Good day, and welcome to the Match Group’s Second Quarter 2019 Earnings Conference Call. All participants will be in listen-only mode [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Lance Barton, Senior Vice President of Corporate Development and Investor Relations. Please go ahead.

Thanks, operator. Today’s call will be led by CEO, Mandy Ginsberg; and CFO, Gary Swidler. They will review the second quarter Investor presentation that is available on our website and then answer questions. 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 and our periodic reports filed with the SEC. Over to you, Mandy.

Good morning, everyone, and thanks for joining our Q2 2019 call. Our second quarter results speak for themselves. Our growth accelerated and our momentum enables us to increase our full-year outlook while investing in the future. I’m going to leave the financial details for Gary to cover; I’ll cover a number of big picture strategic items as well as product initiatives across our businesses. I’m thrilled to say that our businesses are executing very well on their strategies and we’re pushing into a number of exciting new areas and new geographies. Before I jump in, I want to mention a research study called Disintermediating your friends by Prof. Michael Rosenfeld at Stanford. You can easily find the draft form of a study online. It gave a sense of the macro impact the dating category is having on relationships and U.S. society. Now, for those of us, who work in the industry or if you’re a 22-year-old and half your friends met their significant others on dating app. What I’m about to tell you won’t be a surprise. But for a lot of people, the findings of this research are eye-opening. The study details how coupled meet in the U.S. and reinforces many of the trends that we’re seeing today. The research found the meeting online is now by far the most common way for couples to meet. Today, nearly 40% of relationships start online. There’s been a massive acceleration in this trend over the last 10 years due to the rise of smartphone and mobile dating apps like Tinder. Meanwhile, meeting offline at bars, parties or through friends or family has declined significantly. And what’s happening is people meet online? They’re meeting people outside their social circles. The study found that for couples, who met online, nearly 90% met people,…

Thanks, Mandy. As Mandy said, we had a terrific quarter with strong growth at Tinder, solid progress on many of our strategic and product initiatives, and an improved outlook for the year. Let’s get right into the specifics from the quarter, then I’ll update on our financial outlook. On Slide 8, you can see that Tinder direct revenue grew 46% year-over-year in Q2, an acceleration from 38% in Q1 as the cumulative effects of PayWall and pricing changes, various product optimizations and the better gold merchandising on iOS had a real impact. We’ve been saying for some time now that 2019 would be about a series of product initiatives and optimizations on the Tinder platform, which would drive strong results. Tinder’s performance in the first half of 2019 certainly bears that out. in Q2, Tinder subscribers grew 39% year-over-year to just over 5.2 million. Tinder added nearly 1.5 million subscribers year-over-year and 503,000 subscribers sequentially, second best in Tinder’s history. the only quarter, where Tinder had seen a higher level of subscriber additions was right after we first introduced Tinder Gold in late 2017. tinder’s ARPU was up 6% year-over-year as reported, but on an FX neutral basis was up about 10%. gold subscribers as a percent of the total continued to decline and now exceed 70% of the total subscribers at Tinder. On Slide 9, you can see that average subscribers across the company’s brands reached over 9 million in Q2, up 18% year-over-year. Tinder drove our overall subscriber growth again, this quarter with pairs also contributing nicely. hinge’s user growth is starting to generate subscriber growth even though monetization hasn’t yet been a real focus for us at Hinge. For the first time in our history, the number of international subscribers exceeded North American subscribers. We expect this…

Thank you. [Operator Instructions] Our first question today will come from Nat Schindler of Bank of America Merrill Lynch. Please go ahead.

Great quarter, guys. Thank you very much for taking my question. Earlier – when March, we noticed a change in the payment flow on your android apps on everything other than Tinder gold. We then saw on a third-party dataset that tracks Google play store revenue that – revenue on Google Play Store collapse, which obviously didn’t happen given how well you did in the quarter. The obvious conclusion here is that you’re skipping the play Store and you’re getting payments directly, but that didn’t seem to show up in your cost of goods. Is there something we’re missing here?

