Attached files

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EX-10.1 - FORM OF TERMS AND CONDITIONS FOR STOCK OPTIONS UNDER 2017 PLAN - Match Group Holdings II, LLCmtch10-q20170930ex101.htm
EX-32.2 - CFO CERTIFICATION UNDER SECTION 906 - Match Group Holdings II, LLCmtch10-q20170930ex322.htm
EX-32.1 - CEO CERTIFICATION UNDER SECTION 906 - Match Group Holdings II, LLCmtch10-q20170930ex321.htm
EX-31.2 - CFO CERTIFICATION UNDER SECTION 302 - Match Group Holdings II, LLCmtch10-q20170930ex312.htm
EX-31.1 - CEO CERTIFICATION UNDER SECTION 302 - Match Group Holdings II, LLCmtch10-q20170930ex311.htm
EX-10.2 - FORM OF TERMS AND CONDITIONS FOR RESTRICTED STOCK UNITS GRANTED UNDER 2017 PLAN - Match Group Holdings II, LLCmtch10-q20170930ex102.htm


As filed with the Securities and Exchange Commission on November 9, 2017

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2017
Or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from__________to__________                            
Commission File No. 001-37636
 
matchgrouplogoa02.jpg
Match Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware
 (State or other jurisdiction of
incorporation or organization)
 
26-4278917
(I.R.S. Employer
Identification No.)
8750 North Central Expressway, Suite 1400, Dallas, Texas 75231
 (Address of registrant's principal executive offices)
 (214) 576-9352
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
Accelerated filer ý
Non-accelerated filer o
(Do not check if a smaller
reporting company)
Smaller reporting company o
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý
As of November 3, 2017, the following shares of the registrant's common stock were outstanding:
Common Stock
63,228,514

Class B Common Stock
209,919,402

Class C Common Stock

Total outstanding Common Stock
273,147,916

The aggregate market value of the voting common stock held by non-affiliates of the registrant as of November 3, 2017 was $1,342,953,676. For the purpose of the foregoing calculation only, shares held by IAC/InterActiveCorp and all directors and executive officers of the registrant are assumed to be affiliates of the registrant.




TABLE OF CONTENTS




2


PART I
FINANCIAL INFORMATION
Item 1.    Consolidated Financial Statements
MATCH GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Unaudited)
 
September 30, 2017
 
December 31, 2016
 
(In thousands, except share data)
ASSETS
 
 
 
Cash and cash equivalents
$
157,576

 
$
253,651

Accounts receivable, net of allowance of $775 and $676, respectively
108,659

 
63,853

Assets of a business held for sale

 
133,272

Other current assets
45,847

 
39,618

Total current assets
312,082

 
490,394

Property and equipment, net of accumulated depreciation and amortization of $89,482 and $70,667, respectively
62,934

 
62,954

Goodwill
1,250,113

 
1,206,447

Intangible assets, net of accumulated amortization of $11,414 and $9,350, respectively
230,670

 
217,682

Deferred income taxes
245,549

 
5,286

Long-term investments
62,159

 
55,355

Other non-current assets
12,018

 
10,560

TOTAL ASSETS
$
2,175,525

 
$
2,048,678

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
LIABILITIES
 
 
 
Accounts payable
$
18,311

 
$
7,357

Deferred revenue
196,568

 
161,124

Liabilities of a business held for sale

 
37,058

Accrued expenses and other current liabilities
126,001

 
108,720

Total current liabilities
340,880

 
314,259

Long-term debt
1,253,998

 
1,176,493

Income taxes payable
8,382

 
9,126

Deferred income taxes
29,297

 
25,339

Other long-term liabilities
14,968

 
20,877

Redeemable noncontrolling interests
5,947

 
6,062

Commitments and contingencies

 

SHAREHOLDERS' EQUITY
 
 
 
Common stock, $0.001 par value, authorized 1,500,000,000 shares; 63,099,199 and 45,797,402 issued and outstanding at September 30, 2017 and December 31, 2016, respectively
63

 
46

Class B convertible common stock; $0.001 par value; authorized 1,500,000,000 shares; 209,919,402 shares issued and outstanding
210

 
210

Class C common stock; $0.001 par value; authorized 1,500,000,000 shares; no shares issued and outstanding

 

Preferred stock; $0.001 par value; authorized 500,000,000 shares; no shares issued and outstanding

 

Additional paid-in capital
89,030

 
490,587

Retained earnings
541,234

 
182,063

Accumulated other comprehensive loss
(108,484
)
 
(176,384
)
Total Match Group, Inc. shareholders' equity
522,053

 
496,522

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$
2,175,525

 
$
2,048,678

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.


3


MATCH GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
(In thousands, except per share data)
Revenue
$
343,418

 
$
287,530

 
$
951,754

 
$
823,240

Operating costs and expenses:
 
 
 
 
 
 
 
Cost of revenue (exclusive of depreciation shown separately below)
72,044

 
50,770

 
193,557

 
141,516

Selling and marketing expense
94,870

 
87,889

 
289,706

 
281,156

General and administrative expense
49,940

 
30,014

 
137,721

 
104,383

Product development expense
27,008

 
17,345

 
73,089

 
58,438

Depreciation
8,147

 
7,192

 
23,619

 
20,119

Amortization of intangibles
401

 
3,382

 
1,208

 
15,004

Total operating costs and expenses
252,410

 
196,592

 
718,900

 
620,616

Operating income
91,008

 
90,938

 
232,854

 
202,624

Interest expense
(19,548
)
 
(20,850
)
 
(57,570
)
 
(61,872
)
Other (expense) income, net
(9,925
)
 
6,034

 
(25,453
)
 
4,389

Earnings from continuing operations, before tax
61,535

 
76,122

 
149,831

 
145,141

Income tax benefit (provision)
226,236

 
(19,973
)
 
214,039

 
(41,615
)
Net earnings from continuing operations
287,771

 
56,149

 
363,870

 
103,526

(Loss) income from discontinued operations, net of tax
(85
)
 
555

 
(4,647
)
 
(5,502
)
Net earnings
287,686

 
56,704

 
359,223

 
98,024

Net loss (earnings) attributable to redeemable noncontrolling interests
2

 
(294
)
 
(52
)
 
(384
)
Net earnings attributable to Match Group, Inc. shareholders
$
287,688

 
$
56,410

 
$
359,171

 
$
97,640

 
 
 
 
 
 
 
 
Net earnings per share from continuing operations:
 
 
 
 
 
 
 
     Basic
$
1.08

 
$
0.22

 
$
1.39

 
$
0.41

     Diluted
$
0.98

 
$
0.21

 
$
1.22

 
$
0.38

Net earnings per share attributable to Match Group, Inc. shareholders:
 
 
 
 
 
 
 
     Basic
$
1.08

 
$
0.22

 
$
1.38

 
$
0.39

     Diluted
$
0.98

 
$
0.21

 
$
1.21

 
$
0.36

 
 
 
 
 
 
 
 
Stock-based compensation expense by function:
 
 
 
 
 
 
 
Cost of revenue
$
430

 
$
378

 
$
1,246

 
$
1,093

Selling and marketing expense
1,146

 
853

 
3,253

 
2,555

General and administrative expense
12,669

 
7,479

 
35,740

 
26,250

Product development expense
5,704

 
2,008

 
13,388

 
10,912

Total stock-based compensation expense
$
19,949

 
$
10,718

 
$
53,627

 
$
40,810

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.


4


MATCH GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE OPERATIONS (Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
(In thousands)
Net earnings
$
287,686

 
$
56,704

 
$
359,223

 
$
98,024

Other comprehensive income, net of tax
 
 
 
 
 
 
 
Change in foreign currency translation adjustment (a)
33,750

 
1,086

 
68,440

 
7,045

Change in fair value of available-for-sale securities (b)

 

 

 
(2,964
)
Total other comprehensive income
33,750

 
1,086

 
68,440

 
4,081

Comprehensive income
321,436

 
57,790

 
427,663

 
102,105

Comprehensive income attributable to redeemable noncontrolling interests
(273
)
 
(359
)
 
(592
)
 
(448
)
Comprehensive income attributable to Match Group, Inc. shareholders
$
321,163

 
$
57,431

 
$
427,071

 
$
101,657

______________________
(a)
The nine months ended September 30, 2017 includes amounts reclassified out of other comprehensive income into earnings. See "Note 6—Accumulated Other Comprehensive Loss" for additional information.
(b)
The nine months ended September 30, 2016 includes unrealized gains reclassified out of other comprehensive income into earnings. See "Note 6—Accumulated Other Comprehensive Loss" for additional information.
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.


