Good morning, and welcome to the Match Group Third Quarter 2017 Earnings Conference Call. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Mr. Lance Barton, Senior Vice President of Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. Joining me on the call today, we have Grég Blatt, Chairman and CEO; Mandy Ginsberg, CEO of North America; and Gary Swidler, our CFO. They will review the investor presentation that's available on our website and then open it up for questions. I'd also 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 and in our periodic filings with SEC. Over to you, Grég. Grégory Blatt: Thanks, Lance. Good morning, everybody. Glad you could join us for the call this morning. We had a great quarter, and we're excited to talk to you about it. As you know, this will be my last earnings call at Match Group, as Mandy will be taking over for me as CEO. Accordingly, we thought it made sense for her to join the call now so you could hear directly from her on the North American businesses she's been running. She started getting up to speed on everything else. But obviously, that's an ongoing process. Frankly, I'm still trying to get up to speed on everything, and I've had the job for a long time. As I've said multiple times before, working with Mandy over the last 10 or so years has been one with professional pleasures. I have the utmost confidence she'll continue the good work we'd been doing without missing a beat, and I'm sure you all come to appreciate her as I have. Frankly, from a…

Thanks, Grég. It's great to be on the call today and to see the terrific results across the board. Our business momentum is strong and I'm excited about taking on the reins soon. It's hard to believe that it's been 11 years since I've started at Match operating 2 brands in U.S. In fact, I joined just a few years before Grég joined in 2009. We've been in the trenches a long time together, and it's amazing at this point to step back and see the financial value we've created over the last decade as well as the impact it's had on millions of lives around the world. Over the last few months, in addition to running the North America businesses, I've started to get up to speed on parts of the businesses that I haven't been directly involved in. My thoughts on these businesses and the portfolio overall will continue to develop, and I'm sure I'll talk about that on the next call. Suffice it to say that I'm currently excited about the opportunity in front of us. The trend in the North America businesses have been a big focus since our IPO, and I'd like to provide my perspective. I'll talk about financials first because it's a business that has continued to see growth over this period, and I'll turn to the others reflected on Slide 8. PlentyOfFish is led by Hesam Hosseini, a Match veteran, who took over the role about 2 years ago. It's clear that PlentyOfFish has carved out a unique space in the market and is able to generate more conversations than any other dating app. Their user base is geographically dispersed throughout the U.S., which is complementary to our other products, for example, Tinder and OkCupid tend to be more concentrated in bigger…

Thanks, Mandy. Slide 10 has our key financial results for the quarter. Total year-over-year revenue growth was 19%. We were expecting revenue growth to accelerate as the year progressed following a major product push at Tinder, and that is coming to fruition. Direct revenue grew 21%, driven by 18% PMC growth and ARPPU that was up 1%. Our international business grew direct revenue 40%, driven by 33% PMC growth; while our domestic business grew 10% in direct revenue and 9% in PMC. International now accounts for 43% of total direct revenue. We had $0.5 million decline year-over-year in indirect revenue as we continue to experience lower ad revenue at our non-Tinder brands. This was largely offset by the continued ramp of the Facebook ad program at Tinder, which delivered as we expected. As Grég discussed, Tinder contributed very strongly to our results for the quarter as PMC growth was exceptional, à la carte continued to be very strong and the introduction of Gold led to higher ARPPU at Tinder. EBITDA grew 12% in the quarter due to the revenue growth and lower sales and marketing expenses as a percent of revenue as the mix of our businesses continue to shift to lower marketing spend brands, offset by higher Tinder operating costs and higher IAP fees. We also incurred $11 million of payroll taxes related to the former Tinder option exercises and some associate professional fees. Excluding this $11 million of cost, EBITDA growth would've been 22%, 3 points better than our 19% reported total revenue growth. Operating income was flat this quarter primarily for two reasons, we had an increase of $9 million in noncash comp, which is primarily related to Tinder and roughly half of which will not recur; and we had a $5 million reduction in continued consideration…

[Operator Instructions]. Our first question comes from Douglas Anmuth of JPMorgan.

