Q3 2020 Match Group Inc Earnings Call

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Good morning, and welcome to the match group third quarter 2020 Holdings Conference call.

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I would now like to turn the conference over to land lots Barton Senior Vice President of corporate development on IR. Please go ahead.

Thank you operator, and good morning, everyone.

Today's call will be led by CEO, shard, ebay, and CFO and COO, Gary Swindler, where all remote again for the third quarter in a row. So excuse any technical problems, we may run into sharp and Gary will make a few brief remarks, and then we're going to open it up for questions, but before we start I need to remind everyone that during this call we may discuss our outlook in future.

Your performance. These forward looking statements may be preceded by words, such as we expect we believe we anticipate or similar statements.

These statements are subject to risks and uncertainties and our actual results could differ materially from the views expressed today.

Some of these risks have been set forth in our earnings release, and our periodic reports filed with the FCC with that I'd like to turn the call over to shore.

Thank you Lance.

Good morning, and thank you all for joining the call today I know, there's a lot on everyone's mind. This week, so I'm going to keep my remarks short.

Well do that.

Q3 results speaks for itself.

We're I'm very happy to see the growth levels, we saw across all our businesses, including the 23% increase in non tinder revenue.

Fully it all reinforces what we've been saying for some time now.

Juan I product serves a fundamental need that isn't going to go away.

Do we have been talk yeah talking about a growth strategy that is based on a three pronged approach one growing tinder to returning our legacy brands to grow actually making new bats that contribute to growth in a reasonably short timeframe and hopefully Q3 results are.

Good illustration of the contributions of all of these three levers.

Oh, we believe in a portfolio strategy because it's designed to help members across geography demographics and intent because there is no one size fits all dating product.

And we understand this category in business well.

Finally, we demonstrated that both ways.

Growing assets, we've acquired and brand to be incubated and growth.

So even though there are uncertainties around new lockdowns in Europe and elections here in the U.S. and Oh this could cause temporary dislocation, we generally feel very good about how we've navigated this year.

And all take questions later, but first let me hand, it over to Gary to give us a little more color on the financials.

[noise] Thanks sure.

And she said our financial performance was excellent in Q3 with year over year revenue growth of 18% operating income growth of 14% and EBITDA growth of 21%.

EBITDA margins were 39% a point better than in Q3 19.

Despite all the global macro challenges, we hit all time highs in both revenue and EBITDA in Q3.

In fact revenue was up 15% sequentially with both tinder and the non tinder brands in aggregate contributing similarly to the significant sequential improvement in business momentum.

Top line year over year growth was balanced with direct revenue up 20% in North America and 17% internationally.

The growth in North America was a step function improvement over recent levels driven by four areas. One continued acceleration at many of our longstanding brands to new work, that's like hands Ci spend be okay. Three live streaming video at plenty of fish and for of course strong growth.

Hinder India.

There are plenty of fish.

Performance at these long standing brands as a result of strong product work and innovation that has been years in the making.

In addition to the turnaround that are long standing brands newer brands like <unk> BLK are contributing significant revenue growth here.

<unk> has been the standout this year with 82% year to date growth and downloads an outstanding progress on monetization co.

Collectively these new and emerging brands, including pairs grew 88% in the third quarter.

On the cost side, we had expected approximately $50 million of incremental marketing spend in Q3 over Q2 levels, but we ended up increasing by only 39 million sequentially as we held steadfast in our Roy discipline.

Sales and marketing expense fell a point year over year to 20% of revenue, increasing $16 million a year over year or 14%.

The year over year decrease in sales and marketing expenses of percent of revenue was offset by higher cost of revenues driven by App store fees and web operation costs.

Our gross and net leverage declined to four and a half and four times, respectively down from four eight times and four six times at the end of Q too.

We're making progress on our stated goal of Delevering and feel that we're well positioned to both invest in our businesses and to pursue compelling strategic M&A opportunities.

