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. Other 2020 Developments OnFebruary 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 perFormer Match Group common share in connection with the Separation. OnFebruary 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 toFebruary 13, 2025 . Additionally, onFebruary 13, 2020 , the Term Loan was amended to reprice the outstanding balance to LIBOR plus 1.75% and extend its maturity toFebruary 13, 2027 . OnMay 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. InJuly 2020 , in connection with the Separation, the sale of 17.3 million newly issued shares ofMatch Group common stock was completed by IAC. The proceeds of$1.4 billion , net of associated fees, were transferred directly to IAC pursuant to the terms of the Transaction Agreement. 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 34 --------------------------------------------------------------------------------
Table of Contents
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 andMatch 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 ofSeptember 30, 2020 , the Company had letters of credit of$0.2 million outstanding and therefore$749.8 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 ofSeptember 30, 2020 , the current rate was 2.00% 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 ofSeptember 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 ofSeptember 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 , 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 ofSeptember 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, for general corporate purposes, and to pay expenses associated with the offering. As ofSeptember 30, 2020 ,$500 million aggregate principal amount was outstanding. 35 --------------------------------------------------------------------------------
Table of Contents
•2022 Exchangeable Notes - During the third quarter of 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 ofSeptember 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 ofSeptember 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 ofSeptember 30, 2020 was$575 million . 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 toMatch Group, Inc. shareholders to operating income and Adjusted EBITDA. Management OverviewMatch 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 toMatch 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 endedDecember 31, 2019 . 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 anyMatch Group business, is incorporated by reference into this report, or into any other filings with, or into any other information furnished or submitted to, theSEC . Third Quarter and Year-to-DateSeptember 30, 2020 Consolidated Results For the three months endedSeptember 30, 2020 compared to the three months endedSeptember 30, 2019 , revenue, operating income and Adjusted EBITDA grew 18%, 14%, and 21%, respectively, primarily due to subscriber growth at Tinder, Hinge, Pairs, and PlentyOfFish, as well as the growth of à la carte features primarily at Tinder and PlentyOfFish. Operating income and Adjusted EBITDA were impacted by higher cost of revenue expense as a percentage of revenue due primarily to a higher percentage of revenue being sourced from app 36 --------------------------------------------------------------------------------
Table of Contents
stores with in-app purchase fees, partially offset by lower selling and marketing expense as a percentage of revenue. Operating income was further impacted by higher stock-based compensation expense as a percentage of revenue primarily due to a modification charge recorded in 2020. For the nine months endedSeptember 30, 2020 compared to the nine months endedSeptember 30, 2019 , revenue, operating income, and Adjusted EBITDA grew 16%, 15%, and 16%, respectively, primarily due to the factors described above in the three-month discussion. 37 --------------------------------------------------------------------------------
Table of Contents
