Mandy Ginsberg - CEO Gary Swidler - CFO Lance Barton - SVP, IR & Corporate Development.

Christopher Merwin - Goldman Sachs Jason Helfstein - Oppenheimer Ross Sandler - Barclays Douglas Anmuth - JPMorgan Brent Thill - Jefferies Samuel Kemp - Piper Jaffray Kunal Thakkar - Deutsche Bank Mark Kelley - Citigroup Daniel Salmon - BMO Capital Markets Victor Anthony - Aegis Capital.

Good morning, and welcome to the Match Group Fourth Quarter 2017 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions].

I would now like to turn the conference over to Lance Barton, Senior Vice President, Investor Relations. Please go ahead..

Thank you, operator, and good morning, everyone. Also joining the call today are Mandy Ginsberg, CEO of Match Group; and Gary Swidler, CFO of Match Group. Mandy and Gary will review Q4 investor presentation that you can access on our Investor Web site and then they will open it up for questions.

But before we start, I’d like to remind everyone that during this call, we may discuss our outlook and future performance. These forward-looking statements may be preceded by words such as we expect, we believe, we anticipate or similar statements.

These statements are subject to risks and uncertainties, and our actual results could differ materially from the views expressed today. Some of these risks have been set forth in our earnings release, in our periodic reports filed with the SEC. With that out of the way, I’ll now turn the call over to Mandy..

Thanks, Lance, and thanks everyone for joining us on the call this morning. As you have already seen from the Q4 and full year results, our business is in great shape with tremendous momentum heading into 2018.

Before we get into the numbers, I just want to start off by saying how excited I am not just about our financial performance but about this business and how our products impact people’s lives around the world. Match Group’s products have truly shaped society and serve a fundamental human need, a need for connection, relationships and love.

A decade ago in the U.S., only 3% of Internet users who were married or in a relationship met their partner online. Today, more than a third of relationships start online and that number is even lower outside of the U.S. So while we’ve made great strides, we still see opportunity for the category to grow.

People are meeting people they never would have met without our apps across every demographic, age, race and religion. Today, we have customers in a 190 countries and we have a truly global approach to this category. We don’t build products for one type of person.

We build products for everyone, everywhere and I intend to ensure that we are consistently innovating and delivering products and features to address the needs of men and of course from my perspective, especially women, who are looking to meet someone new.

We believe that this category will continue to grow as the stigma further erodes and more people around the world turn to these products. Let’s start with Slide 4. You can see that Tinder continues to be a driving force for us nearly doubling subscribers for the second year in a row and more than doubling revenue in 2017.

As a result, Tinder accounted for roughly 30% of Match Group revenue in 2017. The bulk of Tinder’s revenue, around 90%, comes from Tinder’s subscribers in the form of purchases of Tinder Plus, Tinder Gold and à la carte features like Boost and Super Like.

The remaining small percentage of Tinder’s revenue comes from advertising and from those users who buy à la carte features but who are not subscribers. This revenue is not included in our ARPU calculations.

Sequential average subscriber additions for Tinder in Q4 were higher than last quarter coming in at 544,000 to take Tinder above the 3 million average subscriber mark. It’s quite an impressive feat to have reached this milestone less than three years after launching monetization].

We’re also excited that Tinder was the second highest grossing non-gaming app in the world last year behind only Netflix but higher than household names like Spotify, LINE, Pandora and HBO. As we’ve talked about on our last call, subscriber surge in Q4 is due to a number of factors.

The most obvious one is the stock effect from the launch of Tinder Gold in late Q3 but also due to the non-monetization product work we did in the first half of 2017.

We’d expect that Q4 average subscriber additions to be comparable to Q3 but renewal rates for shorter-term packages of Gold and the percentage of both new and existing subscriber purchasing Gold come in above our expectations which is driven better than expected subscriber growth.

But it’s important for everyone to remember that Tinder’s sequential subscriber additions over the last two quarters are not indicative of what you should expect to see starting in Q1 due to the stock and flow effect we’ve mentioned in the past.

When a new feature is exposed to an entire existing user base, that new feature provides a big surge in subscribers.

The surge is what we refer to as the stock effect and this effect has been very evident in the number of average subscribers we added in both Q3 and Q4 after the introduction of the Likes You feature which we merchandize as Tinder Gold.

Once all the users have been exposed to the new feature as our users were with Likes You in late Q3, the surge of new subscribers will ultimately subside and going forward the percentage of subscribers coming from older cohorts return to normal levels.

Subscribers and revenue will ultimately be higher than they were before the new feature release, but we do not expect sequential subscriber growth to sustain at these elevated levels beyond the initial surge that we saw in Q3 and Q4. So now moving on to Slide 5.

Before we get into some of the future plans for Tinder, I wanted to take a moment to talk about the past. Tinder is really a force of nature that has changed the landscape for meeting people you don’t know, particularly for people in their 20s. It was the first product in the category to achieve viral growth across all geographies.

Frankly, Tinder is in a league of its own. Other brands in the category, including other brands we operate, must spend real marketing dollars to achieve a fraction of the growth that we have seen globally at Tinder.

However, we also believe marketing spend can be deployed in a smart way behind strong momentum and to distance ourselves from competition. That’s our plan in international markets for Tinder.

And on the product front, Tinder has been on the cutting edge of innovation since its inception in 2012 inventing the swipe gesture which has since become this cultural phenomenon swipe right or swipe left. It is often imitated on mobile products.

