Ended December 31, |
| 2021 | | 2020 |
| (In thousands) |
Revenue | $ | 145,514 | | | $ | 283,146 | |
Operating costs and expenses: | | | |
Cost of revenue (exclusive of depreciation shown separately below) | 39,995 | | | 88,589 | |
Selling and marketing expense | 54,774 | | | 104,216 | |
General and administrative expense | 23,343 | | | 47,019 | |
Product development expense | 35,651 | | | 62,803 | |
Depreciation | 182 | | | 460 | |
Amortization of intangibles | 2,983 | | | 14,745 | |
Total operating costs and expenses | 156,928 | | | 317,832 | |
Operating loss from discontinued operations | (11,414) | | | (34,686) | |
Interest expense | (140) | | | — | |
Other income, net | 10,172 | | | 93 | |
Loss from discontinued operations before taxes | (1,382) | | | (34,593) | |
Income tax (provision) benefit | (449) | | | 13,312 | |
Loss from discontinued operations, net of taxes | $ | (1,831) | | | $ | (21,281) | |
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
NOTE 17—FINANCIAL STATEMENT DETAILS
Cash and Cash Equivalents and Restricted Cash
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the balance sheet to the total amounts shown in the statement of cash flows:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 | | December 31, 2020 | | December 31, 2019 |
| (In thousands) |
Cash and cash equivalents | $ | 1,417,390 | | | $ | 2,118,730 | | | $ | 3,366,176 | | | $ | 837,916 | |
Restricted cash included in other current assets | 1,165 | | | 1,941 | | | 448 | | | 503 | |
Restricted cash included in other non-current assets | 7,514 | | | 1,193 | | | 449 | | | 409 | |
Cash, cash equivalents, and restricted cash included in current assets of discontinued operations | — | | | — | | | 110,037 | | | 1,904 | |
Total cash and cash equivalents and restricted cash as shown on the statement of cash flows | $ | 1,426,069 | | | $ | 2,121,864 | | | $ | 3,477,110 | | | $ | 840,732 | |
Restricted cash included in "Other current assets" in the balance sheet at December 31, 2022 primarily consists of cash held related to insurance programs at Care.com.
Restricted cash included in "Other current assets" in the balance sheet at December 31, 2021 primarily consists of cash held in escrow related to the IPC Pension Scheme.
Restricted cash included in "Other current assets" in the balance sheet at December 31, 2020 primarily consists of funds collected from service providers for payments in dispute, which are not settled as of the period end, and cash reserved to fund insurance claims at Angi Inc.
Restricted cash included in "Other current assets" in the balance sheet at December 31, 2019 primarily consists of a deposit related to corporate credit cards at Angi Inc.
Restricted cash included in "Other non-current assets" in the balance sheet at December 31, 2022 primarily consists of cash held in escrow related to the IPC Pension Scheme as well as deposits related to leases and an endorsement guarantee related to insurance at Roofing.
Restricted cash included in "Other non-current assets" in the balance sheet at December 31, 2021 consists of deposits related to leases and an endorsement guarantee related to insurance at Roofing. Restricted cash included in "Other non-current assets" in the balance sheet for all other periods presented consists of deposits related to leases.
At December 31, 2022, all of the Company's international cash can be repatriated without significant tax consequences.
