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8-K - 8-K - Match Group Holdings II, LLCa16-20825_18k.htm

Exhibit 99.1

 

 

Match Group Reports Third Quarter 2016 Results

 

Announces 22% Growth in Dating Revenue and 33% Growth in Subscribers

 

Dallas, TX—November 1, 2016—Match Group (NASDAQ: MTCH) reported third quarter 2016 financial results today and separately released an investor presentation which will be reviewed on the earnings conference call scheduled for 8:30 a.m. Eastern Time on November 2, 2016.  The presentation is available on the Investor Relations section of its website at http://ir.mtch.com.

 

“Q3 was another strong quarter for Match Group,” said Greg Blatt, Chairman and CEO.  “We grew revenue 22% and expanded margins in our Dating businesses, delivering results ahead of expectations, driven by great growth at Tinder, as well as PlentyOfFish and Meetic.  Our Non-dating business turned a meaningful profit this quarter as expected, and overall, we are meeting or exceeding the marks we have set for ourselves.  The outlook for our Dating businesses remains very positive.”

 

Q3 2016 HIGHLIGHTS

 

·                  Average PMC grew 33% to 5.5 million over the prior year quarter led by continued strength at Tinder, growth at Meetic and Pairs, in Japan, and from PlentyOfFish, which was acquired in October 2015.

·                  Tinder’s strong subscriber growth continued, ending Q3 with over 1.5 million PMC.

·                  Dating revenue grew 22% over the prior year quarter to $288 million and total revenue grew 18% to $316 million. Total revenue was impacted by a revenue decline at Non-dating.

·                  Growth in operating income outpaced revenue growth, increasing 57% over the prior year quarter to $92 million, while Adjusted EBITDA grew 34% to $111 million.

·                  Operating income margin and Adjusted EBITDA margin for Dating improved to 32% and 37%, respectively, compared to 25% and 34%, respectively, in the prior year quarter.

·                  ARPPU continues to exhibit stability during 2016 and was $0.54 for the quarter.

·                  Operating cash flow for the nine months ended September 30, 2016 increased 34% to $169 million compared to the prior year period, while free cash flow increased 22% to $130 million. Match Group ended Q3 2016 with $231 million of cash and cash equivalents.

·                  Non-dating generated positive operating income in Q3 2016, while Adjusted EBITDA increased 55% to $3.6 million compared to the prior year quarter.

 

1



 

Key Financial and Operating Metrics

 

(In thousands, except EPS and ARPPU)

 

Q3 2016

 

Q3 2015

 

Change

 

Total Revenue

 

$

316,447

 

$

268,971

 

18

%

Total Dating Revenue

 

$

287,530

 

$

235,131

 

22

%

Operating Income

 

$

91,754

 

$

58,356

 

57

%

Net Income

 

$

56,410

 

$

35,259

 

60

%

Diluted EPS

 

$

0.21

 

$

0.20

 

5

%

Adjusted EBITDA

 

$

110,708

 

$

82,657

 

34

%

Adjusted Net Income

 

$

62,014

 

$

46,920

 

32

%

Adjusted EPS

 

$

0.23

 

$

0.27

 

(15

)%

Average PMC

 

5,546

 

4,167

 

33

%

ARPPU

 

$

0.54

 

$

0.59

 

(8

)%

 

See reconciliations of GAAP to non-GAAP measures below.

 

Revenue

 

(In thousands)

 

Q3 2016

 

Q3 2015

 

Change

 

Direct Revenue:

 

 

 

 

 

 

 

North America

 

$

172,441

 

$

148,728

 

16

%

International

 

101,286

 

75,773

 

34

%

Total Direct Revenue

 

273,727

 

224,501

 

22

%

Indirect Revenue

 

13,803

 

10,630

 

30

%

Dating Revenue

 

287,530

 

235,131

 

22

%

Non-dating Revenue

 

28,917

 

33,840

 

(15

)%

Total Revenue

 

$

316,447

 

$

268,971

 

18

%

 

Revenue growth of 22% at Dating was led by strong contributions from Tinder, Pairs, and the acquisition of PlentyOfFish.  Non-dating revenue declined as the new SAT test format continued to impact the test preparation business and we continued to shift our focus to higher margin revenue.

 

Dating Average PMC

 

(In thousands)

 

Q3 2016

 

Q3 2015

 

Change

 

Total Average PMC:

 

 

 

 

 

 

 

North America

 

3,371

 

2,676

 

26

%

International

 

2,175

 

1,491

 

46

%

Total

 

5,546

 

4,167

 

33

%

 

Average PMC increased 33% to 5.5 million compared to 4.2 million for the year ago quarter, driven primarily by growth at Tinder and strong contributions from Meetic, Pairs, and the acquisition of PlentyOfFish.