5


MATCH GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Unaudited)
Nine Months Ended September 30, 2017
 
 
 
 
 
 
 
 
 
 
Common Stock
 $0.001
  Par Value
 
Class B Convertible Common Stock $0.001
Par Value
 
 
 
 
 
 
 
 
 
Redeemable
Noncontrolling
Interests
 
 
$
 
Shares
 
$
 
Shares
 
Additional Paid-in Capital
 
Retained Earnings
 
Accumulated
Other
Comprehensive
(Loss) Income
 
Total
Shareholders'
Equity
 
 
 
 
(In thousands)
Balance as of December 31, 2016
$
6,062

 
 
$
46

 
45,797

 
$
210

 
209,919

 
$
490,587

 
$
182,063

 
$
(176,384
)
 
$
496,522

Net earnings for the nine months ended September 30, 2017
52

 
 

 

 

 

 

 
359,171

 

 
359,171

Other comprehensive income, net of tax
540

 
 

 

 

 

 

 

 
67,900

 
67,900

Stock-based compensation expense

 
 

 

 

 

 
39,141

 

 

 
39,141

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

 
 
6

 
6,164

 

 

 
(243,239
)
 

 

 
(243,233
)
Issuance of common stock to IAC pursuant to the employee matters agreement

 
 
11

 
11,138

 

 

 
(197,566
)
 

 

 
(197,555
)
Purchase of redeemable noncontrolling interests
(436
)
 
 

 

 

 

 

 

 

 

Adjustment of redeemable noncontrolling interests to fair value
(107
)
 
 

 

 

 

 
107

 

 

 
107

Other
(164
)
 
 

 

 

 

 

 

 

 

Balance as of September 30, 2017
$
5,947

 
 
$
63

 
63,099

 
$
210

 
209,919

 
$
89,030

 
$
541,234

 
$
(108,484
)
 
$
522,053


The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.


6


MATCH GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
 
Nine Months Ended September 30,
 
2017
 
2016
 
(In thousands)
Cash flows from operating activities attributable to continuing operations:
 
 
 
Net earnings from continuing operations
$
363,870

 
$
103,526

Adjustments to reconcile net earnings from continuing operations to net cash provided by operating activities attributable to continuing operations:
 
 
 
Stock-based compensation expense
53,627

 
40,810

Depreciation
23,619

 
20,119

Amortization of intangibles
1,208

 
15,004

Deferred income taxes
(239,796
)
 
(3,123
)
Acquisition-related contingent consideration fair value adjustments
4,397

 
(2,723
)
Other adjustments, net
16,578

 
(1,706
)
Changes in assets and liabilities
 
 
 
Accounts receivable
(42,902
)
 
(2,640
)
Other assets
(9,001
)
 
(11,741
)
Accounts payable and accrued expenses and other current liabilities
15,399

 
5,244

Income taxes payable
11,923

 
7,166

Deferred revenue
30,717

 
25,538

Net cash provided by operating activities attributable to continuing operations
229,639

 
195,474

Cash flows from investing activities attributable to continuing operations:
 
 
 
Acquisitions, net of cash acquired

 
(456
)
Capital expenditures
(21,638
)
 
(36,983
)
Proceeds from the sale of a business, net
96,144

 

Proceeds from sale of a marketable security

 
11,716

Purchase of investments
(9,076
)
 
(500
)
Other, net
41

 
4,600

Net cash provided by (used in) investing activities attributable to continuing operations
65,471

 
(21,623
)
Cash flows from financing activities attributable to continuing operations:
 
 
 
Term Loan borrowings
75,000

 

Proceeds from bond offering

 
400,000

Principal payments on Term Loan

 
(410,000
)
Debt issuance costs
(1,814
)
 
(5,048
)
Proceeds from issuance of common stock pursuant to stock-based awards
57,705

 
30,246

Cash payments to purchase fully vested equity awards and pay withholding taxes on behalf of employees on net settled stock-based awards
(501,437
)
 
(29,779
)
Purchase of redeemable noncontrolling interests
(436
)
 
(1,129
)
Acquisition-related contingent consideration payments
(23,429
)
 

Other, net
(165
)
 
(12,181
)
Net cash used in financing activities attributable to continuing operations
(394,576
)
 
(27,891
)
Total cash (used in) provided by continuing operations
(99,466
)
 
145,960

Net cash used in operating activities attributable to discontinued operations
(6,061
)
 
(643
)
Net cash used in investing activities attributable to discontinued operations
(471
)
 
(3,470
)
Total cash used in discontinued operations
(6,532
)
 
(4,113
)
Effect of exchange rate changes on cash and cash equivalents
9,923

 
1,134

Net (decrease) increase in cash and cash equivalents
(96,075
)
 
142,981

Cash and cash equivalents at beginning of period
253,651

 
88,173

Cash and cash equivalents at end of period
$
157,576

 
$
231,154

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.


7


MATCH GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 1—THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Match Group, Inc. is the world's leading provider of dating products. We operate a portfolio of over 45 brands, including Match, Tinder, PlentyOfFish, Meetic, OkCupid, Pairs, Twoo, OurTime, BlackPeopleMeet and LoveScout24, 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 42 languages across more than 190 countries. Following the sale of our Non-dating segment in March 2017, Match Group is managed as a portfolio of dating brands and has one operating segment, Dating.
Through the brands within our Dating business, we are a leading provider of membership-based and ad-supported dating products servicing North America, Western Europe and many other regions around the world. We provide these services through websites and mobile and web applications that we own and operate.
At September 30, 2017, IAC/InterActiveCorp's ("IAC") ownership interest and voting interest in Match Group were 81.3% and 97.6%, respectively.
All references to "Match Group," the "Company," "we," "our," or "us" in this report are to Match Group, Inc.
Basis of Presentation and Consolidation
The Company prepares its consolidated financial statements in accordance with U.S. generally accepted accounting principles ("GAAP"). The unaudited interim consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and reflect, in management's opinion, all adjustments, consisting of normal and recurring adjustments, necessary for the fair presentation of our financial position, results of operations and cash flows for the periods presented. Interim results are not necessarily indicative of the results that may be expected for the full year. The accompanying unaudited consolidated financial statements should be read in conjunction with the consolidated and combined statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2016.
The consolidated financial statements include the accounts of the Company, all entities that are wholly-owned by the Company and all entities in which the Company has a controlling financial interest. All intercompany transactions and balances between and among the Company, its subsidiaries and the entities comprising Match Group have been eliminated.
For the purposes of these financial statements, income taxes have been computed for Match Group on an as if stand-alone, separate tax return basis.
Accounting Estimates
Management of the Company is required to make certain estimates, judgments and assumptions during the preparation of its consolidated financial statements in accordance with GAAP. These estimates, judgments and assumptions impact the reported amounts of assets, liabilities, revenue and expenses and the related disclosure of contingent assets and liabilities.
On an ongoing basis, the Company evaluates its estimates and judgments including those related to: the recoverability of goodwill and indefinite-lived intangible assets; the useful lives and recoverability of definite-lived intangible assets and property and equipment; the fair value of long-term investments; the carrying value of accounts receivable, including the determination of the allowance for doubtful accounts; the determination of revenue reserves; the fair value of acquisition-related contingent consideration arrangements; the liabilities for uncertain tax positions; the valuation allowance for deferred income tax assets; and the fair value of and forfeiture rates for stock-based awards, among others. The Company bases its estimates and judgments on historical experience, its forecasts and budgets and other factors that the Company considers relevant. Actual results could differ from those estimates.


