Good morning, and welcome to the Match Group Fourth Quarter 2017 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]. I would now like to turn the conference over to Lance Barton, Senior Vice President, Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. Also joining the call today are Mandy Ginsberg, CEO of Match Group; and Gary Swidler, CFO of Match Group. Mandy and Gary will review Q4 investor presentation that you can access on our Investor Web site and then they will open it up for questions. But before we start, I’d like to remind everyone that during this call, we may discuss our outlook and future performance. These forward-looking statements may be preceded by words such as we expect, we believe, we anticipate or similar statements. These statements 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 earnings release, in our periodic reports filed with the SEC. With that out of the way, I’ll now turn the call over to Mandy.

Thanks, Lance, and thanks everyone for joining us on the call this morning. As you have already seen from the Q4 and full year results, our business is in great shape with tremendous momentum heading into 2018. Before we get into the numbers, I just want to start off by saying how excited I am not just about our financial performance but about this business and how our products impact people’s lives around the world. Match Group’s products have truly shaped society and serve a fundamental human need, a need for connection, relationships and love. A decade ago in the U.S., only 3% of Internet users who were married or in a relationship met their partner online. Today, more than a third of relationships start online and that number is even lower outside of the U.S. So while we’ve made great strides, we still see opportunity for the category to grow. People are meeting people they never would have met without our apps across every demographic, age, race and religion. Today, we have customers in a 190 countries and we have a truly global approach to this category. We don’t build products for one type of person. We build products for everyone, everywhere and I intend to ensure that we are consistently innovating and delivering products and features to address the needs of men and of course from my perspective, especially women, who are looking to meet someone new. We believe that this category will continue to grow as the stigma further erodes and more people around the world turn to these products. Let’s start with Slide 4. You can see that Tinder continues to be a driving force for us nearly doubling subscribers for the second year in a row and more than doubling revenue in 2017. As a…

Thanks, Mandy. Before I go through the rest of the slides, I wanted to clarify that we’re no longer using the term PMC but are instead using the term subscriber. Similarly, we’re now using the industry standard ARPU rather than ARPPU. We think this terminology is clear and more common industry practice. Nothing has changed with our historical numbers or with the way we measure these numbers. It is simply a change in nomenclature. Precise definitions of our operating metrics can be found on Page 2 of the presentation and at the end of our earnings release. Okay, now onto the remaining slides. On Slide 10, you can see that in Q4 we exceeded 7 million average subscribers with year-over-year growth of 24%. This growth was driven by the record sequential increase in average subs at Tinder. In addition, Match and OkCupid both grew subs modestly year-over-year in Q4 and we saw slightly moderating subscriber declines at our Affinity brands. Year-over-year sub growth rates, ex-Tinder, improved sequentially. We had 15% North American sub growth, the best we’ve seen since Q4 2015 and 36% international sub growth, the best rate in eight quarters on a pro forma basis. Tinder comprises a larger percentage of our international business which helps explain the faster growth rate internationally. ARPU for the quarter was up 4% driven by a 1% increase in North America and 11% internationally. On a constant currency basis, international ARPU is up 7%. Tinder Gold was the main driver of the ARPU increases globally as Tinder’s ARPU in the quarter grew 32% year-over-year. Tinder’s impact on ARPU is more pronounced in our international business. Overall, company ARPU went from $0.53 in Q4 '16 to $0.55 in Q4 '17. Flipping to Slide 11, you can see that the sub and ARPU growth…

We will now begin the question-and-answer session. [Operator Instructions]. The first question comes from Chris Merwin of Goldman Sachs. Please go ahead.

Great, thank you and congrats on the quarter. So for Mandy on the Tinder product roadmap in 2018, you talked about focusing more on the female experience. And you have a competitor in Bumble which has tried to differentiate itself in the market by doing the same thing I guess with smaller scale than Tinder. So it seems like this initiative puts you a little bit more in the crosshairs with your competition. I’m just wondering if you see an opportunity to broaden the appeal of Tinder organically or if M&A could be another route worth pursuing to further tap into that opportunity. And just a second quick one for Gary. I was wondering if you could just help us think about the curve of net adds for Tinder in 2018 in the context of your overall guidance? Thanks.