 

2



 

Dating ARPPU

 

 

 

Q3 2016

 

Q3 2015

 

Change

 

Total Dating ARPPU:

 

 

 

 

 

 

 

North America

 

$

0.56

 

$

0.60

 

(8

)%

International

 

$

0.51

 

$

0.55

 

(8

)%

Total

 

$

0.54

 

$

0.59

 

(8

)%

 

ARPPU was $0.54 for the third quarter of 2016, compared to $0.59 in the year ago quarter, due primarily to growth at Tinder and the acquisition of PlentyOfFish, both of which have lower price points than most of our other brands.

 

Operating Costs and Expenses

 

(In thousands)

 

Q3 2016

 

% of
Revenue

 

Q3 2015

 

% of
Revenue

 

Change

 

Cost of revenue

 

$

61,161

 

19

%

$

47,636

 

18

%

28

%

Selling and marketing expense

 

92,370

 

29

%

89,698

 

33

%

3

%

General and administrative expense

 

39,685

 

13

%

45,981

 

17

%

(14

)%

Product development expense

 

18,539

 

6

%

16,811

 

6

%

10

%

Depreciation

 

8,032

 

3

%

6,137

 

2

%

31

%

Amortization of intangibles

 

4,906

 

2

%

4,352

 

2

%

13

%

Total operating costs and expense

 

$

224,693

 

71

%

$

210,615

 

78

%

7

%

 

Operating expenses were $225 million, or 71% of revenue, compared to $211 million, or 78% of revenue, for the prior year quarter as the product mix at Dating increasingly shifts towards brands with lower marketing spend.  The absolute increase in operating costs and expense is primarily driven by in-app purchase fees, increased employee costs primarily related to the growth of Tinder, and increased depreciation, partially offset by income in the current year period of $5.1 million from acquisition-related contingent consideration fair value adjustments compared to expense of $0.8 million in the prior year quarter and lower costs of $1.8 million compared to the prior year quarter related to the consolidation and streamlining of our technology systems and European operations at our Dating business.

 

3



 

Operating Income and Adjusted EBITDA

 

(In thousands)

 

Q3 2016

 

Q3 2015

 

Change

 

Dating operating income

 

$

90,938

 

$

59,071

 

54

%

Non-dating operating income (loss)

 

816

 

(715

)

NM

 

Total Match Group operating income

 

$

91,754

 

$

58,356

 

57

%

Dating operating income margin

 

32

%

25

%

6.5

pts

Total Match Group operating income margin

 

29

%

22

%

7.3

pts

 

 

 

 

 

 

 

 

Dating Adjusted EBITDA

 

$

107,101

 

$

80,323

 

33

%

Non-dating Adjusted EBITDA

 

3,607

 

2,334

 

55

%

Total Match Group Adjusted EBITDA

 

$

110,708

 

$

82,657

 

34

%

Dating Adjusted EBITDA Margin

 

37

%

34

%

3.1

pts

Total Match Group Adjusted EBITDA Margin

 

35

%

31

%

4.3

pts

 

NM = Not meaningful

 

Operating income increased 57% and Adjusted EBITDA increased 34% over the prior year quarter as our revenue increased and a higher percentage of our revenue is coming from brands with lower marketing spend.  Additionally, we incurred lower costs of $1.8 million in Q3 2016 compared to the prior year quarter related to the consolidation and streamlining of our technology systems and European operations at our Dating business and shifted to an operating profit at our Non-dating business in Q3 2016.  Operating income increased at a faster rate than Adjusted EBITDA as a result of income in the current year period of $5.1 million from acquisition-related contingent consideration fair value adjustments compared to expense of $0.8 million in the prior year quarter.  Dating operating income margin increased to 32% from 25% in the prior year quarter and Dating Adjusted EBITDA margin increased to 37% from 34% in the prior year quarter.

 

OTHER ITEMS

 

The effective tax rates in Q3 2016 and Q3 2015 were 26% and 38%, respectively.  In Q3 2016, the effective rate was lower than the statutory rate of 35% due primarily to foreign income taxed at lower rates and the non-taxable gain on contingent consideration fair value adjustments.  The effective tax rates for Adjusted Net Income in Q3 2016 and Q3 2015 were 29% and 38%, respectively.  The Q3 2016 effective tax rate for Adjusted Net Income is lower than the prior year quarter primarily due to an increase in foreign income taxed at lower rates.

 

LIQUIDITY AND CAPITAL RESOURCES

 

As of September 30, 2016, Match Group had 254.6 million common and class B common shares outstanding.

 

As of September 30, 2016, the Company had $231 million in cash and cash equivalents. Additionally, the Company had $1.2 billion of long-term debt.  Match Group has a $500 million revolving credit facility.  The credit facility was undrawn as of September 30, 2016 and currently remains undrawn.

