IAC INC. GENERAL
MTCH Separation: OnDecember 19, 2019 ,IAC/InterActiveCorp ("Old IAC") entered into a Transaction Agreement (as amended, the "Transaction Agreement") withMatch Group, Inc. ("Old MTCH"),IAC Holdings, Inc. ("New IAC" or the "Company"), a direct wholly-owned subsidiary of Old IAC, andValentine Merger Sub LLC , an indirect wholly-owned subsidiary of Old IAC. OnJune 30, 2020 , the businesses of Old MTCH were separated from the remaining businesses of Old IAC through a series of transactions that resulted in the pre-transaction stockholders of Old IAC owning shares in two, separate public companies-(1) Old IAC, which was renamedMatch Group, Inc. ("New Match") and which owns the businesses of Old MTCH and certain Old IAC financing subsidiaries, and (2) New IAC, which was renamedIAC/InterActiveCorp , and which owns Old IAC's other businesses-and the pre-transaction stockholders of Old MTCH (other than Old IAC) owning shares in New Match. This transaction is referred to as the "MTCH Separation." Spin-off: OnDecember 22, 2020 , IAC announced that its Board of Directors approved a plan to spin-off its full stake in Vimeo to IAC shareholders. IAC's Vimeo business will be separated from the remaining businesses of IAC through a series of transactions (which we refer to as the "Spin-off") that, if completed in their entirety, will result in the transfer of IAC's Vimeo business toVimeo Holdings, Inc. ("SpinCo"), a wholly-owned subsidiary of IAC, withSpinCo becoming an independent, separately traded public company through a spin-off from IAC, andVimeo, Inc. , the IAC subsidiary that currently holds the Vimeo business, becoming a wholly-owned subsidiary ofSpinCo . In connection with the foregoing,SpinCo will be renamed asVimeo, Inc. and Vimeo will be renamed asVimeo.com, Inc. The proposed transaction is subject to a number of conditions including final approval by IAC's Board of Directors, approval of the separation proposal by IAC stockholders, and other customary conditions and approvals and is expected to close pre-market onMay 25, 2021 . Management Overview The Company operates Vimeo, Dotdash andCare.com , among many others, and has majority ownership ofAngi Inc. (formerlyANGI Homeservices Inc. ), which includes HomeAdvisor,Angi (formerlyAngie's List ) and Handy. As used herein, "IAC," the "Company," "we," "our" or "us" and similar terms refer toIAC/InterActiveCorp and its subsidiaries (unless the context requires otherwise). For a more detailed description of the Company's operating businesses, see the Company's Annual Report on Form 10-K for the year endedDecember 31, 2020 . Defined Terms and Operating Metrics: Unless otherwise indicated or as the context requires otherwise, certain terms used in this quarterly report, which include the principal operating metrics we use in managing our business, are defined below: Reportable Segments (for additional information see " Note 8-Segment Information " to the financial statements included in " Item 1-Consolidated and Combined Financial Statements "): •Angi Inc. - connects quality home service professionals with consumers across 500 different categories, from repairing and remodeling to cleaning and landscaping. AtMarch 31, 2021 , the Company's economic interest and voting interest inAngi Inc. were 84.2% and 98.2%, respectively. •Vimeo, Inc. ("Vimeo") - is the world's leading all-in-one video software solution, providing the full breadth of video tools through a software-as-a-service model. Vimeo's comprehensive and cloud-based tools empower its users to create, collaborate and communicate with video on a single, turnkey platform. AtMarch 31, 2021 , the Company's economic interest and voting interest in Vimeo were approximately 88.0% and 81.0%, respectively. 35
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•Dotdash - is a portfolio of digital publishing brands that collectively provide expert information and inspiration in select vertical content categories. Through its brands, Dotdash provides original and engaging digital content in a variety of formats, including articles, illustrations, videos and images. •Search - consists ofAsk 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 ofCare.com , which acquired Lifecare, a leading provider of family care benefits, onOctober 27, 2020 ,Mosaic Group ,Bluecrew ,Vivian Health (formerly NurseFly),The Daily Beast ,IAC Films and, for periods prior to its sale onMarch 16, 2020 , College Humor Media.ANGI Inc. •Marketplace Revenue - primarily reflects domestic marketplace revenues, including consumer connection revenue for consumer matches, revenue fromAngi Services (pre-priced) offerings sourced through marketplace platforms, and membership subscription revenue from service professionals. •Advertising and Other Revenue - primarily includes revenue from service professionals under contract for advertising and membership subscription fees from consumers. •Marketplace Service Requests - are fully completed and submitted domestic customer service requests and includes Angi Services requests sourced through marketplace platforms in the period. •Marketplace Monetized Transactions - are fully completed and submitted domestic customer service requests that were matched to and paid for by a service professional and includes completed and in-process Angi Services jobs sourced through the marketplace platforms in the period. •Marketplace Transacting Service Professionals ("Marketplace Transacting SPs") - are the number of marketplace service professionals that paid for consumer matches or performed an Angi Services job sourced through the marketplace platforms in the quarter. •Advertising Service Professionals ("Advertising SPs") - are the total number of service professionals under contract for advertising at the end of the period. Vimeo •Subscribers - is the number of userswho have an active subscription to one of Vimeo's paid plans measured at the end of the relevant period. Vimeo counts each account with a subscription plan as a subscriber. In the case of enterprise customerswho maintain multiple accounts across Vimeo's platforms as part of a single enterprise subscription plan, Vimeo counts only one subscriber. Vimeo does not count team memberswho have access to a subscriber's account as additional subscribers. •Average Subscribers - is the sum of the number of Subscribers at the beginning and at the end of the relevant measurement period divided by two. •Average Revenue per User ("ARPU") - is the annualized revenue for the relevant period divided by Average Subscribers. For periods that are less than a full year, annualized revenue is calculated by dividing the revenue for that particular period by the number of calendar days in the period and multiplying this value by the number of days in that year. Dotdash •Display Advertising Revenue - primarily includes revenue generated from display advertisements sold both directly through our sales team and via programmatic exchanges. 36
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•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 transaction. Performance marketing commissions are generated on a cost-per-click or cost-per-new account basis. Operating Costs and Expenses: •Cost of revenue - consists primarily of traffic acquisition costs, which includes (i) payments made to partnerswho direct traffic to ourAsk Media Group websites,who distribute our business-to-business customized browser-based applications andwho integrate our paid listings into their websites and (ii) the amortization of fees paid to Apple and Google related to the distribution of apps and the facilitation of in-app purchases of product features. Traffic acquisition costs include payment of amounts based on revenue share and other arrangements. Cost of revenue also includes payments made to independent service professionalswho perform work contracted under pre-priced arrangements through theAngi Inc. marketplace platforms, compensation expense (including stock-based compensation expense) and other employee-related costs for Vimeo andCare.com customer care and support functions, payments made to workers staffed byBluecrew , hosting fees, credit card processing fees, content costs, and production costs related toIAC Films and College Humor, for periods prior to its sale onMarch 16, 2020 . •Selling and marketing expense - consists primarily of advertising expenditures, which include online marketing, including through search engines and social media sites, fees paid to third parties that distribute our direct-to-consumer downloadable desktop applications, offline marketing, which is primarily television advertising, partner-related payments to thosewho direct traffic to the brands within ourAngi Inc. segment, and compensation expense (including stock-based compensation expense) and other employee-related costs forAngi Inc.'s and Vimeo's sales force and marketing personnel. •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 Vimeo andCare.com , which include customer service costs within cost of revenue), fees for professional services (including transaction-related costs related to the MTCH Separation, the Spin-off and acquisitions), rent expense, facilities costs, provision for credit losses, software license and maintenance costs and acquisition-related contingent consideration fair value adjustments (described below). The customer service function atAngi Inc. includes personnelwho 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 contractors 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 accompanying statement of operations. Long-term debt (for additional information see " Note 5-Long-term Debt " to the financial statements included in " Item 1-Consolidated and Combined Financial Statements "): •ANGI Group Senior Notes - OnAugust 20, 2020 ,ANGI Group, LLC ("ANGI Group "), a direct wholly-owned subsidiary ofAngi Inc. , issued$500 million of its 3.875% Senior Notes dueAugust 15, 2028 , with interest payableFebruary 15 andAugust 15 of each year, commencingFebruary 15, 2021 . 37
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•ANGI Group Term Loan - dueNovember 5, 2023 . The outstanding balance of the ANGI Group Term Loan as ofMarch 31, 2021 is$213.1 million and bore interest at LIBOR plus 2.00%, or 2.10% and 2.16%, atMarch 31, 2021 andDecember 31, 2020 , respectively. As ofMay 6, 2021 , the outstanding balance of the ANGI Group Term Loan was repaid in its entirety. •ANGI Group Revolving Facility -The ANGI Group $250 million revolving credit facility expires onNovember 5, 2023 . AtMarch 31, 2021 andDecember 31, 2020 , there were no outstanding borrowings under the ANGI Group Revolving Facility.The ANGI Group Revolving Facility and ANGI Group Term Loan are collectively referred to as the ANGI Group Credit Agreement. •Vimeo Credit Facility - OnFebruary 12, 2021 ,Vimeo, Inc. entered into$100 million revolving credit facility that expires onFebruary 12, 2026 . AtMarch 31, 2021 , there were no outstanding borrowings under the Vimeo Credit Facility. Non-GAAP financial measure: •Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") - is a non-GAAP financial measure. See " Principles of Financial Reporting " for the definition of Adjusted EBITDA and a reconciliation of net earnings (loss) attributable to IAC shareholders to operating loss to Adjusted EBITDA for the three months endedMarch 31, 2021 and 2020.Angi Inc.'s Brand Integration Initiative OnMarch 17, 2021 ,Angi Inc. updated one of its leading websites and brands,Angie's List , toAngi , and began the process of consolidating under a single brand. Going forwardAngi Inc. will concentrate 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 and paid search engine marketing efforts to drive traffic to its properties, which has been adversely affected by this initiative. Specifically, the brand initiative has adversely affected the placement and ranking ofAngi Inc. websites, particularly Angi.com, in organic search results asAngi does not have the same domain history asAngie's List . In addition,Angi Inc. shifted marketing to supportAngi , away from HomeAdvisor, which has negatively affected the efficiency of its search engine marketing efforts. These efforts have had a pronounced negative impact on Marketplace Service Requests from organic search results, and reduced monetization via its mobile applications, which in turn has resulted in relatively more Marketplace Service Requests from paid search engine marketing. The combined effect has reduced revenue and increased marketing spend, whichAngi Inc. expects to result in lower profits in the quarter endingJune 30, 2021 .Angi Inc. expects this trend to continue until such time as the new brand establishes search engine optimization ranking and consumer awareness is established.Angi Inc. expects the reduction in revenue, increased marketing expense, and lower profits to continue for the remainder of 2021 and potentially into 2022, with the most significant impact in the second quarter of 2021.Angi Inc. has also increased its investment in Angi Services, its pre-priced product offering, which will reduce profits more than planned during 2021. Certain Risks and Concentrations-Services Agreement withMarch 31, 2021 and 2020, total revenue earned from$171.8 million and$138.9 million , respectively, representing 20% of the Company's revenue for both periods. The related accounts receivable totaled$66.2 million and$61.9 million atMarch 31, 2021 andDecember 31, 2020 , respectively. The total revenue earned from the Services Agreement for the three months endedMarch 31, 2021 and 2020 was$152.5 million and$126.6 million , respectively, representing 17% and 19%, respectively, of the Company's total revenue. 38
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The revenue attributable to the Services Agreement is earned by the Desktop business andAsk Media Group , both within the Search segment. For the three months endedMarch 31, 2021 and 2020, revenue earned from the Services Agreement was$31.0 million and$46.1 million , respectively, within the Desktop business and$121.4 million and$80.5 million , respectively, withinAsk Media Group . The Services Agreement expires onMarch 31, 2023 ; provided that during each September, either party may, after discussion with the other party, terminate the Services Agreement, effective onSeptember 30 of the year following the year such notice is given. Neither party gave notice to the other party to terminate the Services Agreement pursuant to this provision inSeptember 2020 . The Services Agreement requires that the Company comply with certain guidelines promulgated byAugust 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 Desktop's business-to-consumer ("B2C") business. In addition, at multiple times during the fourth quarter of 2020,January 2021 . Subsequently,May 10, 2021 . This Google policy change may eliminate our ability to successfully introduce and market new products that would be profitable at scale. Therefore, the Desktop B2C business substantially reduced marketing in earlyMarch 2021 and effectively eliminated all marketing of its B2C products by the end of the first quarter of 2021. This reduction in marketing will positively impact profitability in 2021 but will substantially reduce revenue in 2021. Beyond 2021, the revenue from the installed base of products will decline precipitously. In response, we have undertaken cost reduction measures to maintain a very modest level of profitability. The reduction in revenue and profitability during the three months endedMarch 31, 2020 due, in part, toMarch 31, 2020 of$212.0 million and$21.4 million , respectively. The impact of COVID-19 was an additional factor. COVID-19 Update and Impairments The impact on the Company from the COVID-19 outbreak, which has been declared a "pandemic" by theWorld Health Organization , has been varied and volatile. The extent to which developments related to the COVID-19 outbreak 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 development and implementation of effective preventative measures (including the global distribution of vaccines) and possible treatments, the scope of governmental and other restrictions on travel, discretionary services and other activity, and public reactions to these developments. For example, these developments and measures have resulted in rapid and adverse changes to the operating environment for certain of our businesses, as well as significant uncertainty concerning the near- and long-term economic ramifications of the COVID-19 outbreak, which have adversely impacted our ability to forecast our results and respond in a timely and effective manner to trends related to the COVID-19 outbreak. The longer the global outbreak and measures designed to curb the spread of the virus continue to adversely affect levels of consumer confidence, discretionary spending and the willingness of consumers to interact with other consumers, vendors and service providers face-to-face (and in turn, adversely affect demand for the Company's various products and services), the greater the adverse impact is likely to be on the Company's business, financial condition and results of operations and the more limited will be the Company's ability to try and make up for delayed or lost revenues. 39