This Cory Carpenter on for Doug Anmuth. Two questions on Tinder, maybe starting with Gold. Could you talk about the mix of adoption you're seeing between existing paying subs and also the conversion of nonpaying subs? And then any metrics you're able to share in terms of Gold subs as a percent of overall subs or early views on what you're seeing in terms of renewal rates? And then secondly, could you give us an update on the usage of Tinder's à la carte features in the quarter and any interesting trends you saw, such as may be Gold impacting the usage of Boost and Super Likes? Grégory Blatt: Thank you. Look, we don't give out a lot of that granularity. I will say that the way we think about it is the introduction of the Likes You feature itself increased conversion, drives up subs. The introduction of the Gold package drives up ARPPU, but makes that increase in conversion less than it would have been otherwise. You have 2 components going. You have both new people coming in and taking Gold. You also have an upgrade component. On virtually every one of these metrics, adoption exceeds our expectation. So mix is higher, conversion is higher, et cetera. But you really see that reflected in, I think, Gary talked about around a 25% in Tinder ARPPU, and you can see that -- Gary said that half of the -- this upsurge came from this, so you can sort of back into we don't give conversion and mix numbers. Renewal rates were down on Gold versus Plus, which you would expect whenever you make a pricing decision. It was well within the sort of constraints that you would expect on that sort of a pricing increase. As I've said in my remarks, we will iterate on these things over time. You set out one premium, those premiums will be tested and iterated on and all the rest. So these things will move around a little bit, but that's all baked into, obviously, the outlook that Gary walked through. In terms of à la carte, I think we've talked about the fact that à la carte tends to come mostly from people who are also PMC. Therefore, when you see a surge in PMC, you tend to see a surge in à la carte. I think that has played itself out this quarter. People who use Gold will use Super Likes and Boost a little differently, so there is a toggle in terms of how they use those things. But overall, not a meaningful mix shift in those and relatively steady.

Our next question comes from Jason Helfstein of Oppenheimer.

Two questions. So with Tinder, is it fair to say this is the first time you have multiple kind of pricing tiers basically on a product? And as you're going through this -- and clearly is learning because this is new and the uptake has been clearly better than expected. Are there learnings in Tinder and possibly apply that to other products? And then just thinking about kind of how that affects conversion rates, where, historically, we've always thought about, on Tinder, the paid conversion rate would have to be relatively low, but with different pricing tiers, can you have more people on a basic price and then you have this premium price? And then second question, just on international ARPPU, can you tell us what the change was ex currency quarter-to-quarter? Grégory Blatt: Yes, Jason. Actually, it's sort of reversed. Meaning, we took all the learnings from the other businesses and applied it to Tinder. We've talked for a long time about the fact that we have effectively a dynamic pricing program. Across our other businesses, we have add-ons, we have packages, we have discounting and premium pricing and à la carte. So we've actually done this far more intricately in our other businesses than we have at Tinder. This is really the beginning of doing it at Tinder. In fact, even before Gold, we do have multiple price points at Plus, which we've talked about. They're geographically-driven, they are driven by a number of components, there's discounting. So our ARPPU numbers always include a whole variety of pricing tiers. I do think it will continue to develop at Tinder. We're far earlier along that trajectory at Tinder than we are at -- certainly, businesses like Match or Meetic, where we're doing this for a long, long time. And…

The question on the ARPPU, Jason, which is, is if you look at Slide 17 towards the back of the deck and it's also in our earnings release, you have the detail on ARPPU. But the short answer is international ARPPU is up from $0.50 to $0.52, so $0.02 increase, $0.01 was attributable to FX and the other half -- $0.01 was attributable to improved rates. So that's the breakdown there, again driven by Meetic and our Japanese business primarily.

Our next question comes from Lloyd Walmsley of Deutsche Bank.

Wondering if you guys can elaborate a bit on how some of the non-modernization product innovation drives engagement and revenue over the longer term? And how you kind of frame up the benefits to that more broadly? And then more specifically, as you look to do more post-match features along those lines on Tinder, do you see that kind of expanding the brand proposition and drawing in new demographics? Or is it more you think like they just drives deeper engagement from core demos? Any thoughts you could share there would be helpful. Grégory Blatt: Sure. We think about the business in sort of two ways, there's the product experience that we offer people for free, right, and that experience is what creates our user base. People tend not to come for the paid features. They come for the base experience, and then they pay for the sort of extra benefits on it. So at the end of the day, we need to have a great product that is both bringing new people into the category and taking share or keeping share from the rest of the category. Tinder's done that very well. But we see -- one of the reasons we did a lot of the work we did this year on the technology platforms and everything else is the ability to expand that. And by creating differentiated products that both are more effective at delivering, which can be measured in a variety of ways, and more enjoyable to use, et cetera, all are what drives retention, word of mouth. They are the things that we market and will continue to market going forward. So we think of that as sort of the heart and soul of what we do. Once we're doing that successfully, we're bringing more and…

Our next question comes from Dan Salmon of BMO Capital Markets.