 

4



 

As of September 30, 2016, IAC’s ownership interest and voting interest in Match Group were 82.8% and 98.0%, respectively.

 

DILUTIVE SECURITIES

 

Match Group has various tranches of dilutive securities.  The table below details these securities as well as potential dilution at various stock prices (shares in millions; rounding differences may occur).

 

 

 

As of
10/28/2016

 

Dilution at:

 

Share Price

 

$

18.44

 

$

19.00

 

$

20.00

 

$

21.00

 

$

22.00

 

Absolute Shares as of 10/28/2016

 

254.6

 

254.6

 

254.6

 

254.6

 

254.6

 

Vested Options and Awards

 

 

 

 

 

 

 

 

 

 

 

Subsidiary Equity Plans

 

7.8

 

7.6

 

7.2

 

6.9

 

6.6

 

Match Options

 

2.5

 

2.6

 

2.7

 

2.8

 

3.0

 

IAC Equity

 

0.1

 

0.1

 

0.1

 

0.1

 

0.1

 

Total Dilution - Vested Options and Awards

 

10.4

 

10.3

 

10.1

 

9.8

 

9.6

 

 

 

 

 

 

 

 

 

 

 

 

 

Unvested Options and Awards

 

 

 

 

 

 

 

 

 

 

 

Subsidiary Equity Plans

 

3.8

 

3.7

 

3.5

 

3.3

 

3.2

 

Match Options

 

4.1

 

4.4

 

4.8

 

5.2

 

5.6

 

Match RSUs

 

0.6

 

0.6

 

0.6

 

0.6

 

0.6

 

IAC Equity

 

0.1

 

0.1

 

0.1

 

0.1

 

0.1

 

Total Dilution - Unvested Options and Awards

 

8.6

 

8.8

 

9.0

 

9.3

 

9.5

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Dilution

 

19.1

 

19.1

 

19.1

 

19.1

 

19.1

 

% Dilution

 

7.0

%

7.0

%

7.0

%

7.0

%

7.0

%

Total Diluted Shares Outstanding

 

273.7

 

273.7

 

273.7

 

273.7

 

273.7

 

 

The dilution calculation above assumes that all exercise proceeds from Match Group options, and all expected tax benefits associated with the vesting and exercise of all awards, are used to purchase Match Group shares at the time of such vesting or exercise (as the case may be), whether or not such repurchases actually occur.  This methodology differs from the treasury stock method used for GAAP because it: (i) excludes from the assumed proceeds the impact of future non-cash compensation of all unvested stock-based awards; (ii) includes in assumed proceeds the entire estimated tax benefit received upon the exercise of options or the vesting of restricted and performance-based stock awards rather than only the excess tax benefit; and (iii) includes the shares related to performance- and market-based awards that are considered probable of vesting, if dilutive.  This reflects the way the Company’s management generally thinks about dilution and we believe it is the best reflection of the true economic costs of our equity compensation programs.

 

The Subsidiary Equity Plans line item includes stock options, stock appreciation rights and warrants denominated in the equity of Tinder and The Princeton Review.  These awards will ultimately be settled by granting shares of our common stock to the holders of the awards equal in value at the time of exercise to the spread on the awards, net of withholding taxes which will be paid in cash by Match Group at the time of settlement.  The IAC equity awards represent options, restricted stock units, and performance-

 

5



 

based stock units denominated in the shares of IAC which were issued to employees of Match Group prior to our public offering.  When exercised, IAC will settle the awards with shares of IAC and Match Group will issue additional shares to IAC as consideration.  The number of common shares reflected in the dilution table above reflects the current market price of IAC and our estimates of the fair value of Tinder and The Princeton Review, each at various market prices of our common stock.  The number of shares of our common stock ultimately required to settle these awards will fluctuate from the number of shares reflected in the table above based upon changes in our stock price, changes in IAC’s stock price, and any differences between the estimates of fair value of Tinder and The Princeton Review used to compute dilution in the table above and the ultimate fair values of these businesses determined in connection with any future liquidity events related to the associated equity awards.

 

CONFERENCE CALL

 

Match Group will audiocast a conference call to answer questions regarding its third quarter financial results on Wednesday, November 2, 2016 at 8:30 a.m. Eastern Time. This call will include the disclosure of certain information, including forward-looking information, which may be material to an investor’s understanding of Match Group’s business. The live audiocast will be open to the public at, and the investor’s presentation reviewing the results has been posted on, http://ir.mtch.com.

