Shar Dubey - Chief Executive Officer Gary Swidler - Chief Financial Officer, Chief Operating Officer Lance Barton - Senior Vice President of Corporate Development, Investor Relations

Good morning and welcome to the Match Group, Second Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]. 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.

Thank you, operator, and good morning everyone. We are once again going to do this call remotely, so joining me from various locations are CEO, Shar Dubey; and CFO and COO, Gary Swidler. Before we start, I need 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. With that, I’d like to turn the call over to Shar.

Thank you, Lance. Good morning and thank you all for joining the call. As with the last quarter, along with the earnings release we shared our commentary in a shareholder letter last night. Hope you’ve had a chance to read them. I will however summarize the very brief highlights and then Gary will add some color to the financials and we'll open it up for Q&A. 2020 thus far has certainly been an extraordinary year. We are running out of adjectives to describe it and even as we've been navigating the various macro events, these last few months in particular have been fairly eventful for our business. We completed the separation from IAC at the end of June. It's particularly remarkable given that it was all accomplished in the middle of the pandemic, and I'm proud of the team that made that all happen so smoothly. As our financial results indicate, our business has shown resilience [Audio Gap] as we mentioned in the letter, even though we've come down from the high engagement levels we first saw in March and April at the beginning of the lockdowns, we're still seeing higher engagement than when this all started. The declines in propensity to pay that we talked about last call, they’ve all steadily recovered across all of our brands and across subscriber conversions as well as à la carte purchases. Our first time subscribers and direct revenue grew year-over-year across almost all of our major brands. Now the organic word-of-mouth driven new user trends, those haven’t fully recovered yet, probably because the much lower level of socializing going on in the world. But paid marketing has been performing very well and we're going to take advantage of this market opportunity in Q3 by investing heavier on COA. Last quarter we talked…

Thanks Shar. Our financial performance has indeed improved markedly since our last call. We continue to navigate a challenging environment very well. Revenue in Q2 grew 12% year-over-year, 14% ex-FX. Performance was balanced with direct revenue up 13% in North America and 11% internationally. We crossed 10 million average subscribers for the total company, 11% year-over-year growth. We saw meaningful improvement in customer's propensity to pay starting in May, which drove these results. April proved to be the low point for ARPU and we've seen a steady increase since then. Q2 ARPU declined 2% year-over-year at Tinder, but was about flat excluding FX. It was especially strong in North America. ARPU is up 5% year-over-year at the non-Tinder brands led by Hinge, PlentyOfFish and OkCupid. Sequentially ARPU for Q2 at Tinder was down 2%, while for the non-Tinder brands it was up 3% in aggregate, each figure was a little higher excluding FX. Tinder’s average subscribers increased 128,000 sequentially in Q2, up 18% year-over-year, with direct revenue up 15% year-over-year. Tinder has seen subscriber conversion, à la carte revenue and ARPU improved nicely since our last earnings call. [Mail] [ph] and older payer trends which had initially shown some softness in the pandemic have also improved. Tinder’s recovery is slowed by its broad global presence and particularly by weakness in certain countries such as India, where the virus is still having major effects. However, July was another strong month for Tinder overall, the third straight month of increasing revenue since Tinder hit its low in April. We are pleased to see Tinder trends clearly continuing to head in the right direction and excited about a robust product road map for the back half of the year. We're also very encouraged by the 9% year-over-year direct revenue growth at the non-Tinder…

[Operator Instructions] First question is from Lauren Cassel from Morgan Stanley. Please go ahead.

Great, thanks so much. I just want to follow up on the July commentary. Anymore color there on how July has trended versus June? Have you seen continued improvement in the business on both the subscriber conversion, ARPU sides? And then my second question is just curious how states like Florida, Texas, California or maybe the lockdowns have been reinstated have trended recently. Are you seeing any renewed softness in those markets? Any additional color there would be really helpful?