Okay. Hi, Chris. So the first thing just addressing the female experience, I’ve been in this industry for over 10 years and if you listened at product meetings across the globe, we’re always talking about the female experience because frankly it’s just core to all of these products. And we’ve done a lot of work under the hood like matching algorithms, for example, but we haven’t marketed a lot of these features but we’re starting to. Gentleman’s Badge in France which I referred to in my remarks is one example of that. And now we’re gearing up – we have a number of product features on Tinder and across other products that we believe are going to appeal to women, which is broadening their appeal. So we’re going to plan to start rolling these out in the coming quarters. And sort of stating the obvious but as a woman CEO running a company that touches millions of women around the world, it’s a big priority for me and it’s an area that I’m particularly passionate about. And then your second question around M&A, we don’t really comment on rumors and speculation about acquisitions. Clearly in the last decade, we’ve been a big acquirer in our history and we’ve got a strong track record for businesses like Pairs, for example, in the last couple of years and PlentyOfFish. That said, we’re very thoughtful and disciplined and that’s going to be the case in the future. And given our growth you see, we don’t really feel the pressure but if something makes strategic and financial sense, we’ll consider it.

I think, Chris, one your question around Tinder net adds, the way I would think about it, as I said in my remarks, I think that the first quarter you’ll see some continued wearing off of the stock effect around Gold. So the net adds are going to come in lower than where they’ve been in the last couple of quarters there’s always been a very elevated level. But if you look at kind of historically we’ve been in kind of the 200, 225 net adds at Tinder, it’s going to be somewhere between I think those two points what we’ve accomplished in the last couple of quarters and what we’ve kind of run at historically. And I think it will gradually trend towards that average over the other three quarters. That’s kind of what we’re expecting as the year goes on. But again, there’s a lot of uncertainty around this. We haven’t decided exactly when we’re going to roll out the new feature. We’re not exactly sure how we’re going to merchandize it. And so there’s still some real questions around it, but right now I think from a guidance standpoint that’s how we’re thinking about the net add trends for '18.

Okay. Thank you.

The next question comes from Nathan Helfstein of Oppenheimer. Please go ahead.

Hi. It’s Jason. Thanks. So two questions. One, I think you said international ARPU ex-currency was up 7% mostly driven by Tinder. Is there a way to think about the numbers as far as what’s still dragging the U.S. ARPU and are there things that you’re doing internationally that haven’t yet benefitted the U.S.? I guess what I’m asking is, is there an opportunity to accelerate U.S. ARPU ex-Tinder? And then just second, Gary, as far as the deleverage, while it’s impressive, at some point you get to a point of having the capital structure become less efficient and cut into returns. Given the limited flow, it is pretty hard for you to buy back stock. So I guess outside of acquisitions, what can you do to maintain leverage to keep up returns? Thank you.

Okay. So on the ARPU question, I think that you have to recognize that Tinder is a bigger piece of the international business. You got a lot bigger business domestically. And so as Tinder’s ARPU is increasing, you’re seeing real impact from the Tinder ARPU increases on the international business. It’s visible as well domestically but it’s just not to the same extent. Plus you got the FX that you mentioned. So I think those are largely the trends. Our international business also benefits from Pairs in Japan which has strong ARPU and that business is growing nicely as you’re seeing some lift from that. So there’s a few different things going on. But I don’t think – I think you should look at our overall businesses stable from an ARPU perspective, ex-Tinder. That’s kind of how we’re thinking about it and Tinder will continue to see strong ARPU particularly in the front half of 2018 before you see the Gold effect in the back half of '18 versus the comps in '17. In terms of capital structure, your point is well taken. We don’t have a lot of options. When we look at it, we don’t think for us right now dividends and buybacks make sense, certainly buybacks with the low float we think don’t make sense. So the playbook that we’re running will be the playbook that we continue to run which is we don’t think it makes sense to carry lots of cash and have a big debt balance. So we built back up some cash to the extent that we don’t have other things to do with cash, we’ll continue to chip away at debt. But obviously there are M&A opportunities that make sense. We’re thinking about geographic expansion. We’re thinking about other things in M&A. And to the extent we find a compelling strategic opportunity, as Mandy said, we think we have the financial flexibility to do that and we’re going to carefully consider the options. And if we find something that makes financial and strategic sense, we would pursue it. So that’s how we’re thinking about the balance sheet.