 

6



 

GAAP FINANCIAL STATEMENTS

 

MATCH GROUP CONSOLIDATED AND COMBINED STATEMENT OF OPERATIONS

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2016

 

2015

 

2016

 

2015

 

 

 

(In thousands, except per share data)

 

Revenue

 

$

316,447

 

$

268,971

 

$

902,849

 

$

752,857

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

Cost of revenue (exclusive of depreciation shown separately below)

 

61,161

 

47,636

 

171,385

 

131,118

 

Selling and marketing expense

 

92,370

 

89,698

 

294,061

 

289,844

 

General and administrative expense

 

39,685

 

45,981

 

138,261

 

121,303

 

Product development expense

 

18,539

 

16,811

 

62,346

 

50,740

 

Depreciation

 

8,032

 

6,137

 

22,609

 

19,804

 

Amortization of intangibles

 

4,906

 

4,352

 

19,577

 

14,130

 

Total operating costs and expenses

 

224,693

 

210,615

 

708,239

 

626,939

 

Operating income

 

91,754

 

58,356

 

194,610

 

125,918

 

Interest expense—third party

 

(20,751

)

 

(61,828

)

 

Interest expense—related party

 

 

(2,318

)

 

(6,879

)

Other income, net

 

6,045

 

1,535

 

4,410

 

8,341

 

Earnings before income taxes

 

77,048

 

57,573

 

137,192

 

127,380

 

Income tax provision

 

(20,344

)

(22,136

)

(39,168

)

(42,632

)

Net earnings

 

56,704

 

35,437

 

98,024

 

84,748

 

Net (earnings) loss attributable to noncontrolling interests

 

(294

)

(178

)

(384

)

42

 

Net earnings attributable to Match Group, Inc. shareholders

 

$

56,410

 

$

35,259

 

$

97,640

 

$

84,790

 

 

 

 

 

 

 

 

 

 

 

Net earnings per share attributable to Match Group, Inc. shareholders:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.22

 

$

0.21

 

$

0.39

 

$

0.52

 

Diluted

 

$

0.21

 

$

0.20

 

$

0.36

 

$

0.49

 

 

 

 

 

 

 

 

 

 

 

Basic shares outstanding

 

253,176

 

168,313

 

250,316

 

163,733

 

Diluted shares outstanding

 

270,024

 

176,359

 

268,710

 

172,182

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense by function:

 

 

 

 

 

 

 

 

 

Cost of revenue

 

$

378

 

$

133

 

$

1,093

 

$

342

 

Selling and marketing expense

 

873

 

1,522

 

2,585

 

4,883

 

General and administrative expense

 

7,719

 

10,096

 

26,570

 

22,076

 

Product development expense

 

2,175

 

1,306

 

11,093

 

3,681

 

Total stock-based compensation expense

 

$

11,145

 

$

13,057

 

$

41,341

 

$

30,982

 

 

7



 

MATCH GROUP CONSOLIDATED BALANCE SHEET

 

 

 

September 30, 2016

 

December 31, 2015

 

 

 

(In thousands)

 

ASSETS

 

 

 

 

 

Cash and cash equivalents

 

$

231,154

 

$

88,173

 

Marketable securities

 

 

11,622

 

Accounts receivable, net

 

67,575

 

65,851

 

Other current assets

 

67,786

 

39,049

 

Total current assets

 

366,515

 

204,695

 

Property and equipment, net

 

67,280

 

48,067

 

Goodwill

 

1,311,626

 

1,292,775

 

Intangible assets, net

 

261,524

 

276,408

 

Long-term investments

 

55,355

 

55,569

 

Other non-current assets

 

29,576

 

31,878

 

TOTAL ASSETS

 

$

2,091,876

 

$

1,909,392

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

LIABILITIES

 

 

 

 

 

Current maturities of long-term debt

 

$

 

$

40,000

 

Accounts payable

 

20,224

 

25,767

 

Deferred revenue

 

196,678

 

169,321

 

Accrued expenses and other current liabilities

 

145,621

 

118,556

 

Total current liabilities

 

362,523

 

353,644

 

Long-term debt, net of current maturities

 

1,215,546

 

1,176,871

 

Income taxes payable

 

8,720

 

9,670

 

Deferred income taxes

 

35,438

 

34,947

 

Other long-term liabilities

 

18,014

 

49,542

 

 

 

 

 

 

 

Redeemable noncontrolling interests

 

5,588

 

5,907

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY

 

 

 

 

 

Total Match Group, Inc. shareholders’ equity

 

446,047

 

278,811

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

2,091,876

 

$

1,909,392

 

 

8



 

MATCH GROUP CONSOLIDATED AND COMBINED STATEMENT OF CASH FLOWS

 

 

 

Nine Months Ended September 30,

 

 

 

2016

 

2015

 

 

 

(In thousands)

 

Cash flows from operating activities:

 

 

 

 

 

Net earnings

 

