IAC INC. Separation
OnJune 30, 2020 , the companies formerly known asMatch Group, Inc. (referred to as "FormerMatch Group ") andIAC/InterActiveCorp (referred to as "Former IAC") completed the separation of the Company from IAC through a series of transactions that resulted in two, separate public companies-(1)Match Group , which consists of the businesses ofFormer Match Group and certain financing subsidiaries previously owned by Former IAC, and (2) IAC, consisting of Former IAC's businesses other thanMatch Group (the "Separation"). As a result of the Separation, the operations of Former IAC businesses other thanMatch Group are presented as discontinued operations. Key Terms: Operating metrics: •North America - consists of the financial results and metrics associated with users located inthe United States andCanada . •International - consists of the financial results and metrics associated with users located outside ofthe United States andCanada . •Direct Revenue - is revenue that is received directly from end users of our products and includes both subscription and à la carte revenue. •Indirect Revenue - is revenue that is not received directly from an end user of our products, substantially all of which is advertising revenue. •Subscribers - are users who purchase a subscription to one of our products. Users who purchase only à la carte features are not included in Subscribers. •Average Subscribers - is the number of Subscribers at the end of each day in the relevant measurement period divided by the number of calendar days in that period. •Average Revenue per Subscriber ("ARPU") - is Direct Revenue from Subscribers in the relevant measurement period (whether in the form of subscription or à la carte revenue) divided by the Average Subscribers in such period and further divided by the number of calendar days in such period. Direct Revenue from users who are not Subscribers and have purchased only à la carte features is not included in ARPU. Operating costs and expenses: •Cost of revenue - consists primarily of the amortization of in-app purchase fees, compensation expense (including stock-based compensation expense) and other employee-related costs for personnel engaged in data center and customer care functions, credit card processing fees, hosting fees, and data center rent, energy and bandwidth costs. In-app purchase fees are monies paid to Apple and
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engaged in the design, development, testing and enhancement of product offerings and related technology. Long-term debt: •Credit Facility - The revolving credit facility ofMatch Group Holdings II, LLC ("MG Holdings II"), an indirect wholly-owned subsidiary of the Company. As ofDecember 31, 2019 ,$500 million was available under the Credit Facility. OnFebruary 13, 2020 , the Credit Facility was amended to, among other things, increase the available borrowing capacity from$500 million to$750 million , reduce interest rate margins by 0.125%, and extend its maturity fromDecember 7, 2023 toFebruary 13, 2025 . As ofJune 30, 2020 ,$20 million was outstanding and$730 million was available under the Credit Facility. •Term Loan -MG Holdings II's term loan. AtDecember 31, 2019 , the Term Loan bore interest at LIBOR plus 2.50% and the then applicable rate was 4.44%. OnFebruary 13, 2020 , the Term Loan was amended to reprice the outstanding balance to LIBOR plus 1.75% and extend its maturity fromNovember 16, 2022 toFebruary 13, 2027 . As ofJune 30, 2020 , the current rate was 2.18% and$425 million was outstanding. •6.375% Senior Notes -MG Holdings II's 6.375% Senior Notes, which were redeemed onJune 11, 2020 with the proceeds from the 4.625% Senior Notes. •5.00% Senior Notes -MG Holdings II's 5.00% Senior Notes dueDecember 15, 2027 , with interest payable eachJune 15 andDecember 15 , which were issued onDecember 4, 2017 . As ofJune 30, 2020 ,$450 million aggregate principal amount was outstanding. •5.625% Senior Notes -MG Holdings II's 5.625% Senior Notes dueFebruary 15, 2029 , with interest payable eachFebruary 15 andAugust 15 , which were issued onFebruary 15, 2019 . As ofJune 30, 2020 ,$350 million aggregate principal amount was outstanding. •4.125% Senior Notes -MG Holdings II's 4.125% Senior Notes dueAugust 1, 2030 , with interest payable eachFebruary 1 andAugust 1 , commencing onAugust 1, 2020 , which were issued onFebruary 11, 2020 . The proceeds were used to pay expenses associated with the offering and fund a portion of the$3.00 per common share ofFormer Match Group that was payable in connection with the Separation. As ofJune 30, 2020 ,$500 million aggregate principal amount was outstanding. •4.625% Senior Notes -MG Holdings II's 4.625% Senior Notes dueJune 1, 2028 , with interest payable eachJune 1 andDecember 1 , commencing onDecember 1, 2020 , which were issued onMay 19, 2020 . The proceeds were used to redeem the outstanding 6.375% Senior Notes, general corporate purposes, and to pay expenses associated with the offering. As ofJune 30, 2020 ,$500 million aggregate principal amount was outstanding. •2022 Exchangeable Notes - OnOctober 2, 2017 ,Match Group FinanceCo, Inc. , a subsidiary of the Company, issued$517.5 million aggregate principal amount of 0.875% Exchangeable Senior Notes dueOctober 1, 