Tinder also invented the double blind option where two users need to like each other before they can message. In fact, these features are so innovative that Tinder was recently granted a patent in the dating category by the U.S. Patent and Trademark Office which we feel is very valuable.

To build on the success, there are a number of things on track for Tinder in 2018.

I know many investors are focused on our next monetization release, but as we’ve said before the biggest drivers of long-term revenue growth are free features that make Tinder simple, fun and a useful product creating a vibrant community of users that in turn drive word of mouth.

This focus on the customer is key in driving new users as well as keeping our customers engaged. The success of Gold allows us to focus on developing features that make the overall product experience better for our entire user base.

That means you’re not going to see new monetization features on Tinder until the second half of 2018, which is a similar cadence to our product release in 2017. The first, the Post-Match experience.

Tinder has always been a really efficient straightforward swipe machine and it creates mutual matches that enables communication between two users that have expressed interest in one another. The product is extremely effective and simple but it can be somewhat limited.

We’re currently testing new features in a number of international markets that provides for an engaging visual and more contextual post-match experience to bring you deeper into the activities of the people you’ve already matched with. Our goal is to provide users with more context to spark fresh and relevant conversations with their matches.

The early results from the work has been encouraging as we made positive strides in resurrecting dormant matches and increasing time spent in apps. We’ve invested a lot of resources around Artificial Intelligence and Super Likeable and one of the first visible examples of what we are doing there.

It’s a pre-match recommendation powered by a predictive algorithm that we are now testing in a few markets. This is the first in a series of features that will be more focused on enhancing the experience of our female users and we’ve seen higher engagement by women who interact with this feature.

We’re working on servicing information women find more relevant and providing more control on how and when matches communicate with them. I’m excited about these initiatives because improving the product for women is an important priority for Tinder and personally it’s a big priority for me.

We are also actively developing a series of location-based features which we believe has the ability to meaningfully enhance the Tinder experience. Tinder has incredible scale given its viral growth and the dating context provides a level of intense that traditional social networks can’t capture.

And overlaying location is a vector to be compelling especially to a young, mobile and very social audience. We’ve been vague about these features really on purpose because it’s a competitive disadvantage to disclose before we launch anything, but we didn’t want people to lose sight of the fact that it remains a focus for us.

Overall, there remains a lot of exciting product work on Tinder and we think that this is going to position the business for continued growth long term. Okay, next slide. Turning to our other businesses, starting on Slide 6.

Match made important strides on the mobile products in 2017 and was able to achieve slight growth in year-over-year average subscribers in the fourth quarter. We did the hard product work to transform it from a desktop product to a mobile-first product and we finally achieved subscriber stability in this business.

In 2017, we launched mobile-only features on Match like video, location and in 2018 we will unleash a new set of mobile-first features that will double down on Match’s core value proposition around relationship intent for people who come to Match and they’re serious about finding a relationship and we’re building out features to help improve that outcome.

For example, we’re launching a coaching product which is like a virtual wing-woman to help users throughout their experience from creating a profile to striking up conversations. These features also allow us to tell a compelling product story in our marketing channels.

In 2018, a big focus for the team will be on the top of the funnel growth to address the shifting marketing landscape from TV to digital. We’re continuing to see the impact of these shifts in the ad market, particularly TV channel in the first few weeks of 2018 as the efficiency of our spend is lower than it has been previously.

We are disciplined marketers and we will manage to spend accordingly to hit ROI thresholds. In our Affinity brand, we’ve been able to right-size our marketing spend with ROI thresholds but we still have work to do to refine the product to be mobile-first.

The goal at our time is to simplify the mobile experience for our users aged 50 plus who are not mobile natives. We’ll be introducing profile questions and conversation starters around relative pop culture topics from the 1960s and '70s to make the product more relevant for an older demo.

We’re also testing a new mobile app to target Latino singles called Chispa. Univision is our distribution partner in these efforts. Chispa combines our product knowledge and tech expertise with the reach and market knowledge of Univision which is the largest Latino-focused broadcast network.

While we’re still in early testing, I’m excited about the potential to have an app that meets the needs of such a large and growing demo that has been underserved largely by existing broad-based dating apps. Turning to the next slide to Slide 7, OkCupid has had a remarkable turnaround led by Elie Seidman who is now our CEO at Tinder.

Elie faced a number of product and brand challenges when we joined the company in 2016. While the OkCupid tech had been ported to mobile, the product user experience on mobile really hadn’t adapted to be relevant in the landscape of modern mobile-first apps.

Last year, she rallied the team around on a mission of making OkCupid truly a modern mobile dating app for substance, not selfies.

They took a series of bold steps to achieve the vision in both product and marketing and the team created a brand new profile card, elevated the iconic questions within the product experience, completely replaced the on-boarding flows and transformed the discovery section of the app.

These frontend improvements were combined with a significant upgrade to the backend. Together, they led to increasing conversion on OkCupid’s mobile apps and modest growth in subscribers. I worked with Elie for almost two years watching him mobilize the team and transform the product while always obsessing about customer experience.

Elie’s entrepreneurial experience, tech and product jobs, along with a few years under his belt in the category has made him the perfect guy for the CEO role at Tinder where he started a few months ago. We’ve just announced the new CEO at OkCupid, Ariel Charytan who joined us from Amazon where he was the SVP leading product and design for Audible.

We’re lucky to have his caliber of talent in the organization. With the OkCupid product in a great place, we decided it was time to increase our marketing efforts to drive awareness and consideration among urban millennial women looking for relationships.