Note that are free cash flow conversion was 92% in Q3, and we ended the quarter with nearly $400 million of cash on hand.

Stock based comp expense for the quarter included a large modification charge without it SPC expense would've been at a more typical quarterly level of just over $20 million.

Four Q4, we expect total revenue of $640 to $650 million, which would represent 17% to 19% year over year growth if.

If we achieve our range. We would also hit our full year revenue growth target of mid to high teens that we communicated back in February we.

We expect year over year subscriber in <unk> growth in queue for to be fairly consistent with Q3 levels and also expect similar year over year revenue growth levels at tender and the non tender brands in queue for as what we saw in Q3.

The long term goal not a short term one.

For 2021 areas of investment include expanding our capabilities in Asia building out crucial user trust and safety initiatives and continuing to evolve our product lineup.

We expect to expand our live streaming video efforts and to offer a broader or wet array of experiences to our users at various brands across the portfolio.

The propensity to pay and subscription metrics have mostly recovered although it is still lagging a bit on new user sign ups, there and that seems to be a representative of few other Latam markets. Argentina is for instance, an example.

The term gross margin outlook, particularly in the contract with <unk> after Google clothes, it's bypass and any commentary on Apple's App store fees would also be helpful. Thank you.

Sure why don't I give that a shot and shark can certainly jump in so you know I think the short answer to the first part of your question is that if there were a magic wand and everything could go back to normal on January 1st of next year, we very likely would see an acceleration in growth rates because we wouldn't.

See things like the headwinds, we're seeing an an important market for us like India, which is affecting tender and okay Cupid and so all of that would reverse itself and we would have had a weaker year then otherwise in 2020, because we did have some covid impact, especially in the second quarter. So while we've performed well in huge one and.

Three for the most part.

We'd be coming off a little bit of a weaker year until I would expect we'd have an acceleration in growth rates in 2021, but the reality is sort of despite your.

This is going to play out which is true.

But this is something that we're watching and involved with very very closely and we'll see how things continue to play out between now and next September.

Great. Thank you so much okay, you're welcome bye.

Okay. Thank you next question please.

The next question comes from John Blacklists from Coleman. Please go ahead.

Great. Thank you on the non tinder revenue growth big acceleration in <unk>, a great number in and well above what we were looking for could you just discuss further the leaving drivers of the far reaching and what what was the mix of southern <unk> growth for non tender brands and just from a modeling person.

Fugro has clearly been a key highlight of 2020, how are you thinking about the hedge product roadmap as we head into 2021 will there be continued focus on ARPU growth or 21 really about accelerating subscriber growth that platform.

Thanks, Laurent so the good news is on hand, all of our monetization efforts. We've done this year have worked and people love the product. It has translated to people's willingness to pay and the team has been very successful with experiments that drive.

Actually both conversion and ARPU this year.

Alright, we mentioned in a letter we've now expanded the testing to about 10 market.

And.

I think we talked about it last quarter, our expectations of platinum was for it to be largely in our booth play which is what the initial testing is bearing out the bigger reason, we're experimenting it for longer periods of time is to make sure Bitch T. Your provider Goodbye.

Your proposition Bachelor promising which is increased matches in conversation for people, who take us up on this offer and the good news is that is bearing out a wet as well. So you know there's a few different very instill in test markets, but our hope is to be able to roll out globally. The winner.

Barry and by the end of the quarter or at the end of this year.

And as regards to product focus areas for 2021, it's still early there are a number of things. The team has been working on to try to identify opportunities through small tests and other kinds of work there.

They're doing all of which is going to inform a roadmap again, it's going to be a combination of both user experience driven items as well as revenue in monetization driven effort.

Thank you.

Thank you.

The next question will come from raw Sandler from Barclays. Please go ahead.

Alright, he just wanted a shift gears and ask a question about part of your fish. So is this the <unk>. The only after that has no wonder many video product at this stage and it seems like 5.5 million users. Okay is is pretty impressive. So I guess, what other apps could get this do you <unk>.