2022 , which are exchangeable into shares of the Company's common stock. Interest is payable eachApril 1 andOctober 1 . The outstanding balance of the 2022 Exchangeable Notes as ofJune 30, 2020 was$517.5 million . •2026 Exchangeable Notes - During the second quarter of 2019,Match Group FinanceCo 2, Inc., a subsidiary of the Company, issued$575.0 million aggregate principal amount of 0.875% Exchangeable Senior Notes dueJune 15, 2026 , which are exchangeable into shares of the Company's common stock. Interest is payable eachJune 15 andDecember 15 . The outstanding balance of the 2026 Exchangeable Notes as ofJune 30, 2020 was$575 million . •2030 Exchangeable Notes - During the second quarter of 2019,Match Group FinanceCo 3, Inc., a subsidiary of the Company, issued$575.0 million aggregate principal amount of 2.00% Exchangeable Senior Notes dueJanuary 15, 2030 , which are exchangeable into shares of the Company's common stock. Interest is payable eachJanuary 15 andJuly 15 . The outstanding balance of the 2030 Exchangeable Notes as ofJune 30, 2020 was$575 million . 39 --------------------------------------------------------------------------------
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Non-GAAP financial measure:
•Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization
("Adjusted EBITDA") - is a Non-GAAP financial measure. See "Principles of
Financial Reporting" for the definition of Adjusted EBITDA and a reconciliation
of net earnings attributable to Match Group, Inc. shareholders to operating
income and Adjusted EBITDA.
Management Overview
Match Group, Inc. , through its portfolio companies, is a leading provider of
dating products available globally. Our portfolio of brands includes Tinder®,
Match®, Meetic®, OkCupid®, Hinge®, Pairs™, PlentyOfFish®, and OurTime®, as well
as a number of other brands, each designed to increase our users' likelihood of
finding a meaningful connection. Through our portfolio companies and their
trusted brands, we provide tailored products to meet the varying preferences of
our users. Our products are available in over 40 languages to our users all over
the world.
As used herein, "Match Group ," the "Company," "we," "our," "us," and similar
terms refer to Match Group, Inc. and its subsidiaries, unless the context
indicates otherwise.
For a more detailed description of the Company's operating businesses, see "Item
1. Business-Match Group " of the Company's Annual Report on Form 10-K for the
year ended December 31, 2019 .
Other 2020 Developments
On February 11, 2020 , MG Holdings II completed a private offering of $500
million aggregate principal amount of the 4.125% Senior Notes. The proceeds from
these notes were used to pay expenses associated with the offering and to fund a
portion of the cash consideration of $3.00 per Former Match Group common share
in connection with the Separation.
On February 13, 2020 , the Credit Facility was amended to, among other things,
increase the available borrowing capacity to $750 million , reduce interest rate
margins by 0.125%, and extend its maturity to February 13, 2025 . Additionally,
on February 13, 2020 , the Term Loan was amended to reprice the outstanding
balance to LIBOR plus 1.75% and extend its maturity to February 13, 2027 .
On May 19, 2020 , MG Holdings II completed a private offering of $500 million
aggregate principal amount of the 4.625% Senior Notes. The proceeds from these
notes were used to redeem the outstanding 6.375% Senior Notes, for general
corporate purposes, and to pay expenses associated with the offering.
Additional Information
Investors and others should note that we announce material financial and
operational information to our investors using our investor relations website at
https://ir.mtch.com, our newsroom website at https://newsroom.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 newsroom website, SEC
filings, press releases and public conference calls. Neither the information on
our websites, 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 .
Second Quarter and Year-to-Date June 30, 2020 Consolidated Results
For the three months ended June 30, 2020 compared to the three months ended June
30, 2019 , revenue, operating income and Adjusted EBITDA grew 12%, 14%, and 13%,
respectively, primarily due to subscriber growth and the growth of à la carte
features at Tinder and growth in subscription revenue at several other brands.
Operating income and Adjusted EBTIDA grew more quickly than revenue due to lower
selling and marketing expense as a percentage of revenue, which was partially
offset by an increase in cost of revenue.
For the six months ended June 30, 2020 compared to the six months ended June 30,
2019 , revenue, operating income, and Adjusted EBITDA grew 14%, 15%, and 13%,
respectively, primarily due to the factors
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described above in the three-month discussion. Additionally, for the
year-to-date periods, operating income and Adjusted EBITDA in 2020 were impacted
by higher legal costs. Operating income further benefited from a reduction in
non-cash compensation, both in total and as a percentage of revenue, primarily
due to the 2019 period including the vesting of certain awards for which the
market condition had been met.
