Glenn Schiffman - Chief Financial Officer & Executive Vice President Joseph Levin - Chief Executive Officer & Director

John Blackledge - Cowen & Co. Ross Sandler - Deutsche Bank Securities, Inc. Jason Helfstein - Oppenheimer & Co., Inc. Chris Merwin - Barclays Capital, Inc. Brian Fitzgerald - Jefferies Eric Sheridan - UBS Securities Dan Kurnos - The Benchmark Co. Kerry Rice - Needham & Co. Sagar Vachhani - SunTrust Robinson Humphrey, Inc.

Good day and welcome to the IAC Reports Q1 2016 Results Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Glenn Schiffman, Chief Financial Officer. Please go ahead.

Thank you, operator. Good morning, everyone. Glenn Schiffman here and welcome to our first quarter earnings call. Joining me today is Joey Levin, our CEO. As you know in order to give you more time to digest our respective results, Match Group held their first quarter earnings call yesterday morning. The focus of this call will be IAC ex-Match. We also slightly changed our format with the shareholders letter as well as an earnings release. We will not be reading our shareholder letter on this call. It is currently available on the Investor Relations section of our website. I will shortly turn the call over to Joey to make a few brief introductory remarks and then we will open it up to Q&A. Before we get to that, I'd like to remind you that during this call, we may discuss our outlook and future performance. These forward-looking statements typically may be preceded by words such as, we expect, we believe, we anticipate or similar statements. These forward-looking views are subject to risks and uncertainties, and our actual results could differ materially from the views expressed today. Some of these risks have been set forth in our first quarter press release and our periodic reports filed with the SEC. We'll also discuss certain non-GAAP measures, which, as a reminder, include adjusted EBITDA, which we'll refer to today as EBITDA, for simplicity during the call. I'll also refer you to our press release and, again, to the Investor Relations section of our website for all comparable GAAP measures and full reconciliations for all material non-GAAP measures. Now let's jump right into it. Joey?

Thank you. Thanks, everybody, for joining. Thanks especially to Glenn for joining. This is his first call. We are having fun so far, but take it easy on him. This is his first run at this. I'll try to be brief. I wrote a very long letter, which I hope you all read. The letter was really driven by the fact that we bought back a lot of stock this quarter and we realized we need to do a better job of communicating because I don't think it's healthy for our perception of value to be so far off from the market. So, we really try to way out our full thinking on capital allocation, the specific priorities in the businesses and clear EBITDA figures for the year. Anyway, I hope that's all helpful and we're open to feedback, a lot of which we tried to reflect in the letter, but we're always open to more. I'll summarize, you saw Match is on a great path in the quarter and in tender. HomeAdvisor is awesome right now. They are really executing I think and be one of the great big Internet businesses if we really execute flawlessly. We love the option we have in Vimeo right now, but it's early and applications is solid and we have some work to do on publishing. But, overall, it's pretty small in IAC's profit. So, let's get to your questions.

[Operator Instructions] Our first question comes from John Blackledge with Cowen & Company. Please go ahead. Your line is open.

Great. Thank you. A couple of questions. So, HomeAdvisor is off to a great start this year and had a $450 million annual revenue run rate. Recently, HomeAdvisor's CEO mentioned the company could get to $1 billion in revenue in the next 3 to 5 years, which would be well above our current forecast. Could you just discuss the path to $1 billion in revenue? Can you get there on an organic basis, or does there need to be an acquisition? And then also on HomeAdvisor, there has been some noise about consumer traffic weakness the past few months for comScore. Does that noise align with your internal consumer traffic data? And then just lastly, we're getting a lot of questions on what IAC does with its Match stake. We're assuming a tax free spin at some point. Could you give us an update on how you're thinking about it and also, just potential timing for a spin? Thank you.