So maybe Grég and Mandy, just take a step back with the launch of Gold here. Do you, at a high level, take maybe a different view on what your long-term potential is for PMCs as a percentage of your monthly active users as it's even more traction that you think long term that you can convert to paying users as you add more value and add different tiers? That's the first one. And then maybe just a quick update on the Tinder leadership transition. Grégory Blatt: Sure. On the Tinder part of it, look, Tinder has, frankly, exceeded our expectations sort of at every step. So in terms of rethinking our -- I wouldn't say we've -- I mean, there's obviously some ceiling of the percentage of payers, of users that will get to pay. We don't really have a hard view on what that is. We keep rolling out new things, and they keep buying them. And I think we've done a good job. And I think there's still a fair amount of runway there to go, but we certainly don't put a number on it. Mandy, you've obviously seen the other businesses, they're somewhat developed, but you've been continuing to drive conversion as well. So...

Yes, for a lot of other businesses we've worked on, as you've heard, it's been a big focus on product innovation. And we've seen real stability in PMC as a result of it. So for us, it's -- we again don't see a ceiling, although it's certainly more and more challenging as time progresses for the more traditional businesses to see that lift. Grégory Blatt: In terms of Tinder leadership, obviously, there's been a process. It's the kind of thing where until there's an announcement, there's not really an announcement. But we feel very good about where we are in bringing that to fruition.

Our next question comes from John Blackledge of Cowan.

Great. On Tinder advertising, you mentioned on the deck that it increased. Just wondering how the partnership with Facebook is going and how we should think about the advertising revenue trajectory into 2018. Do we think about it as kind -- as perhaps a step function uptick? And then secondly, on Tinder. I think you ramped marketing expenses in some emerging markets, like India, to drive adoption and viral user growth. Just wondering kind of how does marketing efforts are going. And for the Tinder marketing spend in 4Q, is that spend intended for those emerging markets? Or is it more broad based? Grégory Blatt: Okay. The partnership with Facebook is going great. Obviously, I think we have less than -- '17 will reflect the less than even half year sort of run rate. Next year we'll get the full benefit of that, and so we will have ad revenue increase next year. I'll just repeat what I've said before, which is in light of just how strong the direct modernization is, we are not -- we are doing that and we are growing that revenue, but it is not a major focus of ours. We are not -- on a relative basis, we're not sort of pushing the envelope in terms of ad frequency or that sort of thing. And so given that, sort of once the network is -- once we've anniversaried that, you sort of will grow it modestly, unless we choose to get more aggressive on frequency, and that's certainly not a decision that we're making, I think, in the near term. In terms of marketing efforts, yes, we have -- we stepped up marketing a lot this year much of it international, some of the domestic. I think it's been very effective. I still don't think we've even hit our stride yet in doing it. I think we certainly spent far less than other big players in the space. We've got great growth that's coming both through monetization and through user growth. We expect that marketing to continue and increase again next year. But obviously, as a percentage of overall revenue, which we expect to grow very much next year, it's not growing and, again, I think remains far smaller than, really, the competition.

Our next question comes from Ross Sandler of Barclays.

Great. Just one for Mandy and then one for Gary. Mandy, just, I guess, stepping back in philosophical changes now that you're taking the baton from Grég around growth margins or the company's use of capital or should we just expect more of the same under your leadership? And then Gary, on the PMC cadence. So the 476,000, if you kind of look at how you guys report and the fact that that's an average, it was very back end-weighted. So the fact that you're guiding the same number in 4Q, just curious what does the October trajectory look like versus September? And why wouldn't 4Q be way higher than 476,000 given that you only had 2 weeks on Android and 4 weeks on iOS in the third quarter?

Okay. So the question on sort of the strategy. These businesses have really grown over the last decade. Not just these businesses, but the category on product and technology innovation. It's been a big strategic imperative for us, and it will continue to be so for me. I know Grég and I worked together for a long time, we've been in the trenches for a long time. So I don't expect any big sea changes. And you see the results today, and Grég is really about building on top of the momentum. In terms of use of capital, like I said, I've been around for a long time and we have certainly been acquisitive in the last decade. But for us, it's really around where there are opportunities at the right price, we're price-sensitive, and it's about investing in -- looking at businesses that provide high-growth and long-term value. So we'll continue to do that. That's not going to change.