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Results of Operations for the three and six months endedJune 30, 2020 compared to the three and six months endedJune 30, 2019 Revenue Three Months Ended June 30, Six Months Ended June 30, 2020 $ Change % Change 2019 2020 $ Change % Change 2019 (In thousands, except ARPU) Direct Revenue: North America$ 284,318 $ 32,819 13%$ 251,499 $ 547,665 $ 58,393 12%$ 489,272 International 262,423 26,622 11% 235,801 533,900 81,910 18% 451,990 Total Direct Revenue 546,741 59,441 12% 487,300 1,081,565 140,303 15% 941,262 Indirect Revenue 8,709 (1,964) (18)% 10,673 18,527 (2,809) (13)% 21,336 Total Revenue$ 555,450 $ 57,477 12%$ 497,973 $ 1,100,092 $ 137,494 14%$ 962,598 Percentage of Total Revenue: Direct Revenue: North America 51% 51% 50% 51% International 47% 47% 48% 47% Total Direct Revenue 98% 98% 98% 98% Indirect Revenue 2% 2% 2% 2% Total Revenue 100% 100% 100% 100% Average Subscribers: North America 4,703 185 4% 4,518 4,636 196 4% 4,440 International 5,360 798 17% 4,562 5,352 944 21% 4,408 Total 10,063 983 11% 9,080 9,988 1,140 13% 8,848 (Change calculated using non-rounded numbers) ARPU: North America$ 0.65 7%$ 0.60 $ 0.64 6%$ 0.60 International$ 0.53 (5)%$ 0.56 $ 0.54 (3)%$ 0.56 Total$ 0.58 $ - -%$ 0.58 $ 0.58 $ - 1%$ 0.58 For the three months endedJune 30, 2020 compared to the three months endedJune 30, 2019 International Direct Revenue grew$26.6 million , or 11%, in 2020 versus 2019, driven by 17% growth in Average Subscribers, partially offset by a lower ARPU, which was primarily due to foreign exchange effects. North America Direct Revenue grew$32.8 million , or 13%, in 2020 versus 2019, driven by 4% growth in Average Subscribers and 7% growth in ARPU. Growth in North America Average Subscribers was primarily driven by Tinder and Hinge. Growth in International Average Subscribers was primarily driven by Tinder with several other brands also contributing, including Pairs and OkCupid. North America ARPU increased primarily due to increased purchases of à la carte features at Tinder. International ARPU was unfavorably impacted by the strength of theU.S. dollar relative to the Euro and certain other currencies. Excluding the impacts of foreign exchange effects, International ARPU would be$0.55 or$0.02 higher. Indirect Revenue decreased primarily due to lower ad impressions as they were impacted by the COVID-19 pandemic. 42 --------------------------------------------------------------------------------
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For the six months endedJune 30, 2020 compared to the six months endedJune 30, 2019 International Direct Revenue grew$81.9 million , or 18%, in 2020 versus 2019, driven by 21% growth in Average Subscribers offset by a decline in ARPU. North America Direct Revenue grew$58.4 million , or 12%, in 2020 versus 2019, driven by 4% growth in Average Subscribers and 6% growth in ARPU. The changes are primarily due to the factors described above in the three-month discussion. Cost of revenue (exclusive of depreciation) For the three months endedJune 30, 2020 compared to the three months endedJune 30, 2019 Three Months Ended June 30, 2020 $ Change % Change 2019 (Dollars in thousands) Cost of revenue$ 148,853 $ 22,188 18%$ 126,665 Percentage of revenue 27% 25% Cost of revenue increased primarily due to an increase in web operations, including SMS authentication and hosting fees, of$6.9 million ; an increase in in-app purchase fees of$5.1 million , as revenue continues to be increasingly sourced through mobile app stores; an increase in compensation expense of$3.9 million related to increased customer care headcount at various brands; and an increase of$2.4 million in partner related costs associated with our one-to-many video streaming. For the six months endedJune 30, 2020 compared to the six months endedJune 30, 2019 Six Months Ended June 30, 2020 $ Change % Change 2019 (Dollars in thousands) Cost of revenue$ 292,747 $ 45,858 19%$ 246,889 Percentage of revenue 27% 26% The changes are primarily due to the factors described above in the three-month discussion. Selling and marketing expense For the three months endedJune 30, 2020 compared to the three months endedJune 30, 2019 Three Months Ended June 30, 2020 $ Change % Change 2019 (Dollars in thousands)
Selling and marketing expense$90,801 $(4,087) (4)%$94,888 Percentage of revenue 16% 19% Selling and marketing expense decreased primarily due to decreases in spending for various marketing campaigns at Match, Tinder, andMeetic , partially offset by increases in spending at PlentyOfFish and OkCupid. For the six months endedJune 30, 2020 compared to the six months endedJune 30, 2019 Six Months Ended June 30, 2020 $ Change % Change 2019 (Dollars in thousands)
Selling and marketing expense $ 215,291 $ 1,740 1% $ 213,551
Percentage of revenue 20% 22%
The changes are primarily due to the factors described above in the three-month discussion.