8



MATCH GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

Recent Accounting Pronouncements
Accounting Pronouncements not yet adopted by the Company
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers, which clarifies the principles for recognizing revenue and develops a common standard for all industries. ASU No. 2014-09 was subsequently amended during 2015, 2016 and 2017; these amendments provide further revenue recognition guidance related to principal versus agent considerations, performance obligations and licensing, and narrow-scope improvements and practical expedients.
ASU No. 2014-09 is a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under U.S. GAAP. The new standard provides a single principles-based, five-step model to be applied to all contracts with customers. This five-step model includes (1) identifying the contract(s) with the customer, (2) identifying the performance obligations in the contract, (3) determining the transaction price, (4) allocating the transaction price to the performance obligations in the contract and (5) recognizing revenue when each performance obligation is satisfied. More specifically, revenue will be recognized when promised goods or services are transferred to the customer in an amount that reflects the consideration expected in exchange for those goods or services. ASU No. 2014-09 is effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted for interim and annual reporting periods beginning after December 15, 2016. Upon adoption, ASU No. 2014-09 may either be applied retrospectively to each prior period presented or using the modified retrospective approach with the cumulative effect recognized as of the date of initial application.
While the Company’s evaluation of the impact the adoption of ASU No. 2014-09 on its consolidated financial statements continues, it has progressed to the point where we have reached certain determinations. The Company will adopt ASU No. 2014-09 using the modified retrospective approach effective January 1, 2018. The Company’s assessment of the accounting for mobile app store fees incurred in connection with obtaining members is still preliminary and ongoing. The Company currently capitalizes these costs and amortizes them over the period of the applicable membership periods, which generally range from one to six months. The Company’s initial conclusions in applying ASU No. 2014-09 to these costs were: (1) these costs represent the incremental direct costs of obtaining a membership contract and (2) would, therefore, continue to be capitalized and amortized as incurred. The Company is reassessing this conclusion in light of its finding that there are divergent and evolving interpretations of the correct application of ASU No. 2014-09 to these costs. The total capitalized mobile app store fees were $19.8 million as of September 30, 2017. The Company does not expect the adoption of ASU No. 2014-09 to have a material effect on its consolidated financial statements and does not expect to record a material adjustment to beginning retained earnings in the Form 10-Q for the period ending March 31, 2018.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which supersedes existing guidance on accounting for leases in "Leases (Topic 840)" and generally requires all leases to be recognized in the statement of financial position. The provisions of ASU No. 2016-02 are effective for reporting periods beginning after December 15, 2018; early adoption is permitted. The provisions of ASU No. 2016-02 are to be applied using a modified retrospective approach. The Company will adopt ASU 2016-02 effective January 1, 2019. The Company is currently evaluating the impact that the adoption of this standard update will have on its consolidated financial statements.
Accounting Pronouncement adopted by the Company
In May 2017, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation (Topic 718): Scope of
Modification Accounting, which provides guidance about the changes to the terms and conditions of a share-based payment award for which an entity is required to apply modification accounting in "Stock Compensation (Topic 718)." The provisions of ASU No. 2017-09 are effective for reporting periods beginning after December 15, 2017; early adoption is permitted. The provisions of ASU No. 2017-09 are to be applied prospectively to an award modified on or after the adoption date. The Company early adopted the provisions of ASU No. 2017-09 during


9



MATCH GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

the third quarter of 2017 and the adoption of this standard update did not have a material impact on its consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, IntangiblesGoodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which is intended to simplify the accounting for goodwill impairment. The guidance eliminates the requirement to calculate the implied fair value of goodwill under the previous two-step impairment test to measure a goodwill impairment charge. The provisions of ASU No. 2017-04 are effective for reporting periods beginning after December 15, 2019; early adoption is permitted. The provisions of ASU No. 2017-04 are to be applied using a prospective approach. The Company adopted the provisions of ASU No. 2017-04 on January 1, 2017 and the adoption of this standard update did not have a material impact on its consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which clarifies how cash receipts and cash payments in certain transactions are presented and classified on the statement of cash flows. The provisions of ASU No. 2016-15 are effective for reporting periods beginning after December 15, 2017, including interim periods. Early adoption is permitted. Under ASU No. 2016-15, cash payments not made soon after the acquisition date of a business combination to settle a contingent consideration liability are separated and classified as cash outflows for operating activities and financing activities. Cash payments up to the amount of the contingent consideration liability initially recognized at the acquisition date (including measurement-period adjustments) are classified as financing activities; any excess is classified as operating activities. Cash payments made soon after the acquisition date of a business combination by an acquirer to settle a contingent consideration liability are classified as cash outflows for investing activities. The Company early adopted the provisions of ASU No. 2016-15 on January 1, 2017 and the adoption of this standard update did not have a material impact on its consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payments Accounting. The Company adopted the provisions of ASU No. 2016-09 on January 1, 2017. Excess tax benefits or deficiencies related to equity awards to employees upon exercise of stock options and the vesting of restricted stock units after January 1, 2017 are (i) reflected in the consolidated statement of operations as a component of the provision for income taxes, rather than recognized in equity, and (ii) reflected as operating, rather than financing, cash flows in our consolidated statement of cash flows. Excess tax benefits for the nine months ended September 30, 2017 was $263.6 million. Excess tax benefits of $25.9 million for the nine months ended September 30, 2016 were reclassified in the consolidated statement of cash flows to conform to the current year presentation. Upon adoption, the calculation of fully diluted shares excludes excess tax benefits from the assumed proceeds in applying the treasury stock method whereas they previously were included in this calculation; this change increased fully diluted shares by approximately 8.3 million and 2.7 million shares for the three and nine months ended September 30, 2017. The Company continues to account for forfeitures using an estimated forfeiture rate.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
NOTE 2—INCOME TAXES
Match Group is included within IAC's tax group for purposes of federal and consolidated state income tax return filings. In all periods presented, current income tax provision and deferred income tax benefit have been computed for Match Group on an as if stand-alone, separate return basis. Match Group's payments to IAC for its share of IAC's consolidated federal and state tax return liabilities have been reflected within cash flows from operating activities in the accompanying consolidated statement of cash flows.
At the end of each interim period, the Company makes its best estimate of the annual expected effective income tax rate and applies that rate to its ordinary year-to-date earnings or loss. The income tax provision or benefit related to significant, unusual, or extraordinary items, if applicable, that will be separately reported or


10



MATCH GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

reported net of their related tax effects are individually computed and recognized in the interim period in which they occur. In addition, the effect of changes in enacted tax laws or rates, tax status, judgment on the realizability of beginning-of-the-year deferred tax assets in future years or the liabilities for uncertain tax positions is recognized in the interim period in which the change occurs.
The computation of the annual expected effective income tax rate at each interim period requires certain estimates and assumptions including, but not limited to, the expected pre-tax income (or loss) for the year, projections of the proportion of income (and/or loss) earned and taxed in foreign jurisdictions, permanent and temporary differences, and the likelihood of the realization of deferred tax assets generated in the current year. The accounting estimates used to compute the provision or benefit for income taxes may change as new events occur, more experience is acquired, additional information is obtained or our tax environment changes. To the extent that the expected annual effective income tax rate changes during a quarter, the effect of the change on prior quarters is included in income tax provision in the quarter in which the change occurs.
For the three and nine months ended September 30, 2017, the Company recorded an income tax benefit from continuing operations of $226.2 million and $214.0 million, respectively. The income tax benefit for the three and nine months ended September 30, 2017 is due primarily to the effect of adopting the provisions of ASU No. 2016-09 on January 1, 2017. Under ASU No. 2016-09, excess tax benefits generated by the exercise, purchase or settlement of stock-based awards of $245.3 million and $263.6 million are recognized as a reduction to the income tax provision rather than as an increase to additional paid-in capital in the three and nine months ended September 30, 2017, respectively. For the three and nine months ended September 30, 2016, the Company recorded an income tax provision from continuing operations of $20.0 million and $41.6 million, respectively, which represents effective income tax rates of 26% and 29%, respectively. The effective tax rate for the three months ended September 30, 2016 is lower than the statutory rate of 35% due principally to foreign income taxed at lower rates and the non-taxable gain on contingent consideration fair value adjustments. The effective tax rate for the nine months ended September 30, 2016 is lower than the statutory rate of 35% due principally to foreign income taxed at lower rates.
The Company recognizes interest and, if applicable, penalties related to unrecognized tax benefits in the income tax provision. At September 30, 2017 and December 31, 2016, the Company had accrued $1.7 million and $1.5 million, respectively, for the payment of interest. At September 30, 2017 and December 31, 2016, the Company has accrued $1.5 million and $1.6 million, respectively, for penalties.
Match Group is routinely under audit by federal, state, local and foreign authorities in the area of income tax as a result of previously filed separate company tax returns and consolidated tax returns with IAC. These audits include questioning the timing and the amount of income and deductions and the allocation of income and deductions among various tax jurisdictions. The Internal Revenue Service is currently auditing IAC's federal income tax returns for the years ended December 31, 2010 through 2012, which includes the operations of Match Group. The statute of limitations for the years 2010 through 2013 has been extended to June 30, 2018. Various other jurisdictions are open to examination for tax years beginning with 2009. Income taxes payable include reserves considered sufficient to pay assessments that may result from examination of prior year tax returns. Changes to reserves from period to period and differences between amounts paid, if any, upon the resolution of audits and amounts previously provided may be material. Differences between the reserves for income tax contingencies and the amounts owed by the Company are recorded in the period they become known.
At both September 30, 2017 and December 31, 2016, unrecognized tax benefits, including interest and penalties, were $27.4 million. At September 30, 2017 and December 31, 2016, approximately $18.2 million and $17.7 million, respectively, was included in unrecognized tax benefits for tax positions included in IAC's consolidated tax return filings. If unrecognized tax benefits at September 30, 2017 are subsequently recognized, $24.8 million, net of related deferred tax assets and interest, would reduce income tax expense. The comparable amount as of December 31, 2016 was $25.9 million. The Company believes that it is reasonably possible that its unrecognized tax benefits could decrease by approximately $14.8 million within twelve months of September 30, 2017, due to expirations of statutes of limitations.