Okay. Thanks Lauren and welcome to your first Match Group call. I’m sure glad to have our first woman analyst covering us after five years, I think. About July, yes, the recovery that we saw throughout Q2 has continued into July and we've seen improvements in both subscribers and ARPU. We actually shared a chart yesterday in our letter that showed the first time subscriber trend into July and that should illustrate the continued momentum we’re generally seeing in our propensity to pay recovery, and this is basically what's guiding us for our Q3. The question about the geo impacts of COVID and the trends have been really interesting. It's very different by market and so maybe I'll give you a little bit of color of what we've seen and what we're continuing to see. In the U.S. and Western Europe where we saw most of the impact in March and April, right when the big news was going on and the initial lockdowns were announced. Since then things have steadily improved and despite increases in case in Florida, Texas, Georgia etc., we haven't seen any impacts to any of our metrics. Now even back then, there were certain parts of the country that were more impacted. For instance New York and California were much more impacted. Florida actually never showed any decline in metrics. In fact they had super high engagement due to spring break, right when all this news was breaking. In other parts of the world however, we're seeing again varied levels of impact. Brazil for instance actually saw some of the worst impacts in May and June and it's recently starting to tick back up. India as we mentioned, it's been the most impacted of any markets that we've seen thus far and it still remains under pressure. Japan is another market we've been watching closely. In the early days it didn't seem to show any impact, but when the first round of states of emergencies were declared, we saw some degradation in metrics. Things have been improved, but there have been some new rounds of emergency declarations over the last few days and we’re watching to see if any of that has an impact. In aggregate though, despite all these puts and takes, all of our businesses have continued improvement every month since it’s bottomed out in April.

Wonderful! Thanks so much.

The next question comes from Cory Carpenter from JPMorgan. Please go ahead.

Great, thanks for the question. As we think about your product pipeline in the second half of the year, could you expand a bit on your priorities at Tinder, in particular the opportunity you see with regard to monetizing power users? And then any comments on the Platinum Tier that was recently added to your website, maybe what the potential rollout could look like over the coming quarters? Thanks.

Thanks Corey. I was waiting for the Platinum question, wondering when that was going to come up. As we mentioned, about the broader roadmap, we have a pretty robust roadmap that's focused on core experiences as we always do, as well as building some foundational stuff for new experiences we are planning to rollout next year. I can’t get into a lot of details on all of that yet, but to your question about power users and you know the revenue roadmap focus, it is true, our second half 2020 revenue roadmap on Tinder is focused on power users. We’ve – the team's been testing some contextual merchandizing around our existing à la carte products and we have indeed just started testing a new subscription tier Platinum. It is designed to provide additional value beyond gold by increasing users’ chances to get more matches and more conversations. It is very, very early and it's also a very minimum viable product version of the Tier that we are testing. The team has more features that they're adding and designing and all of that remains to be tested. The thing I want to point out, you know Platinum, we’re mostly expecting this to be an ARPU driver. Unlike Gold, which was by far the most successful and unique revenue feature we've ever launched, which drove meaningful ARPU increases along with almost doubling of subscriber conversion, this is not at all expected to be anywhere close to Gold. This is more about adding, giving our power users more control, a better experience and more advantages through this – through our ARPU [plank] [ph]. But again, there’s a fair bit of testing still to be done and our goal is that if all goes well we should be able to globally roll this out by the end of the year, later in Q4.

Great! Thank you.

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

Great, thanks. Just on Hinge, where is the brand tracking now versus what you had envisioned to start the year kind of pre-COVID, and how should we think about the brand on a longer term basis? Thank you.

Thanks John. Hinge is actually tracking very well relative to our expectations. In terms of user growth, even though it was impacted during the initial lock downs, mostly because of their geographic footprint being in larger cities like New York and LA, they have since rebounded very strongly and already in the first half of 2020 their downloads are doubled year-over-year and there's lots of room to go, both in the U.S., as well as internationally, which we haven't made a huge play yet. And you know as we said before, this year was supposed to be the beginning of our focus on monetization and the team's been right on target and even slightly ahead than initially planned on rolling out revenue features. It's been encouraging to see the features that have worked well on our other platforms, also work well on Hinge. In fact one of the pleasant surprises for us was Hinge turning profitable in Q2, which was well ahead of our expectations.

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

Good morning, everyone. My question, I have a two-parter. First maybe just, could you update us just a little bit around female engagement and video dating views? We’ve talked about that a little bit last quarter on sort of the opportunity to see those two trends sort of converge together and what opportunities you see there and especially more on Tinder and Hinge and the more useful oriented ones. And then you know on the letter you also discuss how your longest standing brands collectively grew for the first time in four years. So maybe spend a little bit more time on the expectations for them going forward, maybe in particular for monetization and merchandising strategy? That would be great, thanks.

