Good day and welcome to the Match Group Report’s Q3 2016 Results Conference Call. Today’s conference is being recorded. At this time, I’d like to turn the conference over to Lance Barton, Senior Vice President of Investor Relations. Please go ahead, sir.

Thank you, operator, and good morning, everyone. Welcome to the Match Group earnings call for the third quarter of 2016. On the call we have Greg Blatt, our Chairman and CEO; and Gary Swidler, our CFO. They’re both going to walk you through the Q3 Investor Presentation that we have posted to the Investor Relations section of our website and then we’ll open it up for questions. Before we begin, 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 proceeded 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 and our periodic reports filed with the SEC. With that behind us, I’ll now turn over the call to Greg.

Thanks, Lance. Hi, everybody. Good to be here reporting our fourth quarter as a standalone public company. All things considered, it’s generally gone according to plan. Tinder has got great momentum. Our previously desktop businesses are completing their transitions to mobile-first businesses and coming through the drag that transition is created and our outlook is strong. We’re going to flip slides now from our presentation. We’ll try to add color, we’re helpful, but won’t spend time reciting what’s clearly on the page, so we can get to Q&A as quickly as possible. Starting with Slide 4, obviously another strong quarter on PMC growth across the Board, although international continues to outpace domestic really for two reasons. One, Tinder is just a larger percentage of our international PMC than that it is of our domestic PMC and Tinder is obviously our fastest growing business, so that accelerates the relative growth rate. And even excluding Tinder, the international business continue to grow more quickly. Turning to Slide 5, Tinder continues to just do great. Outperforming on PMC growth, I think, at the beginning of the year, we talked about goal of doubling PMC by the end of the year that would get us to $1.6 million. Obviously, we ended Q3 at over $1.5 million. So we’ll easily beat that beginning of the year target, frankly, if we haven’t beaten it already. I think Q3 was a record for net ads, really a couple of things going on there. One is, just continued strong performance in general. But there’s also a – if you remember, at the end of Q2, we sort of launched a new Tinder Plus sort of feature is that merchandising, et cetera, which created a real conversion lift. I want you to remember, there’s a – always a stock…

Thanks, Greg. If you turn over to Slide 10, on the left hand side, you can see dating revenue grew year-over-year at 22%, which was ahead of the range we expected on our Q2 call. Tinder, PlentyOfFish and our International business has performed better than we had expected. Princeton Review saw an unexpected revenue drop. Normally there’s a jump in SAT takers in the summer, while the kids are off from school, they prepare for the test in the fall once they return to school. We didn’t see that jump this summer. This is a lingering impact that we’ve been talking about all year that’s been felt industry-wide after the ones in a decade changing the SAT test earlier, although, we’ve finally begun to see some of the test takers come back very, very recently. Princeton Review’s revenue mix continues to shift consistent with our plans. It’s online revenue was up 17% in the quarter, while the lower margin, but the larger offline revenue piece did fall by a similar amount, and that’s what caused the overall revenue drop. We continue to stay focused primarily on Princeton Review’s EBITDA, which turned positive in the quarter, as we expected, and was up 55% from last Q3. Overall, operating income grew 57% and adjusted EBITDA grew 34% to $111 million, that’s also ahead of what we expected on our last earnings call. Strength in Tinder, PlentyOfFish and our International businesses and lower than expected marketing spend drove those results. Our adjusted EBITDA margin improved strongly year-over-year as has been the case all year long. It reached 35% overall and 37% in dating. The margin improvement is largely driven by the fact that by the fact that a larger percent of our revenues were derived from brands with lower marketing spend. That’s something…

[Operator Instructions] And we’ll take our first question from Brandon Ross. Please go ahead.

Hi, thanks for taking the question, guys. Just wanted to know on Tinder. Would you guys exceeding your expectations in subscriptions at a micro transactions. I was wondering why dedicate resources to advertising at all when it may undermine the consumer experience? We found that consumers don’t like advertising on mobile and you’re so successful on subscription so far? Thanks.

