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 loss attributable to IAC shareholders to operating income (loss) to Adjusted EBITDA:

For a reconciliation of operating income (loss) 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 buildings, capitalized software, 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, 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 consists of net earnings (loss) 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, amortization of intangibles, depreciation, deferred income taxes, stock-based compensation expense, non-cash lease expense (including ROU impairments), provision for credit losses, unrealized (increase) decrease in the estimated fair value of a warrant, net gains on sales of businesses and investments in equity securities (including downward and upward adjustments) and goodwill impairment.

Adjustments to net loss consist primarily of an unrealized loss on the investment in MGM of $361.8 million, amortization of intangibles of $109.8 million, depreciation of $96.5 million, stock-based compensation expense of $86.2 million, provision of credit losses of $46.0 million and non-cash lease expense of $42.6 million, partially offset by deferred income taxes of $109.9 million, an unrealized increase in the estimated fair value of a warrant of $20.4 million and net gains on sales of businesses and investments in equity securities (including downward and upward adjustments) of $16.5 million, including $29.2 million gain on the sale of assets at Mosaic Group in February 2024. The decrease from changes in working capital include decreases in accounts payable and other liabilities of $58.9 million and operating lease liabilities of $51.8 million, partially offset by a decrease in other assets of $88.3 million and a decrease in accounts receivable of $8.9 million. The decrease in accounts payable and other liabilities is due primarily to a decrease in accrued employee compensation due primarily to timing of payments, including the payment of 2023 bonuses in 2024, and a decrease in accrued traffic acquisition costs and related payables at Search and Dotdash Meredith, partially offset by an increase in accrued advertising at Search and Angi. The decrease in operating lease liabilities is due to cash payments on leases net of interest accretion. The decrease in other assets is due primarily to a decrease in prepaid hosting services at Dotdash Meredith, Corporate and Angi, receipt of pre-acquisition income tax refunds at Dotdash Meredith, the liquidation of the domestic funded pension plan at Dotdash Meredith in connection with the termination of the plan and payment received related to insurance coverage for previously incurred legal fees at Angi. The decrease in accounts receivable is due primarily to a decrease in revenue in the third quarter of 2024 relative to the fourth quarter of 2023 at Dotdash Meredith and Search, and a decrease at Mosaic Group due to cash receipts prior to the sale of its assets, partially offset by an increase at Angi due primarily to timing of cash receipts.

Net cash provided by investing activities includes maturities of marketable debt securities of $350.0 million, net proceeds from the sales of businesses and investments of $173.6 million, including $155 million from the sale of assets of Mosaic Group, net proceeds from the sales of assets of $12.8 million principally from the sale of an aircraft at Dotdash Meredith, and a decrease in notes receivable of $10.1 million, partially offset by $221.8 million for the purchases of marketable debt securities, capital expenditures of $47.3 million, primarily related to investments of $36.9 million in capitalized software at Angi to support its products and services, and the purchase of a retirement investment fund of $15.3 million at Dotdash Meredith in connection with the termination of the domestic funded pension plan and transfer of the remaining assets to the IAC Inc. Retirement Savings Plan.

Net cash used in financing activities includes the repurchase of 11.4 million shares of Angi Class A common stock, on a settlement date basis, for $25.7 million at an average price of $2.25 per share, principal payments on Dotdash Meredith Term Loan A and Dotdash Meredith Term Loan B of $22.5 million, purchase of the remaining noncontrolling interests of a foreign subsidiary at Angi of $16.0 million, withholding taxes paid on behalf of IAC employees, excluding Angi for stock-based awards that were net settled of $14.6 million and withholding taxes paid on behalf of Angi employees for stock-based awards that were net settled of $5.7 million.

Adjustments to net loss consist primarily of amortization of intangibles of $170.2 million, depreciation of $136.2 million, stock-based compensation expense of $88.1 million, non-cash lease expense of $85.6 million, provision for credit losses of $71.3 million, goodwill impairment of $9.0 million and an unrealized decrease in the estimated fair value of a warrant of $1.3 million, partially offset by an unrealized gain on the investment in MGM of $209.1 million, deferred income taxes of $17.6 million and net gains on investments in equity securities and sales of businesses (including upward and downward adjustments) of $2.5 million. The decrease from changes in working capital include decreases in accounts payable and other liabilities of $82.7 million and operating lease liabilities of $56.4 million, partially offset by a decrease in other assets of $10.0 million, an increase in deferred revenue of $8.7 million and a decrease in accounts receivable of $7.1 million. The decrease in accounts payable and other liabilities is due, in part, to a decrease in accrued employee compensation, due primarily to restructuring related severance payments at Dotdash Meredith and timing of payments, and a decrease in accrued traffic acquisition costs and related payables at Dotdash Meredith and Search. The decrease in operating lease liabilities is due to cash payments on leases net of interest accretion. The decrease in other assets is due, in part, to refunds of pre-acquisition income tax receivables at Dotdash Meredith and timing of payments. The increase in deferred revenue is due primarily to the timing of annual subscription renewals and subscription growth at Care.com and timing of cash receipts at Angi. The decrease in accounts receivable is due primarily to a decrease in revenue relative to the fourth quarter of 2022 at Dotdash Meredith and Search, partially offset by an increase at Angi due to timing of cash receipts.

