Good morning, and welcome to the Match Group Second Quarter 2017 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. 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. I'm joined by Greg Blatt, Chairman and CEO of Match Group; and Gary Swidler, CFO of Match Group. They will review the Q2 investor presentation that has been posted to the IR section of our website and then 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 here today. Some of these risks have been set forth in our earnings release and our periodic reports filed with the SEC. Over to you, Greg.

Thanks, Lance. Hey, everybody. Good morning. Glad you could join us for our Q2 earnings call. We had another great quarter, and we're building solid momentum. Before jumping into the quarter though, I'd like to comment briefly on the management changes we announced yesterday. Obviously, Match Group and IAC have been a huge part of my life, been here for 14 years. We've done a lot of great things, but it's definitely been a long run. I started talking about succession with Barry and the Match Group board last year, but we really wanted to make sure that I handed over the keys at a time when things were running really smoothly here. We've been through eight quarters since going public, and you'll hear in this presentation things continue to go really well. In particular, I was focused on making sure Tinder was on stable footing. Top line performance had always been strong, but operationally, we are still in a lot of flux. When I took over from Sean last year, we both felt it was really important that we transition the company from a founder-centric start-up to a more institutionalized company, dependent on no single person and to do so before looking for the next long-term leader of the company. Accordingly, we continued to build out our resources and powering our teams. Sean's involvement became less and less and I'm confident we've now accomplished that over the last 8 months. It's a different company than it was, with better systems, clearer plans, sounder technologies and deeper personnel and I have incredible confidence in its stability and its future. Lots of people were involved in the effort, but a particular shout out to Shar Dubey, who came over from Match Group to act as COO of Tinder during this period.…

Thanks, Greg. Now let's turn to the financial review and outlook for our business. Slide 12 has our key financial results for the quarter. Total revenue growth was 12%. Total revenue would have been $315 million or 14% growth without FX effects. Direct revenue grew 14%, driven by 15% PMC growth, and ARPPU was down $0.01, primarily due to FX. Our international business grew direct revenue 28%, driven by 31% PMC growth, while our domestic business grew 6% in both direct revenue and PMC. We had a $1.8 million decline year-over-year in indirect revenue as we continued to experience lower ad impressions in our non-Tinder brands and Tinder was in the initial stages of testing its Facebook program. The trends in the overall business haven't changed significantly since our last call, as Tinder and POF drove our growth, while Affinity negatively impacted both PMC and revenue growth as we continue to right size that business. We had 7% operating income and 8% adjusted EBITDA growth year-over-year. The $110 million of EBITDA in Q2 was ahead of our expectations, primarily due to lower marketing spend, partially offset by $2.7 million in professional fees related to settling the Tinder equity plan. As we expected, marketing and headcount costs rose at Tinder compared to Q2 2016. We are gaining traction in a number of international markets, including India, Brazil and Russia. Our EBITDA margins dropped 1.3 points year-over-year, largely as a result of the increased spend, which was also in line with our expectations. Operating cost and expenses were 73% of revenue compared to 72% in Q2 2016. Sales and marketing spend was 28% of revenue versus 30% in Q2 '16 despite increases in marketing spend at Tinder as the mix of our businesses continue to shift towards lower marketing spend brands, and…

[Operator Instructions] The first question will come from Brian Fitzgerald of Jefferies. Please go ahead.

This is Alex calling in for Brian. Can you just talk a bit more about the early results you're seeing from the Tinder Gold test? Maybe the overall strategies for converting the free users to the service and upselling the current Tinder Plus subscribers to Tinder Gold? And then maybe any updates or guidance you can provide around pricing for that offering?