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General and administrative expense For the three months endedJune 30, 2020 compared to the three months endedJune 30, 2019 Three Months Ended June 30, 2020 $ Change % Change 2019 (Dollars in thousands) General and administrative expense$68,204 $4,937 8%$63,267 Percentage of revenue 12% 13% General and administrative expense increased primarily due to an increase in compensation of$3.0 million primarily related to an increase in headcount and an increase of$2.1 million for non-income taxes, partially offset by a decrease in travel expenditures. For the six months endedJune 30, 2020 compared to the six months endedJune 30, 2019 Six Months Ended June 30, 2020 $ Change % Change 2019 (Dollars in thousands)
General and administrative expense
25%$ 118,467 Percentage of revenue 13% 12% General and administrative expense increased primarily due to an increase in compensation of$12.1 million primarily related to an increase in headcount, an increase in legal fees of$8.1 million , and an increase of$4.4 million related to non-income taxes. Product development expense For the three months endedJune 30, 2020 compared to the three months endedJune 30, 2019 Three Months Ended June 30, 2020 $ Change % Change 2019 (Dollars in thousands)
Product development expense $41,929 $9,249 28%$32,680 Percentage of revenue 8% 7% Product development expense increased primarily due to an increase in compensation expense of$8.5 million , including an increase of$2.5 million in stock-based compensation expense, primarily due to new awards made since the prior year quarter, and an increase in headcount at Tinder. For the six months endedJune 30, 2020 compared to the six months endedJune 30, 2019 Six Months Ended June 30, 2020 $ Change % Change 2019 (Dollars in thousands)
Product development expense $ 85,699 $ 8,745 11% $ 76,954
Percentage of revenue 8% 8%
Product development expense increased primarily due to an increase in
compensation expense of
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Depreciation
For the three months endedJune 30, 2020 compared to the three months endedJune 30, 2019 Three Months Ended June 30, 2020 $ Change % Change 2019 (Dollars in thousands) Depreciation$9,669 $917 10%$8,752 Percentage of revenue 2% 2% Depreciation increased primarily due to an increase in internally developed software placed in service. For the six months endedJune 30, 2020 compared to the six months endedJune 30, 2019 Six Months Ended June 30, 2020 $ Change % Change 2019 (Dollars in thousands) Depreciation$ 19,063 $ 2,018 12%$ 17,045 Percentage of revenue 2% 2%
Depreciation increased primarily due to the factors described above in the three-month discussion. Operating income and Adjusted EBITDA
Three Months Ended June 30, Six Months Ended June 30,
2020 $ Change % Change 2019 2020 $ Change % Change 2019
(Dollars in thousands)
Operating income $195,594 $24,285 14% $171,309 $ 332,966 $ 44,097 15% $ 288,869
Percentage of revenue 35% 34% 30% 30%
Adjusted EBITDA $227,803 $25,315 13% $202,488 $ 402,144 $ 45,395 13% $ 356,749
Percentage of revenue 41% 41% 37% 37%
For a reconciliation of net earnings attributable to Match Group, Inc.
shareholders to Adjusted EBITDA, see "Principles of Financial Reporting."
For the three months ended June 30, 2020 compared to the three months ended June
30, 2019
Operating income and Adjusted EBITDA increased 14% and 13%, respectively,
primarily driven by revenue growth at Tinder and lower selling and marketing
expense as a percentage of revenue, partially offset by higher cost of revenue,
due to increased web operation costs and higher in-app purchase fees, as revenue
is increasingly sourced through mobile app stores.
For the six months ended June 30, 2020 compared to the six months ended June 30,
2019
Operating income and Adjusted EBITDA increased 15% and 13%, respectively,
primarily due to the factors described above in the three-month discussion and
impacted by higher legal costs in the 2020 period. Operating income was impacted
by lower stock-based compensation expense, both in total and as a percentage of
revenue, primarily due to 2019 including the vesting of certain awards for which
the market condition had been met, resulting in increased growth compared to
Adjusted EBITDA.
At June 30, 2020 , there was $162.8 million of unrecognized compensation cost,
net of estimated forfeitures, related to all equity-based awards, which is
expected to be recognized over a weighted average period of approximately 2.5
years.