Net cash used in investing activities includes $320.1 million for the purchases of marketable debt securities, capital expenditures of $126.6 million, primarily related to payment of approximately $80 million for the acquisition of the formerly leased land under IAC's New York City headquarters building as well as investments of $34.0 million in capitalized software at Angi to support its products and services and $103.6 million for the purchase of additional shares of Turo Inc. ("Turo"), partially offset by maturities of marketable debt securities of $387.5 million, proceeds from the sales of assets of $29.0 million, including $28.2 million related to the sale of a building at Dotdash Meredith, a decrease in notes receivable of $11.3 million and net proceeds from the sale of businesses and investments of $9.2 million.

Net cash used in financing activities includes the repurchase of 3.2 million shares of IAC common stock, on a settlement date basis, for $165.6 million at an average price of $51.00 per share, principal payments on Dotdash Meredith Term Loan A and Dotdash Meredith Term Loan B of $22.5 million, withholding taxes paid on behalf of IAC employees, excluding Angi, for stock-based awards that were net settled of $8.3 million, withholding taxes paid on behalf of Angi employees for stock-based awards that were net settled of $4.8 million and the repurchase of 1.1 million shares of Angi Class A common stock, on a settlement date basis, for $3.4 million at an average price of $3.22 per share.

Liquidity and Capital Resources

Investment in MGM

At September 30, 2024, the Company owns 64.7 million common shares of MGM. Based on the number of MGM common shares outstanding at September 30, 2024, the Company owns 21.8% of MGM.

Investment in Turo

The Company net settled its Turo warrant on July 23, 2024 (the warrant expiration date) for 4.5 million shares of Series E-2 preferred stock, bringing IAC's ownership percentage in Turo to approximately 32% at September 30, 2024.

Share Repurchase Authorizations and Activity

At November 8, 2024, IAC has 3.7 million shares remaining in its share repurchase authorization.

During the nine months ended September 30, 2024, Angi repurchased 11.4 million shares of its Class A common stock, on a trade date basis, at an average price of $2.25 per share, or $25.6 million in aggregate. During the fourth quarter of 2023, Angi announced its intent to repurchase the 14.0 million shares remaining in its stock repurchase authorization from March 2020 (the "2020 Share Authorization"). On August 2, 2024, the board of directors of Angi approved a new stock repurchase authorization of 25 million shares (the "2024 Share Authorization"). As of August 19, 2024, Angi had no shares remaining under the 2020 Authorization. From October 1, 2024 through November 8, 2024, Angi repurchased an additional 1.1 million shares of its common stock, on a trade date basis, at an average price of $2.49 per share, or $2.8 million in aggregate. As of November 8, 2024, Angi had 23.1 million shares remaining in its 2024 Share Authorization.

IAC and Angi may repurchase shares pursuant to their repurchase 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 September 30, 2024, there were no material changes to the Company's contractual obligations disclosures as of December 31, 2023, included in the Company's Annual Report on Form 10-K for the year ended December 31, 2023.

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 45% 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.

Liquidity Assessment

On a consolidated basis, the Company generated positive cash flows from operating activities of $244.4 million for the nine months ended September 30, 2024; excluding the positive cash flows from operating activities of $115.9 million and $113.3 million generated by Angi and Dotdash Meredith, respectively, the Company generated positive cash flows from operating activities of $15.3 million.

At September 30, 2024, the Company's consolidated cash, cash equivalents and marketable securities, excluding MGM, were $1.7 billion, of which $395.2 million and $264.0 million was held by Angi and Dotdash Meredith, respectively. The Company's consolidated debt includes approximately $1.5 billion, which is the liability of Dotdash Meredith Inc., and $500.0 million, which is the liability of ANGI Group, a subsidiary of Angi.

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 September 30, 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. During the three and nine months ended September 30, 2024, the Company contributed $20 million and $125 million, respectively, to Dotdash Meredith, following which Dotdash Meredith distributed $20 million in October 2024 back to the Company. During the three and nine months ended September 30, 2024, Dotdash Meredith distributed back to the Company $50 million and $210 million, respectively, including $105 million in January 2024 related to the Company's contribution in December 2023. See "Note 3—Long-term Debt" to the financial statements included in "Item 1. Consolidated Financial Statements" for additional information.

Angi 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 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'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, marketable debt securities and expected positive cash flows from operations, excluding Angi 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 could further limit the Company's ability to raise additional financing.