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
Credit Losses
The following table presents the changes in the allowance for credit losses for the years ended December 31, 2022 and 2021, respectively:
| | | | | | | | | | | |
| 2022 | | 2021 |
| (In thousands) |
Balance at January 1 | $ | 36,637 | | | $ | 27,178 | |
Current period provision for credit losses | 116,553 | | | 89,893 | |
Write-offs charged against the allowance | (107,188) | | | (82,998) | |
| | | |
Recoveries collected | 5,367 | | | 2,441 | |
Other | (398) | | | 123 | |
Balance at December 31 | $ | 50,971 | | | $ | 36,637 | |
Other current assets
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| (In thousands) |
| | | |
Prepaid expenses | $ | 80,039 | | | $ | 73,483 | |
| | | |
| | | |
Other | 216,524 | | | 168,705 | |
Other current assets | $ | 296,563 | | | $ | 242,188 | |
Capitalized software, equipment, leasehold improvements, buildings and land, net
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| (In thousands) |
Buildings and leasehold improvements | $ | 305,304 | | | $ | 418,249 | |
Capitalized software and computer equipment | 291,600 | | | 386,421 | |
Furniture and other equipment | 137,570 | | | 181,605 | |
Land | 20,234 | | | 33,919 | |
Projects in progress | 30,379 | | | 47,218 | |
Total gross carrying amount | 785,087 | | | 1,067,412 | |
Accumulated depreciation and amortization | (274,473) | | | (496,887) | |
Capitalized software, equipment, leasehold improvements, buildings and land, net | $ | 510,614 | | | $ | 570,525 | |
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
Accrued expenses and other current liabilities
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| (In thousands) |
Accrued employee compensation and benefits | $ | 169,227 | | | $ | 278,418 | |
Customer deposit liability | 125,441 | | | 146,282 | |
Accrued advertising expense | 78,601 | | | 67,986 | |
Accrued traffic acquisition costs | 50,720 | | | 77,913 | |
Other | 335,770 | | | 412,280 | |
Accrued expenses and other current liabilities | $ | 759,759 | | | $ | 982,879 | |
Other (expense) income, net
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| (In thousands) |
Net periodic pension benefit costs, other than the service cost component(a) | $ | (206,422) | | | $ | (17,858) | | | $ | — | |
Unrealized (decrease) increase in the estimated fair value of a warrant | (62,495) | | | 104,018 | | | (1,213) | |
Unrealized (loss) gain related to marketable equity securities | (20,342) | | | 18,788 | | | — | |
Foreign exchange (losses) gains, net(b) | (8,503) | | | (13,636) | | | 674 | |
Net realized gain (loss) on sales of businesses, investments and upward (downward) adjustments to the carrying value of equity securities without readily determinable fair values(c)(d) | 59,299 | | | 18,874 | | | (40,050) | |
Interest income | 24,916 | | | 1,351 | | | 7,177 | |
Realized gain on the sale of a marketable equity security | — | | | 7,174 | | | — | |
Loss on extinguishment of debt(e) | — | | | (1,110) | | | — | |
COVID-19 related impairments on a note receivable and a warrant related to certain investees | — | | | — | | | (7,517) | |
Other | (4,238) | | | (5,747) | | | (1,632) | |
Other (expense) income, net | $ | (217,785) | | | $ | 111,854 | | | $ | (42,561) | |
_____________________
(a) Includes net pre-tax actuarial losses of $213.4 million and $7.1 million for the years ended December 31, 2022 and 2021, respectively, related to Meredith's IPC Pension Scheme and plans in the U.S. See "Note 13—Pension and Postretirement Benefit Plans" for additional information.
(b) Includes $10.0 million in foreign exchange losses primarily related to the substantial liquidation of certain foreign subsidiaries in the year ended December 31, 2021.
(c) Includes a gain of approximately $132.2 million on the sale of BlueCrew in the year ended December 31, 2022. On November 9, 2022, the Company completed the sale of BlueCrew, which was included in the Emerging & Other segment, to EmployBridge, a provider of light industrial staffing solutions, for cash and stock with the Company becoming a minority shareholder in the combined company.
(d) Includes upward and downward adjustments to the carrying value of equity securities without readily determinable fair values. For the years ended December 31, 2022, 2021 and 2020, the Company recorded net (downward) and upward adjustments of $(89.1) million, $8.9 million and $(51.5) million, respectively. Downward adjustments for the year ended December 31, 2020 related to impairments due to COVID-19.
(e) 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.
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
Supplemental Disclosure of Cash Flow Information:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| (In thousands) |
Cash paid (received) during the year for: | | | | | |
Interest | $ | 98,150 | | | $ | 21,702 | | | $ | 6,524 | |
Income tax payments | $ | 16,407 | | | $ | 9,880 | | | $ | 5,974 | |
Income tax refunds | $ | (3,004) | | | $ | (1,762) | | | $ | (2,010) | |
NOTE 18—CONTINGENCIES
In the ordinary course of business, the Company is a party to various lawsuits. The Company establishes accruals for specific legal matters when it determines that the likelihood of an unfavorable outcome is probable and the loss is reasonably estimable. Management has also identified certain other legal matters where the Company believes an unfavorable outcome is not probable and, therefore, no accrual is established. Although management currently believes that resolving claims against the Company, including claims where an unfavorable outcome is reasonably possible, will not have a material impact on the liquidity, results of operations, or financial condition of the Company, these matters are subject to inherent uncertainties and management's view of these matters may change in the future. The Company also evaluates other contingent matters, including uncertain income tax positions and non-income tax contingencies, to assess the likelihood of an unfavorable outcome and estimated extent of potential loss. It is possible that an unfavorable outcome of one or more of these lawsuits or other contingencies could have a material impact on the liquidity, results of operations, or financial condition of the Company. See "Note 14—Income Taxes" for information related to uncertain income tax positions. NOTE 19—RELATED PARTY TRANSACTIONS
IAC and Angi Inc.