Thanks, Brandon. I think the first, I guess, the answer is, we were not one of the variables in the business. We said all along is that, as we put in place the technology to be able to sort of start running real advertising volume. So the first thing we’re going to do is test it and we’re going to test it for consumer impact. So I think, the basic premise of your question is absolutely right. We will not run advertising in a manner or at a frequency that is likely to – not is likely to, that will demonstrate itself to be adverse to the consumer experience at all. We have confidence that we can do that in a way it will not have that impact. But as I said, we sort of tamped down the numbers a little bit as we’ve looked ahead in part to be conservative to account for that in part because of the timing of getting it all going all, which is related to, as you say, the success we’re having on alternative sources of revenue. So I don’t think it needs to be either or I think there is a level of advertising at Tinder that will not adversely affect the experience. I think what I’d say is that success we’ve had in the other categories has made it less imperative to nail that precise level of advertising down as earlier as we might otherwise have gotten. And it’s one of the reasons why I should go through that exercise, keep getting pushed back a little bit.

Great, thanks. And one more quick question on the launch of web for Tinder. Is that a margin opportunity for you guys? Do you think even in the United States, say, you could drive consumers from the app to mobile web to potentially avoid Apple and Google taxes?

I would call that a gem of an upside. I think it really depends on what kind of conversion we end up getting on the mobile web. In our other businesses, we’ve talked about mobile web tends to convert not as well as the native approximately. And as we said, in certain of our business, as we’ve improved the mobile web, we have gotten to the point, where it is economically better to sort of keep people on mobile web as opposed to the app. And I don’t know where it can end up at Tinder. We’re certainly not factoring that into our sort of thinking. But lots of things are happening with the mobile web, mobile browsers getting much better, I think the experience is getting richer. Frankly, I think to some extent, I think the mobile web is becoming more competitive over time with the native applications. And as that happens, that should be a natural sort of margin enhancer. But we’re certainly not building like that into our near-term numbers.

Thanks for the question.

Thanks, Brandon. Next question?

We will take our next question from Eric Sheridan. Please go ahead.

Thanks so much for taking the questions. First one understood on 2017 and it’s still early, how you think through this? But we think through the numbers and investors look at it outside looking at, how should we think about what a dollar invested in the business in 2017 and beyond? And what that does to the arc of revenue growth? How are you thinking about ROI developing, as you look at some of these investments you’re going to make as we move from 2016 into 2017? And then maybe one on the balance sheet, you continue to bring the leverage down. Any update on where you’re comfortable getting the leverage to and how that might inform the way you think about capital long-term?. Thanks, guys.

Thank you. I think it depends on the bucket. I mean, let’s take the buckets of incremental spend separately, because I think, I want to expand a little bit on what Gary talked about in terms of the margin issues for next year. I think it is in a margin expansion phase naturally. Tinder is in a margin expansion phase and the non-Tinder businesses are in margin expansion phase. There are a number of things that are discretionary, but we think smart that we think will have the near-term impact of sort of offsetting to some degree that expansion, and we did it for different reasons and they have different predictability of ROI. So the easiest one is the increase in marketing spend in our non-Tinder businesses, right, and that’s something we’ve got a long track record of doing, not withstanding the fact that we’ve recently discovered in our all-time business, we’re overspending a little bit. I want to be clear on that, that’s maybe we’re getting $0.98 back on a $1 instead of $1.5. So it’s not – we’re not – there’s is very little waste that goes on in our marking spend. And in general, I would say that, on an LTV basis, we tend to expect a solid double-digit return on that sort of marketing spend, somewhere between 20% and 40% positive ROI on that spend. You don’t get all that in year. And so it tends to be margin constraining – margin constricting when you rapidly increase that spend amount. But that is sort of solid. In an ideal world, we are gradually increasing spend every year at increasing conversion levels and that’s what fuel sort of margin expansion growth in these businesses. But when you do a sudden surge like we’re doing next year that…

I think, Eric, your second question was about the balance sheet. And we don’t have really any changes to our strategy around, I think, we’ve been pretty clear that we don’t want to stockpile cash. We carry a reasonable amount of debt. We’re very comfortable with the amount of debt that we carry. But we’re going to use our cash to chip away at it. We haven’t quite pay down debt yet, but we’ve been building up the cash. But we’re in a position to do that, if we want to. And we will chip away at it over the course of next little while, where we targeted gross leverage under three times. We’re going to be there pretty shortly. Obviously, we don’t think this is the right time to do buybacks, given our low flow. Dividends probably short-term don’t make sense for us either. We could be opportunistic on M&A, but we’re not particularly focused on that, given all the opportunity we have internally. At some point, we’ll find something interesting to buy. But for the foreseeable future, we’ll gradually chip away and continue to bring our leverage levels down that’s really what we’re going to with the balance sheet and that’s been very consistent.