Okay. Thanks, Nat for your question and for the compliments on the quarter. So, you’re right, I know there’s a big topic. So, let me try to step people through this a little bit. you’re right that in April, we introduced an option on Tinder, on Android, to offer use a choice whether to use Google pay or credit cards. As Mandy mentioned in her mark, it’s something that we’ve been planning for. It’s something that we have on many of our other brands. And so it’s not particularly new, but it was new to Tinder. We had to do some work to get there and we accomplish that and then we’re able to roll it out. This is really something that is for new transactions. And so the benefits of this will sort of build overtime. It’s a relatively small amount of benefit in Q2, but it’ll be larger in Q3 and then as we move to 2020 and beyond, it should increase from there. you can notice it in the cost of goods as you mentioned. If you go back overtime in our cost of goods, you’ll see that that percentage has been increasing relatively significant for many, many quarters. And in this quarter, we had a slight change in that trend and we’ll see as we go forward some impact on that percentage as well. So, I would say, it’s kind of single digits in this quarter of the benefit, but it will be increasing. I think that answers your question.

It does, can I ask just a quick follow-up?

Sure.

Would you expect to see this happen on iOS as well? And what do you think the response will be for Google and Apple?

So, if you look historically, Google has been a more open platform. And as I said, we’ve been offering this option on many of our brands. So, I’m going back at fairly long time. So, this is not new from a Google perspective. apple has tended to be more restrictive. And so we’ll see what happens with Apple. We’d love to offer the same kind of choice on Apple as we do with Google, but it’s not clear to us, if or when that’s actually going to be able to happen.

Great. Thank you.

You’re welcome.

Our next question will come from Eric Sheridan of UBS. Please go ahead.

Thanks so much. Maybe, diving in a little bit in terms of the narrative broadly overseas and what you’re seeing in Asia, and what you’re seeing in the Middle East. I want to understand a little bit of the nuance about how you might be taking different approaches to marketing, positioning brands in those markets. how we should be thinking about ROIs on investments of those markets against the subscriber growth opportunities? So maybe, see if we could go a little bit deeper in the opportunity you see especially in the Middle East and Asia as you called out in the slide? Thanks, guys.

Okay. I’ll take that, Eric. So, if you look at these markets, which are more underpenetrated markets, there’s definitely more secular tailwinds. I mean these are markets, where there’s big population growth and we’re still seeing Internet penetration increasing and mobile usage increasing. and I think one of the most important things to point out is sort of that that stigma is eroding, which we think is going to help really increase usage across the brands. because of these dynamics in the market, it really gives us the opportunity to take a number of our apps into these markets depending on the segment that we’re going after. And we’ve really tried to be holistic and thinking about a market. So, for example, in India, Tinder has been present in India to the largest player in India, but we recently introduced OkCupid, because we felt there was a hole in the market in terms of a more serious minded relationship app. Japan is another market, where there is Tinder; there is pairs, which has seen tremendous growth. and now, we’re offering a third product as of a few weeks ago with Pairs Engage. And then the one we talked about today, which is harmonica, is really around looking at kind of Cross Geo demos, where we can serve the Muslim population. So, we’re excited. We don’t think in these markets, there’s winter takes all and we think by offering different apps for different segments. there’s a real opportunity for growth. And then you asked me about how do we think about marketing? We approached marketing a bit based on brand lifecycle. So, as we launched new products in new markets, we generally tend to spend more money on brand spend and measure awareness. And then overtime, its brand and products become more mature. We tend to start shifting more to performance marketing. We’ve got a really good track record in the past for being smart and prudent. And we need to take some bets as well. And I think that balance of brand and performance marketing has served as well.

Thanks so much.

Our next question today will come from Ross Sandler of Barclays. Please go ahead.