Sure. I think -- the only update I'll give at this point, given how early in the test we are, is the performance is strong. There is a lot of -- both a lot of people -- a lot of existing Tinder Plus users upgrading and also the new feature is driving a lot of conversion from non-T Plus users. I mean, effectively think about it the way our other monetization features work, which is you can go directly to the settings page and buy it, but a lot of people buy it because through the product experience, they land somewhere where this is offered naturally within the context of the product. You're then given the option to either pay for it or not. What that does is it means both existing Tinder Plus users and non-Tinder Plus users will come to a point, where they are offered this feature. And at that point, they have the ability to buy Tinder Gold. If you're an existing T Plus user, it's an upgrade. If you're not, then it's effectively just an entirely new subscription. So it works really essentially the same way as all our other features do, which is to say quite well. Obviously, conversion has been going really well, and the team has done a great job of on-app merchandising. In terms of pricing, it's at a premium to Tinder Plus obviously, but we price pretty dynamically. We're in testing. The extent of that premium will probably vary over time and vary market to market and vary in a number of different ways. So for us, pricing is an art and a science. And we're constantly evaluating it. So I think quantification doesn't really make sense for us. Was there another part to that question?

No. That was it.

The next question comes from Peter Stabler from Wells Fargo Securities. Please go ahead.

Greg, wanted to ask you a couple of questions on going back to Slide 9 in particular, the point about launching new brands, wondering if you could give us a little more color here. Would these be, to the extent you can, mobile-only brands? Are we talking about apps? Are we talking about desktop and mobile? Any color on geography or markets served? And then just kind of generally on portfolio strategy. Does this mean that going forward, you might look at the overall portfolio and some of those smaller Affinity brands might be demoted or discontinued. Just some overall thoughts on portfolio strategy would be great.

Sure. Look, we're always developing new products. Some of them we launch and we put real money behind and some of them we don't. Usually, we put them out and seed them a little bit. We see what happens. These are often done -- they're done both organically, people come up with ideas and centrally, where we're trying to solve specific problems. One of the hurdles in the category generally again is that the product only works to the extent you have people on it. And there is that classic marketplace chicken-and-egg challenge. And my only point is that on OurTime, although I won't get into the specific tactics of how they did it, they were able to use some of their existing population to make sure that the product wasn't empty on day one. And that provides increased conversion, increased customer satisfaction, et cetera. And I think that it is very much a focus of ours going forward to be able to translate that in various ways into new product development. Our focus is primarily mobile. I think it will be unlikely that we would go desktop first. There may be products that we launch depending on the demographic on both. For instance, OurTime in Europe was a clear candidate for both desktop and mobile, given the demographic. There are many others where it will be mobile first. And I think that -- I don't have specifics to get into right now about exactly what we're getting after and anything else. But I think that launching new products, potentially buying early-stage products that don't have liquidity that we can bring liquidity to, is definitely going to be a part of our ongoing strategy and an increasing focus for us.

And then a quick one for Gary, if I could. Just wanted to make sure I heard you correctly, you're reiterating the full year guidance?

That's exactly right.

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

Got a big picture question and one a bit more specific. So Greg, when you think about long-term, what should long-term revenue growth be ex-Tinder? And then how do you get there? And then, Gary, specifically, you talked about North America Match seeing PMC growth by the end of the year. Is there a specific expectation for Meetic by the end of the year also?

Yes. Look, I think obviously, revenue growth is fantastic right now. I think you have the law of large numbers obviously, so the growth rate declines over time. But it is incredibly strong. We expect very strong double-digit revenue growth certainly for the foreseeable future without sort of meaningful product breakthrough. I think our strategy though, is to continue to try to roll out product features that continue to expand both the product, market and the category overall. I talked about a real focus on location. I think location leads in a lot of directions to broaden the use case in the market for Tinder. I think our integration of AI and our integration of video are really going to start to increasingly set Tinder apart from everything else. And so I sort of look at Tinder in two ways, what's the growth rate on the current trajectory? I think it's very solid and will continue to be the real driver or the major driver of Match Group revenue growth for certainly several years. But I also -- we are very much playing not just for that but for a meaningful expansion and a reacceleration of that through the incredible product work that we're doing, again at a scale and a pace that I think will be unparalleled in the industry. So that is sort of the upside piece that I can't really quantify, but is very much what we're playing for.