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Interest expense For the three months endedJune 30, 2020 compared to the three months endedJune 30, 2019 Three Months Ended June 30, 2020 $ Change % Change 2019 (Dollars in thousands) Interest expense$45,647 $12,102 36%$33,545 Interest expense increased primarily due to the issuance of the 4.125% Senior Notes onFebruary 11, 2020 , the current year period including a full quarter of interest expense on the 2026 and 2030 Exchangeable Senior Notes, and the issuance of the 4.625% Senior Notes onMay 19, 2020 . Partially offsetting these increases were decreases due to a lower LIBOR rate on the Term Loan in the current year period and the redemption of the 6.375% Senior Notes during the 2020 period. For the six months endedJune 30, 2020 compared to the six months endedJune 30, 2019 Six Months Ended June 30, 2020 $ Change % Change 2019 (Dollars in thousands) Interest expense$ 88,296 $ 27,299 45%$ 60,997 Interest expense increased primarily due to the factors described above in the three-month discussion. Other income, net For the three months endedJune 30, 2020 compared to the three months endedJune 30, 2019 Three Months Ended June 30, 2020 $ Change % Change 2019 (Dollars in thousands) Other income, net$17,410 $14,872 NM$2,538 ________________________ NM = not meaningful Other income, net, in 2020 includes a legal settlement of$35.0 million , partially offset by a loss on redemption of bonds of$15.7 million and expense of$1.7 million related to a mark-to-market adjustment pertaining to a subsidiary denominated equity instrument. Other income, net, in 2019 includes income of$1.8 million in net foreign currency exchange gains due primarily to a strengthening of the Euro relative to GBP during the three months endedJune 30, 2019 and interest income of$1.1 million , partially offset by$0.4 million related to a mark-to-market adjustment pertaining to a subsidiary denominated equity instrument. For the six months endedJune 30, 2020 compared to the six months endedJune 30, 2019 Six Months Ended June 30, 2020 $ Change % Change 2019 (Dollars in thousands) Other income, net$ 21,264 $ 20,214 NM$ 1,050 Other income, net, in 2020 includes a legal settlement of$35.0 million , foreign currency gains of$2.7 million , and interest income of$2.4 million , partially offset by a loss on redemption of bonds of$16.5 million and expense of$1.0 million related to a mark-to-market adjustment pertaining to a subsidiary denominated equity instrument. Other income, net, in 2019 includes interest income of$1.7 million , partially offset by expense of$1.0 million related to a mark-to-market adjustment pertaining to a subsidiary denominated equity instrument. 46 --------------------------------------------------------------------------------
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Income tax (provision) benefit For the three months endedJune 30, 2020 compared to the three months endedJune 30, 2019 Three Months Ended June 30, 2020 $ Change % Change 2019 (Dollars in thousands)
Income tax provision
15%
The income tax provisions in 2020 and 2019 are reduced by excess tax benefits generated from the exercise and vesting of stock-based awards. In 2020, this benefit was offset by a non-recurring increase in the valuation allowance for foreign tax credits. For the six months endedJune 30, 2020 compared to the six months endedJune 30, 2019 Six Months Ended June 30, 2020 $ Change % Change 2019 (Dollars in thousands) Income tax benefit$ 16,311 $ 8,325 104%$ 7,986 Effective income tax rate NM NM The income tax benefits in 2020 and 2019, despite pre-tax income, were primarily due to excess tax benefits generated from the exercise and vesting of stock-based awards. In 2020, this benefit was partially offset by a non-recurring increase in the valuation allowance for foreign tax credits. For further details of income tax matters see "Note 2-Income Taxes" to the consolidated financial statements included in "Item 1-Consolidated Financial Statements." Related party transactions For discussions of related party transactions see "Note 12-Related Party Transactions" to the consolidated financial statements included in "Item 1-Consolidated Financial Statements." 47 --------------------------------------------------------------------------------
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PRINCIPLES OF FINANCIAL REPORTING
Match Group reports Adjusted EBITDA and Revenue excluding foreign exchange
effects, both of which are supplemental measures to U.S. generally accepted
accounting principles ("GAAP"). Adjusted EBITDA is among the primary metrics by
which we evaluate the performance of our business, on which our internal budget
is based and by which management is compensated. Revenue excluding foreign
exchange effects provides a comparable framework for assessing the performance
of our business without the effect of exchange rate differences when compared to
prior periods. We believe that investors should have access to, and we are
obligated to provide, the same set of tools that we use in analyzing our
results. These non-GAAP measures should be considered in addition to results
prepared in accordance with GAAP, but should not be considered a substitute for
or superior to GAAP results. Match Group endeavors to compensate for the
limitations of the non-GAAP measures presented by providing the comparable GAAP
measures with equal or greater prominence and descriptions of the reconciling
items, including quantifying such items, to derive the non-GAAP measures. We
encourage investors to examine the reconciling adjustments between the GAAP and
non-GAAP measures, which we discuss below.