Sure. Thanks, John. On HomeAdvisor getting to $1 billion in revenue, I mean, I don't think Chris was giving a hard and fast forecast. But I do think, look, right now, from where we end this year, for us to grow at, call it, 15% to 20% for three to five years, which would be below our current growth rate, does not sound like a crazy assumption to me at all relative to our addressable market, which by the way I think gets bigger as the marketplace grows, as we get into other things. I think that on an organic basis is, I don't think, unreasonable. It's a long way out, so it's hard to pin down a number, but I think, if you just think about it in that context, not crazy. On HomeAdvisor traffic, it is – I'm glad you asked the question, because that is – the comScore numbers are just dead wrong. I mean, comScore's always off for one reason or another, usually directionally helpful. I think they had us down meaningfully in January and February, and up meaningfully in March for net down; it's not even close to right. I think our traffic was up 45% in Q1, and it's a – and by the way, you could see it in our revenue. When you – traffic up that much translates to revenue for us. We saw our other competitors talking about how their traffic was up, but their revenue didn't move at all. So, I don't know how you rely on those figures. But, ours is up 45%. We feel very good about the traffic, and we feel very good about how that's converting for the business. Your last question was on the Match stake. There's nothing to say on the Match stake. We talked about, in the letter, how we think about these things and, of course, if and/or when we have something to announce, we'd announce something. But there is nothing to discuss on it right now.

Thank you.

[Operator Instructions] Our next question comes from Ross Sandler with Deutsche Bank. Please go ahead. Your line is open.

Yeah, thanks guys. Joey, I had two questions. First, thanks for the new level of transparency for both IAC and Match, I think that's welcome by all. So if we go back a year ago, the market value for Match inside of IAC was about $3 billion, today it's worth about $3.5 billion, and some would argue it could be worth more than that. So, as you talk about the undervaluation that you're seeing at the other IAC brands inside of IAC right now, based on your current market cap, why not get more aggressive and look to spin or IPO some of those businesses out at some point? Any thoughts on just that strategy at a high level? And then the second question is, if we go back into history, the playbook at Match was kind of consolidate a cash generative space at fairly attractive multiples. And it seems like that opportunity is going to present itself in local, given the carnage that you're seeing from some of your competitors. So, even if you can't acquire Angie's List, why not go after the next few local aggregator businesses out there? Do you view the playbook in local differently or the same as what you guys did with personals? Thanks.

Sure. On spinning and IPOing other assets, look, it's something that we think about all the time. We constantly challenge ourselves on that question. I don't think that near term something we're doing for any of the other businesses in the sense of still very early – and to really get to your second question, still very early in HomeAdvisor. It's still very early in Vimeo. Those are things that we can do real investment in, real consolidation in, and I think that that's our game plan there for the immediate near term. So in terms of opportunities, I think, there are or will be opportunities in that space and we're looking closely. I think the playbook for Match is right. The playbook for Match – it was the playbook for Expedia. It's something that we are spending a lot of time thinking about. But you can't really control when the opportunities become available or how they become available. So it's something we're watching very closely, but I do think we'll have opportunity there.

Just to add one small thing. You saw in Joey's letter, the returns we're getting on our own capital investing in the HomeAdvisor business are pretty attractive and you saw that in our revenue for this quarter. So, as you saw in his letter, we weigh M&A against obviously investing in our existing businesses, not to be mutually exclusive, but we're seeing great returns there.

It's a great point.

And our next question comes from Jason Helfstein with Oppenheimer. Please go ahead. Your line is open.

Thanks. Two questions. Joey, how should we think about what you've learned since the new Google deal began? Can you specifically address how it's impacted both publishing and application each on their own and then the issues then you're seeing potentially away from Google in those business? And then just separately, just on an M&A front, historically, you have been active in M&A in publishing, and it's actually gone well for you. But in the wake of this new deal, does it make that vertical less appealing to you? Thanks.