Results of Operations for the three and nine months endedSeptember 30, 2020 compared to the three and nine months endedSeptember 30, 2019 Revenue Three Months Ended September 30, Nine Months Ended September 30, 2020 $ Change % Change 2019 2020 $ Change % Change 2019 (In thousands, except ARPU) Direct Revenue: North America$ 321,806 $ 52,943 20%$ 268,863 $ 869,471 $ 111,336 15%$ 758,135 International 306,460 44,374 17% 262,086 840,360 126,284 18% 714,076 Total Direct Revenue 628,266 97,317 18% 530,949 1,709,831 237,620 16% 1,472,211 Indirect Revenue 11,504 960 9% 10,544 30,031 (1,849) (6)% 31,880 Total Revenue$ 639,770 $ 98,277 18%$ 541,493 $ 1,739,862 $ 235,771 16%$ 1,504,091 Percentage of Total Revenue: Direct Revenue: North America 50% 50% 50% 50% International 48% 48% 48% 48% Total Direct Revenue 98% 98% 98% 98% Indirect Revenue 2% 2% 2% 2% Total Revenue 100% 100% 100% 100% Average Subscribers: North America 5,112 417 9% 4,695 4,796 270 6% 4,526 International 5,684 767 16% 4,917 5,463 884 19% 4,579 Total 10,796 1,184 12% 9,612 10,259 1,154 13% 9,105 (Change calculated using non-rounded numbers) ARPU: North America$ 0.66 8%$ 0.62 $ 0.65 7%$ 0.61 International$ 0.58 1%$ 0.57 $ 0.55 (1)%$ 0.56 Total$ 0.62 $ 0.03 4%$ 0.59 $ 0.60 $ 0.02 2%$ 0.58 For the three months endedSeptember 30, 2020 compared to the three months endedSeptember 30, 2019 North America Direct Revenue grew$52.9 million , or 20%, in 2020 versus 2019, driven by 9% growth in Average Subscribers, 8% growth in ARPU, and growth in non-subscriber revenue from one-to-many video revenue at PlentyOfFish. International Direct Revenue grew$44.4 million , or 17%, in 2020 versus 2019, driven by 16% growth in Average Subscribers. Growth in North America Average Subscribers was primarily driven by Tinder, Hinge, BLK, and Chispa. Growth in International Average Subscribers was primarily driven by Tinder, with several other brands also contributing, including Pairs,Meetic , and Hinge. North America ARPU increased primarily due to pricing optimization at Hinge and increased purchases of à la carte features at Tinder, Hinge, and PlentyOfFish. International ARPU increased primarily due to a higher percentage of subscribers from Pairs, which has higher ARPU than other brands, and impacts of foreign exchange rates, partially offset by a mix-shift to lower subscription tiers at Tinder. Indirect Revenue increased primarily due to higher ad impressions at Tinder. 38 --------------------------------------------------------------------------------
Table of Contents
For the nine months endedSeptember 30, 2020 compared to the nine months endedSeptember 30, 2019 International Direct Revenue grew$126.3 million , or 18%, in 2020 versus 2019, driven by 19% growth in Average Subscribers, partially offset by a decline in ARPU. North America Direct Revenue grew$111.3 million , or 15%, in 2020 versus 2019, driven by 6% growth in Average Subscribers, 7% growth in ARPU, and growth in non-subscriber revenue from one-to-many video revenue at PlentyOfFish. The changes in Average Subscribers and ARPU are primarily due to the factors described above in the three-month discussion. Indirect revenue decreased primarily due to lower ad impressions. Cost of revenue (exclusive of depreciation) For the three months endedSeptember 30, 2020 compared to the three months endedSeptember 30, 2019 Three Months Ended September 30, 2020 $ Change % Change 2019 (Dollars in thousands) Cost of revenue$ 169,823 $ 31,598 23%$ 138,225 Percentage of revenue 27% 26% Cost of revenue increased primarily due to an increase in in-app purchase fees of$17.5 million , as revenue continues to be increasingly sourced through mobile app stores; an increase of$6.2 million in partner related costs associated with our one-to-many video streaming; an increase in web operations of$6.0 million , primarily representing SMS authentication and hosting fees; and an increase in compensation expense of$1.3 million related to increased customer care costs at various brands. For the nine months endedSeptember 30, 2020 compared to the nine months endedSeptember 30, 2019 Nine Months Ended September 30, 2020 $ Change % Change 2019 (Dollars in thousands) Cost of revenue$ 462,570 $ 77,456 20%$ 385,114 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 endedSeptember 30, 2020 compared to the three months endedSeptember 30, 2019 Three Months Ended September 30, 2020 $ Change % Change 2019 (Dollars in thousands)
Selling and marketing expense$ 129,859 $ 16,278 14%$ 113,581 Percentage of revenue 20% 21% Selling and marketing expense increased primarily due to higher marketing spend at multiple brands prompted by the availability of lower marketing rates during the current year period, and an increase in compensation expense of$2.2 million . 39 --------------------------------------------------------------------------------
Table of Contents
For the nine months endedSeptember 30, 2020 compared to the nine months endedSeptember 30, 2019 Nine Months Ended September 30, 2020 $ Change % Change 2019 (Dollars in thousands) Selling and marketing expense$ 345,150 $ 18,018 6%$ 327,132 Percentage of revenue 20% 22% The changes are primarily due to the factors described above in the three-month discussion. General and administrative expense For the three months endedSeptember 30, 2020 compared to the three months endedSeptember 30, 2019