Adjusted EBITDA
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization
("Adjusted EBITDA") is defined as operating income excluding: (1) stock-based
compensation expense; (2) depreciation; and (3) acquisition-related items
consisting of (i) amortization of intangible assets and impairments of goodwill
and intangible assets, if applicable, and (ii) gains and losses recognized on
changes in the fair value of contingent consideration arrangements, as
applicable. We believe this measure is useful for analysts and investors as this
measure allows a more meaningful comparison between our performance and that of
our competitors. The above items are excluded from our Adjusted EBITDA measure
because they are non-cash in nature. Adjusted EBITDA has certain limitations
because it excludes the impact of these expenses.
Non-Cash Expenses That Are Excluded From Adjusted EBITDA
Stock-based compensation expense consists principally of expense associated with
the grants of stock options, restricted stock units ("RSUs"), performance-based
RSUs and market-based awards. These expenses are not paid in cash, and we
include the related shares in our fully diluted shares outstanding using the
treasury stock method; however, performance-based RSUs and market-based awards
are included only to the extent the applicable performance or market
condition(s) have been met (assuming the end of the reporting period is the end
of the contingency period). To the extent stock-based awards are settled on a
net basis, the Company remits the required tax-withholding amounts from its
current funds.
Depreciation is a non-cash expense relating to our property and equipment and is
computed using the straight-line method to allocate the cost of depreciable
assets to operations over their estimated useful lives or, in the case of
leasehold improvements, the lease term, if shorter.
Amortization of intangible assets and impairments of goodwill and intangible
assets are non-cash expenses related primarily to acquisitions. At the time of
an acquisition, the identifiable definite-lived intangible assets of the
acquired company, such as customer lists, trade names, and technology, are
valued and amortized over their estimated lives. Value is also assigned to
acquired indefinite-lived intangible assets, which comprise trade names and
trademarks, and goodwill that are not subject to amortization. An impairment is
recorded when the carrying value of an intangible asset or goodwill exceeds its
fair value. We believe that intangible assets represent costs incurred by the
acquired company to build value prior to acquisition and the related
amortization and impairment charges of intangible assets or goodwill, if
applicable, are not ongoing costs of doing business.
Gains and losses recognized on changes in the fair value of contingent
consideration arrangements are accounting adjustments to report contingent
consideration liabilities at fair value. These adjustments can be highly
variable and are excluded from our assessment of performance because they are
considered non-operational in nature and, therefore, are not indicative of
current or future performance or the ongoing cost of doing business.
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The following table reconciles net earnings attributable to
Six Months Ended June
Three Months Ended June 30, 30,
2020 2019 2020 2019
(In thousands)
Net earnings (loss) attributable to
Match Group, Inc. shareholders $ 66,441 $ 113,467 $ (144,599) $ 202,162
Add back:
Net earnings attributable to
noncontrolling interests 31,869 33,324 60,266 57,614
Loss (earnings) from discontinued
operations, net of tax 34,611 (27,565) 366,578 (22,868)
Income tax provision (benefit) 34,436 21,076 (16,311) (7,986)
Other income, net (17,410) (2,538) (21,264) (1,050)
Interest expense 45,647 33,545 88,296 60,997
Operating Income 195,594 171,309 332,966 288,869
Stock-based compensation expense 22,140 22,015 43,312 50,012
Depreciation 9,669 8,752 19,063 17,045
Amortization of intangibles 400 412 6,803 823
Adjusted EBITDA $ 227,803 $ 202,488 $ 402,144 $ 356,749
Effects of Changes in Foreign Exchange Rates on Revenue
The impact of foreign exchange rates on the Company, due to its global reach,
may be an important factor in understanding period over period comparisons if
movement in exchange rates is significant. Since our results are reported in
U.S. dollars, international revenue is favorably impacted as the U.S. dollar
weakens relative to other foreign currencies, and unfavorably impacted as the
U.S. dollar strengthens relative to other foreign currencies. We believe the
presentation of revenue excluding the effects from foreign exchange, in addition
to reported revenue, helps improve investors' ability to understand the
Company's performance because it excludes the impact of foreign currency
volatility that is not indicative of Match Group's core operating results.
Revenue excluding foreign exchange effects compares results between periods as
if exchange rates had remained constant period over period. Revenue excluding
foreign exchange effects is calculated by translating current period revenue
using prior period exchange rates. The percentage change in revenue excluding
foreign exchange effects is calculated by determining the change in current
period revenue over prior period revenue where current period revenue is
translated using prior period exchange rates.