11



MATCH GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

The Company regularly assesses the realizability of deferred tax assets considering all available evidence including, among other things, the nature, frequency and severity of prior cumulative losses, forecasts of future taxable income, the duration of statutory carryforward periods, available tax planning and historical experience, to the extent these items are applicable.  As of September 30, 2017, the Company has a gross deferred tax asset of $257.4 million that the Company expects to fully utilize on a more likely than not basis.
NOTE 3—DISCONTINUED OPERATIONS
On March 31, 2017, Match Group sold its Non-dating business, which operated under the umbrella of The Princeton Review, to ST Unitas, a global education technology company. We recognized a loss on the sale of the business of $1.2 million, which is reported within discontinued operations.
The components of assets and liabilities of a business held for sale in the accompanying consolidated balance sheet at December 31, 2016 consisted of the following:
 
December 31, 2016
 
(In thousands)
Accounts receivable, net
$
8,677

Other current assets
3,847

Property and equipment, net
6,774

Goodwill
74,396

Intangible assets, net
31,488

Other non-current assets
8,090

Total assets of a business held for sale
$
133,272

 
 
Accounts payable
$
3,467

Deferred revenue
22,886

Accrued expenses and other current liabilities
8,771

Other long-term liabilities
1,934

Total liabilities of a business held for sale
$
37,058

The key components of (loss) income from discontinued operations for the three and nine months ended September 30, 2017 and 2016 consist of the following:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
(In thousands)
Revenue
$

 
$
28,917

 
$
23,980

 
$
79,609

Operating costs and expenses

 
(28,101
)
 
(29,601
)
 
(87,623
)
Operating income (loss)

 
816

 
(5,621
)
 
(8,014
)
Other (expense) income
(168
)
 
110

 
(1,171
)
 
65

Income tax benefit (expense)
83

 
(371
)
 
2,145

 
2,447

(Loss) income from discontinued operations
$
(85
)
 
$
555

 
$
(4,647
)
 
$
(5,502
)



12



MATCH GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

NOTE 4—FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS
The Company categorizes its financial instruments measured at fair value into a fair value hierarchy that prioritizes the inputs used in pricing the asset or liability. The three levels of the fair value hierarchy are:
Level 1: Observable inputs obtained from independent sources, such as quoted prices for identical assets and liabilities in active markets.
Level 2: Other inputs, which are observable directly or indirectly, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and inputs that are derived principally from or corroborated by observable market data. The fair values of the Company's Level 2 financial assets are primarily obtained from observable market prices for identical underlying securities that may not be actively traded. Certain of these securities may have different market prices from multiple market data sources, in which case an average market price is used.
Level 3: Unobservable inputs for which there is little or no market data and require the Company to develop its own assumptions, based on the best information available in the circumstances, about the assumptions market participants would use in pricing the assets or liabilities. See below for a discussion of fair value measurements made using Level 3 inputs.
The following tables present the Company's financial instruments that are measured at fair value on a recurring basis:
 
September 30, 2017
 
Quoted Market
Prices in Active
Markets for
Identical Assets
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
Fair Value
Measurements
 
(In thousands)
Assets:
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
40,895

 
$

 
$

 
$
40,895

Time deposits

 
5,942

 

 
5,942

Total
$
40,895

 
$
5,942

 
$

 
$
46,837

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Contingent consideration arrangements
$

 
$

 
$
(1,792
)
 
$
(1,792
)
 
December 31, 2016
 
Quoted Market
Prices in Active
Markets for
Identical Assets
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
Fair Value
Measurements
 
(In thousands)
Assets:
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
85,225

 
$

 
$

 
$
85,225

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Contingent consideration arrangements
$

 
$

 
$
(19,418
)
 
$
(19,418
)


13



MATCH GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

The following tables present the changes in the Company's financial instruments that are measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
 
Three Months Ended September 30,
 
2017
 
2016
 
Contingent
Consideration
Arrangements
 
(In thousands)
Balance at July 1
$
(24,829
)
 
$
(34,732
)
Total net (losses) gains:
 
 
 
Fair value adjustments
(59
)
 
5,129

Included in other comprehensive loss
(333
)
 
(332
)
Settlements
23,429

 

Balance at September 30
$
(1,792
)
 
$
(29,935
)
 
Nine Months Ended September 30,
 
2017
 
2016
 
Contingent
Consideration
Arrangements
 
(In thousands)
Balance at January 1
$
(19,418
)
 
$
(28,993
)
Total net (losses) gains:
 
 
 
Fair value adjustments
(4,397
)
 
2,723

Included in other comprehensive loss
(1,406
)
 
(5,613
)
Fair value at date of acquisition

 
(185
)
Settlements
23,429

 

Other

 
2,133

Balance at September 30
$
(1,792
)
 
$
(29,935
)
Contingent consideration arrangements
As of September 30, 2017, there is one contingent consideration arrangement related to a business acquisition. The maximum contingent payment related to this arrangement is $3.0 million and the gross fair value of this arrangement, before the unamortized discount, at September 30, 2017 is $2.1 million.
The sole remaining contingent consideration arrangement is based upon earnings performance. Previous contingent consideration arrangements were based upon earnings performance and/or operating metrics. The Company determined the fair value of the contingent consideration arrangement by using probability-weighted analyses to determine the amounts of the gross liability, and, because the arrangement is long-term in nature, applying a discount rate, that appropriately captures the risks associated with the obligation to determine the net amount reflected in the consolidated financial statements. The fair values of the contingent consideration arrangements at both September 30, 2017 and December 31, 2016 reflect a 12% discount rate.
The fair value of contingent consideration arrangements is sensitive to changes in the forecasts of earnings and changes in discount rates. The Company remeasures the fair value of the contingent consideration arrangement each reporting period, including the accretion of the discount, if applicable, and changes are recognized in “General and administrative expense” in the accompanying consolidated statement of operations. The contingent consideration arrangement liability at September 30, 2017 and December 31, 2016 includes a


14



MATCH GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

current portion of $0.6 million and $19.0 million, respectively, and non-current portion of $1.2 million and $0.4 million, respectively, which are included in “Accrued expenses and other current liabilities” and “Other long-term liabilities,” respectively, in the accompanying consolidated balance sheet.
Assets measured at fair value on a nonrecurring basis
The Company's non-financial assets, such as goodwill, intangible assets and property and equipment, as well as cost method investments, are adjusted to fair value only when an impairment charge is recognized. Such fair value measurements are based predominantly on Level 3 inputs.
Cost method investments
At September 30, 2017 and December 31, 2016, the carrying values of the Company's investments accounted for under the cost method totaled $62.2 million and $55.4 million, respectively, and are included in "Long-term investments" in the accompanying consolidated balance sheet. The Company evaluates each cost method investment for impairment on a quarterly basis and recognizes an impairment loss if a decline in value is determined to be other-than-temporary. If the Company has not identified events or changes in circumstances that may have a significant adverse effect on the fair value of a cost method investment, then the fair value of such cost method investment is not estimated, as it is impracticable to do so. During the first quarter of each of 2017 and 2016, we recognized other-than-temporary impairment charges of $2.3 million and $0.7 million, respectively, related to certain cost method investments as a result of our assessment of the near-term prospects and financial condition of the investees. The fair value measurements of these impairments are based on Level 3 inputs.
On October 23, 2017, a cost method investment with a carrying value of $51.1 million was sold for net cash proceeds of $60.2 million resulting in a pre-tax gain of $9.1 million, which will be recognized in the fourth quarter of 2017.
Financial instruments measured at fair value only for disclosure purposes
The following table presents the carrying value and the fair value of financial instruments measured at fair value only for disclosure purposes.
 
September 30, 2017
 
December 31, 2016
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
 
(In thousands)
Long-term debt
$
(1,253,998
)
 
$
(1,322,039
)
 
$
(1,176,493
)
 
$
(1,244,641
)
The fair value of long-term debt is estimated using market prices or indices for similar liabilities and taking into consideration other factors such as credit quality and maturity, which are Level 3 inputs.