$

98,024

 

$

84,748

 

Adjustments to reconcile net earnings to net cash provided by operating activities:

 

 

 

 

 

Stock-based compensation expense

 

41,341

 

30,982

 

Depreciation

 

22,609

 

19,804

 

Amortization of intangibles

 

19,577

 

14,130

 

Excess tax benefits from stock-based awards

 

(25,929

)

(31,285

)

Deferred income taxes

 

(1,463

)

(8,646

)

Acquisition-related contingent consideration fair value adjustments

 

(2,723

)

(11,479

)

Other adjustments, net

 

(1,762

)

(11,274

)

Changes in assets and liabilities, excluding effects of acquisitions:

 

 

 

 

 

Accounts receivable

 

282

 

(25,116

)

Other assets

 

(10,079

)

(7,447

)

Accounts payable and accrued expenses and other current liabilities

 

2

 

20,834

 

Income taxes payable

 

2,884

 

26,993

 

Deferred revenue

 

26,139

 

23,997

 

Net cash provided by operating activities

 

168,902

 

126,241

 

Cash flows from investing activities:

 

 

 

 

 

Acquisitions, net of cash acquired

 

(2,303

)

(40,712

)

Capital expenditures

 

(39,106

)

(19,916

)

Proceeds from the sale of a marketable security

 

11,716

 

 

Purchase of investment

 

(500

)

 

Other, net

 

5,100

 

(8,402

)

Net cash used in investing activities

 

(25,093

)

(69,030

)

Cash flows from financing activities:

 

 

 

 

 

Proceeds from bond offering

 

400,000

 

 

Principal payments on long-term debt

 

(410,000

)

 

Debt issuance costs

 

(5,048

)

 

Issuance of common stock pursuant to stock-based awards, net of withholding taxes

 

467

 

 

Excess tax benefits from stock-based awards

 

25,929

 

31,285

 

Transfers from IAC

 

 

75,945

 

Purchase of noncontrolling interests

 

(1,129

)

(557

)

Acquisition-related contingent consideration payments

 

 

(5,510

)

Other, net

 

(12,181

)

 

Net cash (used in) provided by financing activities

 

(1,962

)

101,163

 

Effect of exchange rate changes on cash and cash equivalents

 

1,134

 

(3,461

)

Net increase in cash and cash equivalents

 

142,981

 

154,913

 

Cash and cash equivalents at beginning of period

 

88,173

 

127,630

 

Cash and cash equivalents at end of period

 

$

231,154

 

$

282,543

 

 

9



 

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

 

MATCH GROUP RECONCILIATION OF OPERATING CASH FLOW TO FREE CASH FLOW

 

 

 

Nine Months Ended September 30,

 

(In millions)

 

2016

 

2015

 

Net cash provided by operating activities

 

$

168.9

 

$

126.2

 

Capital expenditures

 

(39.1

)

(19.9

)

Free Cash Flow

 

$

129.8

 

$

106.3

 

 

MATCH GROUP RECONCILIATION OF GAAP EPS TO ADJUSTED EPS

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

(In thousands, except per share data)

 

2016

 

2015

 

2016

 

2015

 

Net earnings attributable to Match Group, Inc. shareholders

 

$

56,410

 

$

35,259

 

$

97,640

 

$

84,790

 

Stock-based compensation expense

 

11,145

 

13,057

 

41,341

 

30,982

 

Amortization of intangibles

 

4,906

 

4,352

 

19,577

 

14,130

 

Acquisition-related contingent consideration fair value adjustments

 

(5,129

)

755

 

(2,723

)

(11,479

)

Impact of income taxes and noncontrolling interests

 

(5,318

)

(6,503

)

(18,970

)

(16,660

)

Adjusted Net Income

 

$

62,014

 

$

46,920

 

$

136,865

 

$

101,763

 

 

 

 

 

 

 

 

 

 

 

GAAP Basic weighted average shares outstanding

 

253,176

 

168,313

 

250,316

 

163,733

 

Subsidiary denominated equity, stock options and RSUs, treasury method

 

16,848

 

8,046

 

18,394

 

8,449

 

GAAP Diluted weighted average shares outstanding

 

270,024

 

176,359

 

268,710

 

172,182

 

Impact of RSUs and other

 

991

 

186

 

773

 

141

 

Adjusted EPS weighted average shares outstanding

 

271,015

 

176,545

 

269,483

 

172,323

 

 

 

 

 

 

 

 

 

 

 

GAAP Diluted earnings per share

 

$

0.21

 

$

0.20

 

$

0.36

 

$

0.49

 

Adjusted EPS

 

$

0.23

 

$

0.27

 

$

0.51

 

$

0.59

 

 

For Adjusted EPS purposes, the impact of RSUs on shares outstanding is based on the weighted average number of RSUs outstanding, including performance-based RSUs outstanding that the Company believes are probable of vesting.  For GAAP diluted EPS purposes, RSUs, including performance-based RSUs for which the performance criteria have been met, are included on a treasury method basis.

