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MarketScreener Homepage  >  Equities  >  Nasdaq  >  IAC/InterActiveCorp    IAC

IAC/INTERACTIVECORP

(IAC)
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IAC/InterActiveCorp : MATCH GROUP, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

11/06/2020 | 04:07pm EST

Separation

On June 30, 2020, the companies formerly known as Match Group, Inc. (referred to
as "Former Match Group") and IAC/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 of Former Match Group and certain financing
subsidiaries previously owned by Former IAC, and (2) IAC, consisting of Former
IAC's businesses other than Match Group (the "Separation"). As a result of the
Separation, the operations of Former IAC businesses other than Match Group are
presented as discontinued operations.
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.
In July 2020, in connection with the Separation, the sale of 17.3 million newly
issued shares of Match 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 in the United States and Canada.
•International - consists of the financial results and metrics associated with
users located outside of the United States and Canada.
•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
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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 Google in connection with the
processing of in-app purchases of subscriptions and product features through the
in-app payment systems provided by Apple and Google.
•Selling and marketing expense - consists primarily of advertising expenditures
and compensation expense (including stock-based compensation expense) and other
employee-related costs for personnel engaged in selling and marketing, and sales
support functions. Advertising expenditures include online marketing (such as
fees paid to search engines and social media sites), offline marketing (which is
primarily television advertising), and payments to partners that direct traffic
to our brands.
•General and administrative expense - consists primarily of compensation expense
(including stock-based compensation expense) and other employee-related costs
for personnel engaged in executive management, finance, legal, tax, and human
resources, acquisition-related contingent consideration fair value adjustments
(if any), fees for professional services (including transaction-related costs
for acquisitions) and facilities costs.
•Product development expense - consists primarily of compensation expense
(including stock-based compensation expense) and other employee-related costs
that are not capitalized for personnel engaged in the design, development,
testing and enhancement of product offerings and related technology.
Long-term debt:
•Credit Facility - The revolving credit facility of Match Group Holdings II, LLC
("MG Holdings II"), an indirect wholly-owned subsidiary of the Company. As of
December 31, 2019, $500 million was available under the Credit Facility. On
February 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 from December 7,
2023 to February 13, 2025. As of September 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. At December 31, 2019, the Term Loan
bore interest at LIBOR plus 2.50% and the then applicable rate was 4.44%. On
February 13, 2020, the Term Loan was amended to reprice the outstanding balance
to LIBOR plus 1.75% and extend its maturity from November 16, 2022 to February
13, 2027. As of September 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
on June 11, 2020 with the proceeds from the 4.625% Senior Notes.
•5.00% Senior Notes - MG Holdings II's 5.00% Senior Notes due December 15, 2027,
with interest payable each June 15 and December 15, which were issued on
December 4, 2017. As of September 30, 2020, $450 million aggregate principal
amount was outstanding.
•5.625% Senior Notes - MG Holdings II's 5.625% Senior Notes due February 15,
2029, with interest payable each February 15 and August 15, which were issued on
February 15, 2019. As of September 30, 2020, $350 million aggregate principal
amount was outstanding.
•4.125% Senior Notes - MG Holdings II's 4.125% Senior Notes due August 1, 2030,
with interest payable each February 1 and August 1, which were issued on
February 11, 2020. The proceeds were used to pay expenses associated with the
offering and fund a portion of the $3.00 per common share of Former Match Group
that was payable in connection with the Separation. As of September 30, 2020,
$500 million aggregate principal amount was outstanding.
•4.625% Senior Notes - MG Holdings II's 4.625% Senior Notes due June 1, 2028,
with interest payable each June 1 and December 1, commencing on December 1,
2020, which were issued on May 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 of September 30, 2020, $500 million
aggregate principal amount was outstanding.
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•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 due October 1, 2022, which
are exchangeable into shares of the Company's common stock. Interest is payable
each April 1 and October 1. The outstanding balance of the 2022 Exchangeable
Notes as of September 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 due June 15, 2026, which
are exchangeable into shares of the Company's common stock. Interest is payable
each June 15 and December 15. The outstanding balance of the 2026 Exchangeable
Notes as of September 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 due January 15, 2030, which
are exchangeable into shares of the Company's common stock. Interest is payable
each January 15 and July 15. The outstanding balance of the 2030 Exchangeable
Notes as of September 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 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.
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.
Third Quarter and Year-to-Date September 30, 2020 Consolidated Results
For the three months ended September 30, 2020 compared to the three months ended
September 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
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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 ended September 30, 2020 compared to the nine months ended
September 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.
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Results of Operations for the three and nine months ended September 30, 2020
compared to the three and nine months ended September 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 ended September 30, 2020 compared to the three months ended
September 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.
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For the nine months ended September 30, 2020 compared to the nine months ended
September 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 ended September 30, 2020 compared to the three months ended
September 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 ended September 30, 2020 compared to the nine months ended
September 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 ended September 30, 2020 compared to the three months ended
September 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.
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For the nine months ended September 30, 2020 compared to the nine months ended
September 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 ended September 30, 2020 compared to the three months ended
September 30, 2019