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When COVID-19 first impacted the businesses inIAC's Angi Inc. segment inMarch 2020 , these businesses experienced a decline in demand for service requests, driven primarily by decreases in demand in certain categories of jobs (particularly discretionary indoor projects). During the second quarter of 2020, these businesses experienced a rebound in service requests, exceeding pre-COVID-19 growth levels, driven by increased demand from homeownerswho spent more time at home due to measures taken to reduce the spread of COVID-19. These businesses continued to experience strong demand for home services in the second half of 2020 and the first quarter of 2021. However, many service professionals' businesses have been adversely impacted by labor and material constraints and many service professionals have limited capacity to take on new business, which has negatively impacted the ability of these businesses to monetize this increased level of service requests. Vimeo has seen strong revenue growth as the demand for communication via video has increased due to the pandemic. The Search segment has experienced an increase in revenue in the first quarter of 2021 compared to the prior year due, in part, to lower advertising rates in 2020 due to the impact of COVID-19. COVID-19 impacted our businesses in varied ways in the year endedDecember 31, 2020 . Accordingly, the volatile nature of our operating results in 2020 will impact the comparability of our year-over-year results of operations. There were no impairments identified during the quarter endedMarch 31, 2021 . In the quarter endedMarch 31, 2020 , the Company determined that the effects of COVID-19 were an indicator of possible impairment for certain of its assets and identified the following impairments: •a$212.0 million impairment related to the goodwill of the Desktop reporting unit; •a$21.4 million impairment related to certain indefinite-lived intangible assets of the Desktop reporting unit; •a$51.5 million impairment of certain equity securities without readily determinable fair values; and •a$7.5 million impairment of a note receivable and a warrant related to certain investees. In addition,the United States , which represents 80% of the Company's revenue for the three months endedMarch 31, 2021 , experienced another resurgence of the COVID-19 virus.Europe , which is the second largest market for the Company's products and services, has also seen a resurgence in COVID-19. This resurgence of COVID-19 and the measures designed to curb COVID-19's spread could materially and adversely affect our business, financial condition and results of operations. 40
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Results of Operations for the three months endedMarch 31, 2021 compared to the three months endedMarch 31, 2020 Revenue Three Months Ended March 31, 2021 $ Change % Change 2020 (Dollars in thousands) Angi Inc.$ 387,029 $ 43,379 13%$ 343,650 Vimeo 89,422 32,454 57% 56,968 Dotdash 65,421 21,301 48% 44,120 Search 181,034 26,615 17% 154,419 Emerging & Other 153,156 68,114 80% 85,042 Inter-segment eliminations (74) 1 3% (75) Total$ 875,988 $ 191,864 28%$ 684,124 •Angi Inc. revenue increased 13% to$387.0 million driven by Marketplace Revenue growth of$32.3 million , or 12%, growth of$6.5 million , or 33%, at the European businesses and an increase of$4.6 million , or 7%, in Advertising and Other Revenue. The increase in Marketplace Revenue was due primarily to an increase of 29% in Marketplace Service Requests to 7.7 million, resulting in a 17% increase in Marketplace Monetized Transactions to 4.2 million. The revenue increase at the European businesses was due to strong growth across its markets due to increased consumer demand and the favorable impact of the weakening of theU.S. dollar relative to the Euro and British Pound. Advertising and Other Revenue increased due primarily to an increase inAngi revenue driven by an 6% increase in Advertising SPs to 40 thousand. •Vimeo revenue grew 57% to$89.4 million driven primarily by a 25% increase in Average Subscribers to 1.6 million and a 27% increase in ARPU to$233 . The growth in Average Subscribers is due to an increase in self-serve and enterprise customers as individuals, businesses and organizations accelerated their adoption of video to communicate with their customers and employees due, in part, to the effects of COVID-19. ARPU increased as a greater percentage of both new and existing self-serve subscribers purchased, on average, higher-priced offerings that include features, such as additional storage and bandwidth, video creation and editing tools and live streaming capability. The growth in enterprise customers, whose average annual contract values are much greater, also contributed to ARPU growth. •Dotdash revenue increased 48% to$65.4 million due to growth of$14.0 million , or 99%, in Performance Marketing Revenue and$7.3 million , or 24%, higher Display Advertising Revenue. The growth in 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. The increase in Display Advertising Revenue was driven by an increase in advertising sold through our sales team. •Search revenue increased 17% to$181.0 million due to an increase of$42.9 million , or 43%, fromAsk Media Group , partially offset by a decrease of$16.3 million , or 30%, from Desktop. The increase inAsk Media Group revenue was due to growth in paid traffic. The decrease in Desktop revenue was driven by increasing challenges in monetization and the reduced marketing of its B2C products in the first quarter of 2021 due to browser policy changes implemented by$153.2 million due primarily to the full quarter contribution ofCare.com , acquiredFebruary 11, 2020 , the addition of Lifecare, acquired byCare.com inOctober 2020 , and an increase in revenue fromIAC Films . 41
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Cost of revenue (exclusive of depreciation shown separately below)
Three Months Ended March 31,
2021 $ Change % Change 2020
(Dollars in thousands)
Cost of revenue (exclusive of depreciation shown separately
below) $245,681 $ 66,354 37% $179,327
As a percentage of revenue 28% 26%
Cost of revenue in 2021 increased from 2020 due to increases of $24.8 million
from Search, $20.6 million from Angi Inc. , $11.6 million from Emerging & Other
and $6.6 million from Vimeo.
•The Search increase was primarily due to an increase of $26.5 million in
traffic acquisition costs at Ask Media Group resulting from the increase in
revenue.
•The Angi Inc. increase was due primarily to growth of Angi Services (the
pre-priced product offerings), which has lower margins than other sources of
revenue.
•The Emerging & Other increase was due primarily to $10.2 million of expense
from the inclusion of Care.com for a full quarter and from the acquisition of
Lifecare.
•The Vimeo increase was due primarily to increases of $3.6 million in hosting
fees and $2.4 million in credit card processing fees and in-app purchase fees.
The increase in hosting fees was due to the increase in Average Subscribers,
partially offset by cost optimization initiatives. The increase in credit card
processing fees and in-app purchase fees was due primarily to an increase in
Average Subscribers and growth in on-demand content transactions.
Selling and marketing expense
Three Months Ended March 31,
2021 $ Change % Change 2020
(Dollars in thousands)
Selling and marketing expense $344,266 $36,059 12% $308,207
As a percentage of revenue 39% 45%
Selling and marketing expense in 2021 increased from 2020 due to increases of
$15.9 million from Angi Inc. , $12.0 million from Emerging & Other, $6.8 million
from Vimeo and $3.6 million from Dotdash, partially offset by a decrease of $2.5
million from Search.