15



MATCH GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

NOTE 5—LONG-TERM DEBT
Long-term debt consists of:
 
September 30, 2017
 
December 31, 2016
 
(In thousands)
6.375% Senior Notes due June 1, 2024 (the "2016 Senior Notes"); interest payable each June 1 and December 1, which commenced December 1, 2016
$
400,000

 
$
400,000

6.75% Senior Notes due December 15, 2022 (the "2015 Senior Notes"); interest payable each June 15 and December 15, which commenced June 15, 2016
445,172

 
445,172

Term Loan due November 16, 2022 (a)
425,000

 
350,000

Total debt
1,270,172

 
1,195,172

Less: Unamortized original issue discount and original issue premium, net
4,470

 
5,245

Less: Unamortized debt issuance costs
11,704

 
13,434

Total long-term debt
$
1,253,998

 
$
1,176,493

______________________
(a)
The Term Loan matures on November 16, 2022; provided that, if any of the 2015 Senior Notes remain outstanding on the date that is 91 days prior to the maturity date of the 2015 Senior Notes, the Term Loan maturity date shall be September 15, 2022, the date that is 91 days prior to the maturity date of the 2015 Senior Notes.
Senior Notes:
The 2016 Senior Notes were issued on June 1, 2016. The proceeds of $400 million were used to repay a portion of indebtedness then outstanding under the Term Loan. At any time prior to June 1, 2019, these notes may be redeemed at a redemption price equal to the sum of the principal amount thereof, plus accrued and unpaid interest and a make-whole premium. Thereafter, these notes may be redeemed at redemption prices set forth in the indenture governing the 2016 Senior Notes, together with accrued and unpaid interest thereon to the applicable redemption date.
The 2015 Senior Notes were issued on November 16, 2015, in exchange for a portion of IAC's 4.75% Senior Notes due December 15, 2022 (the "IAC 2012 Senior Notes") (the "Match Exchange Offer"). Promptly following the Match Exchange Offer, the Company and its subsidiaries were designated as unrestricted subsidiaries of IAC for purposes of the indentures governing the IAC 4.875% Senior Notes due November 30, 2018, the IAC 2012 Senior Notes and the IAC Credit Facility. Following this designation, neither Match Group nor any of its subsidiaries guarantee any debt of IAC, or are subject to any of the covenants related to such debt. At any time prior to December 15, 2017, the 2015 Senior Notes may be redeemed at a redemption price equal to the sum of the principal amount thereof, plus accrued and unpaid interest and a make-whole premium. Thereafter, these notes may be redeemed at redemption prices set forth in the indenture governing the 2015 Senior Notes, together with accrued and unpaid interest thereon to the applicable redemption date.
The indentures governing the 2016 and 2015 Senior Notes contain covenants that would limit the Company's ability to pay dividends or to make distributions and repurchase or redeem Match Group stock in the event a default has occurred or Match Group's leverage ratio (as defined in the indentures) exceeds 5.0 to 1.0. At September 30, 2017, there were no limitations pursuant thereto. There are additional covenants that limit the ability of the Company and its subsidiaries to, among other things, (i) incur indebtedness, make investments, or sell assets in the event the Company is not in compliance with the financial ratio set forth in the indenture, and (ii)


16



MATCH GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

incur liens, enter into agreements restricting the ability of the Company's subsidiaries to pay dividends, enter into transactions with affiliates and consolidate, merge or sell substantially all of their assets.
Term Loan and Credit Facility:
On November 16, 2015, under a credit agreement (the "Credit Agreement"), the Company borrowed $800 million in the form of a term loan (the "Term Loan"). On March 31, 2016, the Company made a $10 million principal payment on the Term Loan. In addition, on June 1, 2016, the $400 million in proceeds from the 2016 Senior Notes were used to repay a portion of the Term Loan. On December 8, 2016, the Company made an additional $40 million principal payment on the Term Loan and the remaining outstanding balance of $350 million was repriced. On August 14, 2017, the Company borrowed an additional $75 million on the Term Loan and the outstanding balance of $425 million, which is due at maturity, was repriced. The Term Loan provides for additional annual principal payments as part of an excess cash flow sweep provision, the amount of which, if any, is governed by the secured net leverage ratio contained in the Credit Agreement. The Term Loan bears interest, at our option, at a base rate or LIBOR, plus 1.50% or 2.50%, respectively, and in the case of LIBOR, a floor of 0.00%. The interest rate on the Term Loan at September 30, 2017 is 3.81%. Interest payments are due at least quarterly through the term of the loan.
The Company has a $500 million revolving credit facility (the "Credit Facility") that expires on October 7, 2020. At September 30, 2017 and December 31, 2016, there were no outstanding borrowings under the Credit Facility. The annual commitment fee on undrawn funds based on the current leverage ratio is 30 basis points. Borrowings under the Credit Facility bear interest, at the Company's option, at a base rate or LIBOR, in each case plus an applicable margin, which is determined by reference to a pricing grid based on the Company's consolidated net leverage ratio. The terms of the Credit Facility require the Company to maintain a consolidated net leverage ratio of not more than 5.0 to 1.0 and a minimum interest coverage ratio of not less than 2.5 to 1.0.
There are additional covenants under the Credit Facility and the Term Loan that limit the ability of the Company and its subsidiaries to, among other things, incur indebtedness, pay dividends or make distributions. While the Term Loan remains outstanding, these same covenants under the Credit Agreement are more restrictive than the covenants that are applicable to the Credit Facility. Obligations under the Credit Facility and Term Loan are unconditionally guaranteed by certain Match Group wholly-owned domestic subsidiaries, and are also secured by the stock of certain Match Group domestic and foreign subsidiaries. The Term Loan and outstanding borrowings, if any, under the Credit Facility rank equally with each other, and have priority over the 2016 and 2015 Senior Notes to the extent of the value of the assets securing the borrowings under the Credit Agreement.
NOTE 6—ACCUMULATED OTHER COMPREHENSIVE LOSS
The following tables present the components of accumulated other comprehensive (loss) income and items reclassified out of accumulated other comprehensive loss into earnings:
 
Three Months Ended September 30, 2017
 
Foreign Currency Translation Adjustment
 
Accumulated Other Comprehensive (Loss) Income
 
(In thousands)
Balance at July 1
$
(141,959
)
 
$
(141,959
)
Other comprehensive income
33,475

 
33,475

Balance at September 30
$
(108,484
)
 
$
(108,484
)


17



MATCH GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

 
Three Months Ended September 30, 2016
 
Foreign Currency Translation Adjustment
 
Accumulated Other Comprehensive (Loss) Income
 
(In thousands)
Balance at July 1
$
(133,824
)
 
$
(133,824
)
Other comprehensive income
1,021

 
1,021

Balance at September 30
$
(132,803
)
 
$
(132,803
)
 
Nine Months Ended September 30, 2017
 
Foreign Currency Translation Adjustment
 
Accumulated Other Comprehensive (Loss) Income
 
(In thousands)
Balance at January 1
$
(176,384
)
 
$
(176,384
)
Other comprehensive income
67,186

 
67,186

Amounts reclassified into earnings
714

 
714

Net current period other comprehensive income
67,900

 
67,900

Balance at September 30
$
(108,484
)
 
$
(108,484
)
 
Nine Months Ended September 30, 2016
 
Foreign Currency Translation Adjustment
 
Unrealized Gain on Available-For-Sale Security
 
Accumulated Other Comprehensive (Loss) Income
 
(In thousands)
Balance at January 1
$
(139,784
)
 
$
2,964

 
$
(136,820
)
Other comprehensive income before reclassifications
6,981

 
94

 
7,075

Gain on sale of available-for-sale security reclassified into earnings

 
(3,058
)
 
(3,058
)
Net period other comprehensive (loss) income
6,981

 
(2,964
)
 
4,017

Balance at September 30
$
(132,803
)
 
$

 
$
(132,803
)
At both September 30, 2017 and 2016, there was no tax benefit or provision on the accumulated other comprehensive loss.