Thanks.

Next question, please.

The next question comes from Ross Sandler of Barclays. Please go ahead.

Great. Guys, thanks for allowing me to ask a question. Two questions. So last quarter you talked about the Tinder sub adds being driven partially from Gold but also from other initiatives that you had put in place in middle of 2017. So can you just talk about that in the context of the fourth quarter how much of the 544 was from Gold versus other stuff? And then can you talk about the duration of the Tinder subs? Is that changing with Gold between the shorter term versus the longer term packages? Any color on duration change would be helpful? Thank you.

Okay. Hi, Ross. So let me talk about the Tinder subscription strength. Hard to break out between all the activities, but last year we did a number of things to really impact the growth. The first was re-launching the Android app and we also did a lot to expand access to users across the globe, including SMS and Tinder online. And then of course we started up marketing efforts. And so we had all of these things and then of course in Q3 introduced the Likes You feature which we merchandize as Tinder Gold. And so that created obviously more momentum but hard to break out too because there were forces that were happening all at the same time. But we are definitely seeing Tinder Gold contribute to the strength in the back half of the year for sure.

And I would say on duration, Ross, we’re not seeing real impact on duration. What I can tell you is that when we look at Gold retention rates, they are lower than T Plus which you would expect because it’s a higher price product. But those rates continue to run ahead of our expectation. And so we’re watching that closely. It’s going to have effect as the year goes on. But right now it continues to be ahead of our expectations. I’d also tell you that from a repeat purchase perspective, the take rate on Gold continues to be very strong which is really an indicator that people are seeing value in the product and keep coming back to it. And so we feel overall very good about the trends we’re seeing around duration on Tinder Gold. Next question, please.

The next question comes from Douglas Anmuth of JPMorgan. Please go ahead.

Thanks for taking the question. Just as we think about the 2018 guide in the 13% to 20% range on the top line and then the $50 million EBITDA range, can you just help us understand the biggest swing factors there in terms of revenue and margins and how you could potentially end up on the extremes of those? And then also I just wanted to clarify. I think you said that non-Tinder brands returned to growth ex-Affinity in 4Q. I just wanted to confirm that that was the case. Thanks.

Yes, what I said specifically was ex-Tinder, we saw sequential improvement in the year-over-year growth rates and we’re expecting to continue to see that. So if you think about it, Affinity is going to continue to be a drag. It’s less and less of a drag as every quarter goes on. The other businesses are stable. And so as that drag moderates, we’ll start to see the ex-Tinder improvement that we’ve been talking about. But the trends that we’ve been talking about for a number of quarters now continue to hold, which is Match and OkCupid have returned to growth and Affinity is one business that continues to cause us significant drag but it is lessening. So that’s kind of how we look at the non-Tinder sub trends. In terms of the guide, I think that the year is going to be – the swing factors are really top line driven. And I think when you look at it, there probably are two or three areas of conservatism that we focused on in the back half of the year which are affecting the trend. As we’ve talked about, the re-sub and renewal rates on Gold are something that we had one month of data to forecast it last quarter. Now we’ve got four months of data, so it’s more but it’s still not a lot. And so predicting the full 12 months of '18 based on four months of data we’ve tried to err [ph] on the conservative side. Right now the trends continue to look good and we think there’s upside to the extent that we do better than we’re expecting from a re-sub and renewal rate as the year progresses. But we’ve only seen the one month packages at Tinder Gold renew. We haven’t yet gone to the…

Great. Thank you.