The team has done a great job of getting influencers and press to reconsider the brand which resulted in a significant uptick in press coverage late last year. To built on that momentum, in Q1 we started investing brand marketing dollars to fuel additional word of mouth growth.

Keep in mind we are not talking about big TV dollars similar to other brands. In three U.S. cities, we just started running a fairly provocative ad campaign that is already creating buzz and driving female interest. Our PlentyOfFish business continues to benefit from learnings from across the Match Group brand.

We’re implementing price and package optimization based on best practices with our other businesses and are building on the momentum we’ve had after launching à la carte monetization features. PlentyOfFish also continues to lean into their value proposition which is getting people into more and better conversations.

It rolled out a number of new features consistent with the mission and similar to OkCupid, we’ll be testing marketing spend to see if we can generate additional word of mouth growth in markets outside the U.S.

Slide 8, we’ve made a lot of progress in Europe last year with the launch of OurTime to focus on an underserved demo in the region, people over 50 years old. The product is now in four markets and we’ll be rolling it out to more markets in Europe throughout 2018.

Meetic has continued to evolve Lara, as an AI virtual assistant that was highlighted in the F8 Developers Conference last year. By adding more features and interaction modes, Lara can now assist with profile searches and customer support in addition to profile registration.

She speaks 10 languages in Europe and has already provided assistance on over 1 million customer requests and we are showcasing this technology in one our European marketing campaign this year. It’s also important to highlight the work we’ve been doing in Europe to focus on improving the product experience for women.

Meetic launched the Gentleman’s Badge which encourages men to take actions and embrace behaviors that are appreciated by women. We’ve seen that men with a Badge receives 30% more attention than others. And last, in Asia, Pairs was a great brand that was the second highest grossing dating app in Japan last year.

It has also leveraged best practices from across the Match portfolio and successfully launched à la carte features last year. Pairs remains a great example of how we can grow our geographic footprint through M&A and we will continue to seek opportunities that allow us to expand our portfolio throughout Asia.

It’s a large and growing region with real opportunity for growth in our existing brands like Pairs and Tinder as well as new offerings. And with that, I’m going to pass it to Gary to go through the numbers..

Thanks, Mandy. Before I go through the rest of the slides, I wanted to clarify that we’re no longer using the term PMC but are instead using the term subscriber. Similarly, we’re now using the industry standard ARPU rather than ARPPU. We think this terminology is clear and more common industry practice.

Nothing has changed with our historical numbers or with the way we measure these numbers. It is simply a change in nomenclature. Precise definitions of our operating metrics can be found on Page 2 of the presentation and at the end of our earnings release. Okay, now onto the remaining slides.

On Slide 10, you can see that in Q4 we exceeded 7 million average subscribers with year-over-year growth of 24%. This growth was driven by the record sequential increase in average subs at Tinder. In addition, Match and OkCupid both grew subs modestly year-over-year in Q4 and we saw slightly moderating subscriber declines at our Affinity brands.

Year-over-year sub growth rates, ex-Tinder, improved sequentially. We had 15% North American sub growth, the best we’ve seen since Q4 2015 and 36% international sub growth, the best rate in eight quarters on a pro forma basis. Tinder comprises a larger percentage of our international business which helps explain the faster growth rate internationally.

ARPU for the quarter was up 4% driven by a 1% increase in North America and 11% internationally. On a constant currency basis, international ARPU is up 7%. Tinder Gold was the main driver of the ARPU increases globally as Tinder’s ARPU in the quarter grew 32% year-over-year. Tinder’s impact on ARPU is more pronounced in our international business.

Overall, company ARPU went from $0.53 in Q4 '16 to $0.55 in Q4 '17. Flipping to Slide 11, you can see that the sub and ARPU growth led to total year-over-year revenue growth of 28%, up from 19% last quarter. This fulfilled our expectation for revenue growth to continue to accelerate as the year progressed.

Direct revenue grew 29% driven by 24% subscriber growth and ARPU that was up 4%. Our international business grew direct revenue 51% driven by 36% subscriber growth and ARPU up 11%. Our domestic business grew 16% in direct revenue due to 15% growth in subscribers and 1% growth in ARPU.

Our international business now accounts for 44% of total direct revenue. Indirect revenue grew 9% year-over-year as we started to see the impact of the Facebook relationship at Tinder more than offset declines in the non-Tinder brands.

Total revenue, domestic direct revenue and international direct revenue growth rates were all the fastest we have achieved as a public company on a pro forma basis. Total revenue was above the expectations we laid out last quarter as Tinder Gold renewal and re-subscription rates were better than we expected.

We had very little history to forecast Gold metrics on our call last quarter. We adopted what we thought was a realistic view but it ultimately turned out to be slightly conservative which led to the beat in this quarter. EBITDA grew 20% in Q4 due to the revenue growth, partially offset by higher Tinder operating costs and higher IAP fees.

Year-over-year, we spent up by about $15 million in marketing to take advantage of the product momentum, particularly at Tinder and some attractive marketing opportunities especially at Match. Operating income was up 13% this quarter. Operating income grew less than EBITDA primarily as a result of increases in continued consideration and SPC [ph].

The $4 million increase in stock-based comp expense is primarily related to new awards granted since the prior year quarter, primarily at Tinder. We reported a net loss of $9 million due to 92 million of charges related to the U.S. tax reform passed in late December.

This included re-measurement of our net deferred tax position which was $69 million and the transition tax on previously untaxed foreign earnings of $24 million. Absent these tax law changes, Match Group has reported net income of $83 million or $0.29 per diluted share for the quarter.