Three Months Ended
2020 $ Change % Change 2019 (Dollars in thousands) General and administrative expense$ 88,961 $ 20,293 30%$ 68,668 Percentage of revenue 14% 13% General and administrative expense increased primarily due to an increase in compensation of$21.8 million primarily related to a modification charge to stock-based compensation expense and an increase in headcount, partially offset by a decrease in travel expenditures. For the nine months endedSeptember 30, 2020 compared to the nine months endedSeptember 30, 2019 Nine Months Ended September 30, 2020 $ Change % Change 2019 (Dollars in thousands) General and administrative expense$ 236,484 $ 49,349 26%$ 187,135 Percentage of revenue 14% 12% General and administrative expense increased primarily due to an increase in compensation of$33.9 million primarily related to an increase in headcount and an increase in stock-based compensation expense resulting from a modification charge, an increase in legal fees of$5.3 million , and an increase of$4.8 million related to non-income taxes, partially offset by a decrease in travel expenditures. Product development expense For the three months endedSeptember 30, 2020 compared to the three months endedSeptember 30, 2019 Three Months Ended September 30, 2020 $ Change % Change 2019 (Dollars in thousands)
Product development expense$ 39,280 $ 2,671 7%$ 36,609 Percentage of revenue 6% 7% Product development expense increased primarily due to an increase in compensation expense of$4.0 million , primarily due to an increase in headcount at several brands, including Tinder, partially offset by a decrease in travel expenditures. 40 --------------------------------------------------------------------------------
Table of Contents
For the nine months endedSeptember 30, 2020 compared to the nine months endedSeptember 30, 2019 Nine Months Ended September 30, 2020 $ Change % Change 2019 (Dollars in thousands)
Product development expense$ 124,979 $ 11,416
10%$ 113,563 Percentage of revenue 7% 8% The changes are primarily due to the factors described above in the three-month discussion. Depreciation For the three months endedSeptember 30, 2020 compared to the three months endedSeptember 30, 2019 Three Months Ended September 30, 2020 $ Change % Change 2019 (Dollars in thousands) Depreciation$ 11,221 $ 2,688 32%$ 8,533 Percentage of revenue 2% 2% Depreciation increased primarily due to an increase in internally developed software placed in service. For the nine months endedSeptember 30, 2020 compared to the nine months endedSeptember 30, 2019 Nine Months Ended September 30, 2020 $ Change % Change 2019 (Dollars in thousands) Depreciation$ 30,284 $ 4,706 18%$ 25,578 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 September 30, Nine Months Ended September 30, 2020 $ Change % Change 2019 2020 $ Change % Change 2019 (Dollars in thousands) Operating income$ 200,167 $ 24,931 14%$ 175,236 $ 533,133 $ 69,028 15%$ 464,105 Percentage of revenue 31% 32% 31% 31% Adjusted EBITDA$ 249,182 $ 43,967 21%$ 205,215 $ 651,326 $ 89,362 16%$ 561,964 Percentage of revenue 39% 38% 37% 37% For a reconciliation of net earnings attributable toMatch Group, Inc. shareholders to Adjusted EBITDA, see "Principles of Financial Reporting." For the three months endedSeptember 30, 2020 compared to the three months endedSeptember 30, 2019 Operating income and Adjusted EBITDA increased 14% and 21%, respectively, primarily driven by revenue growth at multiple brands and lower selling and marketing expense as a percentage of revenue, partially offset by higher cost of revenue, due to higher in-app purchase fees, as revenue is increasingly sourced through mobile app stores, and increased web operation costs. Operating income was further impacted by higher stock-based compensation expense due to a modification charge recorded in 2020. 41 --------------------------------------------------------------------------------
Table of Contents