18



MATCH GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

NOTE 7—EARNINGS PER SHARE
The following tables set forth the computation of the basic and diluted earnings per share attributable to Match Group shareholders:
 
Three Months Ended September 30,
 
2017
 
2016
 
Basic
 
Diluted
 
Basic
 
Diluted
 
(In thousands, except per share data)
Numerator
 
 
 
 
 
 
 
Net earnings from continuing operations
$
287,771

 
$
287,771

 
$
56,149

 
$
56,149

Net loss (earnings) attributable to redeemable noncontrolling interests
2

 
2

 
(294
)
 
(294
)
Net earnings from continuing operations attributable to Match Group, Inc. shareholders
287,773

 
287,773

 
55,855

 
55,855

(Loss) earnings from discontinued operations, net of tax
(85
)
 
(85
)
 
555

 
555

Net earnings attributable to Match Group, Inc. shareholders
$
287,688

 
$
287,688

 
$
56,410

 
$
56,410

 
 
 
 
 
 
 
 
Denominator
 
 
 
 
 
 
 
Basic weighted average common shares outstanding
267,487

 
267,487

 
253,176

 
253,176

Dilutive securities including subsidiary denominated equity, stock options and RSU awards (a)(b)

 
25,573

 

 
16,848

Dilutive weighted average common shares outstanding
267,487

 
293,060

 
253,176

 
270,024

 
 
 
 
 
 
 
 
Earnings (loss) per share:
 
 
 
 
 
 
 
Earnings per share from continuing operations
$
1.08

 
$
0.98

 
$
0.22

 
$
0.21

(Loss) earnings per share from discontinued operations, net of tax
$
(0.00
)
 
$
(0.00
)
 
$
0.00

 
$
0.00

Earnings per share attributable to Match Group, Inc. shareholders
$
1.08

 
$
0.98

 
$
0.22

 
$
0.21



19



MATCH GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

 
Nine Months Ended September 30,
 
2017
 
2016
 
Basic
 
Diluted
 
Basic
 
Diluted
 
(In thousands, except per share data)
Numerator
 
 
 
 
 
 
 
Net earnings from continuing operations
$
363,870

 
$
363,870

 
$
103,526

 
$
103,526

Net earnings attributable to redeemable noncontrolling interests
(52
)
 
(52
)
 
(384
)
 
(384
)
Net earnings from continuing operations attributable to Match Group, Inc. shareholders
363,818

 
363,818

 
103,142

 
103,142

Loss from discontinued operations, net of tax
(4,647
)
 
(4,647
)
 
(5,502
)
 
(5,502
)
Net earnings attributable to Match Group, Inc. shareholders
$
359,171

 
$
359,171

 
$
97,640

 
$
97,640

 
 
 
 
 
 
 
 
Denominator
 
 
 
 
 
 
 
Basic weighted average common shares outstanding
260,876

 
260,876

 
250,316

 
250,316

Dilutive securities including subsidiary denominated equity, stock options and RSU awards (a)(b)

 
36,431

 

 
18,394

Dilutive weighted average common shares outstanding
260,876

 
297,307

 
250,316

 
268,710

 
 
 
 
 
 
 
 
Earnings (loss) per share:
 
 
 
 
 
 
 
Earnings per share from continuing operations
$
1.39

 
$
1.22

 
$
0.41

 
$
0.38

Loss per share from discontinued operations, net of tax
$
(0.02
)
 
$
(0.02
)
 
$
(0.02
)
 
$
(0.02
)
Earnings per share attributable to Match Group, Inc. shareholders
$
1.38

 
$
1.21

 
$
0.39

 
$
0.36

______________________
(a)
If the effect is dilutive, weighted average common shares outstanding include the incremental shares that would be issued upon the assumed exercise of subsidiary denominated equity and stock options or vesting of restricted stock units ("RSUs"). For the three and nine months ended September 30, 2017, 2.9 million and 4.4 million, potentially dilutive securities, respectively, and for the three and nine months ended September 30, 2016, 0.8 million and 11.2 million potentially dilutive securities, respectively, are excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive.
(b)
Market-based awards and performance-based stock options ("PSOs") and units (“PSUs”) are considered contingently issuable shares. Shares issuable upon exercise or vesting of market-based awards, PSOs and PSUs are included in the denominator for earnings per share if (i) the applicable market or performance condition(s) has been met and (ii) the inclusion of the market-based award, PSOs and PSUs is dilutive for the respective reporting periods. For each of the three and nine months ended September 30, 2017, 4.5 million shares underlying market-based awards, PSOs and PSUs and for each of the three and nine months ended September 30, 2016, 7.1 million shares underlying market-based awards, PSOs and PSUs were excluded from the calculation of diluted earnings per share because the market or performance conditions had not been met.


20



MATCH GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

NOTE 8—GEOGRAPHIC AND BUSINESS INFORMATION
Revenue by geography is based on where the customer is located. Geographic information about revenue and long-lived assets is presented below:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
(In thousands)
Revenue
 
 
 
 
 
 
 
United States
$
183,727

 
$
172,148

 
$
532,378

 
$
503,951

All other countries
159,691

 
115,382

 
419,376

 
319,289

Total
$
343,418

 
$
287,530

 
$
951,754

 
$
823,240

The United States is the only country whose revenue is greater than 10 percent of total revenue for the three and nine months ended September 30, 2017 and 2016.
 
September 30, 2017
 
December 31, 2016
 
(In thousands)
Long-lived assets (excluding goodwill and intangible assets)
 
 
 
United States
$
39,999

 
$
41,747

All other countries
22,935

 
21,207

Total
$
62,934

 
$
62,954

The only country, other than the United States, with greater than 10 percent of total long-lived assets (excluding goodwill and intangible assets), was France with $13.8 million and $14.3 million as of September 30, 2017 and December 31, 2016, respectively.
The following table presents revenue disaggregated by type of service:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
(In thousands)
Revenue
 
 
 
 
 
 
 
Direct revenue
$
330,098

 
$
273,727

 
$
917,273

 
$
786,176

Indirect revenue
13,320

 
13,803

 
34,481

 
37,064

Total
$
343,418

 
$
287,530

 
$
951,754

 
$
823,240



21



MATCH GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

NOTE 9—CONTINGENCIES
In the ordinary course of business, the Company is a party to various lawsuits. The Company establishes reserves for specific legal matters when it determines that the likelihood of an unfavorable outcome is probable and the loss is reasonably estimable. Management has also identified certain other legal matters where we believe an unfavorable outcome is not probable and, therefore, no reserve is established. Although management currently believes that resolving claims against us, including claims where an unfavorable outcome is reasonably possible, will not have a material impact on the liquidity, results of operations, or financial condition of the Company, these matters are subject to inherent uncertainties and management's view of these matters may change in the future. The Company also evaluates other contingent matters, including income and non-income tax contingencies, to assess the likelihood of an unfavorable outcome and estimated extent of potential loss. It is possible that an unfavorable outcome of one or more of these lawsuits or other contingencies could have a material impact on the liquidity, results of operations, or financial condition of the Company. See "Note 2—Income Taxes" for additional information related to income tax contingencies.
NOTE 10—RELATED PARTY TRANSACTIONS
Relationship with IAC
In connection with the IPO in November 2015, the Company entered into certain agreements relating to our relationship with IAC after the IPO. These agreements include a master transaction agreement; an investor rights agreement; a tax sharing agreement; a services agreement; an employee matters agreement and a subordinated loan agreement.
The Company has entered into certain arrangements with IAC in the ordinary course of business, which have continued post IPO, for: (i) the leasing of office space for certain of our businesses at properties owned by IAC, for which we paid IAC approximately $1.2 million and $3.8 million for the three and nine months ended September 30, 2017, respectively, and $1.1 million and $3.1 million for the three and nine months ended September 30, 2016, respectively, and (ii) the subleasing of space in a data center from an IAC subsidiary, for which we paid such IAC subsidiary approximately $0.3 million and $0.9 million for the three and nine months ended September 30, 2016, respectively, and discontinued subleasing as of December 31, 2016. For the three and nine months ended September 30, 2017, the Company was charged $2.6 million and $7.9 million, respectively, and for the three and nine months ended September 30, 2016, the Company was charged $2.9 million and $8.7 million, respectively, by IAC for services rendered pursuant to a services agreement (including the leasing of office space noted above). All such amounts were paid in full by the Company at September 30, 2017.
The employee matters agreement provides, among other things, that: (i) with respect to equity awards denominated in shares of certain of the Company’s subsidiaries, IAC may elect to cause such equity awards to be settled in either shares of IAC common stock or Company common stock and, to the extent that shares of IAC common stock are issued in settlement of such equity awards, the Company will reimburse IAC for the cost of such shares of IAC common stock by issuing to IAC additional shares of Company common stock; and (ii) the Company will reimburse IAC for the cost of any IAC equity awards held by the Company’s employees and former employees and that IAC may elect to receive payment either in cash or Company common stock.
During the nine months ended September 30, 2017, 11.1 million shares of Company common stock were issued to IAC pursuant to the employee matters agreement. This includes 10.6 million shares issued as reimbursement for shares of IAC common stock issued in connection with the exercise and settlement of the Tinder equity plan and 0.5 million shares issued as reimbursement for shares of IAC common stock issued in connection with the exercise and vesting of IAC equity awards held by Company employees.