Allocation of CEO Compensation and Certain Expenses
Effective October 10, 2022, Joseph Levin, CEO of IAC and Chairman of Angi Inc., was appointed CEO of Angi Inc. Mr. Levin serves as both CEO of IAC and Angi Inc. following his appointment. For the period from October 10, 2022 to December 31, 2022, IAC allocated $2.1 million in costs to Angi Inc. (including salary, benefits, stock-based compensation and costs related to the CEO’s office). These costs were allocated from IAC based upon time spent on Angi Inc. by Mr. Levin. Management considers the allocation method to be reasonable. The allocated costs include costs directly attributable to Angi Inc. that were initially paid for by IAC and billed by IAC to Angi Inc.
The Combination and Related Agreements
The Company and Angi Inc., in connection with the transaction resulting in the formation of Angi Inc. in 2017, which is referred to as the "Combination", entered into a contribution agreement; an investor rights agreement; a services agreement; a tax sharing agreement; and an employee matters agreement.
During the year ended December 31, 2022, there have been no IAC equity awards held by Angi Inc. employees exercised or vested, and no exercises and settlements of Angi Inc. stock appreciation rights, that would require, pursuant to the employee matters agreement, reimbursement to IAC in Angi Inc. Class A and Class B common stock.
For the year ended December 31, 2021, 2.6 million shares of Angi Inc. Class A common stock were issued to a subsidiary of the Company pursuant to the employee matters agreement as reimbursement for IAC common stock issued in connection with the exercise and settlement of certain Angi Inc. stock appreciation rights. There were no shares of Angi Inc. Class A common stock issued to IAC during the year ended December 31, 2020.
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
For the year ended December 31, 2021, 0.2 million shares of Angi Inc. Class B common stock were issued to a subsidiary of the Company pursuant to the employee matters agreement as reimbursement for shares of IAC common stock issued in connection with the exercise and vesting of IAC equity awards held by Angi Inc. employees. For the year ended December 31, 2020, 0.3 million shares of Angi Inc. Class B common stock were issued to a subsidiary of the Company pursuant to the employee matters agreement as reimbursement for shares of IAC common stock, issued for periods after the MTCH Separation, and Old IAC common stock, issued for periods prior to the MTCH Separation, in connection with the exercise and vesting of IAC and Old IAC equity awards held by Angi Inc. employees.
IAC and Vimeo
Following the Spin-off, the relationship between IAC and Vimeo is governed by a number of agreements. These agreements include a separation agreement; a tax matters agreement; a transition services agreement; an employee matters agreement; and office lease agreements. The Company and Vimeo are related parties because Mr. Diller is the beneficial owner of more than 10% of the voting interests in both IAC and Vimeo.
Vimeo has an outstanding payable due to the Company of $0.8 million at both December 31, 2022 and 2021, pursuant to the separation agreement.
For the year ended December 31, 2022 and the period following the Spin-off of May 25, 2021 through December 31, 2021, Vimeo was charged $0.3 million and $0.9 million, respectively, by IAC for services rendered pursuant to the transition services agreement. At December 31, 2022 and December 31, 2021, there were no outstanding receivables or payables pursuant to the transition services agreement.
Vimeo had an outstanding payable due to the Company of $6.4 million at December 31, 2021 related primarily to reimbursements due to the Company for the exercise of Vimeo equity awards held by employees of the Company and Vimeo’s participation in the Company’s employee benefit plans. This amount was included in “Other current assets" in the balance sheet at December 31, 2021 and was paid in full in January 2022.
For the year ended December 31, 2022 and the period following the Spin-off of May 25, 2021 through December 31, 2021, Vimeo was charged $4.6 million and $2.6 million, respectively, of rent pursuant to the lease agreements. At December 31, 2022 and December 31, 2021, there were no outstanding receivables due from Vimeo pursuant to the lease agreements.