For the nine months endedSeptember 30, 2020 compared to the nine months endedSeptember 30, 2019 Operating income and Adjusted EBITDA increased 15% and 16%, respectively, primarily due to the factors described above in the three-month discussion. AtSeptember 30, 2020 , there was$160.1 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. Interest expense For the three months endedSeptember 30, 2020 compared to the three months endedSeptember 30, 2019 Three Months Ended September 30, 2020 $ Change % Change 2019 (Dollars in thousands) Interest expense$ 43,189 $ 4,196 11%$ 38,993 Interest expense increased primarily due to the issuance of the 4.125% Senior Notes onFebruary 11, 2020 and the issuance of the 4.625% Senior Notes onMay 19, 2020 . Partially offsetting these increases were decreases due to the redemption of the 6.375% Senior Notes during the 2020 period and a lower LIBOR rate on the Term Loan in the current year period. For the nine months endedSeptember 30, 2020 compared to the nine months endedSeptember 30, 2019 Nine Months Ended September 30, 2020 $ Change % Change 2019 (Dollars in thousands) Interest expense$ 131,485 $ 31,495 31%$ 99,990 Interest expense increased primarily due to the factors described above in the three-month discussion. Additionally, the 2026 and 2030 Senior Exchangeable Notes were outstanding for the entire 2020 period. Other (expense) income, net For the three months endedSeptember 30, 2020 compared to the three months endedSeptember 30, 2019 Three Months Ended September 30, 2020 $ Change % Change 2019 (Dollars in thousands) Other (expense) income, net$ (1,923) $ (4,711) NM$ 2,788 ________________________ NM = not meaningful Other expense, net, in 2020 includes foreign currency losses of$1.3 million . 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 endedSeptember 30, 2019 and interest income of$1.3 million . 42 --------------------------------------------------------------------------------
Table of Contents
For the nine months endedSeptember 30, 2020 compared to the nine months endedSeptember 30, 2019 Nine Months Ended September 30, 2020 $ Change % Change 2019 (Dollars in thousands) Other income, net$ 19,341 $ 15,503 404%$ 3,838 Other income, net, in 2020 includes a legal settlement of$35.0 million , foreign currency gains of$1.4 million , and interest income of$2.5 million , partially offset by a loss on redemption of bonds of$16.5 million . Other income, net, in 2019 includes income of$1.9 million in net foreign currency gains due primarily to a strengthening of the Euro relative to GBP in the period, and interest income of$3.0 million , partially offset by expense of$1.3 million related to a mark-to-market adjustment pertaining to a subsidiary denominated equity instrument. Income tax (provision) benefit For the three months endedSeptember 30, 2020 compared to the three months endedSeptember 30, 2019 Three Months Ended September 30, 2020 $ Change % Change 2019 (Dollars in thousands) Income tax provision$ (23,568) $ (22,328) NM$ (1,240) Effective income tax rate 15% 1% The income tax provisions in 2020 and 2019 are reduced by (i) excess tax benefits generated from the exercise and vesting of stock-based awards and (ii) research tax credits. For the nine months endedSeptember 30, 2020 compared to the nine months endedSeptember 30, 2019 Nine Months Ended September 30, 2020 $ Change % Change 2019 (Dollars in thousands) Income tax (provision) benefit$ (7,257) $ (14,003) NM$ 6,746 Effective income tax rate 2% NM The income tax provision in 2020 and the income tax benefit, despite pre-tax income, in 2019, are primarily due to excess tax benefits generated from the exercise and vesting of stock-based awards. In 2020, this benefit was partially offset by an 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 10-Related Party Transactions" to the consolidated financial statements included in "Item 1-Consolidated Financial Statements." 43 --------------------------------------------------------------------------------
Table of Contents
PRINCIPLES OF FINANCIAL REPORTINGMatch Group reports Adjusted EBITDA and Revenue excluding foreign exchange effects, both of which are supplemental measures toU.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. 44 --------------------------------------------------------------------------------
Table of Contents
The following table reconciles net earnings attributable to
Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 (In thousands) Net earnings (loss) attributable to Match Group, Inc. shareholders$ 132,581 $ 128,544 $ (12,018) $ 330,706 Add back: Net (loss) earnings attributable to noncontrolling interests (586) 31,228 59,680 88,842 (Earnings) loss from discontinued operations, net of tax (508) (21,981) 366,070 (44,849) Income tax provision (benefit) 23,568 1,240 7,257 (6,746) Other expense (income), net 1,923 (2,788) (19,341) (3,838) Interest expense 43,189 38,993 131,485 99,990 Operating Income 200,167 175,236 533,133 464,105 Stock-based compensation expense 37,335 20,805 80,647 70,817 Depreciation 11,221 8,533 30,284 25,578 Amortization of intangibles 459 641 7,262 1,464 Adjusted EBITDA$ 249,182 $ 205,215 $ 651,326 $ 561,964 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 inU.S. dollars, international revenue is favorably impacted as theU.S. dollar weakens relative to other foreign currencies, and unfavorably impacted as theU.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 ofMatch 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. 45 --------------------------------------------------------------------------------
Table of Contents
The following table presents the impact of foreign exchange on total revenue, ARPU, and International ARPU for the three and nine months endedSeptember 30, 2020 compared to the three and nine months endedSeptember 30, 2019 , respectively:
Three Months Ended
2020 $ Change % Change 2019 (Dollars in thousands, except ARPU) Revenue, as reported$ 639,770 $ 98,277 18%$ 541,493 Foreign exchange effects (3,085) Revenue excluding foreign exchange effects$ 636,685 $ 95,192 18%$ 541,493
(Percentage change calculated using non-rounded numbers, rounding differences may occur) ARPU, as reported
$ 0.62 4%$ 0.59 Foreign exchange effects - ARPU, excluding foreign exchange effects$ 0.62 4%$ 0.59 International ARPU, as reported$ 0.58 1%$ 0.57 Foreign exchange effects (0.01) International ARPU, excluding foreign exchange effects$ 0.57 -%$ 0.57
Nine Months Ended
2020 $ Change % Change 2019 (Dollars in thousands, except ARPU) Revenue, as reported$ 1,739,862 $ 235,771 16%$ 1,504,091 Foreign exchange effects 16,370
Revenue excluding foreign exchange effects
17%$ 1,504,091
(Percentage change calculated using non-rounded numbers, rounding differences may occur) ARPU, as reported
$ 0.60 2%$ 0.58 Foreign exchange effects - ARPU, excluding foreign exchange effects$ 0.60 3%$ 0.58 International ARPU, as reported$ 0.55 (1)%$ 0.56 Foreign exchange effects 0.01 International ARPU, excluding foreign exchange effects$ 0.56 -%$ 0.56 46
--------------------------------------------------------------------------------
Table of Contents
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
Financial Position September 30, 2020 December 31, 2019 (In thousands) Cash and cash equivalents: United States $ 251,742 $ 322,267 All other countries 147,142 143,409 Total cash and cash equivalents $ 398,884 $
465,676
Long-term debt: Credit Facility due February 13, 2025 $ - $
-
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 3,892,500 3,292,500 Less: Unamortized original issue discount 324,551
357,887
Less: Unamortized debt issuance costs 46,857 44,987 Total long-term debt, net $ 3,521,092$ 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: Nine Months Ended September 30, 2020 2019
(In thousands) Net cash provided by operating activities attributable to continuing operations
$
518,845
(3,912,134) (32,961) Net cash provided by financing activities attributable to continuing operations 1,711,971 732,333 2020 Net cash provided by operating activities attributable to continuing operations in 2020 includes adjustments to earnings of$80.6 million of stock-based compensation expense,$57.0 million of other adjustments,$30.3 million of depreciation, and$7.3 million for amortization of intangibles. Partially offsetting these adjustments was deferred income tax of$6.6 million primarily related to net operating loss created by the settlement of stock-based awards. Other adjustments include$33.3 million of amortization of original issuance discount related to the Exchangeable Senior Notes and$16.5 million of losses on the redemption of the Senior Notes. The decrease in cash from changes in working capital primarily consists of an increase in accounts 47 --------------------------------------------------------------------------------
Table of Contents
receivable of$87.9 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; and an increase from other assets of$26.1 million primarily due to a legal settlement. These changes were partially offset by an increase in deferred revenue of$26.9 million , due mainly to growth in subscription sales; an increase in accounts payable and other liabilities of$18.3 million due mainly to the timing of payments, including interest payments; and an increase from income taxes payable and receivable of$5.3 million primarily due to the receipt of an income tax refund, partially offset by payments of taxes during the year. Net cash used in investing activities attributable to continuing operations in 2020 consists