Sure. On the impact of the Google deal, let's start with applications. It's – since April 1, when we made the transition, that's been better than expected. And what I mean there is we talked a little bit about this when we were talking about the deal how we've transitioned the business towards opt-in as against opt-out in some of our installs. And the impact of that is actually you increase conversion because the friction on conversion is lower, but you decrease the lifetime value of that install because you have less revenue potential in there. And that dynamic has played out but we've been better on conversion than we thought we would be. So that has netted to positive place. In terms of other issues – I will come to Publishing in a second – in terms of other issues there, what's basically more than offset that is some weakness in RPQ and RPQ has been a great benefit to this business for a very long time. It's sort of a consistent thing where we can grind out a little bit of growth in authorizing the page for RPQ and Google does the same on their side, which accrues our benefit as their partner. But it doesn't always go that way and lately it's gone the other direction. I think some of that is things by our own design and I think by Google design, which is you trade-off increased queries for lower RPQ. But this has been more negative than we would hope. So we're dealing with that RPQ thing. I think it looks like it's stabilizing I said this last quarter but it looks like it's stabilizing and I feel solid on it now but that's the other issue there. If you go to the Publishing side, Publishing is also impacted by RPQ to some extent. But a number of other changes have happened that have affected the Publishing business over the course of the transition that have impacted our ability to market. One is I think we just took to market our products on the Publishing side. And I think we were I think overoptimistic on what we could do just under the new agreement in terms of how we could monetize and that affects how much we can spend on marketing. And also there were changes like Google eliminating the right way for example I think was a net negative for that Publishing business in terms of their ability to market because some of the inventory they accessed was that right way inventory. So I think that answers your question, but Glenn you can add to that or if I've missed any of it, I'm happy to try more.

No, no, that's good.

And then just on...

Does that answer?

Okay. And then just M&A, I mean, again, historically you've generated really good returns on M&A, on the Publishing side. I mean, does this make you less interested in that vertical from an M&A standpoint?

We talked about this in letter. I think it's not our top priority in terms of M&A, Publishing. We don't have a hard and fast rule that says we can't do anything there. It's not our top priority but we will look at opportunities and if something makes sense we'll do it.

Thank you.

And our next question comes from Peter Stabler with Wells Fargo. Please go ahead. Your line is open.

Good morning. This is Blake on for Peter. Thanks for taking the question. Just hoping to jump back to HomeAdvisor and maybe provide some color on HomeAdvisor international opportunity and expansion plan and maybe just discuss the investment required there to scale and also maybe quality drivers for international growth in the quarter and whether you expect the continued momentum throughout the year? Thanks.

Yeah. So I think there's a big opportunity in international. I think we have a company in France and a company in Netherlands both are basically number one in their markets. And I think that we can take the product that we have in at least one of those markets and expand it into other markets. So there's a real organic path there that we're pretty excited about. Jeff is – Kip, who you all know, is working on that full time now, and he's incredibly excited we're spending real time on this. I think supplementing that with M&A is absolutely also in the cards, something that we are thinking about, and we will continue to think about, and the market there is huge. I mean, each individual market is much – I am really talking about Europe now, Western Europe, each individual market obviously much smaller than the U.S. but in aggregate, a very big market, and we think that there's a way to attack that attractively. That's where we are really spending time in thinking about Western Europe, because we already have a foothold there. Was there a second question, Blake?

Yeah, there was. It's looked like you had a solid quarter for international, and I was just wondering what your expectations were throughout the year?

Sure, I'll turn it to Glenn in a second on that. Remember, it's true that we had a good quarter in international and that it's growing; still very small. Also, our comps got easier. So we had gotten out of the UK, I think, a year-and-a-half ago, and we have done some restructuring there. That all was cleaned up over the course of last year. So now the comps get easier and sort of clean. We can start growing again. We grew in Q1. I think we can continue to grow that business, and we're optimistic there.

Overall, international ICX-Match is about 20% to 25% of our business. While we'll see growth there, we don't see that materially changing over time.

Great. Thanks, guys.

[Operator Instructions] Our next question comes from Chris Merwin of Barclays. Please go ahead. Your line is open.

Great. Thank you. I just had a couple of questions. The first is on Vimeo. You acquired the OTT platform VHX. So I was wondering if you could share some of your plans about how you're playing to integrate SVOD features into the Vimeo platform and also, if you could give us some sense for pricing potentially, just because I'm trying to figure out what the revenue opportunity could be there? And then just a second question on HomeAdvisor, I think you mentioned that Instant Book and Instant Connect are 10% of the domestic business now, and imagine this as a game changer from the standpoint of the user experience. So, wondering if you could just talk about what the impact has been to conversion, as these products have gained adoption, and what the long-term benefit could be, as the mix moves more towards Instant Booking? Thanks.

