IAC Inc

The Company reports Adjusted EBITDA as a supplemental measure to U.S. generally accepted accounting principles ("GAAP"). This measure is considered our primary segment measure of profitability and one of the metrics by which we evaluate the performance of our businesses and our internal budgets are based and may also 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, if applicable. We believe this measure is useful for analysts and investors as this measure allows a more meaningful comparison between our performance and that of our competitors. Adjusted EBITDA has certain limitations because it excludes the impact of these expenses.

The following table reconciles net earnings attributable to IAC shareholders to operating loss to Adjusted EBITDA:

For a reconciliation of operating (loss) income to Adjusted EBITDA for the Company's reportable segments, see "Note 5—Segment Information" to the financial statements included in "Item 1—Consolidated Financial Statements."

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.

Depreciationis a non-cash expense relating to our capitalized software, buildings, equipment and leasehold improvements and is computed using the straight-line method to allocate the cost of depreciable assets to operations over their estimated useful lives, or, in the case of leasehold improvements, the lease term, if shorter.

Amortization of intangible assets and impairments of goodwill and intangible assetsare 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, customer lists and user base, service professional relationships 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 liabilities for the portion of the purchase price of acquisitions, if applicable, that is contingent upon the financial performance and/or operating targets of the acquired company at fair value that are recognized in "General and administrative expense" in the statement of operations. 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

The Company's international cash can be repatriated without significant tax consequences.

For a detailed description of interest rate swaps and long-term debt, see "Note 1—The Company and Summary of Significant Accounting Policies" and "Note 3—Long-term Debt" to the financial statements included in "Item 1. Consolidated Financial Statements."

Cash Flow Information

In summary, IAC's cash flows are as follows:

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 gain on the investment in MGM, deferred income taxes, depreciation, non-cash lease expense (including ROU impairments), amortization of intangibles, stock-based compensation expense, net (gains) losses on sales of businesses and investments in equity securities, provision for credit losses and unrealized decrease (increase) in the estimated fair value of a warrant.

Adjustments to net earnings consist primarily of an unrealized gain on the investment in MGM of $163.8 million and net gains on sales of businesses and investments in equity securities of $25.9 million primarily related to the sale of assets at Mosaic Group in February 2024, partially offset by deferred taxes of $45.0 million, amortization of intangibles of $36.7 million, depreciation of $36.6 million, stock-based compensation expense of $28.9 million, provision of credit losses of $16.1 million, non-cash lease expense of $14.8 million and an unrealized decrease in the estimated fair value of a warrant of $10.2 million. The increase from changes in working capital include a decrease in accounts receivable of $56.1 million, a decrease in other assets of $44.5 million, an increase in deferred revenue of $17.9 million and an increase in income taxes payable and receivable of $8.8 million, partially offset by decreases in accounts payable and other liabilities of $89.5 million and operating lease liabilities of $17.3 million. The decrease in accounts receivable is due primarily to a decrease in revenue in the first quarter of 2024 relative to the fourth quarter of 2023 at Dotdash Meredith and a decrease at Mosaic Group due to cash receipts prior to the sale of its assets, partially offset by an increase at Angi Inc., due primarily to timing of cash receipts. The decrease in other assets is due primarily to receipt of pre-acquisition income tax refunds at Dotdash Meredith, payment received related to insurance coverage for previously incurred legal fees at Angi Inc. and a decrease in prepaid hosting services at Angi Inc., Dotdash Meredith and Corporate. The increase in deferred revenue is due primarily to timing of annual subscription renewals at Care.com. The increase in income taxes payable and receivable is due to income tax accruals in excess of payments, primarily due to the sale of assets of Mosaic Group. The decrease in accounts payable and other liabilities is due primarily to decreases in accrued employee compensation, due primarily to payment of 2023 bonuses in 2024 and a decrease in accrued payroll due to timing of payments, and accrued traffic acquisition costs and related payables at Search and Dotdash Meredith. The decrease in operating lease liabilities is due to cash payments on leases net of interest accretion.

Net cash provided by investing activities includes net proceeds from the sales of businesses and investments of $159.7 million, including $155 million from the sale of assets of Mosaic Group, maturities of marketable debt securities of $137.5 million and net proceeds from the sales of assets of $12.7 million, principally from the sale of an aircraft at Dotdash Meredith, partially offset by $123.1 million for the purchases of marketable debt securities and capital expenditures of $15.7 million primarily related to investments of $12.7 million in capitalized software at Angi Inc. to support its products and services.

Net cash used in financing activities includes withholding taxes paid on behalf of IAC employees, excluding Angi Inc., for stock-based awards that were net settled of $8.2 million, principal payments on Dotdash Meredith Term Loan A and Dotdash Meredith Term Loan B of $7.5 million, the repurchase of 2.9 million shares of Angi Inc. Class A common stock, on a settlement date basis, for $6.9 million at an average price of $2.37 per share and withholding taxes paid on behalf of Angi Inc. employees for stock-based awards that were net settled of $3.2 million.