Great. Thanks, guys.

Okay.

Next question.

And we’ll take our next question from John Blackledge. Please go ahead.

Great, thanks. Couple of question. So in terms of the core Match trends ex-Tinder, it looks like North America subs were down about 80,000 in 3Q, international plus 60. Just wondering if our math is right there and how that should turn in the fourth quarter. And then for Greg’s comments with a sudden surge in kind of non-Tinder marketing spend. Can core Match get back to mid to high single-digit sub growth in 2017, or beyond? And then just one other question percentage of Tinder revenue that’s a la carte and what’s boosting offer to subs and non-subs going forward? Are all the a la carte products going to be available for non-Tinder plus subs? Thank you.

Thank you. Given what your math – your math is right. I don’t know.

I checked his math this morning he had in his report and but…

Well, I don’t know you, please go ahead.

You know, how we disclosed it, his math is correct.

Right. Okay, I think look, we – our North America PMC, Q3 was always going to be sort of the trough in our short turnaround than we think on an average a year-over-year sort of basis. And we think again, in terms of year-over-year PMC comparison and we think that’s the case. We do think our turnaround that we’ve talked about is, as you can see from the conversion chart and the fact that we’re going to ramping up spend is still very much directionally on track. I think obviously, the softness we had in OkCupid and in our time this year and are sort of pullback on marketing spend there, I think sort of potentially delays that sort of crossover point. At the same time, we’re ambitious that we can reallocate a bunch of that spend to Match into other places profitably. So I think that’s something we’re going to figure out over the next two or three quarters. But certainly the overall directional trend is right and we do expect it to cross over next year and return to growth. I think do we return to mid to high single-digit growth next year? No. I think we’ve always said that sort of 2016 was a trough, 2017 is when we start getting it going again. I do absolutely believe that the non-Tinder businesses should be able to grow mid to high single-digit PMC on a longer-term basis. We see it happening at Meetic, again, Meetic is doing great. Meetic is having that kind of sub growth and Tinder is growing robustly in Europe. I mean it’s not terribly different than what we have here. So and you’ve got to do and we’ll move ahead, I mean, it’s a very competitive environment. So we do think that each of…

Thank you.

You’re, welcome.

And we’ll take our next question from Heath Terry. Please go ahead.

Great, thanks. Just curious in the commentary around sort of the lifetime value calculation. How much of that has been deterioration of that lifetime value, and I realize this is only relative to one sort of small segment. Is it related to mobile? Is it related to just shorter life time on that particular platform, given the demographic? Just sort of curious what the math behind that change in LTV is? And then on – just on Tinder and the commentary that you had around mobile advertising, I guess, somebody sort of referenced a similar question earlier. But is there a sense that that advertising on Tinder is going to have the kind of demand that you’re expecting for just given the broader, I think, weakness in sort of run of mobile advertising that we see not just within dating, but kind of across everything that’s non-Facebook, Google and a handful of other sites?

Okay. In terms of the LTV, LTVs have been going up across our businesses. And including at our time, I think, what really happened is that, we over-calculated an increase in LTV and market is against it. Meaning, we’ve made some product changes. They increased LTV, but there were some downstream. There was some pull forward involved and our just – our general formulas didn’t sort of pick it up as well as it should have, which is a mistake again, we’d rarely make. And we pride ourselves on measurement in these areas and spent hundreds of million dollars a year and over the years to track it very well, which is frankly why it was frustrating even with just several million dollars to see that we’re sort of doing it wrong. So I think that the LTV trend overall is up. It’s driven by a combination of pricing and there’s really been very little change in duration. I think again, we’ve got the LTV as a subscriber as conversion has come down over the last year, the value of the registration by definition has come down a little bit. And so you sort of measure LTV, both on the registration side and on the subscriber side. On the subscriber side, it’s continue to go up. On the registration side, it’s gone down, which has been an increase in LTV partially offset by decline in conversion, and as we showed you in that chart that’s reversing itself and sort of shifting forward. So the biggest macro trend that we’ve had has been on the conversion side, driven by the mobile shift, and again, we’re sort of putting that mostly behind us. On the advertising demand side, I think, you’re certainly right. I mean, it sort of just everyone knows that in this sort of mobile world, there has been a few large sort of advertising players who demand most of the attention. And I think that’s certainly a hindrance to Tinder, if it were sort of an advertising-only business that was entirely predicated on building all its revenue that way. I think starting from the base that we are, I think, we see plenty of demand to grow our ad revenue meaningfully in a way that it doesn’t to the earlier question – from Brandon doesn’t sort of undermine the user experience. But we’re going to figure that out over the next year, as we begin to sort of test higher volume of advertising. But we think we’re ways off from that sort of macro demand concentration sort of being a real impediment to – are being able to meaningfully grow that business.