And I think Jason as far as the different brands growth, we've talked before about the brands that have been around for a while growing in the single-digits somewhere, hard to pinpoint exactly where. That's where we have seen Meetic growing, and we expect to get Match there as well. We're talking about how it's going to get to growth by the end of the year, and we think it will be moving into those single digits over the course of '18. So I don't have more specifics than that, but our goal is to get all those brands growing in the single digits. They're not 10-plus-percent growers anymore, but single digit should be achievable from our perspective, especially with all the product and brand work that we're doing.

The next question comes from Douglas Anmuth from J. P. Morgan.

First one just on Tinder Gold. Just wanted to understand more about what gives you the confidence in the product at this point? And how do you think about it internally in terms of size or impact perhaps relative to Super Likes or Boost, maybe around where those were kind of in their testing phase? And then just secondly on the full year guidance, totally get that you're reiterating what you guys played out there before. But just given the fact that we're seeing a little less advertising revenue, some of the marketing spend is slower and Gold is delayed, can you just help us understand the acceleration more in the back half of the year and keeping those numbers?

Sure. On Tinder Gold, I mean, we look at the test there. There are a hell lot of people signing up. So that's why we get excited. Obviously, we had a great deal of confidence in this product coming in. We expected it to be one of, if not the single biggest driver of incremental monetization that we've launched since the beginning. It is so far playing out that way. When you launch new subscription features, there is always a stock and flow effect, where you get a huge rush coming in and then it softens a little bit, and we're pretty good at projecting that. But you still don't know for sure until that stock -- that initial surge has subsided. And we're only in a few test markets right now, which is why we're being cautious to quantify. But the results are really, really strong. And so when you talk about the rest of the year and the delay, the delay sort of impacts Q3, but our confidence in momentum sort of gives us confidence in Q4. And so you asked the question I'll turn that over to Gary in a second, but we've had very strong July momentum. And I think as we look ahead, we think the combination of that plus the -- what we think will be really exceptional performance of Tinder Gold in Q4 give us a lot of confidence. Gary, anything to add to that?

I think that's right. I mean, I think if you look at it on a very short-term basis, Q3 is affected by a number of weeks where Tinder Gold hasn't been able to be rolled out and some of the other effects you pointed to. But as Greg said, it looks very promising. And so as the year goes on, we think it could create some real additional momentum for us. And it's early to quantify that. It's early to call it. We're still testing it, but that's definitely a factor in kind of what impact it is. It's a timing issue more than anything else. Marketing spend, I think is fluid. We've given our guidance for Q3, and we feel we've got good momentum now on the Tinder side and we're going to spend up in Q3, but we've got a lot of decision to make on Q4 at Tinder as well as across some of the other business on marketing. So we've got some fluidity on the marketing spend side. Ads, we're continuing to make progress with the test, and we'll see how that all plays out. Again, we've given the Q3 impact. We'll see what that bodes for Q4. So all that enables us, I think, to leave our ranges where they have been for the entire year and still feel good that we're going to fall within the range from both a revenue and an EBITDA perspective.

Also, look on the ad stuff, I want to be clear that the slowness of our build is especially in the second half of the year with the Facebook network, is really a matter of discretion. I mean, we could turn it up faster and harder. I've made the decision to go slowly. I think Tinder has got great momentum. I don't want to take any rapid steps to potentially derail that. I think advertising could be a meaningful part of our long-term plan, but I don't - I personally don't want to be too aggressive on it right now. So we're building it slowly. And I also can't underemphasize the strength we had in July, both at Tinder and at Match and a number of other businesses. So it gives us a great deal of confidence in the back half of the year.

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

Guys, I have two questions. First is, how is the initiative to convert users on Tinder on the web versus in the app going, just any update there? And then the second question, if you look at the PMC decline ex-Tinder, it seems to be getting better even factoring in that 140,000 of Affinity brand wind down. So I guess if that's gone by the fourth quarter and those legacy brands or older brands are growing mid-singles, what are the risks as we look forward into '18, '19 and beyond? Could that be the steady-state growth for the ex-Tinder PMC going forward? Any other factors you'd call out that could impact that in the future?