22


Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations
GENERAL
Key Terms:
When the following terms appear in this report, they have the meanings indicated below:
Dating - consists of all of our dating businesses globally.
Non-dating - consists of The Princeton Review, which was sold on March 31, 2017, for which the financial results have been presented as discontinued operations.
Operating metrics:
North America - consists of financial results and metrics associated with customers located in the United States and Canada.
International - consists of financial results and metrics associated with customers located outside of the United States and Canada.
Direct Revenue - is revenue that is directly received from an end user of our products.
Indirect Revenue - is revenue that is not received directly from an end user of our products, substantially all of which is advertising revenue.
Average PMC - is calculated by summing the number of paid members, or paid member count ("PMC"), at the end of each day in the relevant measurement period and dividing it by the number of calendar days in that period. PMC as of any given time represents the number of users with a paid membership at that time. Users who purchase only à la carte features from us do not qualify as paid members for purposes of PMC.
Average Revenue Per Paying User ("ARPPU") - is Direct Revenue from paid members included in Average PMC in the relevant measurement period (whether in the form of subscription payments or à la carte payments) divided by the Average PMC in such period divided by the number of calendar days in such period.
Operating costs and expenses:
Cost of revenue - consists primarily of compensation (including stock-based compensation) and other employee-related costs for personnel engaged in data center and customer care functions, in-app purchase fees, credit card processing fees, hosting fees, and data center rent, energy and bandwidth costs. In-app purchase fees are monies paid to Apple and Google for the distribution and facilitation of in-app purchases of product features.
Selling and marketing expense - consists primarily of advertising expenditures and compensation (including stock-based compensation) and other employee-related costs for personnel engaged in selling and marketing, and sales support functions. Advertising expenditures includes online marketing, including fees paid to search engines and social media, offline marketing (which is primarily television advertising), and partner-related payments to those who direct traffic to our brands.
General and administrative expense - consists primarily of compensation (including stock-based compensation) and other employee-related costs for personnel engaged in executive management, finance, legal, tax and human resources, acquisition-related contingent consideration fair value adjustments (described below), fees for professional services and facilities costs.
Product development expense - consists primarily of compensation (including stock-based compensation) and other employee-related costs that are not capitalized for personnel engaged in the design, development, testing and enhancement of product offerings and related technology.
Acquisition-related contingent consideration fair value adjustments - relate to the portion of the purchase price (of certain acquisitions) that is contingent upon the future operating performance of the acquired company.  The amounts ultimately paid are generally dependent upon earnings performance


23


and/or operating metrics as stipulated in the relevant purchase agreements.  The fair value of the liability is estimated at the date of acquisition and adjusted each reporting period to fair value until the liability is settled.  If the payment date of the liability is longer than one year, the amount is initially recorded net of a discount, which is amortized as an expense each period.  In a period where the acquired company is expected to perform better than the previous estimate, the liability will be increased resulting in additional expense; and in a period when the acquired company is expected to perform worse than the previous estimate, the liability will be decreased resulting in income.  The year-over-year impact can be significant, for example, if there is income in one period and expense in the other period.
Long-term debt:
Term Loan - The Company's seven-year term loan entered into on November 16, 2015. On August 14, 2017 the Term Loan was increased by $75 million and the outstanding balance was repriced at LIBOR plus 2.50%, with a LIBOR floor of 0.00%. At September 30, 2017, $425 million is outstanding.
2015 Senior Notes - The Company's 6.75% Senior Notes due December 15, 2022, with interest payable each June 15 and December 15, which were issued on November 16, 2015.
2016 Senior Notes - The Company's 6.375% Senior Notes due June 1, 2024, with interest payable each June 1 and December 1, which were issued on June 1, 2016.
Non-GAAP financial measure:
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") - is a Non-GAAP financial measure. See "Match Group Inc.'s Principles of Financial Reporting" for the definition of Adjusted EBITDA.
Management Overview
Match Group, Inc. ("Match Group," the "Company," "we," "our," or "us") is the world’s leading provider of dating products. We operate a portfolio of over 45 brands, including Match, Tinder, PlentyOfFish, Meetic, OkCupid, Pairs, Twoo, OurTime, BlackPeopleMeet and LoveScout24, 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 products in 42 languages across more than 190 countries.
For a more detailed description of the Company's operating businesses, see the Company's Annual Report on Form 10-K for the year ended December 31, 2016.
Additional Information
Investors and others should note that we announce material financial and operational information to our investors using our investor relations website at http://ir.mtch.com, Securities and Exchange Commission ("SEC") filings, press releases and public conference calls. We use these channels as well as social media to communicate with our users and the public about our company, our services and other issues. It is possible that the information we post on social media could be deemed to be material information. Accordingly, investors, the media, and others interested in our company should monitor the social media channels listed on our investor relations website in addition to following our SEC filings, press releases and public conference calls. Neither the information on our website, nor the information on the website of any Match Group business, is incorporated by reference into this report, or into any other filings with, or into any other information furnished or submitted to, the SEC.
2017 Developments
In January 2017, we entered into a definitive agreement to sell The Princeton Review to ST Unitas, a global education technology company.  The transaction closed on March 31, 2017 and the results of the Non-dating segment have been included in discontinued operations. The Company's financial information for prior periods has been recast to conform to this presentation.
In July 2017, Match Group elected to convert all outstanding equity awards of its wholly-owned Tinder business, which awards were primarily held by current and former Tinder employees, to stock options of Match Group. Subsequently, during the third quarter of 2017, we made cash payments totaling approximately $500


24


million to cover (i) withholding taxes paid on behalf of employees who exercised options on a net basis and (ii) the purchase of certain fully vested awards.
In August 2017, we increased our Term Loan by $75 million to $425 million and repriced the Term Loan, reducing the applicable interest margin by 0.75% per annum to LIBOR plus 2.50%, with a LIBOR floor of 0.00% (previously, the terms were LIBOR plus 3.25%, with a LIBOR floor of 0.75%).
Third Quarter and Year to Date September 30, 2017 Consolidated Results
For the three months ended September 30, 2017 compared to the three months ended September 30, 2016, revenue grew 19% primarily due to strong contributions from Tinder; operating income was flat compared to the prior year quarter; and Adjusted EBITDA grew 12%. The adjusted EBITDA growth was due primarily to both higher revenue and lower selling and marketing expense as a percentage of revenue due to the continued shift toward brands with lower marketing spend as a percentage of revenue, partially offset by an increase in cost of revenue, primarily due to in-app purchase fees, and an increase in employee compensation primarily related to the employer portion of payroll taxes paid upon the exercise of Match Group options and increased headcount at Tinder. Operating income was flat compared to the prior year quarter because of increased non-cash compensation expense, primarily due to an increase in expense related to a subsidiary denominated equity award issued to a non-employee and, to a lesser degree, an increase in contingent consideration fair value adjustments expense of $5.2 million as the prior year period included income of $5.1 million compared to $0.1 million expense in the current year quarter. These impacts were partially offset by lower amortization of intangibles as a significant portion of our scheduled amortization from the acquisition of PlentyOfFish concluded at the end of 2016.
For the nine months ended September 30, 2017, revenue, operating income and Adjusted EBITDA grew 16%, 15% and 14%, respectively, compared to the nine months ended September 30, 2016. Revenue, Operating Income and Adjusted EBITDA increased due to the factors described above in the three-month discussion. Operating income was further impacted by an increase in stock-based compensation expense of $12.8 million, an increase in depreciation of $3.5 million due to growth in our business and an increase in acquisition-related contingent consideration fair value adjustments of $7.1 million, partially offset by a $13.8 million decrease in amortization of intangibles as a significant portion of our scheduled amortization from the acquisition of PlentyOfFish concluded at the end of 2016.


25


Results of Operations for the three and nine months ended September 30, 2017 compared to the three and nine months ended September 30, 2016
Revenue
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
Change
 
% Change
 
2016
 
2017
 
Change
 
% Change
 
2016
 
(In thousands, except ARPPU)
Direct Revenue:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
North America
$
188,869

 
$
16,428

 
10%
 
$
172,441

 
$
546,714

 
$
39,395

 
8%
 
$
507,319

International
141,229

 
39,943

 
39%
 
101,286

 
370,559

 
91,702

 
33%
 
278,857

Total Direct Revenue
330,098

 
56,371

 
21%
 
273,727

 
917,273

 
131,097

 
17%
 
786,176

Indirect Revenue
13,320

 
(483
)
 
(3)%
 
13,803

 
34,481

 
(2,583
)
 
(7)%
 
37,064

Total Revenue
$
343,418

 
$
55,888

 
19%
 
$
287,530

 
$
951,754

 
$
128,514

 
16%
 
$
823,240

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Percentage of Total Revenue:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Direct Revenue:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
North America
55%
 
 
 
 
 
60%
 
57%
 
 
 
 
 
61%
International
41%
 
 
 
 
 
35%
 
39%
 
 
 
 
 
34%
Total Direct Revenue
96%
 
 
 
 
 
95%
 
96%
 
 
 