Sure, so VHX we are excited about, it gives us the SVOD capability. We sort of had a very light SVOD capability, but we've look at the market to see what was out there, because we think that's a big opportunity, and VHX was by far the best solution there. So we bought that. We've been looking at a lot of companies, talking to a lot of companies, and the thing that's amazed me in some of these OTT subscription services is, you will find tens of thousands or hundreds of thousands subscriptions to a very niche product that – you're shocked to find 100,000 people paying $20 a month for, and it's there because it's a loyal, tribal audience on a very targeted product. I think that's a real opportunity in this market, but all these people have had to basically build up their own solutions, custom solution. I think it makes a lot more sense to be able to do something like that on a platform like Vimeo, where you can access built-in audience and it's a turnkey solution. VHX provides that. Now we have to integrate it into Vimeo, which will take some time, but VHX provides that turnkey solution. And I think there is a world where there is many SVOD channels out there. Does all of that eventually come back to a bundle, maybe, probably, but I think there is a period where people separate out into more niche subscription channels, and VHX provides that capability for Vimeo. On pricing, there's two different ways to think about pricing. But, in terms of how we price it to the creator who is creating SVOD channel and then, how they price it to the consumer. The pricing to the consumer will be in the hands of the creator. That's how it is today. If you want to sell a piece of content on Vimeo, you choose whatever price you want, and we just take a small piece of that. I think that's the model for now, but it can change and it can evolve, and it likely will evolve. Right now, the priority is getting lots of creators on to the platform and lots of consumers on to the platform, and both of those things are going really well. On your question on HomeAdvisor and Instant Connect and Instant Book, there was a lot in there. So I might have to come back to everything you wanted to know there. But the long-term benefit to that – there is a short-term benefit, there is a long-term benefit to that. It's really phenomenal for the ecosystem, and phenomenal for the consumers. We see it in – I mentioned this in the Letter – the Net Promoter Scores. The Net Promoter Scores are off the charts positive for us in our Instant Connect and Instant Book product. And that's from the consumer perspective. But it's great from the service professional's perspective too, which is on that one to one connection they don't have to compete for that lead. And so they appreciate that product, and it's a – ultimately, it makes everybody in that ecosystem happier. So, we're going to continue to move towards that and I think that can be hugely valuable over time. It will absolutely continue to grow as a percentage. Now, one of the things we talk about here is the sort of how this product works more for Millennials or a younger audience. If you talk to people over 35, they tell you that – 35-years-old is not a hard line but if you talk to people over 35, they tell you, "You give me a list of plumbers, and I'll be able to pick the right one. I'll be able to negotiate with them to get the right price. I'll be able to know who is the most reliable or is going to do the best job," et cetera because they don't trust the platform. You talk to a Millennial, they say, "Just give me the right guy and or gal, and I'll trust you, the platform, to get that done. Now, we have to serve both those audience. So we do in those products, but I do think that this product works much more for an audience that grew up trusting platforms to and technology to make certain decisions for them.

Let me add one thing. There is a common thread in both your questions that I'd like to weave through. The VHX thing provides our creators with better and more efficient and easier tools making the marketplace easier for both the consumers and the creators. And that's very similar to Instant Book and Instant Connect. Again, we're removing friction, making it easier for all participants in the marketplace and in so doing in marketplace businesses that should and will increase TAM, and that should and will accelerate penetration.

Does that answer your questions, Chris?

Yes. Definitely. Thanks, guys.

And our next question comes from Brian Fitzgerald with Jefferies. Please go ahead. Your line is open.

Yeah. So, hey, just another question on Vimeo. In the letter, you mentioned the improvements you are making for the consumer experience and then I believe that Joey just said that the model may evolve over time. So, I know that ads maybe antithetical to the user experience, but I was just curious how you might think about the potential to layer in advertising revenue on Vimeo over time. I mean, from the advertiser perspective, we've seen some big brands migrating portions of those video ad budgets online, and Vimeo has that type of high quality video content that those brands would seemingly be willing to advertise against. And then just a follow-on in the letter, you also mentioned how you're financing some of the content for Vimeo. And I was just hoping you might elaborate a little bit on that strategy, what kind of videos you're producing? How much is that spend? And when we think about Vimeo's high-single digit EBITDA loss for 2Q, is it possible to quantify how much of that might be driven by content creation? Thanks.