Great. Thanks a lot.

And we’ll take our next question from Dan Salmon. Please go ahead.

Hi, guy, good morning. Greg, when you look at the outperformance of Tinder PMC as you discussed which was your original forecast at the beginning of the year. Can you dive in a little bit to the demographics? Are you seeing younger users more inclined to pay, as the older users picking up the app in the first place, just a little color on that would be great? And then second, on the advertising roll out discuss sort of getting the back-end set by moving over from live rail to double click. I’m just interested sort of what are the near-term priorities now? Is it filling out the sale force, agency relations or is it really now driving into ad products and starting to run a little bit more? Thanks.

All right. Thank you. On the PMC trends, I think, it’s been strength across the board, both – I think, it’s been sort of uniform outperformance in terms of both geography and age demo against our initial expectations. I think part of that is, we haven’t really screw anything up, meaning most of the things we’ve gotten have worked and they’ve worked really well. And you always build in some level of, well, this won’t hit, or this won’t whatever. And I think we just – we’ve executed really well. I think that the product – the product has continued to keep pace with the users demands. It is proven to be a very, very well monetizing, well renewing, well retaining sort of product. I mean, I think some of that stuff you just don’t know until you have some time behind you. So I think that’s gone really well. On the advertising side, we did, I think I told – I said last quarter, we sort of built up our human infrastructure maybe a quarter or two in advance of what we needed to just because we – the technology side wasn’t keeping pace. So certainly don’t need to build up a sales force any meaningful way at this point. I think it’s about testing ad units frequency, getting the right supply in the door, both direct and some level of third-party and having the volume sort of test the frequencies, the cohorts, et cetera. And as we said now to a number of questions, we’re not going to rush it. We’re going to make sure it doesn’t hurt customer experience. We’re confident that we can do it in a way that won’t. Again, I think it’s great sort of engaging, but not interrupting advertising. But we’ve got to nail down viewability and the right sort of roll video and all these things. So we’re going to do this in a way precisely, because we’ve got such great revenue traction everywhere else, where we’re not going to trip on ourselves in terms of the user experience.

Great. Thanks, Greg.

And we’ll take our next question from Douglas Anmuth. Please go ahead.

Thanks for taking the question. Greg, I was hoping to get your latest thoughts on whether Princeton Review is strategic to your business and whether you would actually consider some strategic structural alternatives here? And also can you help us understand the normalized growth rate for PlentyOfFish better just as it fully lapped here in October? Thanks.

Thank you, Doug. On TPR, I think, Gary talked about the performance, obviously, there on a strategic basis, there are a bunch of things that are happening there that we’re really excited about. I think the deterioration in the legacy business is forcing the mobile transition faster, I think, than we had expected, and there’s always some friction there. I think in terms of whether it’s strategic, you can get tied up in those words. I think, obviously, it’s not the dating business. The dating business is our main focus. I think that – and so therefore, by definition, it’s strategic. As to whether we consider anything, I think, the best way I say it is, I think it will be less surprising for something to happen there than in any of our other businesses, but I’m not going to predict any transaction happening, that’s not sort of the way we do things. I think we continue to believe in that business. We think it has a lot of upside. We don’t think it’s a meaningful distraction. At the same time, it is definitely not central to what we spend most of our time focusing on.

Any color on PlentyOfFish?

Oh, sorry. Again, we don’t go business by business. I think that, as I said before, I think that we expect our non-Tinder businesses to be able to grow in the mid to high single digits PMC. Long-term, we think it will be somewhat less than that next year. And PlentyOfFish is probably the fastest growing of those businesses next year. So you can triangulate from those things I’ve already said to the best of your ability. But we really don’t want to – the portfolio makes it very hard to sort of give our growth rates kind of business by business basis.

Got it. Okay. Thanks, Greg.

You’re welcome.

And we’ll take our next question from Ross Sandler. Please go ahead.