The next slide lays out our financial outlook for 2018 and for Q1 specifically. On our last call, we gave a high-level outlook of mid-teens revenue growth in 2018. We’re now putting a range on revenue for 2018 at $1.5 billion to $1.6 billion.

At the midpoint that would be 16.5% year-over-year revenue growth which is modestly above what we thought at the time of our last earnings call and comes off a slightly higher base given our outperformance in Q4 '17. We expect revenue growth in '18 to be driven primarily by Tinder which we believe will account for the vast majority of our sub growth.

We expect our non-Tinder businesses to be fairly stable from a revenue and subscriber perspective. We anticipate relatively stable ARPU across our businesses as the mix shift to Tinder which had historically driven overall ARPU lower is offset by higher ARPU from Tinder due to Gold.

We expect indirect revenue growth in the high-single digits for the year primarily driven by Tinder. In 2018, we anticipate our revenue growth to be stronger in the front half of the year as the back half of 2017 reflected the significant impact of Tinder Gold.

We expect our growth trajectory in 2018 to depend upon the impact of Tinder’s revenue feature launches in the back half of the year as well as on the Gold renewal and re-subscription rates we see as the year progresses.

For Q1, we expect revenue of $380 million to $390 million or 29% year-over-year growth at the midpoint consistent with Q4 '17’s growth rate. For full year 2018, we expect EBITDA of $550 million to $600 million, 23% growth at the midpoint materially better than 2017’s rate of 16%.

Margin would be 37% at the midpoint representing an improvement of approximately 2 percentage points from the 2017 as reported figure and approximately 1 percentage point if you ignore the Tinder equity plan settlement cost we incurred in 2017.

Tinder is driving the operating leverage as it experiences the benefits of scale around headcount, data center and other operating costs.

Our outlook assumes marketing spend at Tinder continued to increase dollar-wise but stays constant as a percent of Tinder revenue as we spend into the product momentum to grow users, drive adoption and extend Tinder’s market leading position.

A majority of Tinder’s marketing spend will be internationally to build on viral growth and brand awareness, as Tinder pushes to further expand its lead on competitors in these markets.

We’re assuming some increased regulatory compliance across the company in 2018, including those related to GDPR, the new data privacy regulations in Europe, which come into effect in May.

Like many tech companies, we’re generally seeing increased scrutiny on our business particularly around consumer protection, privacy and data protection with Europe leading the way. We’re working diligently to ensure full compliance. Our outlook also contemplates continued R&D investment across our businesses and particularly at Tinder.

We have also allocated some spend to new product innovation outside our existing brands and products. As is typical in our business, we expect Q1 to be our lowest margin quarter and Q4 to be our best with the middle two quarters somewhere in between.

We expect $115 million to $120 million of EBITDA in Q1 or approximately 36% year-over-year growth at the midpoint and margin of about 30%.Normally Q1 is our highest marketing spend quarter and we expect the same trend to hold in 2018.

Q1 '18 should be an above average quarter in terms of sequential increase in Tinder’s average subscribers, albeit less than what we’ve seen the last two quarters due to the stock effect continuing to wear off, as Mandy discussed. After that, we expect sequential subscriber increases to return to more typical Tinder levels.

Year-over-year, Tinder’s subscriber growth rates though remain very robust. Given the phenomenal second half of 2017 that we had largely due to Tinder Gold and the under the hood work we did in the first half of '17, we’re set up very well for the first half of '18.

And new Tinder revenue features in the back half of the year will drive growth rates in the back half of '18 and 2019. While we have some terrific new product ideas in the works, our outlook contemplates new products of much more modest financial impact than the highly successful Tinder Gold.

This is due more to forecasting conservatism than anything else. As was the case with Gold, we’ve been cautious about the impact of Tinder’s new revenue features on our financials because the features are still six months out. We’ve also been conservative about the timing of the new feature launches.

Although we are pushing for early in the second half, we have assumed a slower pace. Given our track record around monetization, we would be disappointed if we don’t exceed our assumptions around timing and impact.

We’ve also been conservative at forecasting the ongoing Tinder Gold’s re-subscription and renewal rates in the back half of the year until we have more data to review, particularly as we’ve not yet reached renewals for 6 and 12-month packages.

There would be upside to the extent Gold renewals and re-sub rates continue current trends, particularly in the later quarters of 2018. We’re still assessing our GAAP effective tax rates given the recent reform but are expecting to be in the low 20% range for 2018.

2018’s rate is higher than our expected rates for 2019 and beyond because of higher impact from global intangible low tax income or GILTI, due to our NOL position. Our effective tax rates include the estimated tax benefit of equity award vesting and exercises.

Now that we’ve detailed what to expect in 2018, as we enter our third full year as a public company, we thought we should quickly look back at what we’ve delivered to our investors.

On Slide 13, you can see that if you take the midpoint of the outlook I just provided for '18, we expect to show 17% revenue growth, 25% operating income growth and 21% EBITDA growth from 2015 to 2018. This is clearly strong and steady growth on both top and bottom line.

We think this combination of revenue growth and margin puts us in the top decile of companies listed in the U.S. These numbers are all pro forma for our acquisition of PlentyOfFish. At the time of our IPO, we talked about 10% to 15% top line growth, so we’re clearly exceeding that target.

We’ve also said we’ll be able to expand margins over time and we believe we’re poised to do so in 2018. In addition to strong top and bottom line performance, we believe we’ve also done what we said we would do with the balance sheet.