Sure. I think you meant North American PMC ex-Tinder, I think is what you are referring to and ex-Affinity. I think just to clarify, I said that the impact of the Affinity run-off will start to decline meaningfully in Q4, but won't be gone. So we've got sort of Q2, Q3 sort of trough and then it gets better in Q4 and will continue to get better and I imagine would be gone sometime in '18, but that will continue. With the rest, look, it's been a multiyear transformation from desktop to mobile. We've had great deal of confidence along the way that we would both sort of reverse the negative conversion trends, which we have done. And that the product improvements we've done would translate into re-growth in the top of the funnel, which we are well on track to do. So our ability to predict with absolute precision when those things would take place is inherently sort of difficult. But where we are right now, as we've said, POF is doing well, Match will return by the end of Q4, OkCupid may or may not return by the end of Q4, but if it's not by the end of Q4, it should be early in '18. So we feel really good about it. Our ability to predict what challenges we'll have two or three years from now, I think it's fighting the competitive fight that we fight all the time. I think our products have the inherent benefit of existing scale and brand awareness. By the end of this year, I think the products will be second to none on mobile in terms of doing what they each seek to do. So we feel really good about our ability to have a baseline single-digit growth rate there. And look we're always playing for better than that. I think there is a big hole in the market right now -- sorry, there's still a lot of people in the market right now looking for something more serious who have sort of thought of Match maybe not as the vibrant exciting thing that, I think it is very much becoming. I think with this cumulative product rollout and our marketing campaigns, I think we've got a real chance to not just sort of get back to growth but to get back to real growth. I really think it is a big untapped area there. OkCupid, again, I think, has a lot of opportunity. It still has a great niche and I just -- I'm more optimistic than the single-digit growth rate long-term at least in some of these brands. I think overall it's probably the right way to think about it. But in terms of the risks, it's just the fact of ongoing competition and our ability to continue to execute, which I have great confidence in.

I guess Ross' other question was around the Tinder Web and kind of where that...

The Tinder Web is still in rollout. We are launching -- we are starting the test of Tinder payments, I think in the next week or so. So we've got to see how that goes. The whole Tinder Web and sort of the ability to sort of capture margin through moving to Tinder Web is really a long-term project. Building out the payment system on a global basis is a big project. Obviously, to date, Apple and Google have handled all that for us. So that's been a lot of work. We're going to start testing it, I think next week or the week after. And that test will go on for a while. And I think that's a long-term plan. We have confidence in it. Again, I don't -- it's one of those things that I consider upside. We'll absolutely take some margin there, how much, we'll have to learn over time. We've had really good luck in our other businesses, but Tinder is different. And we're cautiously optimistic, but we'll let you know the progress as we roll that out. May not even be -- I guess we will have early returns next quarter. But once you've rolled out the payment system, you then need to develop the strategy and implement the strategy for customer shifting. So I consider that a multi quarter strategy.

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

This is Kunal for Lloyd. Two if we could. One, on Tinder video, have you started doing A/B testing? Would you plan to use it for retention primarily or for revenue enhancement? And then on international, you highlighted Brazil, India and Russia. Are there existing apps or services that could be attractive acquisition candidates? Or are you planning to extend existing brands to the new geos that you are looking over the next few quarters?

On Tinder video, we've not yet started A/B testing, but we are very much in development. I think it will play a number of roles down the road. I suppose it could have monetization characteristics, but we're focused on just creating a great product for users. We've got a great plan for how we're going to implement it, and we expect that to be rolling out later this year. In terms of geographies, there are certainly existing products in all of these geographies. I think when we're looking at the geo, we try to determine obviously three different approaches. One is our existing products, the other is building new products and the other is buying products. You take a country like Japan, which we saw as a really big opportunity, we're really doing all three. Even before I got to Match in 2009, Match proper was in Japan. We still continue to run that business in Japan. Tinder has aggressive efforts in Japan and we bought Pairs, which was a sort of native business in Japan. So there we sort of did all three. In Brazil, again, we have both Tinder, and we bought a business a while ago called Par Perfeito, which is down there. We look at those situations and those opportunities everywhere. I think it's -- I think it will continue to be a combination of those three depending on the market. As I mentioned earlier, Alex Lubot now very much has his eyes focused on rest of the world where most of the people live. And there are some really interesting opportunities. And when we get into Asia, some of these dating products function rather differently than ours do. And they start to expand the definition a little bit. So we're looking at a lot of exciting things. I think it will continue to be a combination of build by and extension.