Sure. Ads, look it's something that we think about, it's not something that we are prioritizing right now in terms of blanketing Vimeo with ads. I think it's not impossible for us to start participating in some of those ad dollars that you're talking about that without putting the ads on Vimeo. We have every major Commercial Director; I may be exaggerating but probably not by a lot, is on Vimeo right now and has their content on Vimeo right now. The people who are creating this native content are using Vimeo right now. So, for us to think about different ways where we can connect advertisers and creators to make that kind of content and somehow participating in economics there is not crazy and we're spending some real time thinking about that. But sort of the traditional just throwing ads up on the site is not something that we're prioritizing right now. In terms of content and financing content, I'm not going to give numbers. I'll just say it's small right now and it's something that we're thinking about spending more time on. But it's not a big number in that Q2 number that you asked about. We're spending small amounts of money.

Thank you.

And we'll go next to Eric Sheridan with UBS. Please go ahead. Your line is open.

Thank you so much. Maybe two questions. One, back in November, you announced a distribution agreement between Google, HomeAdvisor. I wondered if you can update about how that partnership is evolving? What impact that might have on the business longer term? And then, going back to the Application business, want to understand what your efforts there are on the mobile side? How you see that moving through 2016 and how that might move the business going forward as you sort of pivot more to mobile? Thank you.

On the HomeAdvisor Google agreement, I'm trying to remember what you're referring to, but it would not be material to either business. I'm just looking around the room thinking what exactly it is you're talking about. I'm not sure. Google was integrating some of our connections to some of our service providers directly within their results which was helpful for the business, but there's not a material thing there for either business that I can think of. Your next question was HomeAdvisor mobile?

Applications in mobile?

Application on the mobile side?

Yeah. Look, it's small there, it's early, but it's growing really nicely, and we are doing it profitably, which maybe we shouldn't be doing it profitably, but we are doing it profitably growing that business. Having 100 million installs across mobile turns out, as we've looked at a lot of other things, turns out it's a very big number. And we're monetizing that with ads, we're monetizing that with paid, and we're figuring out how to market it. And I think, if we can scale the marketing, then we can use all the infrastructure we have in the desktop business and apply that to the mobile business. And marketing has been growing steadily and profitably in that business, where you're marketing – of these 60 or some odd products, you're marketing each product individually with its own campaign, multiple campaigns, and we're managing thousands of campaigns across multiple platforms to mark the products to the right audiences and make sure that that marketing is profitable. That has been a tremendous source of growth and operational expertise and market advantage on the desktop side. We believe that that can translate to the mobile side, and it's growing nicely. But it's still small and relatively early.

Great. Thank you.

[Operator Instructions] Our next question comes from Dan Kurnos with Benchmark. Please go ahead. Your line is open.

Great. Thanks, good morning. Joey, since you did bring it up, maybe if you would like to give us some updated metrics on how HomeAdvisor mobile is doing? And then, you have also recently started testing, it looks like, a concierge service on the consumer side. So just like to see your thoughts on timing of rollout and potential benefit from that? And then shifting over to Search, a lot's been made about the – of the about verticalization. So just curious about how you think about going into either already existing verticals that you have within your other businesses, or simply- whether or not it's wherever you have the best content, and how any of that impacts programmatic? Thanks.

Sure. On HomeAdvisor mobile, it's growing phenomenally well. It's still small, still under-indexes meaningfully relative to our other businesses in mobile. And we think – I think it was, Google or somebody – published some data that said that the home category has lagged other categories in terms of migration to mobile, and we are certainly seeing that in our businesses. But it's growing triple digits very nicely, and the experience continues to get better. So it's a – I don't know, have we shared the number before, in terms of percent? I guess I don't see any reason not to. I think it's around 20%, I think, of service requests are coming in mobile, which is great and growing really nicely. And I think we'll continue to be a bigger portion. I think the big opportunity there will be in mobile app over time, and I think we've got some very cool things we're working on there, which could be fun, but that's early. On the concierge service, we do have a test, a small test that very recently rolled out on that. So I don't really know on timing. We've got – that's the very first bit of a small test, so we've got to look at data, we've got to learn, and then we've got to decide what we want to do from there, but it's not a dramatic event. Right now it's more a small thing, learn, and then figure out if we want to go big in that. There is a section of the market that would – we've done a bunch of surveys that says they would want that high level concierge service, but we'll see if the data, as we test it, matches what we learned in the surveys. On About verticalization, I think there was a bunch of questions in there, but we'll definitely favor existing verticals for us. In other words, where we have great content already, that's where we're going to prioritize, that's where we're going to prioritize verticalizing and that, for sure, liked it very well, which is one of our biggest areas and best areas of content on About. Your question on how that relates to programmatic is a great one, which is, the other thing that drives the decision is where you have a category that lends itself to endemic advertisers, and health is a perfect one in that regard. There are others that we think are great in that regard too. So you look at the combination of where we have great content already, where we have great experts already, and where we think it's a big enough market and where we think there's real endemic advertisers and that adds up to the priority list of how we're going to go after the verticals one by one, but we got to make very well work first.