Sure. So on female engagement and video, as we said, yes, there were a lot of really interesting learning’s coming out of the spike in engagement we saw with women, which has allowed us to formulate a portion of our road map, particularly only on Tinder, to try to leverage the psychology of what that was. And you'll see us rolling out – the team's been testing a few different things and we will definitely be doing more on that front particularity next year. On Video we obviously have launched both, one-to-one video on most of our platforms, including Tinder. Tinder is now testing it in a number of different markets, their face-to-face products are – the thing we realized – I mean each of our products has a different room set in terms of when you get to open up video. In some cases it’s after a couple of conversations back and forth, in some cases you have to have as many as 10 back-and-forth exchanges before the video becomes available. And so people are still testing to make sure what is the right timing at which we should open up people to talk on video. You know usage has been building across all of our platforms. The thing that we found is once people use it, majority of them use it again and so it is going to be one of those things that's going to develop over the long term I think. About your second question related to the older expectations about the longstanding brands, and what do we think is going to happen, you know it's been two years in the making with lots of products work and investments across these properties to enhance the user experience and increase the product appeal. There's lots of work that's gone into changing monetization mechanisms and paywalls and even business models in certain cases. And then, you know we’ve supplemented this with marketing campaigns and with true brand differentiation and that's what gives us confidence that they’ve turned a corner and they should be set up for sustainable growth going forward. The other thing that actually is super interesting is, the past team has found a new revenue stream in PopLive, which again opens up – you know sort of gives us confidence in this idea of new surface areas and new monetization abilities that we can deploy across our platforms.

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

Hey guys. Hey Gary, just a follow-up to that last question about non-Tinder brands. So we've got you know a couple of quarters in a row of growth and your comment was that you expect them to grow for the foreseeable future. So how does that you know kind of turning the corner in non-Tinder impact, your long term view on margin profile for the overall Match Group. Any comments there? Thanks.

Sure, so as we’ve said, this was the second straight quarter where those brands grew and the growth was a bit stronger in this quarter. So this is something we've been working on and trying to get to and we feel we’ve finally gotten to the point where we can say with confidence that for the foreseeable future we think those brands and aggregate are going to grow, so that's clearly a milestone for us. I think from a margin goal perspective, you know we've always talked about getting to 40% EBITDA margins as a long term goal. I think that still remains our expectation. That’s not necessarily a one-year goal, but that’s an overtime goal, and so we had always assumed that there’d be some growth from the non-Tinder brands and now we've gotten there, and I think that was always part of the plan and part of what we incorporated into the expectation of getting to the 40%-plus EBITDAR margin. So I think we're tracking pretty much as we hoped and expected, and our goals are not changed there. We think we are on the path to achieving them over time. Its important understand that its product work and improvements in conversion that is leading to the strength, a lot of the non-Tinder brands, and so that is going to drop EBITDA and ultimately help us improve margins of those brand. So it's a positive from our perspective and that's why we've been pushing towards that. I'll also note that some of the margin drag comes from things like investments we're making in new geographies and new products, new brands and Hinge has been one of those. But actually Hinge has crossed into profitability in the second quarter for the first time, which is again a momentous event…

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

Good morning, Shar. Good to see 15% growth at Tinder, maybe if you can just articulate the next leg for Tinder this year, and if you could also maybe just talk to India. I know you were a little disappointed. What needs to change in India for you to turn around this trajectory there? Thank you.

Yeah. Let me take the India question first. India, I think has been interesting to watch as I said you know some of our early markets that we saw, the worst impacts were Spain and Italy back in March and early April, but India has definitely been much worse impacted than even those markets. We also pulled back on marketing, but it has bottomed out lately, and it does look like things are starting to open up a bit and if what we're seeing and reading is right in the market, our teams wants to go back out with marketing and rebuild some of the lost momentum in India. So, yes India I think was about as bad as you know it got for us. And it was uniquely just the only country that was impacted that way, surprisingly. About Tinder, yeah I think you know there has been, because of its exposure to some of these geographies that continue to have an impact as I said, you know Brazil is a large market, they were seeing impacts in May and June whereas North America and Western Europe recovered better after the April bottom. India being another one, it's a little delayed for another quarter maybe because of the international markets, but we should definitely start accelerating growth again in Q4 at Tinder.

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

Thanks for taking the question. Hope all is well with everyone on the team. You alluded to in our remarks, I wanted to come back to the management change at Tinder. Just wanted to know if we could get a little bit of the background of why that came about. And then thinking about Jim running that business now going forward, any change in strategy? Any areas where you see his focus might be different than Elie’s was in the past? Thanks so much.