As you can see on Slide 14, we’ve delevered from north of 4x at IPO to under 3x gross leverage today even with having accomplished effectively what was a large stock buyback from Tinder employees along the way. You can also see that our business generates significant cash.

For 2017, operating cash flow grew 24% year-over-year to $321 million and free cash flow increased 37% to $292 million. Free cash flow conversion from EBITDA in '17 was 62% and we expect to exceed that in 2018, as we don’t expect to be a material U.S. cash tax payer in '18 or '19.

Coupled with low CapEx, we believe 2018 EBITDA to free cash flow conversion should be approximately 75%. We’ve replenished our cash balance of $273 million with three quarters of it in the U.S. providing us solid financial flexibility.

In December '17, we accessed the debt markets and locked in 10-year unsecured debt at a 5% coupon which we’ll use to pay down much higher coupon debt. We expect that transaction together with other actions we have taken over the past two and a half years to reduce our interest expense to approximately $70 million in 2018.

Overall, we feel that Match Group is in a terrific position as we enter 2018. We believe we’re poised to deliver another year of strong financial performance. There is much more opportunity for us to refine our product offerings, increase revenue and improve margins. We look forward to continuing this journey with you.

Now, we’ll answer any questions you may have. Operator, please open the line to questions..

We will now begin the question-and-answer session. [Operator Instructions]. The first question comes from Chris Merwin of Goldman Sachs. Please go ahead..

Great, thank you and congrats on the quarter. So for Mandy on the Tinder product roadmap in 2018, you talked about focusing more on the female experience. And you have a competitor in Bumble which has tried to differentiate itself in the market by doing the same thing I guess with smaller scale than Tinder.

So it seems like this initiative puts you a little bit more in the crosshairs with your competition. I’m just wondering if you see an opportunity to broaden the appeal of Tinder organically or if M&A could be another route worth pursuing to further tap into that opportunity. And just a second quick one for Gary.

I was wondering if you could just help us think about the curve of net adds for Tinder in 2018 in the context of your overall guidance? Thanks..

Okay. Hi, Chris. So the first thing just addressing the female experience, I’ve been in this industry for over 10 years and if you listened at product meetings across the globe, we’re always talking about the female experience because frankly it’s just core to all of these products.

And we’ve done a lot of work under the hood like matching algorithms, for example, but we haven’t marketed a lot of these features but we’re starting to. Gentleman’s Badge in France which I referred to in my remarks is one example of that.

And now we’re gearing up – we have a number of product features on Tinder and across other products that we believe are going to appeal to women, which is broadening their appeal. So we’re going to plan to start rolling these out in the coming quarters.

And sort of stating the obvious but as a woman CEO running a company that touches millions of women around the world, it’s a big priority for me and it’s an area that I’m particularly passionate about. And then your second question around M&A, we don’t really comment on rumors and speculation about acquisitions.

Clearly in the last decade, we’ve been a big acquirer in our history and we’ve got a strong track record for businesses like Pairs, for example, in the last couple of years and PlentyOfFish. That said, we’re very thoughtful and disciplined and that’s going to be the case in the future.

And given our growth you see, we don’t really feel the pressure but if something makes strategic and financial sense, we’ll consider it..

I think, Chris, one your question around Tinder net adds, the way I would think about it, as I said in my remarks, I think that the first quarter you’ll see some continued wearing off of the stock effect around Gold.

So the net adds are going to come in lower than where they’ve been in the last couple of quarters there’s always been a very elevated level.

But if you look at kind of historically we’ve been in kind of the 200, 225 net adds at Tinder, it’s going to be somewhere between I think those two points what we’ve accomplished in the last couple of quarters and what we’ve kind of run at historically. And I think it will gradually trend towards that average over the other three quarters.

That’s kind of what we’re expecting as the year goes on. But again, there’s a lot of uncertainty around this. We haven’t decided exactly when we’re going to roll out the new feature. We’re not exactly sure how we’re going to merchandize it.

And so there’s still some real questions around it, but right now I think from a guidance standpoint that’s how we’re thinking about the net add trends for '18..

Okay. Thank you..

The next question comes from Nathan Helfstein of Oppenheimer. Please go ahead..

Hi. It’s Jason. Thanks. So two questions. One, I think you said international ARPU ex-currency was up 7% mostly driven by Tinder. Is there a way to think about the numbers as far as what’s still dragging the U.S.

ARPU and are there things that you’re doing internationally that haven’t yet benefitted the U.S.? I guess what I’m asking is, is there an opportunity to accelerate U.S.

ARPU ex-Tinder? And then just second, Gary, as far as the deleverage, while it’s impressive, at some point you get to a point of having the capital structure become less efficient and cut into returns. Given the limited flow, it is pretty hard for you to buy back stock.

So I guess outside of acquisitions, what can you do to maintain leverage to keep up returns? Thank you..

Okay. So on the ARPU question, I think that you have to recognize that Tinder is a bigger piece of the international business. You got a lot bigger business domestically. And so as Tinder’s ARPU is increasing, you’re seeing real impact from the Tinder ARPU increases on the international business.

It’s visible as well domestically but it’s just not to the same extent. Plus you got the FX that you mentioned. So I think those are largely the trends. Our international business also benefits from Pairs in Japan which has strong ARPU and that business is growing nicely as you’re seeing some lift from that. So there’s a few different things going on.

But I don’t think – I think you should look at our overall businesses stable from an ARPU perspective, ex-Tinder. That’s kind of how we’re thinking about it and Tinder will continue to see strong ARPU particularly in the front half of 2018 before you see the Gold effect in the back half of '18 versus the comps in '17.