The next question comes from Brent Thill of Jefferies. Please go ahead.

Good morning. The international business was up 51%, North America was strong but at 16%. If you could just maybe talk a little bit about some of the initiatives in the North American business and how you think about potential of reacceleration of growth there that would be helpful? Thank you.

Thanks, Brent. So Tinder makes up a big piece of that international business which is driving a lot of that growth. And just to keep in mind before I talk about the non-Tinder businesses, Tinder has a large number of users in North America. And so on that side it’s really around driving growth through product investment and marketing as I talked about before. For the businesses outside of Tinder, the focus has been – we’ve had a portfolio strategy really focused on addressing the needs of these individual segments and we’re going to continue to push product differentiation across those brands. The other piece we are focused on is really the top of the funnel. And I alluded to the fact that we have definitely seen challenges as media consumption behavior is changing, people are moving away from television to digital, television marketing has been really productive for us in the past and a highly efficient channel. And so the amount of – we look forward these non – the North America businesses outside of Tinder, the amount we can grow and to the extent we can grow is really going to be our ability to crack the top of the funnel. So short term we see revenue growth as modest and we sort of mentioned the fact it’s been kind of flattish.

Thank you.

The next question comes from Sam Kemp of Piper Jaffray. Please go ahead.

Great. Congrats on the quarter and thanks for taking the questions. So one quick on product. I think we’ve heard about non-core R&D brand investments for a couple of quarters now. Are these efforts prevailing in the dating space or are you continuing to look at options outside of the dating area? And then quickly on the marketing investments. When we think about the footprint that you’re marketing against, is this more about footprint expansion in geographies where you might have low brand awareness or is this just putting more resources behind some of the already existing larger geographies? Thanks.

Okay. The first one is around how we’re thinking about growth. We are definitely looking at sort of areas within the dating category including investment in our current product and across the globe. And we also are looking at adjacencies really trying to understand what drives single lifestyle and what are different products over time that we can serve that single audience. And so I think as over time, as I’m in sort of the driver seat over the next couple of quarters, we’ll have a better view of how we’re thinking about the business not just sort of within dating but it can category expansive. And then the question around --

Where we’re putting our product --

Yes, where we’re putting our product resources. So the product resources, there is a couple of things. I think that I mentioned before that a third of relationships in the U.S. start on a dating app which is pretty profound. That number is meaningfully less across the globe. And so we are definitely looking at expanding footprint and looking at – you can see what we’ve done with M&A on Pairs in the Japan side. It’s been a really interesting acquisition for us as well as investing in internationally and other opportunities. OurTime in Europe is another example of 50 plus. It’s been underserved. So a combination of both looking at M&A and also investing in products going after new demos and new geographies is really the focus.

And I would just add, Sam, that we’ve been talking about some of this stuff and some of it worth considering seriously in terms of acquisitions, investments, broadening things out a little bit. But the discipline remains and the terrific performance remains in our core businesses that we don’t need to buy things but we are analyzing it. And to the extent we find something, like I said before that either fits strategically and feels financially logical to do, we’ll do it. And if we don’t, we’ll continue to perform in our existing businesses. And obviously as you can see from the results this quarter that certainly puts up a very strong financial performance. So that’s kind of how we’re thinking about it and we’re being patient around those opportunities.

Sounds good. Thank you.

The next question comes from Lloyd Walmsley of Deutsche Bank. Please go ahead.

Hi. Thanks for taking the question. This is Kunal for Lloyd. Mandy, one of the things you mentioned was that online dating is no longer a stigma. Given that it’s much more socially acceptable now and Tinder provides so much utility, is there a potential to actually raise prices for the subscription products? And as an aside, as we are talking about pricing, can you give us an update about the price discrimination issue with regard to Tinder?