 

10



 

MATCH GROUP RECONCILIATION OF SEGMENT GAAP MEASURE TO NON-GAAP MEASURE

 

 

 

Three Months Ended September 30, 2016

 

 

 

Operating
Income

 

Stock-based
compensation

 

Depreciation

 

Amortization
of Intangibles

 

Acquisition-
related
Contingent
Consideration
Fair Value
Adjustment

 

Adjusted
EBITDA

 

 

 

(In millions, rounding differences may occur)

 

Dating

 

$

90.9

 

$

10.7

 

$

7.2

 

$

3.4

 

$

(5.1

)

$

107.1

 

Non-dating

 

0.8

 

0.4

 

0.8

 

1.5

 

 

3.6

 

Total

 

$

91.8

 

$

11.1

 

$

8.0

 

$

4.9

 

$

(5.1

)

$

110.7

 

 

 

 

Three Months Ended September 30, 2015

 

 

 

Operating
Income (Loss)

 

Stock-based
compensation

 

Depreciation

 

Amortization
of Intangibles

 

Acquisition-
related
Contingent
Consideration
Fair Value
Adjustment

 

Adjusted
EBITDA

 

 

 

(In millions, rounding differences may occur)

 

Dating

 

$

59.1

 

$

12.8

 

$

5.0

 

$

2.7

 

$

0.8

 

$

80.3

 

Non-dating

 

(0.7

)

0.2

 

1.2

 

1.7

 

 

2.3

 

Total

 

$

58.4

 

$

13.1

 

$

6.1

 

$

4.4

 

$

0.8

 

$

82.7

 

 

 

 

Nine Months Ended September 30, 2016

 

 

 

Operating
Income (Loss)

 

Stock-based
compensation

 

Depreciation

 

Amortization
of Intangibles

 

Acquisition-
related
Contingent
Consideration
Fair Value
Adjustment

 

Adjusted
EBITDA

 

 

 

(In millions, rounding differences may occur)

 

Dating

 

$

202.6

 

$

40.8

 

$

20.1

 

$

15.0

 

$

(2.7

)

$

275.8

 

Non-dating

 

(8.0

)

0.5

 

2.5

 

4.6

 

 

(0.4

)

Total

 

$

194.6

 

$

41.3

 

$

22.6

 

$

19.6

 

$

(2.7

)

$

275.4

 

 

 

 

Nine Months Ended September 30, 2015

 

 

 

Operating
Income (Loss)

 

Stock-based
compensation

 

Depreciation

 

Amortization
of Intangibles

 

Acquisition-
related
Contingent
Consideration
Fair Value
Adjustment

 

Adjusted
EBITDA

 

 

 

(In millions, rounding differences may occur)

 

Dating

 

$

142.9

 

$

30.2

 

$

14.3

 

$

9.1

 

$

(11.5

)

$

185.1

 

Non-dating

 

(17.0

)

0.7

 

5.5

 

5.0

 

 

(5.7

)

Total

 

$

125.9

 

$

31.0

 

$

19.8

 

$

14.1

 

$

(11.5

)

$

179.4

 

 

11



 

MATCH GROUP RECONCILIATION OF SEGMENT GAAP MEASURE TO NON-GAAP MEASURE (CONTINUED)

 

(In thousands)

 

Q3 2016

 

Q3 2015

 

Dating revenue

 

$

287,530

 

$

235,131

 

Non-dating revenue

 

28,917

 

33,840

 

Total Match Group revenue

 

$

316,447

 

$

268,971

 

 

 

 

 

 

 

Dating operating income

 

$

90,938

 

$

59,071

 

Non-dating operating income (loss)

 

816

 

(715

)

Total Match Group operating income

 

$

91,754

 

$

58,356

 

Dating operating income margin

 

32

%

25

%

Total Match Group operating income margin

 

29

%

22

%

 

 

 

 

 

 

Dating Adjusted EBITDA

 

$

107,101

 

$

80,323

 

Non-dating Adjusted EBITDA

 

3,607

 

2,334

 

Total Match Group Adjusted EBITDA

 

$

110,708

 

$

82,657

 

Dating Adjusted EBITDA Margin

 

37

%

34

%

Total Match Group Adjusted EBITDA Margin

 

35

%

31

%

 

See preceding tables for reconciliation of segment operating income (loss) to segment Adjusted EBITDA.