In terms of capital structure, your point is well taken. We don’t have a lot of options. When we look at it, we don’t think for us right now dividends and buybacks make sense, certainly buybacks with the low float we think don’t make sense.

So the playbook that we’re running will be the playbook that we continue to run which is we don’t think it makes sense to carry lots of cash and have a big debt balance. So we built back up some cash to the extent that we don’t have other things to do with cash, we’ll continue to chip away at debt.

But obviously there are M&A opportunities that make sense. We’re thinking about geographic expansion. We’re thinking about other things in M&A. And to the extent we find a compelling strategic opportunity, as Mandy said, we think we have the financial flexibility to do that and we’re going to carefully consider the options.

And if we find something that makes financial and strategic sense, we would pursue it. So that’s how we’re thinking about the balance sheet..

Thanks..

Next question, please..

The next question comes from Ross Sandler of Barclays. Please go ahead..

Great. Guys, thanks for allowing me to ask a question. Two questions. So last quarter you talked about the Tinder sub adds being driven partially from Gold but also from other initiatives that you had put in place in middle of 2017.

So can you just talk about that in the context of the fourth quarter how much of the 544 was from Gold versus other stuff? And then can you talk about the duration of the Tinder subs? Is that changing with Gold between the shorter term versus the longer term packages? Any color on duration change would be helpful? Thank you..

Okay. Hi, Ross. So let me talk about the Tinder subscription strength. Hard to break out between all the activities, but last year we did a number of things to really impact the growth. The first was re-launching the Android app and we also did a lot to expand access to users across the globe, including SMS and Tinder online.

And then of course we started up marketing efforts. And so we had all of these things and then of course in Q3 introduced the Likes You feature which we merchandize as Tinder Gold. And so that created obviously more momentum but hard to break out too because there were forces that were happening all at the same time.

But we are definitely seeing Tinder Gold contribute to the strength in the back half of the year for sure..

And I would say on duration, Ross, we’re not seeing real impact on duration. What I can tell you is that when we look at Gold retention rates, they are lower than T Plus which you would expect because it’s a higher price product. But those rates continue to run ahead of our expectation. And so we’re watching that closely.

It’s going to have effect as the year goes on. But right now it continues to be ahead of our expectations. I’d also tell you that from a repeat purchase perspective, the take rate on Gold continues to be very strong which is really an indicator that people are seeing value in the product and keep coming back to it.

And so we feel overall very good about the trends we’re seeing around duration on Tinder Gold. Next question, please..

The next question comes from Douglas Anmuth of JPMorgan. Please go ahead..

Thanks for taking the question. Just as we think about the 2018 guide in the 13% to 20% range on the top line and then the $50 million EBITDA range, can you just help us understand the biggest swing factors there in terms of revenue and margins and how you could potentially end up on the extremes of those? And then also I just wanted to clarify.

I think you said that non-Tinder brands returned to growth ex-Affinity in 4Q. I just wanted to confirm that that was the case. Thanks..

Yes, what I said specifically was ex-Tinder, we saw sequential improvement in the year-over-year growth rates and we’re expecting to continue to see that. So if you think about it, Affinity is going to continue to be a drag. It’s less and less of a drag as every quarter goes on. The other businesses are stable.

And so as that drag moderates, we’ll start to see the ex-Tinder improvement that we’ve been talking about. But the trends that we’ve been talking about for a number of quarters now continue to hold, which is Match and OkCupid have returned to growth and Affinity is one business that continues to cause us significant drag but it is lessening.

So that’s kind of how we look at the non-Tinder sub trends. In terms of the guide, I think that the year is going to be – the swing factors are really top line driven. And I think when you look at it, there probably are two or three areas of conservatism that we focused on in the back half of the year which are affecting the trend.

As we’ve talked about, the re-sub and renewal rates on Gold are something that we had one month of data to forecast it last quarter. Now we’ve got four months of data, so it’s more but it’s still not a lot. And so predicting the full 12 months of '18 based on four months of data we’ve tried to err [ph] on the conservative side.

Right now the trends continue to look good and we think there’s upside to the extent that we do better than we’re expecting from a re-sub and renewal rate as the year progresses. But we’ve only seen the one month packages at Tinder Gold renew. We haven’t yet gone to the renewal point for 6 and 12-month packages.

So we’ll have to see how that all plays out. But that whole set of metrics around Gold, renewal and re-sub rates in particular, is going to have real impact on '18 and on the back half of the year. So that’s kind of one aspect of it.

And then the second aspect of it is what exactly we do roll out, how many products, what do they look like, à la carte or subscription at Tinder as the year progresses and what specifically the timing is. We’re pushing for early in the second half of the year to the extent that we end up with something a little bit later because we refine it.

That will affect kind of what the back half of the year looks like. So that’s why sitting here in early February we provide this broad and kind of round range of 1.5 billion to 1.6 billion. Right now that’s kind of our best guess and if it slows down to EBITDA, we have confidence we’re going to see margin expansion. Tinder’s margins are expanding.

So we think that trend will clearly hold. But the top line is what is a little bit less sure and that will depend on the Gold metrics and the exact timing and impact of the new Tinder feature or features..

Great. Thank you..

The next question comes from Brent Thill of Jefferies. Please go ahead..

Good morning. The international business was up 51%, North America was strong but at 16%. If you could just maybe talk a little bit about some of the initiatives in the North American business and how you think about potential of reacceleration of growth there that would be helpful? Thank you..