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The following table presents the impact of foreign exchange on total revenue, ARPU, and International ARPU for the three and six months endedJune 30, 2020 compared to the three and six months endedJune 30, 2019 , respectively: Three Months Ended June 30, 2020 $ Change % Change 2019 (Dollars in thousands, except ARPU) Revenue, as reported$ 555,450 $ 57,477 12%$ 497,973 Foreign exchange effects 11,082 Revenue excluding foreign exchange effects$ 566,532 $ 68,559 14%$ 497,973
(Percentage change calculated using non-rounded numbers, rounding differences may occur) ARPU, as reported
$ 0.58 -%$ 0.58 Foreign exchange effects 0.01 ARPU, excluding foreign exchange effects$ 0.60 3%$ 0.58 International ARPU, as reported$ 0.53 (5)%$ 0.56 Foreign exchange effects 0.02 International ARPU, excluding foreign exchange effects$ 0.55 (1)%$ 0.56 Six Months Ended June 30, 2020 $ Change % Change 2019 (Dollars in thousands, except ARPU) Revenue, as reported$ 1,100,092 $ 137,494 14%$ 962,598 Foreign exchange effects 19,456 Revenue excluding foreign exchange effects$ 1,119,548 $ 156,950 16%$ 962,598
(Percentage change calculated using non-rounded numbers, rounding differences may occur) ARPU, as reported
$ 0.58 1%$ 0.58 Foreign exchange effects 0.01 ARPU, excluding foreign exchange effects$ 0.60 3%$ 0.58 International ARPU, as reported$ 0.54 (3)%$ 0.56 Foreign exchange effects 0.02 International ARPU, excluding foreign exchange effects$ 0.56 -%$ 0.56 50
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FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
Financial Position
June 30, 2020 December 31, 2019
(In thousands)
Cash and cash equivalents:
United States $ 23,091 $ 322,267
All other countries 106,203 143,409
Total cash and cash equivalents $ 129,294 $ 465,676
Long-term debt: Credit Facility due February 13, 2025$ 20,000 $
-
Term Loan due February 13, 2027 425,000 425,000 6.375% Senior Notes - 400,000 5.00% Senior Notes 450,000 450,000 4.625% Senior Notes 500,000 - 5.625% Senior Notes 350,000 350,000 4.125% Senior Notes 500,000 - 2022 Exchangeable Notes 517,500 517,500 2026 Exchangeable Notes 575,000 575,000 2030 Exchangeable Notes 575,000 575,000 Total long-term debt 3,912,500 3,292,500 Less: Unamortized original issue discount 336,069
357,887
Less: Unamortized debt issuance costs 48,771 44,987 Total long-term debt, net$ 3,527,660 $ 2,889,626 Long-term Debt For a detailed description of long-term debt, see "Note 5-Long-term Debt, net" to the consolidated financial statements included in "Item 1-Consolidated Financial Statements." Cash Flow Information In summary, the Company's cash flows are as follows: Six Months Ended June 30, 2020 2019
(In thousands) Net cash provided by operating activities attributable to continuing operations
$ 275,887 $ 205,217
Net cash used in investing activities attributable to continuing operations
(2,466,991) (23,492)
Net cash provided by financing activities attributable to
continuing operations 235,667 862,207
2020
Net cash provided by operating activities attributable to continuing operations
in 2020 includes adjustments to earnings of $43.3 million of stock-based
compensation expense, $19.1 million of depreciation, and $6.8 million for
amortization of intangibles. Partially offsetting these adjustments was deferred
income tax of $21.0 million primarily related to the net operating loss created
by settlement of stock-based awards. The decrease in cash from changes in
working capital primarily consists of an increase in accounts receivable of
$69.2 million primarily related to the timing of cash receipts, including cash
received in the fourth quarter of 2019 rather than in the first quarter of 2020,
and an increase in revenue; a decrease from other assets of $10.1
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million; and a decrease in accounts payable and other liabilities of$13.3 million due mainly to the timing of payments, including interest payments. These changes were partially offset by an increase in deferred revenue of$13.1 million , due mainly to growth in subscription sales. Net cash used in investing activities attributable to continuing operations in 2020 consists primarily of the net cash distributed to IAC at the Separation of$2.4 billion and capital expenditures of$18.1 million that are primarily related to internal development of software and computer hardware to support our products and services. Net cash provided by financing activities attributable to continuing operations in 2020 is primarily due to proceeds of$1.0 billion from the issuance of the 4.125% and 4.625% Senior Notes and borrowings under the Credit Facility of$20.0 million , partially offset by the redemption of$400.0 million of the 6.375% Senior Notes, payments of$209.7 million for withholding taxes paid on behalf of employees for net settled equity awards ofFormer Match Group , and purchases of treasury stock ofFormer Match Group of$132.9 million . 