And this ties into Jason's question earlier around the impact on the publishing business. Obviously, you heard Joey talk about very well. We disclosed some numbers in Joey's letter about Investopedia. Our Investopedia business is also benefiting from set trend.

Great. Thanks, guys.

And our next question comes from Kerry Rice with Needham. Please go ahead. Your line is open.

Thanks a lot. Most of my questions have been answered, but maybe you talked a lot about M&A and capital allocation in the shareholders letter. I was curious about maybe more investment, talked about the concierge service, but do you look at other opportunities kind of beyond your core ones because it seems like most of the investment is still going to be around core whether it's publishing ads or HomeAdvisor, Vimeo and even not necessarily spin, but if you have an e-commerce business, do you think about is that – doesn't seem core? Do you think about selling that or investing around it? Any comments around maybe just peripheral investments in other categories? Thanks.

Sure. I'll start with the last one, which is the e-commerce business is not something where we are likely to invest or supplement there. You're right. It's not very core, the business is doing fine and it's a nice little business, but it's not I think core or the basis upon which we're going to build something big. On the other areas of investment, look, just like in M&A you start from a position of strength and then you can build things from there. Vimeo came out of – there was this exited business CollegeHumor, which was creating videos and sort of naturally went into this thing and we will let them display where other people can create videos and store and share their videos and then Vimeo became Vimeo. You could imagine similar things and similar areas of investment, which are sort of initially tangentially related to areas of strength for us and then blossom into their own thing and I'm just – now I'm totally making this up. But one of the things we've talked about on HomeAdvisor is as the business has evolved from connecting you to let's say multiple service professionals, multiple plumbers, to instant connecting you with one plumber, eventually perhaps your toilet can connect with our plumber directly. And now all of a sudden we're in the Internet of Things business and that could be very interesting. I'm not saying that we're deep investing in any of these things in particular, but I'm saying that you get into these tangential businesses where you have a real information of managing, you have some other kind of advantage and that may evolve into entirely new businesses and I think that's how things are likely to happen. But, again, there's no hard and fast rules here, so we'll do these things opportunistically.

Yeah. And, look, around M&A, please read Joey's letter, the first page – I mean we did make a big acquisition this quarter and that was our own stock. We bought back 6% of our own stock and Joey, in the letter, does a great job articulating that and the rationale behind it. Operator, I think we have time for one more question if you can see that up?

And our final question comes from Robert Peck with SunTrust. Please go ahead. Your line is open.

Hi, this is Sagar on for Bob. Just wanted to ask about the 10 million share authorization you've received for additional buybacks. Is there a timeframe on that authorization or any schedule? Or is it just an opportunity – are you just going to be opportunistic and flexible in case of M&A or investment opportunities? And also concerning the lockup for Match expires in a few weeks, do you look at those shares as source of cash for any potential M&A in the short-term?

On the share repurchase authorization, there's no timeframe on that and the answer is the same as it's been for years now, which is we'll look at our shares opportunistically and buy back when it makes sense. The second question – the lockup of Match, we don't have plans to sell our shares in Match right now.

All right. Thank you.

Sure. Well, thank you all for joining and we as always welcome your feedback. So, look forward to continuing the dialog.

Thank you.

Nice job, Glenn, welcome.

And this does conclude today's program. You may disconnect at this time. Thank you and have a great day.