Three Months Ended September 30,

                                                        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 ended September 30, 2020 compared to the nine months ended
September 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 ended September 30, 2020 compared to the three months ended
September 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.
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For the nine months ended September 30, 2020 compared to the nine months ended
September 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 ended September 30, 2020 compared to the three months ended
September 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 ended September 30, 2020 compared to the nine months ended
September 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 to Match Group, Inc.
shareholders to Adjusted EBITDA, see "Principles of Financial Reporting."
For the three months ended September 30, 2020 compared to the three months ended
September 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.
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For the nine months ended September 30, 2020 compared to the nine months ended
September 30, 2019
Operating income and Adjusted EBITDA increased 15% and 16%, respectively,
primarily due to the factors described above in the three-month discussion.
At September 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 ended September 30, 2020 compared to the three months ended
September 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 on February 11, 2020 and the issuance of the 4.625% Senior Notes on May
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 ended September 30, 2020 compared to the nine months ended
September 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 ended September 30, 2020 compared to the three months ended
September 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 ended September 30, 2019 and interest income of $1.3
million.
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For the nine months ended September 30, 2020 compared to the nine months ended
September 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 ended September 30, 2020 compared to the three months ended
September 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 ended September 30, 2020 compared to the nine months ended
September 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."
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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 Match Group, Inc. shareholders to Adjusted EBITDA:

                                          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 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 nine months ended September 30,
2020 compared to the three and nine months ended September 30, 2019,
respectively:
                                                                           

Three Months Ended September 30,

                                                            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 September 30,

                                                         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 $ 1,756,232$ 252,141

                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



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              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 $ 468,255 Net cash used in investing activities attributable to continuing operations

                                                (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
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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 both Former Match Group and Match Group, and
purchases of treasury stock of Former 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 of Former Match Group of $175.7 million; $167.2
million for withholding taxes paid on behalf of employees for net settled equity
awards of Former 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 of September 30, 2020,
$749.8 million was available under the Credit Facility that expires on February
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,
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primarily related to building improvements as Tinder expands office space and
additional capitalized software cost.
As of September 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.
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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)               $ 114,928$ 746,327$ 222,058

$ 3,742,296$ 4,825,609

 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 $ 179,281$ 817,742$ 236,365

$ 3,788,861$ 5,022,249

_______________________________________________________________________________

(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 at September 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% at September 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 of
September 30, 2020 that could potentially require performance by the Company in
the event of demands by third parties or certain contingent events.
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© Edgar Online, source Glimpses

Stocks mentioned in the article
ChangeLast1st jan.
IAC/INTERACTIVECORP -1.47% 200.52 Delayed Quote.5.90%
MATCH GROUP, INC. -2.42% 141 Delayed Quote.-6.74%
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