Thanks, Brent. So Tinder makes up a big piece of that international business which is driving a lot of that growth. And just to keep in mind before I talk about the non-Tinder businesses, Tinder has a large number of users in North America.

And so on that side it’s really around driving growth through product investment and marketing as I talked about before.

For the businesses outside of Tinder, the focus has been – we’ve had a portfolio strategy really focused on addressing the needs of these individual segments and we’re going to continue to push product differentiation across those brands. The other piece we are focused on is really the top of the funnel.

And I alluded to the fact that we have definitely seen challenges as media consumption behavior is changing, people are moving away from television to digital, television marketing has been really productive for us in the past and a highly efficient channel.

And so the amount of – we look forward these non – the North America businesses outside of Tinder, the amount we can grow and to the extent we can grow is really going to be our ability to crack the top of the funnel. So short term we see revenue growth as modest and we sort of mentioned the fact it’s been kind of flattish..

Thank you..

The next question comes from Sam Kemp of Piper Jaffray. Please go ahead..

Great. Congrats on the quarter and thanks for taking the questions. So one quick on product. I think we’ve heard about non-core R&D brand investments for a couple of quarters now. Are these efforts prevailing in the dating space or are you continuing to look at options outside of the dating area? And then quickly on the marketing investments.

When we think about the footprint that you’re marketing against, is this more about footprint expansion in geographies where you might have low brand awareness or is this just putting more resources behind some of the already existing larger geographies? Thanks..

Okay. The first one is around how we’re thinking about growth. We are definitely looking at sort of areas within the dating category including investment in our current product and across the globe.

And we also are looking at adjacencies really trying to understand what drives single lifestyle and what are different products over time that we can serve that single audience.

And so I think as over time, as I’m in sort of the driver seat over the next couple of quarters, we’ll have a better view of how we’re thinking about the business not just sort of within dating but it can category expansive. And then the question around --.

Where we’re putting our product --.

Yes, where we’re putting our product resources. So the product resources, there is a couple of things. I think that I mentioned before that a third of relationships in the U.S. start on a dating app which is pretty profound. That number is meaningfully less across the globe.

And so we are definitely looking at expanding footprint and looking at – you can see what we’ve done with M&A on Pairs in the Japan side. It’s been a really interesting acquisition for us as well as investing in internationally and other opportunities. OurTime in Europe is another example of 50 plus. It’s been underserved.

So a combination of both looking at M&A and also investing in products going after new demos and new geographies is really the focus..

And I would just add, Sam, that we’ve been talking about some of this stuff and some of it worth considering seriously in terms of acquisitions, investments, broadening things out a little bit. But the discipline remains and the terrific performance remains in our core businesses that we don’t need to buy things but we are analyzing it.

And to the extent we find something, like I said before that either fits strategically and feels financially logical to do, we’ll do it. And if we don’t, we’ll continue to perform in our existing businesses. And obviously as you can see from the results this quarter that certainly puts up a very strong financial performance.

So that’s kind of how we’re thinking about it and we’re being patient around those opportunities..

Sounds good. Thank you..

The next question comes from Lloyd Walmsley of Deutsche Bank. Please go ahead..

Hi. Thanks for taking the question. This is Kunal for Lloyd. Mandy, one of the things you mentioned was that online dating is no longer a stigma.

Given that it’s much more socially acceptable now and Tinder provides so much utility, is there a potential to actually raise prices for the subscription products? And as an aside, as we are talking about pricing, can you give us an update about the price discrimination issue with regard to Tinder?.

Sure. So the first one, I think what Likes You feature merchandizing goal that really showed that people are willing to pay more. There’s no price elasticity especially when they’re getting real value. And so we think we’ve got a number of features that we’re going to introduce in the back half of the year to drive revenue.

And we don’t necessarily think about sort of price. That’s one lever. We really focus on revenue optimization and we are constantly evaluating price and that’s not a continuum of – increasing price reduces subscribers – reducing price increases subscribers, so we’re constantly optimizing and making those decisions.

In terms of the lawsuit that you mentioned which I think you’re referring to the California lawsuit, we found out last week that California Court of Appeals reversed a lower court’s decision dismissal of a 2015 class action lawsuit challenging Tinder’s tiered pricing. It’s limited to California and we’re certainly going to appeal that..

Thanks.

And if I could, second question on advertising and how – given the growth in Tinder subs, how much bigger are you think you could make it in 2019?.

I think from an advertising perspective, we’ve been talking about this for a little while now. We’re making kind of slow and steady progress. It continues to be kind of second priority for us just given the strength around the direct revenue at Tinder.

You can see in this quarter we actually saw some growth overall in our advertising business which was the first time in a little while, because we finally got the program that we have with Facebook up and running well on Tinder and that’s really contributing nicely and offsetting some of the declines we’re seeing from some of the non-Tinder brands.

I think the declines in non-Tinder brands will start to moderate and as Facebook program continues to ramp up and continues to ramp up revenue generally at Tinder, we’re going to see some growth.

But we talk about kind of high-single digit growth for '18 and I think that’s kind of how you should think about the potential for advertising growth improvement at least for the foreseeable future kind of where we are currently strategically on that topic..

Thank you so much..

The next question comes from Mark Kelley of Citigroup. Please go ahead. Excuse me, just one moment please. Please go ahead with your question..

Hi. Good morning. Thanks for taking my questions. Three quick ones. First one, you talked a lot about international growth. Can you just remind us what the geographic priorities are? And then also just on the Affinity side, the addition of Chispa and Univision partnership. I think it suggest that there’s still some importance to the Affinity portfolio.