Thanks, Eric. Yeah its – you know it was – Elie joined Tinder right after we launched Gold and you know his study hand was really critical at that time as Tinder grew through its first $1 billion, and now it's ready for its next chapter, and I really think Jim with his track record and experience is absolutely the right leader for this next chapter for Tinder. He’s seasoned; he has a strong track record, you know both building businesses, as well as running large distributive businesses. He brings a unique blend of product and marketing chops and you know in the near term we don't expect any major changes, but we do have great ambitions for Tinder and its expansion into new use cases and surface areas, and I've always believed that fresh thinking combined with institutional knowledge can drive step changes, and I'm sure Jim will put his stamp on 2021 plans, but all-in-all I'm excited for where Tinder is headed.

The next question is from Ygal Arounian from Wedbush Securities. Please go ahead.

Hey, good morning. So, I wanted to ask that, if this could have been a number of positives are at least rebounds for a business specific during the pandemic. There's also been some areas of focus over the past one to two years that it will take some more time to come back, I guess namely the live experiences and Tinder U. So mentioned live in the investor letter, I was wondering what the current thoughts are on those events and maybe in particular if you're building in anything into 3Q guidance or your outlook for the year from potential for colleges around the country to continue remote learning in the fall [inaudible] college campuses can have over the rest of the year. Thanks.

Yeah, that's an interesting question. On Live I think you're talking about festival mode and those kinds of features we had launched. So obviously the value of those kinds of features have come down since there's not many concerts and events going on, but keep in mind these are generally core engagement features, so their direct impact on revenue is not that much. The Live feature, we actually discussed in the shareholder letter, is more around synchronized shared experiences within the app itself. It's not dependent on in-real life events, so it's sort of a different thing. Tinder U is again, it's interesting and Tinder U was again an engagement feature rather than a direct revenue driver. When you know schools started closing, we did adjust our Tinder U product to make sure students could continue to swipe both, in their physical location if they went back home, as well as within their schools. We saw a fairly large spike in activity and engagement among the 18 to 22 year olds, you know in the early days of the pandemic and through most of summer. Generally towards the end of August we see some back-to-school seasonality, so it'll be interesting to see what happens this particular year. The team is ready to figure out and adjust quickly. It is sort of important to know that the Tinder U feature is sort of a filtering mechanism and it's valuable to students even if they are not on campus. Now, obviously it does change a few things. You can't do campus marketing and you know so we’ve got to resort to more digital avenues, etc., but it'll be interesting to see what happens this fall.

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

Thanks. Can you comment a bit on some of the factors impacting international ARPU on an organic basis? So excluding FX such as à la carte versus subscription and country mix, and are you seeing any headwinds in international ARPU in the third quarter? Thanks.

Thanks Jason. Why don’t I try to take that one. So first of all you said FX, but it's important to note that there was a significant FX headwind in Q2 along the lines of about $11 million. It's much less severe in Q3, probably in the order of $4 million, so that's just one aspect of it. In terms of the overall drivers of it, Shar I think mentioned, we saw weakness from COVID in terms – particularly at Tinder in terms of à la carte and also some shifts to lower priced packages, lower priced skewed at Tinder, and that really is the driver internationally, especially remembering that Tinder is a bigger piece of the pie internationally than it is domestically. So that's why you see some of those pressures there COVID related, particularly the effects of the pandemic went through Western Europe. You know now they're more pronounced in other places like India, so we'll still see some lingering effects, but I think you should expect some pretty strong sequential acceleration, international ARPU in Q3, both as the FX impact is less, but even organically I think we're going to see some meaningful improvement. Already you know April to June we talked about 6% improvement in Tinder ARPU, so you can see the momentum on the ARPU side generally.

Thanks.

The next question comes from Benjamin Black from Evercore. Please go ahead.

Hey, thanks for the question. You guys spoke about monetizing you know new service areas within Tinder with the potential of new use cases. Could you kind of dig, I mean just a little bit deeper into what opportunities we see there. And secondly, you mentioned $50 million in incremental marketing spend. Could you kind of talk about which brands that cash is earmarked for and how should you think about the cadence of marketing expense going forward and will we see some results in the 4Q if the macro environment remains supportive? Thank you.