2019 Net cash provided by operating activities attributable to continuing operations in 2019 includes adjustments to earnings of$50.0 million of stock-based compensation expense and$17.0 million of depreciation. Partially offsetting these adjustments was deferred income tax of$39.3 million primarily related to the net operating loss created by settlement of stock-based awards. The decrease in cash from changes in working capital primarily consists of an increase in accounts receivable of$61.4 million primarily related to the timing of cash receipts, including cash received in the fourth quarter of 2018 rather than in the first quarter of 2019 and an increase in revenue; and increase in other assets of$13.6 million primarily due to prepaid hosting services; a decrease in accounts payable and other liabilities of$4.8 million , due mainly to the timing of payments, including interest payments; and a decrease from income taxes payable and receivable of$9.8 million due primarily to tax payments in excess of tax accruals in foreign jurisdictions. These changes were partially offset by an increase in deferred revenue of$15.5 million , due mainly to growth in subscription sales. Net cash used in investing activities attributable to continuing operations in 2019 consists primarily of capital expenditures of$20.9 million that are primarily related to internal development of software and computer hardware to support our products and services. Net cash provided by financing activities attributable to continuing operations in 2019 is primarily due to proceeds of$1.2 billion from the issuance of the 2026 and 2030 Exchangeable Notes; proceeds of$350.0 million from the issuance of the 5.625% Senior Notes; and proceeds of$40.0 million from borrowings under the Credit Facility. Partially offsetting these proceeds were cash payments of$300.0 million for the repayment of borrowings under the Credit Facility;$138.5 million for withholding taxes paid on behalf of employees for net settled equity awards ofFormer Match Group ;$136.9 million used to pay the net premium on the exchangeable note hedge and warrant transactions; and purchases of treasury stock ofFormer Match Group of$76.1 million . Liquidity and Capital Resources The Company's principal sources of liquidity are its cash and cash equivalents as well as cash flows generated from operations. As ofJune 30, 2020 ,$730 million was available under the Credit Facility that expires onFebruary 13, 2025 . The Company anticipates that it will need to make capital and other expenditures in connection with the development and expansion of its operations. The Company expects that 2020 capital expenditures will be between approximately$55 million and$60 million , an increase compared to 2019 capital expenditures, primarily related to building improvements as Tinder expands office space and additional capitalized software cost. As ofJune 30, 2020 , all of the Company's international cash can be repatriated without significant tax consequences. Our indebtedness, could limit our ability to: (i) obtain additional financing to fund working capital needs, acquisitions, capital expenditures, debt service or other requirements; and (ii) use operating cash flow to pursue acquisitions or invest in other areas, such as developing properties and exploiting business opportunities. The Company may need to raise additional capital through future debt or equity financing to make additional 52 --------------------------------------------------------------------------------
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acquisitions and investments or to provide for greater financial flexibility.
Additional financing may not be available on terms favorable to the Company or
at all.
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CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
Payments Due by Period
Less Than 1-3 3-5 More Than
Contractual Obligations(a) 1 Year Years Years 5 Years Total
(In thousands)
Long-term debt(b) $ 115,047 $ 747,645 $ 242,890 $ 3,770,872 $ 4,876,454
Operating leases(c) 12,781 22,953 14,221 46,888 96,843
Purchase obligation(d) 51,800 50,000 - - 101,800
Total contractual obligations $ 179,628 $ 820,598 _______________________________________________________________________________
(a)The Company has excluded$36.4 million in unrecognized tax benefits and related interest from the table above as we are unable to make a reasonably reliable estimate of the period in which these liabilities might be paid. For additional information on income taxes, see "Note 2-Income Taxes" to the consolidated financial statements included in "Item 1-Consolidated Financial Statements." (b)Represents contractual amounts due including interest on both fixed and variable rate instruments. Long-term debt atJune 30, 2020 consisted of the 5.00%, 5.625%, 4.125%, and 4.625% Senior Notes of$450 million ,$350 million ,$500 million , and$500 million , respectively; the 2022, 2026, and 2030 Exchangeable Notes of$518 million ,$550 million , and$550 million , respectively, which bear interest at fixed rates; and the Credit Facility and Term Loan balance of$20 million and$425 million , respectively, which both bear interest at a variable rate. The Credit Facility and the Term Loan bear interest at LIBOR plus 1.375%, or 1.48%, and LIBOR plus 1.75%, or 2.18%, respectively, atJune 30, 2020 . The amount of interest ultimately paid on the Credit Facility and Term Loan may differ based on changes in interest rates and outstanding balances. For additional information on long-term debt, see "Note 5-Long-term Debt, net" to the consolidated financial statements included in "Item 1-Consolidated Financial Statements." (c)The Company leases office space, data center facilities and equipment used in connection with its operations under various operating leases, many of which contain escalation clauses. The Company is also committed to pay a portion of the related operating expenses under certain lease agreements. These operating expenses are not included in the table above. (d)The purchase obligations consist primarily of a web hosting commitment. We also had$0.1 million of letters of credit and surety bonds outstanding as ofJune 30, 2020 that could potentially require performance by the Company in the event of demands by third parties or contingent events. 54 --------------------------------------------------------------------------------
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