•The Angi Inc. increase was due primarily to increases in compensation expense
of $8.5 million , advertising expense of $5.9 million and outsourced personnel
and consulting costs of $2.6 million . The increase in compensation expense was
due primarily to increased commission expense and an increase in sales force
headcount, partially offset by lower compensation expense in France due to
headcount reductions in the third quarter of 2020. The increase in advertising
expense was due primarily to an increase in online marketing, partially offset
by a decrease in television spend. The increase in outsourced personnel and
consulting costs was due primarily to various sales initiatives at Angi
Services.
•The Emerging & Other increase was due primarily to $10.3 million of expense
from the inclusion of Care.com for a full quarter and from the acquisition of
Lifecare.
•The Vimeo increase was due primarily to increases in compensation expense of
$3.4 million and advertising costs of $2.9 million . The increase in compensation
expense was primarily due to growth in the enterprise sales force.
•The Dotdash increase was due primarily to increases in compensation expense of
$1.9 million and online advertising expense of $1.8 million . The increase in
compensation expense was primarily due to higher headcount.
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•The Search decrease was due primarily to a decrease in marketing of$15.2 million at Desktop as we substantially reduced marketing of its B2C products in earlyMarch 2021 as a result ofMay 10, 2021 , partially offset by an increase of$11.0 million in online marketing atAsk Media Group . General and administrative expense Three Months Ended March 31, 2021 $ Change % Change 2020 (Dollars in thousands) General and administrative expense$177,431 $3,690 2%$173,741 As a percentage of revenue 20% 25% General and administrative expense in 2021 increased from 2020 due to increases of$9.5 million from Emerging & Other and$2.0 million from Corporate, partially offset by a decrease of$6.4 million fromAngi Inc. •The Emerging & Other increase was due primarily to$8.2 million of expense from the inclusion ofCare.com for a full quarter and from the acquisition of Lifecare and the inclusion in 2020 of income of$6.3 million in acquisition-related contingent consideration fair value adjustments due to the decrease in the expected amount of contingent consideration to be paid out in connection with a previousMosaic Group acquisition. •The Corporate increase was due primarily to an increase of$7.3 million in stock-based compensation expense due to the issuance of new grants since 2020, partially offset by a decrease in transaction-related costs ($7.6 million related to the MTCH Separation in 2020 compared to$4.1 million in connection with the Spin-off in 2021). •The Angi Inc. decrease was due primarily to a decrease of$14.0 million in compensation expense, partially offset by increases in professional fees of$3.6 million and$1.3 million in the provision for credit losses. The decrease in compensation expense was due primarily to a decrease in stock-based compensation expense of$22.9 million , partially offset by a$6.0 million charge related to the acquisition of an additional 21% interest inMyBuilder at a premium to fair value and an increase of$2.8 million in wage related expenses resulting primarily from annual wage increases. The decrease in stock-based compensation expense was due primarily to$11.9 million in stock appreciation rights expense recognized in the first quarter of 2020 which was not incurred in 2021 as the awards became fully vested in 2020 and a net decrease of$7.7 million due to the reversal of previously recognized expense related to unvested awards that were forfeited due to management departures in the first quarter of 2021. The increase in professional fees was due primarily to an increase in outsourced personnel costs and legal fees. The increase in outsourced personnel costs was due primarily to an increase in call volume related toAngi Inc.'s customer service function. The increase in provision for credit losses was driven by higher Marketplace Revenue. Product development expense Three Months Ended March 31, 2021 $ Change % Change 2020 (Dollars in thousands) Product development expense$82,410 $20,447 33%$61,963 As a percentage of revenue 9% 9% Product development expense in 2021 increased from 2020 due to increases of$9.4 million from Emerging & Other,$4.9 million from Vimeo and$3.7 million from Dotdash. •The Emerging & Other increase was due primarily to$7.0 million of expense from the inclusion ofCare.com for a full quarter and from the acquisition of Lifecare •The Vimeo increase was due primarily to increased investment in products, which resulted in increases of$3.7 million in compensation expense due primarily to increased headcount,$0.7 million in consulting costs and$0.6 million in software license and maintenance costs. 43
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•The Dotdash increase was due primarily to an increase of$3.5 million in compensation expense due to higher headcount. Depreciation Three Months Ended March 31, 2021 $ Change % Change 2020 (Dollars in thousands) Depreciation$19,301 $3,809 25%$15,492 As a percentage of revenue 2% 2% Depreciation in 2021 increased from 2020 due primarily to the investments inAngi Inc. capitalized software. Operating income (loss) Three Months Ended March 31, 2021 $ Change % Change 2020 (Dollars in thousands) Angi Inc.$ 109 $ 16,405 NM$ (16,296) Vimeo (206) 14,383 99% (14,589) Dotdash 18,127 15,716 652% 2,411 Search 18,386 238,949 NM (220,563) Emerging & Other 994 18,864 NM (17,870) Corporate (49,237) (3,806) (8)% (45,431) Total$ (11,827) $ 300,511 96%$ (312,338) As a percentage of revenue (1)% (46)% Operating loss decreased$300.5 million to a loss of$11.8 million due primarily to the inclusion in 2020 of a goodwill impairment of$212.0 million and$21.4 million in indefinite-lived intangible asset impairments at Search related to the Desktop business, an increase in Adjusted EBITDA of$57.1 million , described below, and decreases of$14.5 million in stock-based compensation expense,$5.6 million in amortization of intangibles, excluding the Desktop impairment noted above, and the inclusion in 2020 of$6.3 million of income in acquisition-related contingent consideration fair value adjustments, partially offset by an increase of$3.8 million in depreciation. The goodwill and the indefinite-lived intangible asset impairments are described above in "Certain Risks and Concentrations-Services Agreement with$27.0 million was due principally to the inclusion in 2020 of indefinite-lived intangible asset impairments related to the Desktop business noted above and certain intangible assets becoming fully amortized during 2020, partially offset by an increase in amortization related to recent acquisitions (Care.com and Lifecare). The increase in depreciation was due primarily to investments in capitalized software to supportAngi Inc.'s products and services. AtMarch 31, 2021 , there was$441.4 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 5.8 years. 44
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Adjusted EBITDA
Three Months Ended March 31,
2021 $ Change % Change 2020
(Dollars in thousands)
Angi Inc. $ 23,186 $ (11,211) (33)% $ 34,397
Vimeo 1,796 13,204 NM (11,408)
Dotdash 19,922 12,911 184% 7,011
Search 18,386 5,256 40% 13,130
Emerging & Other 11,964 31,923 NM (19,959)
Corporate (26,352) 5,034 16% (31,386)
Total $ 48,902 $ 57,117 NM $ (8,215)
As a percentage of revenue 6% (1)%
For a reconciliation of net earnings (loss) attributable to IAC shareholders to operating loss to Adjusted EBITDA, see " Principles of Financial Reporting
."