The next question comes from John Blackledge of Cowen. Please go ahead.

Just two quick questions. For Tinder, just wondering how the marketing efforts are going in emerging markets. Are they having kind of the intended kind of impact on having the platform go viral? And then just with the second question on acquisitions with the cash balance rising, kind of what's the appetite for acquisitions? And is there any particular geos that would make sense?

Where we are in the Tinder marketing, I think as I outlined at the beginning of the year is, the first thing we wanted to make sure is that our spend had impact. It clearly does. It's driving a lot of registrations. The next thing we wanted to make sure of is that those registrations weren't sort of one-time, that they actually had a viral component and helped the market generally. And we determined that it does. I think we're now in a stage of really trying to quantify all that so that we can fine-tune the amount of our marketing. I think that takes time again as I've said -- just because of the data we can capture. I've told this story -- I think every quarter, there is always a fierce competition for products and technology resources at Tinder, even as we continue to expand those capabilities. We expand a number of things we want to do that we think can add value even faster. So at this moment in those geos, we don't have -- we don't capture all of the data we can to precisely measure long-term ROI as we do in our other businesses. But the impact we're having is clear. So we continue to spend and as we continue to measure more and more accurately, we'll evolve our spend either upwards or downwards over time. But we feel really good about the impact we're having right now and those efforts continue robustly. In terms of cash balance and acquisition, I think our cash balance has never been a constraint to acquisition. So we've always had the ability to raise capital, we've had the ability to use our equity. Obviously, if that cash balance grows, it becomes easier. But in general, we're focused on finding the right opportunities. I think geography is going to play an increasingly big component of that. Again, I think that as we look at things in more extended geographies, the definition of dating products evolves a little bit. And I think you'll see some real activity there over the coming year.

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

Tinder continues to have pretty strong PMC growth, but at the same time over the past several quarters, you've called out tech product and advertising feature rollout delays that have been caused within the platform. Just wondering can you kind of isolate down the reasons why those delays happen. Is it resourcing? Does it have to do with what you called out about the company being more founder-centric and kind of what are you doing to address those? And then can you give us an update on the monthly average users for Tinder and maybe, a split by domestic versus international?

Sure. On the operational side, we've certainly gotten a lot better. I have an anecdote I like to tell, which is I guess about 6 months ago, I was saying that one of our big strategies is going to be -- we're going to have more resources than anybody else, and we're basically going to be bringing guns to a knife fight, and our head of engineering at that time quipped, yes, but we keeping shooting ourselves in the foot with these guns, and we've got to stop doing that. I think just last week, we were talking about it, we're like, we're not doing that anymore. So I really do think that our execution has improved dramatically. A big part of that was taking the time to rewrite these applications. I think that process, as I said earlier, is very hard to predict how long that takes because it takes you down roads. And I think that during the first 6 months of the year, that definitely went on longer than we expected. I think that is the main reason for the downstream impact of delays that you're talking about right now. You look -- at Tinder Gold, we delayed a little bit, but then it got caught up in the App store for a little bit too. So there are always reasons for these things, maybe we aggressively planned because we think that's a good operating strategy. I think the ad stuff historically has been delayed, that has primarily been a fight for resources. And a general de-prioritization against features that drive growth and customer satisfaction and direct revenue. So I think it's been a combination of things. I think you'll see that much less going forward. I think we're really starting to fire on all cylinders. And so I don't view it as an endemic long-term issue that we'll have to grapple with, although we'll always grapple with resource constraints no matter how big we grow because there are just so many things for us to do. In terms of relative balance of international and domestic, it stayed relatively constant, I think. U.S. users and subs make up less than 1/2 of the whole, but more than a 1/4 of the whole. So it's somewhere in that 1/3-plus range. And then you've got the rest spread between Europe and rest of world, which we look at both similarly and differently depending on what we're looking at. International continues to grow faster than domestic, which we've talked about, but growth everywhere has accelerated recently, as we mentioned, both in terms of our marketing efforts and our product successes. So we feel really good about where we're headed there.