Sure. So the first one, I think what Likes You feature merchandizing goal that really showed that people are willing to pay more. There’s no price elasticity especially when they’re getting real value. And so we think we’ve got a number of features that we’re going to introduce in the back half of the year to drive revenue. And we don’t necessarily think about sort of price. That’s one lever. We really focus on revenue optimization and we are constantly evaluating price and that’s not a continuum of – increasing price reduces subscribers – reducing price increases subscribers, so we’re constantly optimizing and making those decisions. In terms of the lawsuit that you mentioned which I think you’re referring to the California lawsuit, we found out last week that California Court of Appeals reversed a lower court’s decision dismissal of a 2015 class action lawsuit challenging Tinder’s tiered pricing. It’s limited to California and we’re certainly going to appeal that.

Thanks. And if I could, second question on advertising and how – given the growth in Tinder subs, how much bigger are you think you could make it in 2019?

I think from an advertising perspective, we’ve been talking about this for a little while now. We’re making kind of slow and steady progress. It continues to be kind of second priority for us just given the strength around the direct revenue at Tinder. You can see in this quarter we actually saw some growth overall in our advertising business which was the first time in a little while, because we finally got the program that we have with Facebook up and running well on Tinder and that’s really contributing nicely and offsetting some of the declines we’re seeing from some of the non-Tinder brands. I think the declines in non-Tinder brands will start to moderate and as Facebook program continues to ramp up and continues to ramp up revenue generally at Tinder, we’re going to see some growth. But we talk about kind of high-single digit growth for '18 and I think that’s kind of how you should think about the potential for advertising growth improvement at least for the foreseeable future kind of where we are currently strategically on that topic.

Thank you so much.

The next question comes from Mark Kelley of Citigroup. Please go ahead. Excuse me, just one moment please. Please go ahead with your question.

Hi. Good morning. Thanks for taking my questions. Three quick ones. First one, you talked a lot about international growth. Can you just remind us what the geographic priorities are? And then also just on the Affinity side, the addition of Chispa and Univision partnership. I think it suggest that there’s still some importance to the Affinity portfolio. How do we think about Affinity from here now that the runoff is pretty much behind us and that you’re adding some newer brands? Thank you.

You cut out on your first part of the question. Mandy will answer the Chispa and the Affinity question. Then we’ll have to kind of go back.

Yes, I heard the question on Affinity. As Gary alluded to and we’ve been pulling back marketing on Affinity, so there’s been a pullback in subscribers and those declines are moderate in which it’s great. Chispa is an example of our ability to launch a new brand and we really have deep product and technology – and Univision knows more about this audience than anyone else. And so we think they are a great distribution partner. It’s early – we’re actually not monetizing the product yet. It’s really all about building user growth at this point. And we are excited about this. It’s a pretty underserved audience and the ability for us to serve this audience with this partnership we think is going to intriguing. So more to come.

Sorry, Mark, what was your first question because the line cut out for a second? We couldn’t hear it.

Sorry about that. Can you hear me a little bit better now? And just curious about – you talked a lot about international growth. Can you just remind us what the priorities are in terms of a geographic standpoint?

I would say that we feel we have Western Europe very well covered with a broad variety of products. Japan we’ve talked about as having been a strong market for us with our acquisition. Tinder has made some very good headway in India which is obviously a very large market and we think there’s real opportunity there. But Tinder plays at the more casual end of the spectrum, so there’s probably opportunity there with some more serious products in India. That’s something that we are thinking about. And then I would just say, more broadly in Asia, probably ex-China which has not been a focus for us but something to think about for another day. But there are other opportunities in Asia and we’re attacking that in a variety of ways. Our Pairs business in Japan we’re pushing into some other Asian countries and we’re thinking about some other ways to further penetrate Asia. So that will continue to be a big focus for us whether it’s M&A or pushing some of our existing brands into those countries.

That’s helpful. Thank you.

Thank you.

The next question comes from Dan Salmon of BMO Capital Markets. Please go ahead.