For a reconciliation of operating income (loss) to Adjusted EBITDA for the Company's reportable segments, see " Note 8-Segment Information " to the financial statements included in " Item 1-Consolidated and Combined Financial Statements ." •Angi Inc. Adjusted EBITDA decreased 33% to$23.2 million , despite higher revenue, due primarily to an increase in cost of revenue, an increase in compensation expense due to increased commission expense and headcount, a$6.0 million charge related to the acquisition of an additional 21% interest inMyBuilder at a premium to fair value,$4.0 million in expense related to impairments at the Fixd Services business and from management changes in the first quarter of 2021, and an increase of$1.3 million in provision for credit losses due to higher Marketplace Revenue. •Vimeo Adjusted EBITDA improved$13.2 million to$1.8 million from a loss of$11.4 million due primarily to higher revenue, partially offset by higher compensation expense due primarily to an increase in headcount and an increase in professional fees, including costs related to the Spin-off, and higher advertising costs. •Dotdash Adjusted EBITDA increased 184% to$19.9 million due primarily to higher revenue and a decrease in the provision for credit losses which had had been established in the first quarter of 2020 in response to COVID-19, partially offset by increases in compensation expense, expense for third-party contractors and advertising expense. •Search Adjusted EBITDA increased 40% to$18.4 million due to an increase inAsk Media Group revenue and the decrease of$15.2 million in marketing at Desktop as we substantially reduced marketing of its B2C products in earlyMarch 2021 as a result of$31.9 million to$12.0 million from a loss of$20.0 million due primarily to increased revenue atCare.com ,$13.5 million in transaction-related items in 2020 from theCare.com acquisition (including$8.7 million in deferred revenue write-offs and$4.8 million in transaction-related costs) and higher profits atIAC Films . •Corporate Adjusted EBITDA loss decreased 16% to$26.4 million due primarily to the inclusion in 2020 of$7.6 million in costs related to the MTCH Separation, partially offset by an increase of$4.1 million in costs related to the Spin-off. Interest expense Three Months Ended March 31, 2021 $ Change % Change 2020 (Dollars in thousands) Interest expense$6,680 $4,463 201%$2,217 45
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Interest expense in 2021 increased from 2020 due primarily to the issuance of theANGI Group Senior Notes inAugust 2020 , partially offset by a decrease in interest expense on the ANGI Group Term Loan due to lower interest rates and the decrease in the average outstanding balance compared to the prior year period. Unrealized gain on investment in MGM Resorts International Three Months Ended March 31, 2021 $ Change % Change 2020 (Dollars in thousands) Unrealized gain on investment in MGM Resorts International$382,540 $382,540 NM $- The Company recognized an unrealized gain of$382.5 million on its investment in MGM Resorts International ("MGM") during the first quarter of 2021. During the second and third quarters of 2020, the Company purchased a total of 59.0 million shares ofMGM . Other income (expense), net Three Months Ended March 31, 2021 $ Change % Change 2020 (Dollars in thousands) Other income (expense), net$13,650 $71,098 NM$(57,448) Other income, net in 2021 includes: an unrealized increase of$12.8 million in the estimated fair value of a warrant; a gain of$10.2 million related to the sale of Vimeo's retained interest in its former hardware business; and$11.8 million of foreign exchange losses primarily relating to the substantial liquidation of certain foreign subsidiaries. Other expense, net in 2020 includes:$51.5 million in impairments related to investments in equity securities without readily determinable fair values and$7.5 million in impairments of a note receivable and a warrant related to certain investees due to the impact of COVID-19; and$4.5 million of interest income. Income tax (provision) benefit Three Months Ended March 31, 2021 $ Change % Change 2020 (Dollars in thousands) Income tax (provision) benefit$(48,782) $(90,214) NM$41,432 Effective income tax rate 13% 11% For further details of income tax matters, see " Note 2-Income Taxes " to the financial statements included in " Item 1. Consolidated and Combined Financial Statements ." In 2021, the income tax provision represented an effective tax rate of 13%. 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. In 2020, the income tax benefit represented an effective tax rate of 11%. The effective income tax rate was lower than the statutory rate of 21% due primarily to the non-deductible portion of the Desktop goodwill impairment charge and unbenefited losses related to other investment impairments, partially offset by a revaluation of net operating loss deferred taxes due to the Coronavirus Aid, Relief, and Economic Security Act. 46
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Net loss attributable to noncontrolling interests
Three Months Ended March 31,
2021 $ Change % Change 2020
(Dollars in thousands)
Net loss attributable to noncontrolling interests $(227) $2,145 (90)% $(2,372) Net loss attributable to noncontrolling interests in 2021 and 2020 primarily
represents the publicly-held interest in
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PRINCIPLES OF FINANCIAL REPORTING
The Company reports Adjusted EBITDA as a supplemental measure to U.S. generally
accepted accounting principles ("GAAP"). This measure is one of the primary
metrics by which we evaluate the performance of our businesses, on which our
internal budgets are based and by which management is compensated. We believe
that investors should have access to, and we are obligated to provide, the same
set of tools that we use in analyzing our results. This non-GAAP measure should
be considered in addition to results prepared in accordance with GAAP, but
should not be considered a substitute for or superior to GAAP results. The
Company endeavors to compensate for the limitations of the non-GAAP measure
presented by providing the comparable GAAP measure with equal or greater
prominence and descriptions of the reconciling items, including quantifying such
items, to derive the non-GAAP measure. We encourage investors to examine the
reconciling adjustments between the GAAP and non-GAAP measure, which we discuss
below.
Definition of Non-GAAP Measure
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization
("Adjusted EBITDA") is defined as operating income excluding: (1) stock-based
compensation expense; (2) depreciation; and (3) acquisition-related items
consisting of (i) amortization of intangible assets and impairments of goodwill
and intangible assets, if applicable, and (ii) gains and losses recognized on
changes in the fair value of contingent consideration arrangements. We believe
this measure is useful for analysts and investors as this measure allows a more
meaningful comparison between our performance and that of our competitors. The
above items are excluded from our Adjusted EBITDA measure because these items
are non-cash in nature. Adjusted EBITDA has certain limitations because it
excludes the impact of these expenses.
The following table reconciles net earnings (loss) attributable to IAC
shareholders to operating loss to Adjusted EBITDA:
Three Months Ended
2021 2020
(In thousands)
Net earnings (loss) attributable to IAC shareholders $ 329,128 $ (328,199)
Add back:
Net loss attributable to noncontrolling interests (227) (2,372)
Income tax provision (benefit) 48,782 (41,432)
Other (income) expense, net (13,650) 57,448
Unrealized gain on investment in MGM Resorts International (382,540) -
Interest expense 6,680 2,217
Operating loss (11,827) (312,338)
Add back:
Stock-based compensation expense 22,702 37,181
Depreciation 19,301 15,492
Amortization of intangibles 18,726 45,759
Acquisition-related contingent consideration fair value adjustments
- (6,282)
Goodwill impairment - 211,973
Adjusted EBITDA $ 48,902 $ (8,215) For a reconciliation of operating (loss) income to Adjusted EBITDA for the Company's reportable segments, see " Note 8-Segment Information " to the financial statements included in " Item 1-Consolidated and Combined Financial Statements ."