The next question comes from Eric Sheridan of UBS. Please go ahead.

Maybe just a few on the Tinder equity plan settlement just so I understood. The way you talked about stock-based compensation in terms of Q3, is all the impact in stock-based compensation in Q3 from the equity plan settlement? Or is there anything else you're calling out there? And is any of that going to repeat after Q3? Or is it sort of a one-time settlement? Second, on Slide 15, you say Match continues to own 100% of Tinder. I think a lot of people are always of the impression that ex the management equity, it was closer to 85%, 90%. So just wanted to know if we could get any color there? And then last, you said there's been a valuation that's been put on Tinder as part of this process. Any chance you would like to share that with us?

Let me take the first part of that. In terms of the ownership, Match Group has always owned or at least for years has owned 100% of the equity ex-Tinder management. So we've talked about it at sort of a fully diluted treasury basis method, we talked about our ownership, but in terms of ex-management, we've owned 100% for several years. In terms of valuation, look, we're not going to talk about that. It is two people's opinions. Other people can have lots of different opinions. And we think it's generally reflected in our stock. And we will never ever think that valuation is where it ought to be, but what it came in at was not dramatically different than what you might think. The conversion is a one-time event. Tinder equity holders now hold Match Group options. I think the major accounting effects were realized this quarter, is that correct Gary? And we don't see any ongoing impact from it.

I think just to put a finer point on the SBC. We do see $5 million or $6 million more of SBC in this coming quarter. This additional amount is what our guidance reflects, $21 million in total, which can be seen at the back in the appendix. That total number reflects the impact of this Tinder liquidity event. So for the year, we're probably running $5 million to $6 million ahead of where we initially thought, and that is as a result of the increase in SBC that we're seeing. And that's going to flow through in Q3.

The next question will come from Dan Salmon of BMO Capital. Please go ahead.

Greg, I was hoping you could spend a little time talking about the opportunity for the 50-plus demographic? You've obviously got a couple of brands now in Europe, sounds like -- or a couple of launches in Europe, two more countries coming. But I'm sort of interested to hear your thoughts on the opportunity. Maybe in emerging markets a little more, if you look at that demographic in Asia versus North America, for example, how you think about what that opportunity could be over the long term? And then second, and a bit of a similar question, some of your largest independent competitors remain ones that are oriented around religious affiliation. I'd just be interested in your updated views on the company's view of that demographic?

Thank you. Europe didn't really have this category. And we tackled it. It's frankly, it's something we've been talking about for a few years tackling, but we -- just through the constraints around how much you can execute, we didn't get to. And on Meetic, we were increasingly seeing that it's a very robust audience -- growing audience, growing part of our user base. And so effectively tackling it made a huge amount of sense and we were able to tackle it more as a way of meaningfully expanding our marketing efficiency, because we didn't have to build a wholly new product from scratch. I think in the U.S., we've got our OurTime brand, that we've obviously put a lot of focus in. I think it requires some more product work. I think that we -- Match and our Affinity brands in the U.S. share resources much more than any of our other businesses do, and we definitely have put the focus on Match over the last 12 months. So I think that the product will improve more. I think we'll start to do more targeted offering for that audience than it's been -- and we think there is real opportunity there. I think beyond Europe and the U.S., I don't see it as a real near-term focus. It tends to be -- you start to sort of stratify our approach as you reach greater and greater levels of penetration into the market. And I think when you go beyond Europe and United States, there is just so much more room to go in the heart of the market that I don't necessarily see going at targeted demographics as being the near term strategy, although obviously, that can change. In terms of religion, we do some religious based offerings. Obviously, we've, not surprisingly, looked at buying some of the ones that are out there and at least to date have thought that wasn't the right thing for us to do. I think it remains a possibility, but again, I wouldn't call it an area of strategic focus for us at the moment.

And this concludes today's question-and-answer session and also concludes today's conference call. We want to thank everybody for joining today. You may now disconnect your lines. Have a great day.