 

12



 

MATCH GROUP’S PRINCIPLES OF FINANCIAL REPORTING

 

Match Group reports Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income, Adjusted EPS and Free Cash Flow, all of which are supplemental measures to GAAP. These measures are among the primary metrics by which we evaluate the performance of our businesses, on which our internal budgets are based and by which management is compensated. We believe that investors should have access to, and we are obligated to provide, the same set of tools that we use in analyzing our results. These non-GAAP measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results. Match Group endeavors to compensate for the limitations of the non-GAAP measures presented by providing the comparable GAAP measures with equal or greater prominence and descriptions of the reconciling items, including quantifying such items, to derive the non-GAAP measures. We encourage investors to examine the reconciling adjustments between the GAAP and non-GAAP measures, which are included in this release. Interim results are not necessarily indicative of the results that may be expected for a full year.

 

Definitions of Non-GAAP Measures

 

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA) is defined as operating income excluding: (1) stock-based compensation expense; (2) depreciation; and (3) acquisition-related items consisting of (i) amortization of intangible assets and impairments of goodwill and intangible assets and (ii) gains and losses recognized on changes in the fair value of contingent consideration arrangements. We believe Adjusted EBITDA is useful for analysts and investors as this measure allows a more meaningful comparison between our performance and that of our competitors. Moreover, our management uses this measure internally to evaluate the performance of our business as a whole and our individual business segments. The above items are excluded from our Adjusted EBITDA measure because these items are non-cash in nature, and we believe that by excluding these items, Adjusted EBITDA corresponds more closely to the cash operating income generated from our business, from which capital investments are made and debt is serviced. Adjusted EBITDA has certain limitations in that it does not take into account the impact to our consolidated statement of operations of certain expenses.

 

Adjusted EBITDA margin is defined as Adjusted EBITDA divided by revenues. We believe Adjusted EBITDA margin is useful for analysts and investors as this measure allows a more meaningful comparison between our performance and that of our competitors. Moreover, our management uses this measure internally to evaluate the performance of our business as a whole and our individual business segments. Adjusted EBITDA margin corresponds more closely to the cash operating income margin generated from our business, from which capital investments are made and debt is serviced. Adjusted EBITDA margin has certain limitations in that it does not take into account the impact to our consolidated statement of operations of certain expenses.

 

Adjusted Net Income generally captures all items on the statement of operations that have been, or ultimately will be, settled in cash and is defined as net earnings attributable to Match Group, Inc. shareholders excluding, net of tax effects and noncontrolling interests, if applicable: (1) stock-based compensation expense, and (2) acquisition-related items consisting of (i) amortization of intangibles and impairments of goodwill and intangible assets and (ii) gains and losses recognized on changes in the fair value of contingent consideration arrangements. We believe Adjusted Net Income is useful to investors because it represents Match Group’s consolidated results taking into account depreciation, which management believes is an ongoing cost of doing business, as well as other charges that are not allocated to the operating businesses such as interest expense, income taxes and noncontrolling interests, but excluding the effects of any other non-cash expenses.

 

Adjusted EPS is defined as Adjusted Net Income divided by fully diluted weighted average shares outstanding for Adjusted EPS purposes. We include dilution from options in accordance with the treasury stock method and include all restricted stock units (“RSUs”) in shares outstanding for Adjusted EPS, with performance-based RSUs included based on the number of shares that the Company believes are probable of vesting. This differs from the GAAP method for including RSUs, which are treated on a treasury method, and performance-based RSUs, which are included for GAAP purposes only to the extent the performance criteria have been met (assuming the end of the reporting period is the end of the contingency period). Shares outstanding for Adjusted EPS purposes are therefore higher than shares outstanding for GAAP EPS purposes. We believe Adjusted EPS is useful to investors because it

 

13



 

represents, on a per share basis, Match Group’s consolidated results, taking into account depreciation, which we believe is an ongoing cost of doing business, as well as other charges, which are not allocated to the operating businesses such as interest expense, income taxes and noncontrolling interests, but excluding the effects of any other non-cash expenses. Adjusted Net Income and Adjusted EPS have the same limitations as Adjusted EBITDA. Therefore, we think it is important to evaluate these measures along with our consolidated statement of operations.

 

Free Cash Flow is defined as net cash provided by operating activities, less capital expenditures. We believe Free Cash Flow is useful to investors because it represents the cash that our operating businesses generate, before taking into account non-operational cash movements. Free Cash Flow has certain limitations in that it does not represent the total increase or decrease in the cash balance for the period, nor does it represent the residual cash flow for discretionary expenditures. Therefore, we think it is important to evaluate Free Cash Flow along with our consolidated statement of cash flows.