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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 building, capitalized
software, leasehold improvements and equipment and is computed using the
straight-line method to allocate the cost of depreciable assets to operations
over their estimated useful lives, or, in the case of leasehold improvements,
the lease term, if shorter.
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 technology, service professional relationships,
customer lists and user base, memberships, trade names and content, are valued
and amortized over their estimated lives. Value is also assigned to acquired
indefinite-lived intangible assets, which comprise trade names and trademarks,
and goodwill that are not subject to amortization. An impairment is recorded
when the carrying value of an intangible asset or goodwill exceeds its fair
value. We believe that intangible assets represent costs incurred by the
acquired company to build value prior to acquisition and the related
amortization and impairments of intangible assets or goodwill, if applicable,
are not ongoing costs of doing business.
Gains and losses recognized on changes in the fair value of contingent
consideration arrangements are accounting adjustments to report contingent
consideration liabilities at fair value. These adjustments can be highly
variable and are excluded from our assessment of performance because they are
considered non-operational in nature and, therefore, are not indicative of
current or future performance or the ongoing cost of doing business.
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FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCESFinancial Position
March 31, 2021 December 31, 2020
(In thousands)
Angi Inc. cash and cash equivalents and marketable debt
securities:
United States $ 756,860 $ 793,679
All other countries 20,181 19,026
Total cash and cash equivalents 777,041 812,705
Marketable debt securities (United States) - 49,995
777,041 862,700
Vimeo cash and cash equivalents:
United States 313,433 107,018
All other countries 2,872 2,993
Total Vimeo cash and cash equivalents 316,305 110,011
IAC (excluding Angi Inc. and Vimeo) cash and cash
equivalents and marketable debt securities:
United States 2,751,169 2,466,404
All other countries 71,033 87,068
Total cash and cash equivalents 2,822,202 2,553,472
Marketable debt securities (United States) - 174,984
Total IAC (excluding
2,822,202 2,728,456
Total cash and cash equivalents and marketable debt
securities $ 3,915,548 $ 3,701,167
Long-term debt:
ANGI Group Senior Notes $ 500,000 $ 500,000
ANGI Group Term Loan 213,125 220,000
Total long-term debt 713,125 720,000
Less: unamortized debt issuance costs 7,138 7,723 Total long-term debt, net
$ 705,987 $ 712,277 The Company's international cash can be repatriated without significant tax consequences. For a detailed description of long-term debt, see " Note 5-Long-term Debt " to the financial statements included in " Item 1. Consolidated and Combined Financial Statements ." As ofMay 6, 2021 , the outstanding balance of theANGI Group Term Loan of$213.1 million was repaid in its entirety. 50
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Cash Flow Information
In summary, IAC's cash flows are as follows:
Three Months Ended March 31,
2021 2020
(In thousands)
Net cash provided by (used in)
Operating activities$ 53,872 $ 39,171 Investing activities$ 205,019 $ (518,610) Financing activities$ 194,413 $ 1,671,816 Net cash provided by operating activities consists of earnings adjusted for non-cash items, the effect of changes in working capital and acquisition-related contingent consideration payments (to the extent greater than the liability initially recognized at the time of acquisition). Non-cash adjustments include the unrealized gain on the investment inMGM , goodwill impairment, net (gains) losses on equity securities, deferred income taxes, amortization of intangibles, stock-based compensation expense, provision for credit losses, and depreciation. 2021 Adjustments to earnings consist primarily of$382.5 million of unrealized gain on the investment inMGM , partially offset by$47.2 million of deferred income taxes,$22.7 million of stock-based compensation expense,$19.4 million of provision for credit losses,$19.3 million of depreciation, and$18.7 million of amortization of intangibles. The decrease from changes in working capital primarily consists of an increase in accounts receivable of$42.8 million and a decrease in accounts payable and other liabilities of$8.5 million , partially offset by an increase in deferred revenue of$28.3 million and a decrease in other assets of$11.7 million . The increase in accounts receivable is due primarily to revenue growth atAngi Inc. and the timing of cash receipts at Mosaic. The decrease in accounts payable and other liabilities is due, in part, to a decrease in accrued employee compensation related to the payment of 2020 cash bonuses in 2021 and payment of commissions, partially offset by an increase in accrued advertising and related payables atAngi Inc. The increase in deferred revenue is due primarily to growth in subscription sales atCare.com and Vimeo. The decrease in other assets is due primarily to decreases in capitalized downloadable search toolbar costs at Search and prepaid hosting services atCorporate and Angi Inc. Net cash provided by investing activities includes maturities of marketable debt securities of$225.0 million , partially offset by capital expenditures of$20.4 million , primarily related to investments in capitalized software atAngi Inc. to support its products and services, and purchases of long-term investments of$7.2 million , primarily related to Turo. Net cash provided by financing activities includes$299.8 million of net proceeds from the issuance of 9.0 million shares of Vimeo Class A voting stock, partially offset by$48.2 million for withholding taxes paid on behalf ofAngi Inc. employees for stock-based awards that were net settled,$23.0 million for withholding taxes paid on behalf of IAC employees for stock-based awards that were net settled,$22.9 million for the purchase of redeemable noncontrolling interests,$6.9 million for the prepayment of the ANGI Group Term Loan required quarterly payment that was otherwise due in the first quarter of 2022,$4.9 million for the repurchase of 0.4 million shares ofAngi Inc. Class A common stock, on a settlement date basis, at an average price of$11.85 per share, and$1.4 million of debt issuance costs related to the Vimeo Credit Facility. 51
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2020
Adjustments to earnings consist primarily of a$212.0 million goodwill impairment,$51.5 million of impairments of certain equity securities without readily determinable fair values,$45.8 million of amortization of intangibles, including impairments of$21.4 million ,$37.2 million of stock-based compensation expense,$19.9 million of provision for credit losses, and$15.5 million of depreciation, partially offset by$13.8 million of deferred income taxes. The deferred income tax benefit primarily relates to the net operating loss created in the first quarter, the tax benefit on intangible and goodwill impairments, and deferred taxes resulting from a true-up of a state tax rate, partially offset by adjustments pursuant to the Coronavirus Aid, Relief, and Economic Security Act. The decrease from changes in working capital primarily consists of an increase in accounts receivable of$27.2 million , and a decrease in accounts payable and other liabilities of$8.0 million , partially offset by an increase in deferred revenue of$24.7 million . The increase in accounts receivable is primarily due to revenue growth atAngi Inc. The decrease in accounts payable and other liabilities is due, in part, to a decrease in accrued employee compensation mainly related to the payment of 