Relationship with Old IAC prior to the MTCH Separation
The Company’s statement of operations for the year ended December 31, 2020 includes allocations of costs, including stock-based compensation expense, related to Old IAC’s accounting, treasury, legal, tax, corporate support and internal audit functions prior to the MTCH Separation. Old IAC historically allocated costs related to its accounting, treasury, legal, tax, corporate support and internal audit functions that were incurred at the Old IAC legal entity level to its publicly traded subsidiaries, Old MTCH and Angi Inc., for any services provided under the applicable services agreements. The remaining unallocated expenses of Old IAC related to its accounting, treasury, legal, tax, corporate support and internal audit functions were allocated to the Company. Allocated costs, inclusive of stock-based compensation expense, in 2020 prior to the MTCH Separation, were $85.5 million. It is not practicable to determine the actual expenses that would have been incurred for these services had the Company operated as a standalone entity during the period presented. Management considers the allocation method to be reasonable.
The portion of interest income reflected in the statement of operations that is related party in nature was $0.1 million in 2020 prior to the MTCH Separation, and is included in ‘‘Interest income, net’’ in the table below.
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
The following table summarizes the components of the net increase in Old IAC’s investment in the Company for the period prior to the MTCH Separation:
| | | | | |
| Six Months Ended June 30, 2020, the date of the MTCH Separation |
|
| (In thousands) |
Cash transfers from Old IAC related to its centrally managed U.S. treasury management function, acquisitions and cash expenses paid by Old IAC on behalf of the Company, net | $ | (1,742,854) | |
Contribution of buildings to Match Group | 34,973 | |
Taxes | 34,436 | |
Allocation of costs from Old IAC | (12,652) | |
Interest income, net | 102 | |
Net increase in Old IAC's investment in the Company prior to the MTCH Separation | $ | (1,685,995) | |
Notes Receivable—Related Party
During 2019, the Company, through two subsidiaries, entered into loan agreements with Old IAC for cash transfers to Old IAC under its centrally managed U.S. treasury function. During the first quarter of 2020, the outstanding balance, which was $55.3 million at December 31, 2019, was repaid.
On February 11, 2020, the Company, through a subsidiary, entered into a loan agreement with Old IAC for cash transfers to Old IAC under its centrally managed U.S. treasury function. During the second quarter of 2020, the outstanding balance, which was $27.2 million at March 31, 2020, was repaid.
IAC and Old MTCH
Prior to the MTCH Separation, for the six months ended June 30, 2020, the date of the MTCH Separation, Old MTCH incurred rent expense of $1.4 million for leasing office space for certain of its businesses at properties owned by the Company. The amount was paid in full by Old MTCH at the date of the MTCH Separation. After the MTCH Separation, Match Group is no longer a related party.
On January 31, 2020, Old IAC contributed two office buildings in Los Angeles to Old MTCH, which are primarily occupied and were previously leased from the Company by Tinder. In connection with this contribution, the Company entered into a lease with Old MTCH for office space in one of the buildings and for the six months ended June 30, 2020, the date of the MTCH Separation, the Company paid Old MTCH less than $0.1 million under the lease. Old MTCH issued 1.4 million shares of Old MTCH common stock to Old IAC for the buildings.
IAC and Expedia
At December 31, 2022, the Company and Expedia each had a 50% ownership interest in two aircraft that may be used by both companies. One of these aircraft was delivered in the third quarter of 2021; IAC and Expedia each made the payments to acquire their respective interest in this aircraft directly to third parties. In the fourth quarter of 2022, the Company and Expedia sold a corporate aircraft that was jointly owned for total proceeds of $19.0 million (sales price net of related costs), with each company receiving 50% of the proceeds. Members of the aircraft flight crews are employed by an entity in which the Company and Expedia each have a 50% ownership interest. The Company and Expedia have agreed to share costs relating to flight crew compensation and benefits pro-rata according to each company’s respective usage of the aircraft, for which they are separately billed by the entity described above. The Company and Expedia are related parties because Mr. Diller serves as Chairman and Senior Executive of both IAC and Expedia. For each of the years in the period ended December 31, 2022, the payments made to this entity by the Company were not material.
IAC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
In addition, in December 2021, the Company and Expedia entered into agreements pursuant to which Expedia may use certain aircraft owned 100% by a subsidiary of the Company on a cost basis. For the year ended December 31, 2022, the payments made by Expedia to the Company pursuant to this arrangement were not material.