I think on the PMC side, I think it's important to understand -- and Grég alluded to some of this, we have the big effect of Gold and you're seeing that and that came late in the quarter. But we also have a lot of momentum leading into the quarter, so that's all reflected in the Q3 numbers. And so even in late Q2, you had seen stronger PMC growth than what you have seen kind prior to that. And so the way that, that kind of math all works out, ultimately, when you take -- look at average PMC is you get this big burst of average PMC increase in Q3, and we are expecting something that will roughly replicate that again in Q4. That's going to be kind of how the math works out. So it's not just that Match has surge from Gold. Obviously, that contributed especially in Q3, as you're saying, but it will start to peter out towards the middle of Q4. And so the surge effect is visible in average PMC increase in Q3 and Q4, and then peters out again after the end of the year.

Our next question comes from Brent Thill of Jefferies.

Just on Tinder Gold, curious if you could give us a sense of what you've seen in terms of monthly versus 6 months versus annual sign-up out of the gate. Grégory Blatt: I don't think we really give that information in terms of package mix. And I think it's still developing at this time. So -- yes, sorry, I don't think we really give that. I think that, over time, we expect it to be -- it's not nearly that we expect them to get meaningfully from Plus, but I don't think we've fully sort of merchandised all the packages in that way yet.

Okay. And just for Mandy, just -- when you think about -- you mention building on the base. If you had kind of a single strategic priority as you look that you'd like to achieve going into '18, what -- how would you articulate that?

Gosh, I mean, I officially haven't taken over the job yet, and I'll -- as I get up to speed, I'll develop more sort of my strategic intent. But I think for me, who's been in the business for a really long time, it's -- you've seen tremendous growth at Tinder. It's going to be our growth engine and we'll continue to invest in that growth. And then really around as we stabilize PMC in a lot of the other business, it's building on top of that and cracking the top of the funnel.

Our next question comes from Peter Stabler of Wells Fargo.

A high-level question for Mandy. Now that you've completed a lot of the heavy-lifting on refashioning the non-Tinder assets for mobile, wondering if you could talk a little bit, philosophically, about hard versus soft paywalls, and whether you think there are any significant market shifts that of occurred which could, I guess, challenge the hard paywall model going forward. Or is it really just a question of feature sets and making sure that you're addressing the individual consumer needs with those products?

So I think, especially if you look across the U.S. products, which I know well, I believe in the portfolio strategy. I mean, each product offers a very different value proposition. A 45-year-old single mom in Austin is going to be very different than a 25-year-old person who just moved to New York City. And so -- and people will pay for value. When it comes to Match, for example, it's really around the quality and intent. So I think, for us, just having this multiproduct portfolio strategy makes sense. And the business will evolve, but we feel pretty good about this mix of both the hard paywall and soft paywall business.

Our next question comes from Sam Kemp of Piper Jaffray.

Mandy or Grég, you guys launched Tinder browser payments during October. Can you talk about whether or not you've tested funneling people away from the app to avoid the App Store tools, and maybe just broader thoughts on the opportunity to do that? And then Gary, just one on incremental margins. When we look at Tinder, it's obviously got something probably close to 75% gross margin given the App Store fees. But when you think about the flow-through of new gross profit down to EBITDA, can you just qualitatively talk about what impacts those dynamics and whether or not that's been improving or stabilizing? Grégory Blatt: On the webpages for Tinder, obviously it, as in other businesses, we've had the experience of having both web payments and app payments for a while and the developing strategy there. Obviously, you want to optimize that as much as you can. That 30% is a heavy tax. And so over time, we developed the strategy. They are, as you might imagine, somewhat competitive. And certainly, at Tinder, where we're just sort of rolling that out, we haven't really engaged in that in any meaningful way yet. But certainly, it is a tool that we'd like to use over time to try and help our margin.