2019 cash bonuses in 2020, partially offset by an increase in accrued advertising and related payables atAngi Inc. The increase in deferred revenue is due primarily to growth in subscription sales at Vimeo andCare.com . Net cash used in investing activities includes cash used for acquisitions and investments of$532.9 million , principally related to theCare.com acquisition, and capital expenditures of$14.8 million , primarily related to investments atAngi Inc. in the development of capitalized software to support its products and services, and leasehold improvements, partially offset by a decrease in notes receivable-related party of$27.7 million . Net cash provided by financing activities includes cash transfers of$1.7 billion from IAC pursuant to IAC's centrally managedU.S. treasury function, partially offset by$38.5 million for the repurchase of 5.2 million shares ofAngi Inc. common stock, on a settlement date basis, at an average price of$7.43 per share,$3.4 million in principal payments on the ANGI Group Term Loan, and$3.2 million for withholding taxes paid on behalf ofAngi Inc. employees for stock-based awards that were net settled. Liquidity and Capital Resources Financing Arrangements The outstanding balance of the ANGI Group Term Loan as ofMarch 31, 2021 was$213.1 million and bore interest at LIBOR plus 2.00%, or 2.10%. As ofMay 6, 2021 , the outstanding balance of the ANGI Group Term Loan was repaid its entirety. The ANGI Group Revolving Facility expires onNovember 5, 2023 . AtMarch 31, 2021 andDecember 31, 2020 , there were no outstanding borrowings under theANGI Group Revolving Facility. The commitment fee, which is based onANGI Group's consolidated net leverage ratio most recently reported and the average daily dollar amount of the available revolving commitments, was 35 basis points atMarch 31, 2021 . Borrowings under the ANGI Group Revolving Facility bear interest, atANGI Group's option, at either a base rate or LIBOR, in each case plus an applicable margin, which is determined based onANGI Group's consolidated net leverage ratio. The ANGI Group Credit Agreement contains covenants that would limitANGI Group's ability to pay dividends or make distributions in the event a default has occurred or ifANGI Group's consolidated net leverage ratio (as defined in the ANGI Group Credit Agreement) exceeds 4.25 to 1.0. There were no such limitations atMarch 31, 2021 . Any borrowings under the ANGI Group Credit Agreement are guaranteed byANGI Group's wholly-owned material domestic subsidiaries and are secured by substantially all assets ofANGI Group and the guarantors, subject to certain exceptions. OnFebruary 12, 2021 , Vimeo entered into a$100 million revolving credit facility, which expires onFebruary 12, 2026 . Any borrowings under the Vimeo Credit Facility are guaranteed by Vimeo's wholly-owned material domestic subsidiaries, if any, and are secured by substantially all assets of Vimeo and any guarantors, subject to certain exceptions. The commitment fee, which is based on the consolidated net leverage ratio most recently reported and the average daily dollar amount of the available revolving commitment, was 20 basis points atMarch 31, 2021 . Any borrowings under the Vimeo Credit Facility would bear interest, at Vimeo's option, at either a base rate or LIBOR, in each case plus an applicable margin, which is determined by reference to a pricing grid based on Vimeo's consolidated net leverage ratio. AtMarch 31, 2021 , there were no outstanding borrowings under the Vimeo Credit Facility. Share Repurchase Authorizations and Activity AtMarch 31, 2021 IAC has 8.0 million shares remaining in its share repurchase authorization. 52
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During the three months endedMarch 31, 2021 ,Angi Inc. repurchased 0.4 million shares of its Class A common stock, on a trade date basis, at an average price of$11.85 per share, or$4.9 million in aggregate.Angi Inc. has 18.9 million shares remaining in its share repurchase authorization as ofMarch 31, 2021 .IAC andAngi Inc. may purchase their shares over an indefinite period of time on the open market and in privately negotiated transactions, depending on those factors management deems relevant at any particular time, including, without limitation, market conditions, share price and future outlook. Outstanding Stock-based AwardsIAC andAngi Inc. may settle stock options, stock settled stock appreciation rights, restricted stock units ("RSUs") and restricted stock on a gross or a net basis based upon factors deemed relevant at the time. To the extent that equity awards are settled on a net basis, the holders of the awards receive shares of IAC orAngi Inc. , as applicable, with a value equal to the fair value of the award on the vest date for RSUs and restricted stock and with a value equal to the intrinsic value of the award upon exercise for stock options or stock settled appreciation rights less, in each case, an amount equal to the required cash tax withholding payment, which will be paid by IAC orAngi Inc. , as applicable, on the employee's behalf. All awards are being settled currently on a net basis. Certain previously issuedAngi Inc. stock appreciation rights are settleable in either shares ofAngi Inc. common stock or shares of IAC common stock at IAC's option. If settled in IAC common stock,Angi Inc. reimburses IAC in shares ofAngi Inc.'s common stock. The following table summarizes (i) the aggregate intrinsic value of IAC options,Angi Inc. options,Angi Inc. stock settled stock appreciation rights,IAC andAngi Inc. non-publicly traded subsidiary denominated stock settled stock appreciation rights and (ii) the aggregate fair value (based on stock prices as ofApril 30, 2021 ) ofIAC and Angi Inc. RSUs and IAC restricted stock outstanding as of that date; assuming these awards were net settled on that date, the withholding taxes that would be paid by the Company on behalf of employees upon exercise or vesting that would be payable (assuming these equity awards are net settled with a 50% tax rate), and the shares that would have been issued are as follows: Estimated withholding taxes payable Estimated on vested withholding Aggregate intrinsic shares and taxes payable value / fair value shares that on shares that of awards will vest by will vest after Estimated IAC outstanding March 31, 2022 March 31, 2022 shares to be issued (In thousands) IAC Stock settled appreciation rights denominated in shares of certain non-publicly traded IAC subsidiaries other thanAngi Inc. subsidiaries(a)(b) $ 38,887$ 13,185 $ 6,259 77 IAC denominated stock options(c) 889,777 444,889 - 1,755 IAC RSUs(d) 325,703 26,549 127,374 678 IAC restricted stock(e) 643,491 - 321,745 1,269 Total IAC outstanding employee stock-based awards 1,897,858 484,623 455,378 3,779 Angi Inc. See footnote (g) Angi Inc. stock appreciation rights 15,283 7,642 - below See footnote (g) Other Angi Inc. equity awards(a)(f) 167,304 20,424 62,008 belowTotal Angi Inc. outstanding employee stock-based awards 182,587 28,066 62,008 Total outstanding employee stock-based awards$ 2,080,445 $ 512,689 $ 517,386 _______________ (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. 53