Good morning, everyone. Mandy covered a little bit of this in some of the questions already but just from a high level I’d love to hear your thoughts on the competitive environment and if it helps maybe segmenting it down into some of the more mobile-first upstart competitors like Bumble, maybe some of the more established, more desktop-oriented or at least desktop originated players like eHarmony? And then although they’re not in the business of dating specifically, how do you look at big platform players like Facebook which is obviously a big partner but also where obviously a lot of relationship connections happen as well? Thanks very much.

Okay. So given my tenure, I’ve definitely seen a lot in this space. The dating landscape has always been really competitive. The way we see competition today was truly different than what we’ve seen in the past, because it’s in some ways it’s like Tinder and there’s everything else. The reason we talked about Tinder being in the league of its own is because it’s really been the only product that we’ve ever seen that kind of caught fire and been able to grown organically across the globe. And you asked me about Bumble, I think Bumble has done a great job building a brand. We’ve also seen in our portfolio other founder-led brands like OkCupid is a good example that grew through PR domestically. But other than Tinder we really haven’t seen a business grow like this outside of their kind of home market without spending real dollars. And talk about sort of competition and how we compete, if you think about products that are more local in nature and you’ve mentioned eHarmony as one, we think that the way that we have to compete is by constantly creating better product experience to appeal to those particular segments while at the same time we got to accelerate Tinder’s growth globally. So it’s a pretty exciting time now but it’s definitely the landscape have changed with Tinder’s global expansion.

I think we have time for one more.

Okay. And the last question will come from Victor Anthony of Aegis Capital. Please go ahead.

Thanks, guys, for squeezing me in. Just two quick questions. So Gary, you talked a lot about Tinder driving operating leverage and margins will continue to expand. So maybe you could just dive into a discussion of overall company operating leverage and your expectations for Tinder within your EBITDA guidance for 2018? And the second, earlier in the year you talked about SMS and Web Launch for Tinder outside of the U.S. So maybe you could just give us an update on those products? Thanks.

Sure. So on the margins I would say we have a lot of confidence that Tinder is going to expand its margins short and longer term. And we think there is real opportunity there. We’re finally going to start to see the operating leverage around headcount and web operations and some other operating costs. So at Tinder I think we have clear visibility. I think the rest of the business is we largely look at them as relatively stable from a margin perspective, but there are a couple of potential exceptions. One of them is around compliance costs to the extent that we continue to have to comply with additional mandates, especially in Europe, which is what we’re seeing and we expect it to come ultimately in the U.S. as well. I think that is a place where we have no choice, we will spend what is necessary to make sure we’re in full compliance. So that’s a place of potential margin impact from those compliance costs. The other thing is short term we may spend a little bit more on innovation, on new products, on expanding a little bit. I think those are some things that to the extent we flow those to the income statement that could also be a margin impacter. We view it as a short-term negative potentially for much longer term benefit. So those are probably the two things to think about on the non-Tinder side that could move the needle a little bit. I think both would be relatively small, but that’s kind of how we’re thinking about margins. And then on SMS, I would just say that we’ve talked about this a lot. I think Ross asked a question about it earlier. When we look back on 2017, a lot of things that we did kind of fed into the tremendous success of Gold and the massive increase in PMC that we saw in the back half of '17. So we expanded top of the funnel, we drove marketing which expanded user base, SMS was a piece of it that worked nicely. There was a lot of momentum that built from all of that work, the improved product at Tinder; all that led to terrific momentum. We started to see PMC really increase Tinder before Gold was introduced. And then when Gold was introduced, that just fanned the flames, spread the fire, everyone want to think about it because Gold was a product that people saw real value in and we saw a huge jump in PMC from that. So that’s kind of how we look back on '17 and kind of think about the components of what we did. And I guess at this point now we’re onto '18. So with that, I think we’ll leave it there for the moment. We appreciate very much everyone joining us again today and we look forward to talking to you all next quarter. Thanks so much.

Thanks.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.