primarily of the net cash distributed to IAC related to the Separation of$3.9 billion , which includes$1.4 billion of net proceeds from the stock issuance in connection with the Separation, and capital expenditures of$32.4 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$1.4 billion from the stock offering in connection with the Separation, which were subsequently transferred to IAC as noted above, 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$212.0 million for withholding taxes paid on behalf of employees for net settled equity awards of bothFormer Match Group andMatch 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$70.8 million of stock-based compensation expense,$25.6 million of depreciation and$22.9 million of other adjustments. Partially offsetting these adjustments was deferred income tax of$26.2 million primarily related to the net operating loss created by settlement of stock-based awards. Other adjustments include$22.4 million of Exchangeable Senior Note amortization of the original issuance discount. The decrease in cash from changes in working capital primarily consists of an increase in accounts receivable of$68.6 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. Partially offsetting this decrease was an increase in accounts payable and other liabilities of$45.7 million , due mainly to the timing of payments, including interest payments; and an increase in deferred revenue of$24.6 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$30.3 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; purchases of treasury stock ofFormer Match Group of$175.7 million ;$167.2 million for withholding taxes paid on behalf of employees for net settled equity awards ofFormer Match Group ; and$136.9 million used to pay the net premium on the 2026 and 2030 Exchangeable Notes hedge and warrant transactions. 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 ofSeptember 30, 2020 ,$749.8 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$50 million and$55 million , an increase compared to 2019 capital expenditures, 48 --------------------------------------------------------------------------------
Table of Contents
primarily related to building improvements as Tinder expands office space and additional capitalized software cost. As ofSeptember 30, 2020 , all of the Company's international cash can be repatriated without significant tax consequences. Our indebtedness could limit our ability to: (i) obtain additional financing to fund working capital needs, acquisitions, capital expenditures, debt service or other requirements; and (ii) use operating cash flow to pursue acquisitions or invest in other areas, such as developing properties and exploiting business opportunities. The Company may need to raise additional capital through future debt or equity financing to make additional acquisitions and investments or to provide for greater financial flexibility. Additional financing may not be available on terms favorable to the Company or at all. 49 -------------------------------------------------------------------------------- Table of Contents CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS Payments Due by Period Less Than 1-3 3-5 More Than Contractual Obligations(a) 1 Year Years Years 5 Years Total (In thousands) Long-term debt(b)$ 114,928 $ 746,327 $ 222,058
Operating leases(c) 14,353 21,415 14,307 46,565 96,640 Purchase obligation(d) 50,000 50,000 - - 100,000
Total contractual obligations
_______________________________________________________________________________
(a)The Company has excluded$37.6 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 atSeptember 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, which bear interest at fixed rates; the 2022, 2026, and 2030 Exchangeable Notes of$518 million ,$550 million , and$550 million , respectively, which bear interest at fixed rates; and the Term Loan balance of$425 million which bears interest at a variable rate. The Term Loan bears interest at LIBOR plus 1.75%, or 2.00% atSeptember 30, 2020 . The amount of interest ultimately paid on the Term Loan may differ based on changes in the interest rate and outstanding balance. 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$0.2 million of letters of credit and surety bonds outstanding as ofSeptember 30, 2020 that could potentially require performance by the Company in the event of demands by third parties or certain contingent events. 50 --------------------------------------------------------------------------------
Table of Contents
© Edgar Online, source