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(b) Excludes the aggregate intrinsic value/fair value of Vimeo stock settled stock appreciation rights and RSUs. The aggregate intrinsic value/fair value of Vimeo outstanding awards as ofApril 30, 2021 , assuming a per share price of$35.35 , which is equal to the per share price of Vimeo based upon a$5.7 billion pre-money valuation, is$453.7 million . Of this amount,$154.3 million is attributable to currently vested awards. After the Spin-off, these awards will be settled in shares ofSpinCo common stock. Vimeo management currently plans to require individual award holders to pay his or her share of the withholding tax obligation, which he or she will generally be able to do by sellingSpinCo common shares (including a portion of the shares received in connection with the applicable exercise). (c) 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 so by selling IAC common shares. Assuming all IAC stock options outstanding onApril 30, 2021 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 3.8 million common shares and would have received$80.9 million in cash proceeds. Upon completion of the Spin-off, each option to purchase shares of IAC common stock will convert into one option to purchase shares of IAC common stock and a number of options to purchase shares ofSpinCo common stock equal to the spin-off ratio, with the option exercise prices based on (i) the value of IAC common stock prior to the Spin-off and (ii) the value of IAC common stock and the value ofSpinCo common stock after giving effect to the Spin-off. Based upon (i) the number of IAC options outstanding onApril 30, 2021 ; (ii) the closing stock price of IAC onApril 30, 2021 of$253.47 per share; and (iii) the per share price of Vimeo common stock of$35.35 per share (from the equity raise inJanuary 2021 at the$5.7 billion pre-money valuation), approximately$100 million of this withholding obligation would relate toSpinCo options that will be issued in the transaction. This estimate is preliminary and will ultimately depend upon (i) the number of IAC options outstanding immediately prior to the Spin-off; (ii) the value of IAC common stock prior to the Spin-off; and (iii) the value of IAC common stock and the value ofSpinCo common stock after giving effect to the Spin-off. (d) Approximately 85% of the estimated withholding taxes payable on shares that will vest afterMarch 31, 2022 is related to awards that are scheduled to cliff vest on the five-year anniversary of the grant date in 2025. (e) OnNovember 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. (f) Includes stock options, RSUs and subsidiary denominated equity. (g) Pursuant to the employee matters agreement betweenIAC andAngi Inc. , certain stock appreciation rights ofAngi, Inc. and equity awards denominated in shares ofAngi Inc.'s subsidiaries may be settled in either shares ofAngi Inc. common stock or IAC common stock. To the extent shares of IAC common stock are issued in settlement of these awards,Angi Inc. is obligated to reimburse IAC for the cost of those shares by issuing shares ofAngi Inc. common stock. 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 2021 capital expenditures are expected to be higher than 2020 capital expenditures of$61.6 million by approximately 60% to 70%, due primarily to increased investments in capitalized software to support the development of products and services atAngi Inc. and payments related to the purchase of a 50% interest in an aircraft at Corporate, the final payment for which is expected to be made in the third quarter of 2021. Liquidity Assessment As ofMarch 31, 2021 , the Company's consolidated cash and cash equivalents was$3.9 billion , of which$777.0 million and$316.3 million was held byAngi Inc. and Vimeo, respectively. The cash and cash equivalents held at Vimeo will be included in the Spin-off and IAC will not retain any portion thereof. The Company's outstanding debt of$713.1 million is a liability ofAngi Inc. , of which$213.1 million , representing the full outstanding balance of theANGI Group Term Loan, was repaid in its entirety as ofMay 6, 2021 . The Company generated$53.9 million of operating cash flows for the three months endedMarch 31, 2021 , of which$15.3 million and$0.9 million was generated byAngi Inc. and Vimeo, respectively.Angi Inc. is a separate and distinct legal entity with its own public shareholders and board of directors and has no obligation to provide the Company with funds. As a result, the Company cannot freely access the cash ofAngi Inc. and its subsidiaries. The Company believes its existing cash and cash equivalents and expected positive cash flows generated from operations will be sufficient to fund its normal operating requirements, including capital expenditures, debt service, the payment of withholding taxes paid on behalf of employees for net-settled stock-based awards, and investing and other commitments for the foreseeable future. 54
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The Company's liquidity could be negatively affected by a decrease in demand for
our products and services due to COVID-19 or other factors. As described in the
"COVID-19 Update and Impairments" section above, to date, the COVID-19 outbreak
and measures designed to curb its spread have had an adverse impact on certain
of the Company's businesses. The longer the global outbreak and measures
designed to curb the spread of the COVID-19 outbreak have adverse impacts on
economic conditions generally, the greater the adverse impact is likely to be on
the Company's business, financial condition and results of operations. The
Company's capital structure could limit its ability to: (i) obtain additional
financing to fund working capital needs, acquisitions, capital expenditures,
debt service or other requirements; and (ii) use operating cash flow to make
acquisitions or capital expenditures, or invest in other areas, such as
developing business opportunities. The Company's ability to obtain additional
financing could also be impacted by any disruptions in the financial markets
caused by COVID-19 or otherwise. The Company may need to raise additional
capital through future debt or equity financing to make additional acquisitions
and investments. Additional financing may not be available on terms favorable to
the Company or at all.
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CONTRACTUAL OBLIGATIONS
AS OF MARCH 31, 2021
Payments Due by Period
Less Than 1-3 3-5 More Than
Contractual Obligations(a) 1 Year Years Years 5 Years Total
(In thousands)
Long-term debt(b) $ 23,461 $ 259,233 $ 38,750 $ 548,438 $ 869,882
Operating leases(c) 39,321 75,548 60,528 220,792 396,189
Purchase obligations(d) 85,314 46,339 -
- 131,653
Total contractual obligations
_______________________________________________________________________________
(a)The Company has excluded$21.4 million in unrecognized tax benefits and related interest from the table above as we are unable to make a reasonably reliable estimate of the period in which these liabilities might be paid. For additional information on income taxes, see " Note 2-Income Taxes " to the financial statements included in " Item 1-Consolidated and Combined Financial Statements ." (b)Long-term debt atMarch 31, 2021 consists of$500.0 million ofANGI Group Senior Notes, which bear interest at a fixed rate of 3.875%, and$213.1 million of the ANGI Group Term Loan, which bears interest at a variable rate. TheANGI Group Term Loan bore interest at LIBOR plus 2.00%, or 2.10%, atMarch 31, 2021 . The amount of interest ultimately paid on the variable rate debt may differ based on changes in interest rates. As ofMay 6, 2021 , the outstanding balance of the ANGI Group Term Loan was repaid in its entirety. For additional information on long-term debt, see " Note 5-Long-term Debt " to the financial statements included in " Item 1-Consolidated and Combined Financial Statements ." (c)The Company leases land, office space, data center facilities and equipment used in connection with operations under various operating leases, the majority of which contain escalation clauses. The Company is also committed to pay a portion of the related operating expenses under certain lease agreements. These operating expenses are not included in the table above. (d)The purchase obligations primarily consist of payments for cloud computing arrangements, a remaining payment of$13.1 million related to a 50% interest in a corporate aircraft, and advertising commitments. 56
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