When you think about Tinder margins, you're right, 70% gross margins, I mean, expenses being marketing and headcount after that. And we're refining our thoughts on '18 at the moment around that. But clearly, there's natural leverage there. We've hired a lot of people over the last little while. Obviously, these developments -- these developers are expensive. And so we're trying to figure out in a competitive market how to handle all that. And then you got the marketing spend. We ramped up marketing spend very significantly in '17. It's been pretty successful as Grég talked about. We are trying to figure out the right amount to kind of reinvest from that marketing spend into '18. But we're going to continue to try to push that because we think, long term, that's beneficial for Tinder. So we think we can still show good margin improvement at Tinder and overall and still put out the requisite amount of spend that we need for that business. And that is our plan. So we're still calibrating that. We'll give you a little bit more detail on it next call. But the trends are the ones that I spoke about, which is we think there's leverage at Tinder. And we think that'll drive operating margins overall for the company.

If I can, a quick follow-up on that. Can you talk about the split of marketing spend at Tinder for core geographies versus kind of new footprint expansion? Grégory Blatt: I would say it is -- it's roughly proportional to users, a little bit heavier on the user base in developing markets, but it's roughly proportional.

Our next question comes from Mark Kelley of Citi.

First one is the comments on PMC expectations for Tinder next year, super helpful. I'm just curious, is there anything you can point to historically on the ARPPU side after the surge? Has that stayed kind of similar run rates? Or does that come off at all? And second, given of all the international commentary you've made on Tinder, should we assume that international Tinder PMCs were maybe a little bit more of the mix of this year and maybe that the PMC growth outpaced that 25% you've commented on?

On the Tinder PMC and the ARPPU, our expectation is that you're going to continue to see relatively strong growth in Tinder ARPPU as the stock effect holds. We think we'll be able to maintain close to that, but you might see a little pressure as that effect dissipates. Obviously, that's kind of what we do product wise next year, so it's a little bit early to comment, but those general trends are kind of what we're expecting from an ARPPU perspective at Tinder. And then a question on the international PMC, could you just run that past us one more time?

Yes, sure. I know the first test of Gold was really outside the U.S. or outside of North America. So given that, given the increased marketing spend internationally, should we assume that maybe the mix of Tinder PMC skews a little bit more to the international side this quarter? And that maybe the ARPPU growth of 25% you talked about, did international outpace that? Grégory Blatt: I don't think there's been a meaningful shift in the geographical mix of PMC or ARPPU. I mean, I'm sure it varies modestly, but not in the way that we have focused on. And then just going back to the earlier answer that Gary gave, I just want to harken back to an answer I think I gave to Jason's question earlier, which is we are increasingly, as Tinder gets more sophisticated, going to be toggling between rates -- between subscription rates, package mix, à la carte, different SKUs, trade-offs between conversion and pricing, which we've done so much in our other businesses. So I think a lot goes into ARPPU over the course of the year. And it's just -- for better for the business, but frankly harder, I guess, from a modeling perspective. It's very hard to just take a thing and sort of run rate it over a long period of time. So that will move around a lot. And we don't even know necessarily today exactly which trade-offs we'll make because we'll be testing them throughout the year. So I think when Gary gives that sort of top line revenue guidance, in that is a whole bunch of variations that play between these various metrics.

Our final question comes from Chris Merwin from Goldman Sachs.

So just for the core business, you called out PMC being higher year-on-year in October, I think for the first time since August 2014. You also talked about improving trends for the core in the fourth quarter. How much of that is a just underlying momentum in the business as compared to a step-function increase from product updates, like video when that's rolled out? And then just secondly of marketing for next year, you also talked about a change in the strategy on Match as you move dollars from TV to online video. Are you assuming the same efficiency in your marketing going forward? Or could there be any improvement there that we could expect to show up in 2018?

Okay. So regarding PMC, a lot of the gains that we've made in PMC really have been a function of improved product experience. And when you improve product experience, you have higher engagement and so it helps the ecosystem. So it's hard to sort of isolates organic versus what we do because it's all impacted. The second question that you asked was around marketing. I think TV advertising has been an efficient channel for us, and we have to go where the eyeballs are. The good thing is that a lot of the -- there's a lot more video ad products that we're leveraging to be able to tell that longer-brand story. But there's still a delta between TV and online. I mean, TV generally tends to be a more efficient channel in the past. Grégory Blatt: All right, guys. Thank you all very much. My last call. To all the shareholders out there for whom I work, it's been a great pleasure. And I have great confidence that Mandy is going to kill it going forward. And in my forthcoming role as Vice Chairman, I will do everything we can to help make sure that, that happens. So very confident. Feeling great about where the company is. And thank you all for your support.

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