Thanks, guys. Just can you give us an update on the overall size of Tinder on a user DAU basis? And then as you start rolling out some of these new features, you’ve been rolling out the paid products now for a number of quarters. How does the retention rates look in some of these cohorts? And how the U.S. and the international markets differ from a retention standpoint? And then, Gary, on the 2017 outlook, just want to make sure, we’re still on track to see the non-Tinder legacy plus puff EBITDA grow in 2017, just want to confirm that? Thank you.

On the DAU/MAU question, again, we don’t disclose it. I can tell you continues to grow- both DAU and MAU continue to grow nicely. I think in terms of retention, unlike – unfortunately, when you roll out revenue features, you can see impact vary sort of instantaneously on the ecosystem. I think with some of these other pictures it’s less clear. I think certainly overall, retention and reactivation is sort of – reactivations continue to increase. Retention is generally been stable over the last few months and sort of up and down, we’ve had some bugs that have brought it down and then some lifts that have gone up. So it’s sort of been a little all over the place. But in general, MAU and DAU continues to increase. DAU to MAU continues to stay generally stable. And I don’t have – I’m not aware and don’t have in front of me any meaningful difference between, in general, the U.S. and Europe tends to act relatively consistently on those metrics with the rest of world being a little bit more all over the place. But in general, I would say that, those metrics have been stable. Growth has been good and those metrics have been stable.

And then I think in terms of your 2017 question, we talked about single-digit PMC growth in the other businesses that translate to similar levels of revenue growth and as well as modest EBITDA growth. So that’s what you should expect for 2017 across those businesses? Obviously, we’ve all talked about, we’re spending up significantly on marketing, so factor that in?

EBITDA growth in those businesses will be less than revenue growth, because we are increasing the marketing spend meaningfully, but we still expect to have EBITDA growth in those businesses next year.

I think we have time for one more question.

We’ll take our last question from Chris Merwin. Please go ahead.

All right. Great, thanks I just have a couple of questions. So for Tinder next year in terms of the various pieces of growth, do you think the bigger driver is top of the funnel traffic growth, which is, I guess, is going to be helped by marketing, or is it also driving conversion and increasing to pay penetration rate for that app? And then a second question and this is just a follow-up from earlier. In terms of the conversion headwinds for the core business, I think you said that those are mostly behind you next year. So in order to get back to high single-digit growth over the long-term, is that purely a function of more efficient marketing spend, or is there still some conversion tailwinds there, just trying to understand the pieces of that? Thank you.

,: in terms of whether the top of the funnel growth is sort of the bigger driver of revenue growth next year than continued monetization, I haven’t done that math. My instinct is that top of the funnel growth tends to have more of a deferred impact. Meaning, we’re still very early in the monetization sort of stage of things and that tends to drive very rapid growth. I think the way our unlike a – unlike the Match business, for instance, where the big majority of new subscriptions take place in the early days of a user’s life span. Tinder is much more widely distributed across sort of the age of a registration, I don’t mean the age of a person, but how long someone has been on Tinder for. So you sort of get – you get revenue payback from user growth much quicker on Match than you do on Tinder. And that’s just the nature of soft paywall business versus a hard paywall business. So I think they’re both incredibly important. One tends to have more longer-term effect and one more near-term effect, but I haven’t calculated the relative mix for next year. In terms of conversion headwinds, as I said in the earlier slide, the 30-day conversion, which is sort of near-term conversion is doing very well. I also just said that is the biggest part of conversion of these businesses. But it’s ahead of some of the other businesses – some of the other parts of conversion, be a lease up conversion, older co-work conversion, et cetera, all of those things go into sort of driving that subscriber growth. So I think, as we’ve said throughout, it’s going to be over the course of 2017, which is as we increase marketing spend and as those things follow behind on conversion, where you start to see that real return to growth. And what drives more efficient marketing in part is improvement in those conversion metrics. Also, we’ve got new creative and that sort of stuff coming in, it somewhat dependent on that, but it’s mostly driving those metrics. So that will happen over the course of 2017. They’re all sort of following that same direction driven by the slowdown in mobile and that reallocation of resources to mobile product work.

All right.

So I guess that’s it. Thanks a lot guys. Again, we’re excited about where we are right now. We’re excited about 2017. We have gone through this planning process a lot of exciting things on the product roadmaps, both the Tinder and at Match and some of other businesses that we think it could be a great year, really excited about it. Look forward to talking to you guys next quarter.

This does conclude today’s conference. You may disconnect at any time and have a wonderful day.