Hey, guys. So, Gary, a question on the guidance for back half, so we’re obviously seeing – as you mentioned, the second highest net ads for Tinder, in company history, so tons of momentum, but the guidance implies a little bit of tailing off of the net adds in 3Q and 4Q. So, is that from the new merchandising playbook having less dramatic impact on the android? is it from higher churn or just higher rate of drop off or is that just usual conservatism? Any color there would be helpful. Thanks.

Sure. So, I think as you know, if you kind of look historically when we roll out new features that are focused more on monetization or we’re focused on optimizations, you do see a particular bump in the quarter, where we roll it out, from a net ads perspective. And so if you’re looking at Q2 at the high number of subs that we added at Tinder, you can see that’s been driven by the iOS optimizations that we did, the merchandising changes that we did. We’ve rolled that out now in Q3 on Android. We talked before I think about how android doesn’t quite have the same impact as iOS. when you roll out something new like this, but we’re seeing in our guidance for Q3 on net ads that there is still a nice lift from kind of normal levels in Q3 that we’re expecting when we’re guiding to north of 400. So, you can see the impacts there of those changes in Qs two and three. At the moment, we don’t have a plan to do something that we think would have this kind of impact in Q4. So that’s why we’re expecting a smaller number of net ads in Q4 than we’ve seen in the first three quarters of the year. And so I think you’re right, your math is, we’ve got it to 1.06 million for the year if you add up the quarters, choose one, two and the guidance for three, you end up with a smaller number in Q4. however, it’s also important to note that we’ve rolled out some new al a carte features and we’ve been adjusting pricing and the percentage of gold subscribers is increasing. So, a lot of people like to focus just on subscribers, but as we often say, it’s a revenue focus at Tinder, not just the subscriber story. And so the subs is a piece of it, but we’re also focused on driving ARPU higher, which we’ve been able to do and we’re expecting to have a solid year-over-year growth in ARPU in Q3 and Q4 as well, which will drive improved revenue at Tinder. So, that is the other piece of it. We’ve just rolled out these two new al a carte features that Mandy mentioned. I think you’ll see some lift on the ARPU side as you see the results for Q3 and Q4. Anything else, Ross? Otherwise, we’ll move to the next one.

No, that’s super helpful. Thanks.

Okay, great. Thanks.

And thank you. Our next question will come from Brent Thill of Jefferies. Please go ahead.

Good morning. Mandy, can you just maybe walk through some of the core match improvements in the early results and for Gary, there’s a lot of questions around can it grow, are you going to run that core business just for profits If you could add a little more color around the financial dynamics that you see going forward for core match?

Okay. Good morning, Brad. So, let me take that first part. So, can we take a step back and think about kind of the audience that match serve. It’s really focused on 30s and 40s in the U.S. that are looking for a serious relationship and for people over 35, it’s the brand that still brings the highest number of new entrance into the category. We have made a lot of progress over the last couple of quarters. Satisfaction rates are up, conversions up. We’re feeling really, optimistic. And then we also introduced a new feature called AskMatch, which I talked about. We think it’s highly differentiated. And so we felt good enough that this is really the time to bring attention back to the brand, which is why we launched this new campaign that I talked about. our goal remains to turn the brand to grow similar to what we did at OkCupid over last couple of years and we are cautiously optimistic that we can turn match around and return it to growth. We’re feeling good about that brand.

Yes. And I think if you look at match itself, as Mandy said, our goal is to get that brand back to growth from a subs and a revenue perspective. If you zoom out a little bit away from just match and look at the non-Tinder brand, which is something we’ve been talking about it’s kind of been flattish from a revenue perspective. We think we have a lot of different weapons inside the non-Tinder portfolio that will return all those brands in aggregate to growth in the not-too-distant future. So, we’ve talked a lot about hinge. We’ve talked a lot about what’s going on at OkCupid. We’ve talked a lot about the positive momentum at pairs and I could go on, but our expectation is that the non-Tinder brands will start contributing to the revenue growth of the company, hopefully by the end of this year, if not then very early next year.

Great. Thanks.

You’re welcome.