Adjustments to net earnings consist primarily of an unrealized gain on the investment in MGM of $704.8 million and an unrealized increase in the estimated fair value of a warrant of $5.9 million, partially offset by deferred taxes of $127.2 million, depreciation of $61.2 million, non-cash lease expense of $58.7 million, amortization of intangibles of $54.6 million, stock-based compensation expense of $28.9 million, provision of credit losses of $24.8 million and net losses on sales of business and investments in equity securities of $2.5 million. The decrease from changes in working capital include decreases in accounts payable and other liabilities of $107.4 million and operating lease liabilities of $19.7 million, partially offset by a decrease in accounts receivable of $43.0 million, a decrease in other assets of $27.0 million and an increase in deferred revenue of $15.4 million. The decrease in accounts payable and other liabilities is due primarily to a decreases in accrued employee compensation, due primarily to payment of 2022 bonuses in 2023, a decrease in accrued payroll due to timing of payments and restructuring related severance payments at Dotdash Meredith, and decreases in accounts payable at Dotdash Meredith, due primarily to a decrease in spend in the first quarter of 2023 relative to the fourth quarter of 2022 and timing of payments, and at Care.com, due primarily to timing of payments. The decrease in operating lease liabilities is due to cash payments on leases net of interest accretion. The decrease in accounts receivable is due primarily to a decrease in revenue in the first quarter of 2023 relative to the fourth quarter of 2022 at Dotdash Meredith, partially offset by an increase at Angi Inc., due primarily to timing of cash receipts for credit card transactions. The decrease in other assets is due, in part, to a decrease in prepaid hosting services at Angi Inc., Dotdash Meredith and Corporate. The increase in deferred revenue is due primarily to timing of annual subscription renewals at Care.com.

Net cash provided by investing activities includes maturities of marketable debt securities of $137.5 million and net proceeds from the sales of assets of $29.4 million, including $28.9 million related to the sale of a building at Dotdash Meredith, partially offset by $98.5 million for the purchases of marketable debt securities and capital expenditures of $21.9 million primarily related to investments of $11.3 million in capitalized software at Angi Inc. to support its products and services and payment of $8.1 million related to the acquisition of the formerly leased land under IAC's New York City headquarters building. The purchase of the land was completed in April 2023.

Net cash used in financing activities includes the repurchase of 1.7 million shares of IAC common stock, on a settlement date basis, for $84.7 million at an average price of $51.16 per share, principal payments on Dotdash Meredith Term Loan A and Dotdash Meredith Term Loan B of $7.5 million, withholding taxes paid on behalf of IAC employees, excluding Angi Inc., for stock-based awards that were net settled of $2.2 million and withholding taxes paid on behalf of Angi Inc. employees for stock-based awards that were net settled of $1.4 million.

Liquidity and Capital Resources

Investment in MGM

At March 31, 2024, the Company owns 64.7 million common shares of MGM. Based on the number of MGM common shares outstanding at March 31, 2024, the Company owns 20.6% of MGM.

Investment in Turo

At March 31, 2024, IAC's aggregate percentage ownership in Turo is approximately 29%, on an as-converted basis. The Company has a warrant in Turo that expires on July 23, 2024 and has the option to gross or net settle the instrument. The Company is currently assessing its options and, if gross settled, the Company expects to use approximately $200 million in cash.

Share Repurchase Authorizations and Activity

At May 3, 2024, IAC had 3.7 million shares remaining in its share repurchase authorization.

During the three months ended March 31, 2024, Angi repurchased 2.8 million shares of its Class A common stock, on a trade date basis, at an average price of $2.37 per share, or $6.7 million in aggregate. During the fourth quarter of 2023, Angi Inc. announced its intent to utilize the remaining 14.0 million shares in its stock repurchase authorization. From April 1, 2024 through May 3, 2024, Angi Inc. repurchased an additional 3.1 million shares of its common stock, on a trade date basis, at an average price of $2.22 per share, or $6.8 million in aggregate. At May 3, 2024, Angi Inc. had 4.7 million shares remaining in its share repurchase authorization.

IAC and Angi Inc. may purchase their shares pursuant to their authorizations over an indefinite period of time in 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.

Contractual Obligations

At March 31, 2024, there have been no material changes to the Company's contractual obligations since the disclosures for the year ended December 31, 2023, included in the Company's Annual Report on Form 10-K.

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 2024 capital expenditures are expected to be lower than its 2023 capital expenditures of $141.4 million by approximately 40% to 50%, due primarily to the acquisition of the formerly leased land under IAC's New York City headquarters building in 2023, partially offset by an increase related to capitalized software at Angi Inc.

Liquidity Assessment

On a consolidated basis, the Company generated positive cash flows from operating activities of $64.1 million for the three months ended March 31, 2024; excluding the positive cash flows from operating activities of $56.2 million and $22.3 million generated by Dotdash Meredith and Angi Inc., respectively, the Company generated negative cash flows from operating activities of $14.4 million.

At March 31, 2024, the Company's consolidated cash, cash equivalents and marketable securities, excluding MGM, were $1.6 billion, of which $363.3 million and $268.7 million was held by Angi Inc. and Dotdash Meredith, respectively. The Company's consolidated debt includes approximately $1.5 billion, which is a liability of Dotdash Meredith Inc., 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 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 March 31, 2024. The Dotdash Meredith Credit Agreement also permits IAC to, among other things, contribute cash to Dotdash Meredith which will provide additional liquidity 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 these 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 impact the consolidated net leverage ratios of Dotdash Meredith. In the three months ended March 31, 2024, IAC contributed $55 million to Dotdash Meredith, which Dotdash Meredith subsequently distributed back to IAC in April 2024. In addition, Dotdash Meredith distributed $105 million back to IAC in January 2024 related to the Company's contribution in December 2023. 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.

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 and expected positive cash flows from operations, 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.