 

Non-Cash Expenses That Are Excluded From Our Non-GAAP Measures

 

Stock-based compensation expense consists principally of expense associated with the grants of stock options, RSUs, and performance-based RSUs. These expenses are not paid in cash, and we include the related shares in our fully diluted shares outstanding using the treasury stock method; however, performance-based RSUs are included only to the extent the performance criteria have been met (assuming the end of the reporting period is the end of the contingency period). We view the true cost of stock options, RSUs and performance-based RSUs as the dilution to our share base, and such awards are included in our shares outstanding for Adjusted EPS purposes as described above under the definition of Adjusted EPS. Upon the exercise of certain stock options and vesting of RSUs and performance-based RSUs, the awards are settled, at the Company’s discretion, on a net basis, with the Company remitting the required tax-withholding amount from its current funds.

 

Depreciation is a non-cash expense relating to our property and equipment and is computed using the straight-line method to allocate the cost of depreciable assets to operations over their estimated useful lives.

 

Amortization of intangible assets and impairments of goodwill and intangible assets are non-cash expenses related primarily to acquisitions. At the time of an acquisition, the identifiable definite-lived intangible assets of the acquired company, such as customer lists, content, trade names, and technology, are valued and amortized over their estimated lives. Value is also assigned to acquired indefinite-lived intangible assets, which comprise trade names and trademarks, and goodwill that are not subject to amortization. An impairment is recorded when the carrying value of an intangible asset or goodwill exceeds its fair value. We believe that intangible assets represent costs incurred by the acquired company to build value prior to acquisition and the related amortization and impairment charges of intangible assets or goodwill, if applicable, are not ongoing costs of doing business.

 

Gains and losses recognized on changes in the fair value of contingent consideration arrangements are accounting adjustments to report contingent consideration liabilities at fair value. These adjustments can be highly variable and are excluded from our assessment of performance because they are considered non-operational in nature and, therefore, are not indicative of current or future performance or ongoing costs of doing business.

 

Free Cash Flow

 

We look at Free Cash Flow as a measure of the strength and performance of our businesses, not for valuation purposes. In our view, applying “multiples” to Free Cash Flow is inappropriate because it is subject to timing, seasonality and one-time events. We manage our business for cash and we think it is of utmost importance to maximize cash — but our primary valuation metrics are Adjusted EBITDA and Adjusted EPS.

 

14



 

OTHER INFORMATION

 

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995

 

This press release and our conference call, which will be held at 8:30 a.m. Eastern Time on November 2, 2016, may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The use of words such as “anticipates,” “estimates,” “expects,” “plans” and “believes,” among others, generally identify forward-looking statements. These forward-looking statements include, among others, statements relating to: Match Group’s future financial performance, Match Group’s business prospects and strategy, anticipated trends and other similar matters. These forward-looking statements are based on management’s current expectations and assumptions about future events, which are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict. Actual results could differ materially from those contained in these forward-looking statements for a variety of reasons, including, among others: competition, our ability to maintain user rates on our higher monetizing dating products, our ability to attract users to our dating products through cost-effective marketing and related efforts, foreign currency exchange rate fluctuations, our ability to distribute our dating products through third parties and offset related fees, the integrity and scalability of our systems and infrastructure (and those of third parties) and our ability to adapt ours to changes in a timely and cost-effective manner, our ability to protect our systems from cyberattacks and to protect personal and confidential user information, risks relating to certain of our international operations and acquisitions and certain risks relating to our relationship with IAC/InterActiveCorp, among other risks. Certain of these and other risks and uncertainties are discussed in Match Group’s filings with the Securities and Exchange Commission. Other unknown or unpredictable factors that could also adversely affect Match Group’s business, financial condition and results of operations may arise from time to time. In light of these risks and uncertainties, these forward-looking statements may not prove to be accurate. Accordingly, you should not place undue reliance on these forward-looking statements, which only reflect the views of Match Group management as of the date of this press release. Match Group does not undertake to update these forward-looking statements.

 

About Match Group

 

Match Group (NASDAQ: MTCH) is the world’s leading provider of dating products. We operate a portfolio of over 45 brands, including Match, OkCupid, PlentyOfFish, Tinder, Meetic, Twoo, OurTime, BlackPeopleMeet and LoveScout24 (formerly known as FriendScout24), each designed to increase our users’ likelihood of finding a romantic connection. Through our portfolio of trusted brands, we provide tailored products to meet the varying preferences of our users. We currently offer our dating products in 38 languages across more than 190 countries. In addition to our dating business, we also operate The Princeton Review, which provides a variety of test preparation, academic tutoring and college counseling services.

 

Contact Us

 

Lance Barton

Match Group Investor Relations

(212) 314-7400

 

Matt David

Match Group Corporate Communications

(202) 507-1758

 

Match Group

8750 North Central Expressway, Dallas, TX 75231, (214) 576-9352  http://mtch.com

 

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