Our next question will come from Youssef Squali of SunTrust. please go ahead.

Great. Thank you very much and congrats guys. Gary, can you size what you termed the discretionary long-term oriented investment? I think you guys have talked about 10 million previously and just how will those costs look into next year, whether these costs basically remain in the P&L next year or whether we anniversary them and move on? Thanks.

Yes. I don’t think I’ve actually ever given a size around these discretionary investments. I think last quarter, I basically just said we were contemplating making them. and so let me try to take it kind of in two pieces. just given the overall strong performance and the strong performance of Tinder, we want to reinvest back both in Tinder and in some of these other initiatives. I can’t really remember a time when we’ve had so many great investment opportunities, so many assets to invest in when you look at Harmonica for the Muslim market, when you look at pairs engage, which we’re really excited on the matrimony market in Japan, it’s a place we’ve never tried to attack before. So, we’ve got a lot of really interesting opportunities in front of us and given the strong performance this year. We’ve got the ability to go make these investments. So, we’re trying to do a bunch of different things here in these last couple of quarters of the year. And so if you look at, we’re going to invest a bunch back in Tinder marketing into new geos, where Tinder historically hasn’t marketed before, that includes some in Asia and we think there’s room to expand the geos, where Tinder has been marketing and put some real dollars to work there. So that’s a piece of it. And then as we’ve kind of gone through, there’s probably, four or five, six other buckets, OkCupid and some of the international markets including India, that Mandy referenced, Harmonica, which I referenced as well as pairs Engage. If you take all of those other buckets plus Tinder, you’re probably looking at, I would guess about $25 million or so of EBITDA impact from all these investments that we want to make this…

Thanks.

Yes, hopefully that helps you. Okay, great.

Yes. Super helpful. Thanks, Gary.

Okay. No problem. Next question please.

Our next question is from Dan Salmon of BMO Capital Markets. Please go ahead.

Great. Thanks for taking the question. Good morning everyone. Mandy, I just wanted to ask a little bit more about Asia broadly, and maybe you could just considering that most of us on the call, a little bit more U.S. focused, you could maybe just refresh us on the competitive environment there and how it may differ from what you see in western markets in terms of local players or maybe some changing dynamics lately that you'd highlight. And then secondly, I'd just like to drill down a little bit more on Pairs Engage. And what you noted is sort of attacking the matrimony business specifically and which obviously is all part of relationships. But a little bit different than some of your apps and there are certainly businesses that have taken a different approach there. Could you just spend a little bit more time on matrimony services specifically? And where that opportunity may also be in Asia beyond Japan is, I think that's fairly common in India and South Asia as well? Thank you.

Okay. Morning, Dan. All right. So let me take that. So, we talked about Asia opportunity, but Asia is obviously very multifaceted, and so I'll talk about it in a couple of different areas. We really look at developed markets like Japan and South Korea. And then we look at developing markets, Southeast Asia and India to all break those up. For the develop markets, there is a real social need given low population growth, and low marriage rates, and people are looking for ways to meet people, especially outside of their social circles. Because there's a little bit more shyness around meeting people through friends. In Japan where the category is growing, only about 17% of singles are open to using a relationship or dating app that's low. I mean that's – it's about 50% and, North America and Europe. So that dynamic is a big change. So we think there's a real opportunity to increase user adoption. And I think it's pretty interesting in these markets where social stigma is changing, but I think part of one of the opportunities that we think regarding stigma is historically mainstream media. I'm talking television, billboard, radio, they have not traditionally allowed dating apps in relationship to app to advertise. And I think those barriers are slowly collapsing, which I think will further help erode stigma and make it just much more normal in society to use the apps. And then the one other dynamic, I just point out is these more developed markets is, monetization is really different. I mean, in many of these markets, particularly Japan, it's even better monetizing in some western markets. So that dynamic is really an advantage for us. People are willing to pay for products. If you look at, developing markets, it's definitely a…

That's great. Thank you for all that color, Mandy. Appreciate it.