Okay, Gary you should take the incremental marketing spend question. I can address the new surface area question a little bit. You know one of the things that we, that's become clear to us is people are turning to our platforms for the increased need to connect and communicate. It was very clear during the pandemic and the lockdowns, and this has given us a lot of ammunition about the types of experiences we could launch. One of the proof points is PopLive. On pause it is a video based one-to-many live experience, and the team's been trying different things there. One of the recent things they've launched is Nexgate, which is a version of a dating game, a live dating game on video, on the app, and you know in its very early days. It's already generating 60,000 video matches a week for instance, and it's fun and it builds communities and it's an experience people seem to like. And so that's just a very early foray into the types of things that we're talking about. Gary, do you want to…?

Yeah, sure. In terms of the marketing spend, I would say that the incremental marketing spend is at virtually every one of our brands, with the momentum across the brands and the big opportunities in the market, on the marketing side we want to spend at these brands, so its Tinder and it's non-Tinder brands; it's pretty much across the board. You know the sequential number looks particularly large, because obviously we pulled back pretty heavily in Q2, so Q3 looks larger, but it is a meaningful increase year-over-year, because we are seeing big opportunities. High ROI market, TV still looks quite good, video generally looks good for us, so we're going to spend into these opportunities to drive longer term growth. We don't know how long these opportunities are going to hold for. In fact they are not as great as they were in Q2, but they are still quite strong, and so our plans call for that level of incremental spending in Q3 and something similar in Q4 right now, but we'll have to see how long this opportunity lasts and obviously we have a disciplined ROI framework and for most of our marketing spend and so you know we'll watch and see kind of what opportunities are out there. But our view right now is given our momentum across the portfolio and the opportunities in the market, we want to try to keep spending to drive growth into next year if that opportunity is still available to us.

The next question is from Brian Fitzgerald from Wells Fargo. Please go ahead.

Thanks guys. First of all, congratulations on the recent hires. I wanted to know if you could talk about the efficiency of your teams during shelter-in-place and whether you’re giving any thought to work from home, more flexibility, longer term, any thoughts on the possibility for cost savings from that perspective? Thanks.

I can take this Gary. In terms of you know efficiency and productivity, I do think we are lucky to be in a business where we can generally do almost everything remotely, and so we haven't seen any sort of discernible impact from remote working yet. However, you know if there are lots of considerations here, we were starting to hire more people and onboard them remotely, and I think that's fine for some period of time, but eventually the in-person interactions and the building of the team relationships and camaraderie is important. There are studies have been done in the past about innovation and etcetera, and their impact for remote teams versus in-person teams, so there’s lots of considerations here. Also, not everybody is dealing with this remote working very well, which is why as some of our markets are opening up a little bit, we have started to open our offices, to give people, our employees a choice. We are now open in Tokyo, Paris, Vancouver and Seoul and slowly but surely more and more employees are coming into the office. And so we've got to watch and see how this all plays out. We're not rushing to a decision, but we are definitely providing our employees flexibility at least for as long as we think there is any risk for this pandemic.

Thanks Shar. I appreciate it.

The next question comes from Nick Jones from Citi. Please go ahead.

Thanks for taking my question. Just, I guess at a high level, you know what is your view on consumer kind of perception of online dating, maybe kind of domestically and internationally? Do you think COVID has kind of accelerated more kind of a positive perception and a willingness to date online and kind of drive your sections interactions online. Just your thoughts on kind of what your seeing through COVID and what you kind of expect post-COVID. Thanks.

Sure. You know I’m going to caveat this by saying that awareness and perception changes – takes a while to form and shape and change, and it's only, believe it or not been three to four months of us dealing with this. But having said that, here is what we know. For people who have tried online dating, they definitely found value and are using it more. This is what’s evidenced in all of our increased engagement and reactivation. For people that have resisted the category, it's not clear yet that they are breaking if you will, the resistance in larger numbers, but the likelihood of that could increase as this drags on. But what’s also more important is it does tell us – it gives us the opportunity to be able to market and tell our stories more strongly, because our value proposition certainly has increased during that time. So that's sort of where we are where the increased value perception among people who have tried it has gone up. We see it in all kinds of metrics. Whether new users breaking through in larger numbers is going to happen, that's something we have to still keep an eye on.

Great, thank you.

This concludes our question-and-answer session. I would now turn the call over to management for any closing remarks.

Thank you all. It’s been a tremendous quarter despite everything that we’ve been seeing. I hope you all are staying safe. We are hoping to be able to talk to you again in a quarter.

Thank you for attending today's presentation. You may now disconnect.