Beck, a similar type of uptake.

And and I guess, how does the product rank among.

<unk> features that you rolled out.

A cough or a legacy brown.

How how does that rank thank you.

Things as we develop our 2021 road map.

Thank you.

The next question comes from Alex Jamel from Jefferies. Please go ahead.

Okay. Thanks, guys, Gary the 3.5 billion in long term debt I think that was unchanged from the second quarter. When should we expect a more aggressive approach to to de leveraging and if there are any other capital allocation priorities to call out there will be helpful as well thanks.

Sure. So look we havent pay down any debt yet.

But we are making very good progress on our Delevering plan I think we're pretty clear about what we wanted to do which was to get net leverage down below three times by the end of 2021 and that remains a very achievable goal for us we're tracking right along our plan.

In fact, if you look we are down a 0.3 times on gross leverage and 0.6 times on net leverage in this quarter alone compared to last quarter. So it was important for us coming out of the separation.

To de lever and kind of move along that trajectory. We are doing that the businesses in healthy and strong shape as you've been hearing throughout this call and so we feel good about how that's going and we're just going to continue to move along that pathway.

You know now that were separated and given the strength of our business.

The high level, one for you I mean setting some of these near term issues must be nice my follow up isn't really about legal issues or cost, but rather a high level one.

But how you see the long term path for the company and I mean, it's things like I don't I'm not going to ask you to take the temperature of the current legal climate, but you're seeing things like for example section to 30 protections for internet platforms being.

Debt re examined and social media Ceos back in Congress and things like that just thinking about your long term vision for the company to those things matter for you today matter for match.

You want to take a bigger question for sure and then I'll take just the.

Financial perspective, we have to continue to invest in some of these areas to make sure that we're on the leading edge in terms of user safety and things like that and we think those are critical investments to make I mentioned them in my remarks, and we intend to continue to invest in areas like that to make sure that we stay where we want to be in those in those areas. So that that is.

Something that we think will continue as you are saying the environment continues to evolve.

On on our specific legal expenses Dan.

Kind of EBITDA for next year, but that's the one sort of big remaining matter that we need to deal with and and it's going to create a headwind next year, but if it sticks to its schedule. It should very well resolved by the end of next year and so as you look to 2022 those elevated legal expenses that are for outside matters.

That are being driven by things like the the Sean Rod litigation will no longer be something that we're carrying in 2022, and we're very much looking forward to that.

That's great that's very helpful from both thank you.

Thank you.

The next question is from Mick Jones from City. Please go ahead.

Great. Thanks, good morning.

If I could sneak into I guess first you touched on some of the non sinderbrand that contributed to the 88% year over year growth I guess in particular.

Elia an envelope.

Maybe <unk> what are you learning that might open doors outside of dating and then I guess it quick second question is.

Are you able to see it uses are actually meeting in person or our dates kind of happening in a distant still thanks.

Sure I can take this.

So.

Their social outlets are fewer now.

Older people and the older you get a little bit more hesitancy to go on in real life dates. However, the people who are meeting in real life.

Their share of those states of people, who met online has gone out.

And there's another shift that were seeing where people have shifted to virtual dates as a real valid a replacement for EM in real life data and to one of our recent studies.

Show that a majority of users have been on these long video virtual dates they say they are able to fine chemistry and build relationships, even with a somewhat extended online or relationships. So there are some ships, but overall it's.

You know for the entire population of U.S., it's only down a couple of points in terms of percentage of single people, who say say they've been on in real life dates.

Or are there other parts of the world. Some of these more Allah card consumable type features will make sense.

In other parts of.

The world more higher priced subscription packages for more advantages will make sense and we will continue playing all those different levers to drive both pay penetration as well as ARPU and it will be different stories in different markets.

Okay. Thank you.

Yes.

Thank you.

Perfect and take the last question from the line of Brian filter from Wells Fargo. Please go ahead.

And set.

Thank you.

The conference has now concluded.

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