 
 
95%
Indirect Revenue
4%
 
 
 
 
 
5%
 
4%
 
 
 
 
 
5%
Total Revenue
100%
 
 
 
 
 
100%
 
100%
 
 
 
 
 
100%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average PMC:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
North America
3,668

 
297

 
9%
 
3,371

 
3,537

 
236

 
7%
 
3,301

International
2,891

 
716

 
33%
 
2,175

 
2,656

 
646

 
32%
 
2,010

Total
6,559

 
1,013

 
18%
 
5,546

 
6,193

 
882

 
17%
 
5,311

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Change calculated using non-rounded numbers)
ARPPU:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
North America
$
0.55

 
 
 
—%
 
$
0.56

 
$
0.56

 
 
 
—%
 
$
0.56

International
$
0.52

 
 
 
3%
 
$
0.50

 
$
0.50

 
 
 
(1)%
 
$
0.50

Total
$
0.54

 
$
0.01

 
1%
 
$
0.53

 
$
0.53

 
$
(0.01
)
 
(1)%
 
$
0.54

For the three months ended September 30, 2017 compared to the three months ended September 30, 2016
North America Direct Revenue grew $16.4 million, or 10%, in 2017 versus 2016, driven by 9% growth in Average PMC. Average PMC growth was driven by higher beginning PMC and higher conversion of registrations to paid members. The growth in revenue and Average PMC is primarily attributable to continued growth at Tinder and PlentyOfFish.
International Direct Revenue grew $39.9 million, or 39%, in 2017 versus 2016, primarily driven by 33% growth in Average PMC and a 3% increase in ARPPU. Average PMC growth was driven by higher beginning PMC and higher registrations. The increase in ARPPU was due to an increase in ARPPU at Tinder, partially offset by foreign currency impacts. The growth in revenue and Average PMC is primarily attributable to continued growth at Tinder and growth in our Pairs brand in Japan.
Indirect Revenue declined $0.5 million due to declines at brands other than Tinder, partially offset by continued advertising revenue growth at Tinder.


26


For the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016
North America Direct Revenue grew $39.4 million, or 8%, in 2017 versus 2016, driven by 7% growth in Average PMC. These increases were driven by the factors described above in the three-month discussion.
International Direct Revenue grew $91.7 million, or 33%, in 2017 versus 2016, primarily driven by 32% growth in Average PMC. The increases in revenue and Average PMC were driven by the factors described above in the three-month discussion.
Cost of revenue (exclusive of depreciation)
For the three months ended September 30, 2017 compared to the three months ended September 30, 2016
 
Three Months Ended September 30,
 
2017
 
$ Change
 
% Change
 
2016
 
(Dollars in thousands)
Cost of revenue
$72,044
 
$21,274
 
42%
 
$50,770
Percentage of revenue
21%
 
 
 
 
 
18%
Cost of revenue increased $21.3 million or 42%, primarily due to an increase in in-app purchase fees of $20.4 million and an increase in hosting fees of $1.4 million driven primarily by Tinder.
For the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016
 
Nine Months Ended September 30,
 
2017
 
$ Change
 
% Change
 
2016
 
(Dollars in thousands)
Cost of revenue
$193,557
 
$52,041
 
37%
 
$141,516
Percentage of revenue
20%
 
 
 
 
 
17%
Cost of revenue increased $52.0 million or 37%, driven by the factors described above in the three-month discussion.
Selling and marketing expense
For the three months ended September 30, 2017 compared to the three months ended September 30, 2016
 
Three Months Ended September 30,
 
2017
 
$ Change
 
% Change
 
2016
 
(Dollars in thousands)
Selling and marketing expense
$94,870
 
$6,981
 
8%
 
$87,889
Percentage of revenue
28%
 
 
 
 
 
31%
Selling and marketing expense increased $7.0 million, or 8%, but declined as a percentage of revenue. The increase in total selling and marketing expense is primarily due to increased compensation of $3.7 million primarily related to the employer portion of payroll taxes paid upon the exercise of Match Group options, strategic marketing investments in certain international markets at our Tinder business and increased marketing related to the launch of a new brand in Europe, partially offset by a reduction in marketing spend at our affinity brands. The decline as a percentage of revenue is due primarily to a continued shift towards brands with lower marketing spend as a percentage of revenue and continued reduction in marketing spend at our affinity brands.


27


For the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016
 
Nine Months Ended September 30,
 
2017
 
$ Change
 
% Change
 
2016
 
(Dollars in thousands)
Selling and marketing expense
$289,706
 
$8,550
 
3%
 
$281,156
Percentage of revenue
30%
 
 
 
 
 
34%
Selling and marketing expense increased $8.6 million, or 3%, but declined as a percentage of revenue driven by the factors described above in the three-month discussion.
General and administrative expense
For the three months ended September 30, 2017 compared to the three months ended September 30, 2016
 
Three Months Ended September 30,
 
2017
 
$ Change
 
% Change
 
2016
 
(Dollars in thousands)
General and administrative expense
$49,940
 
$19,926
 
66%
 
$30,014
Percentage of revenue
15%
 
 
 
 
 
10%
General and administrative expense increased $19.9 million, or 66%, driven primarily by an increase of $12.0 million in compensation due to the employer portion of payroll taxes paid upon the exercise of Match Group options, increased headcount and an increase in stock-based compensation of $5.2 million, primarily due to an increase in expense related to a subsidiary denominated equity award issued to a non-employee, which was settled during the quarter. In addition, there was an increase in acquisition-related contingent consideration fair value adjustments of $5.2 million and an increase of $2.5 million in professional fees. The final measurement and settlement of an acquisition-related contingent consideration agreement resulted in minimal expense in the third quarter of 2017 of $0.1 million compared to acquisition-related contingent consideration income of $5.1 million during the third quarter of 2016.
For the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016
 
Nine Months Ended September 30,
 
2017
 
$ Change
 
% Change
 
2016
 
(Dollars in thousands)
General and administrative expense
$137,721
 
$33,338
 
32%
 
$104,383
Percentage of revenue
14%
 
 
 
 
 
13%
General and administrative expense increased $33.3 million, or 32%, driven primarily by an increase of $18.7 million in compensation, an increase of $7.1 million in acquisition-related contingent consideration fair value adjustments and an increase of $5.2 million in professional fees in 2017 primarily related to the settlement of the Tinder equity plan. The increase in compensation is due to a $9.5 million increase in stock-based compensation expense primarily related to a subsidiary denominated equity award issued to a non-employee, new grants issued since the prior year period, the employer portion of payroll taxes paid upon the exercise of Match Group options and an increase in headcount from business growth. The increase in acquisition related contingent consideration fair value adjustments was driven by the factors described above in the three-month discussion.


28


Product development expense
For the three months ended September 30, 2017 compared to the three months ended September 30, 2016
 
Three Months Ended September 30,
 
2017
 
$ Change
 
% Change
 
2016
 
(Dollars in thousands)
Product development expense
$27,008
 
$9,663
 
56%
 
$17,345
Percentage of revenue
8%
 
 
 
 
 
6%
Product development expense increased $9.7 million, or 56%, in 2017 versus 2016, driven primarily by an increase of $9.1 million in compensation, of which $5.4 million relates primarily to higher headcount and the employer portion of payroll taxes paid upon the exercise of Match Group options and $3.7 million is stock-based compensation expense due primarily to new grants issued since the prior year period.
For the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016
 
Nine Months Ended September 30,
 
2017
 
$ Change
 
% Change
 
2016
 
(Dollars in thousands)
Product development expense
$73,089
 
$14,651
 
25%
 
$58,438
Percentage of revenue
8%
 
 
 
 
 
7%
Product development expense increased $14.7 million, or 25%, in 2017 versus 2016, driven primarily by the factors described above in the three-month discussion.
Depreciation
For the three months ended September 30, 2017 compared to the three months ended September 30, 2016
 
Three Months Ended September 30,
 
2017
 
$ Change
 
% Change
 
2016
 
(Dollars in thousands)
Depreciation
$8,147
 
$955
 
13%
 
$7,192
Percentage of revenue
2%
 
 
 
 
 
3%
Depreciation increased $1.0 million, or 13%, in 2017 versus 2016, driven by an increase in computer hardware, internally developed software and leasehold improvements as we continue to grow our business.
For the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016
 
Nine Months Ended September 30,
 
2017
 
$ Change
 
% Change
 
2016
 
(Dollars in thousands)
Depreciation
$23,619
 
$3,500
 
17%
 
$20,119
Percentage of revenue
2%
 
 
 
 
 
2%
Depreciation increased $3.5 million, or 17%, in 2017 versus 2016, driven by the factors described above in the three-month discussion.