Our next question will come from Ben Schachter of Macquarie. Please go ahead.

Hey guys, congrats again on the good execution. Gary, going back to the app payments and the impact on COGS, as you noted, it fell sequentially as a percentage of revenues for the first time in many years. And I think you mentioned that the IAP change had single-digit impact and we'll grow, but single digit what, can you clarify what you meant there? And basically, would you expect that COGS to continue to fall as a percentage of revenue for the foreseeable future? And then secondly, related to that for modeling purposes, can you help us understand what the percentage of total revs are currently originating on android and how you expect that to evolve over time? Thanks.

Sure. I'm sorry if I wasn't clear on the answer earlier. When I was responding to actually with Nat had put out a report that, that he thought the change by adding credit card added $10 million to EBITDA, I think is what he said. And I was talking about it, it was less than that. It was kind of in the single digit in this quarter. So that's what I was responding to you. So it was an EBITDA contributions kind of number. But you're right. This is the first quarter in awhile that we've seen. If you look at the sequential trends in COGS is down about 50 basis points. So that is a change in trend. I think we'll see how this kind of plays out over the next few quarters, but my expectation is that there'll be some level of stability. Maybe it'll be up a little bit, maybe we down a little bit, but if you look sequentially over the next few quarters, you're going to see more stability, less of an increase in what we've been seeing sequentially for the last many, many quarters. That's kind of the change from the impact of adding the Google credit card option. As far as kind of how do we think about the breakdown between iOS and android on Tinder, as you might expect, it is more iOS heavy at the moment. It's more than majority iOS, but as we expand internationally, especially to some of these developing markets where android is more popular, I think that that balance will shift over time. So, we could see some more parody there over time. But right now it does lean more heavily on the iOS side from a revenue percentage perspective.

Thank you. Just one…

Yup. Go ahead.

One, one quick housekeeping. The tax in France and other taxes they may come, is that going to be counted as a contra revenue G&A or is that just part of the income tax line?

Yes, it's not an income tax. It's an above the line item. So it is an expense item.

Okay. Thanks. Last question.

Our next question from Benjamin Black of Evercore. Please go ahead.

Okay. Thanks for allowing me in here. I was just wondering if you could talk about your capital allocation priorities, given your when you'd pushed around presence in APAC? And secondly perhaps, could you highlight the near and long-term market opportunity and the competitive environment you see in the Middle East and how well Harmonica is penetrated there? Thanks.

Okay. From a capital allocation perspective, I think if you go back, it's probably about a year ago or so now, we laid out, how we think about capital allocation. We laid out four priorities, which were in order if I get them right. Organic investment in the business, M&A, return of capital to shareholders, and debt pay down. And that is our way of thinking about capital allocation. Obviously, there's a lot of different factors that go into it and we constantly analyze it. But that has kind of been our framework. And fortunately what we're seeing in this year, given the outperformance that we're experiencing, is that we've got the ability to really invest in organic growth, which is our number one priority. And that's what we're doing. And we're doing it at a bunch of different ways. We're doing it at Tinder by expanding its marketing into more geographies. We're doing it at OkCupid by expanding it into a bunch of new markets, in India and elsewhere in Asia. We're doing it at Pairs. And so, it's really, in a number of ways where we're reinvesting capital that we're generating. And then as I kind of alluded to earlier, we've got new assets as well, which we've either brought on board like Harmonica or built in house like Pairs Engage that we can invest in as well. So, we are really kind of hitting that, number one priority of investing organically in our business in a big way on multiple fronts. And we're excited to do that, but as we've also shown over time, if we don't have a capability in house that we think we can do better by making an acquisition or investment, we'll do that too. So Pairs was an example in Japan that…

Great. Thank you.

Okay. I'm going to leave it there since we're out of time. Appreciate everyone joining and we look forward to talking to you again next quarter. Thanks so much.

Ladies and gentlemen, the conference has now concluded. We thank you for attending today's presentation. And you may now disconnect your lines.