How do we think about Affinity from here now that the runoff is pretty much behind us and that you’re adding some newer brands? Thank you..

You cut out on your first part of the question. Mandy will answer the Chispa and the Affinity question. Then we’ll have to kind of go back..

Yes, I heard the question on Affinity. As Gary alluded to and we’ve been pulling back marketing on Affinity, so there’s been a pullback in subscribers and those declines are moderate in which it’s great.

Chispa is an example of our ability to launch a new brand and we really have deep product and technology – and Univision knows more about this audience than anyone else. And so we think they are a great distribution partner. It’s early – we’re actually not monetizing the product yet. It’s really all about building user growth at this point.

And we are excited about this. It’s a pretty underserved audience and the ability for us to serve this audience with this partnership we think is going to intriguing. So more to come..

Sorry, Mark, what was your first question because the line cut out for a second? We couldn’t hear it..

Sorry about that. Can you hear me a little bit better now? And just curious about – you talked a lot about international growth.

Can you just remind us what the priorities are in terms of a geographic standpoint?.

I would say that we feel we have Western Europe very well covered with a broad variety of products. Japan we’ve talked about as having been a strong market for us with our acquisition. Tinder has made some very good headway in India which is obviously a very large market and we think there’s real opportunity there.

But Tinder plays at the more casual end of the spectrum, so there’s probably opportunity there with some more serious products in India. That’s something that we are thinking about. And then I would just say, more broadly in Asia, probably ex-China which has not been a focus for us but something to think about for another day.

But there are other opportunities in Asia and we’re attacking that in a variety of ways. Our Pairs business in Japan we’re pushing into some other Asian countries and we’re thinking about some other ways to further penetrate Asia.

So that will continue to be a big focus for us whether it’s M&A or pushing some of our existing brands into those countries..

That’s helpful. Thank you..

Thank you..

The next question comes from Dan Salmon of BMO Capital Markets. Please go ahead..

Good morning, everyone.

Mandy covered a little bit of this in some of the questions already but just from a high level I’d love to hear your thoughts on the competitive environment and if it helps maybe segmenting it down into some of the more mobile-first upstart competitors like Bumble, maybe some of the more established, more desktop-oriented or at least desktop originated players like eHarmony? And then although they’re not in the business of dating specifically, how do you look at big platform players like Facebook which is obviously a big partner but also where obviously a lot of relationship connections happen as well? Thanks very much..

Okay. So given my tenure, I’ve definitely seen a lot in this space. The dating landscape has always been really competitive. The way we see competition today was truly different than what we’ve seen in the past, because it’s in some ways it’s like Tinder and there’s everything else.

The reason we talked about Tinder being in the league of its own is because it’s really been the only product that we’ve ever seen that kind of caught fire and been able to grown organically across the globe. And you asked me about Bumble, I think Bumble has done a great job building a brand.

We’ve also seen in our portfolio other founder-led brands like OkCupid is a good example that grew through PR domestically. But other than Tinder we really haven’t seen a business grow like this outside of their kind of home market without spending real dollars.

And talk about sort of competition and how we compete, if you think about products that are more local in nature and you’ve mentioned eHarmony as one, we think that the way that we have to compete is by constantly creating better product experience to appeal to those particular segments while at the same time we got to accelerate Tinder’s growth globally.

So it’s a pretty exciting time now but it’s definitely the landscape have changed with Tinder’s global expansion..

I think we have time for one more..

Okay. And the last question will come from Victor Anthony of Aegis Capital. Please go ahead..

Thanks, guys, for squeezing me in. Just two quick questions. So Gary, you talked a lot about Tinder driving operating leverage and margins will continue to expand.

So maybe you could just dive into a discussion of overall company operating leverage and your expectations for Tinder within your EBITDA guidance for 2018? And the second, earlier in the year you talked about SMS and Web Launch for Tinder outside of the U.S. So maybe you could just give us an update on those products? Thanks..

Sure. So on the margins I would say we have a lot of confidence that Tinder is going to expand its margins short and longer term. And we think there is real opportunity there. We’re finally going to start to see the operating leverage around headcount and web operations and some other operating costs. So at Tinder I think we have clear visibility.

I think the rest of the business is we largely look at them as relatively stable from a margin perspective, but there are a couple of potential exceptions.

One of them is around compliance costs to the extent that we continue to have to comply with additional mandates, especially in Europe, which is what we’re seeing and we expect it to come ultimately in the U.S. as well. I think that is a place where we have no choice, we will spend what is necessary to make sure we’re in full compliance.

So that’s a place of potential margin impact from those compliance costs. The other thing is short term we may spend a little bit more on innovation, on new products, on expanding a little bit. I think those are some things that to the extent we flow those to the income statement that could also be a margin impacter.

We view it as a short-term negative potentially for much longer term benefit. So those are probably the two things to think about on the non-Tinder side that could move the needle a little bit. I think both would be relatively small, but that’s kind of how we’re thinking about margins.

And then on SMS, I would just say that we’ve talked about this a lot. I think Ross asked a question about it earlier. When we look back on 2017, a lot of things that we did kind of fed into the tremendous success of Gold and the massive increase in PMC that we saw in the back half of '17.

So we expanded top of the funnel, we drove marketing which expanded user base, SMS was a piece of it that worked nicely. There was a lot of momentum that built from all of that work, the improved product at Tinder; all that led to terrific momentum. We started to see PMC really increase Tinder before Gold was introduced.

And then when Gold was introduced, that just fanned the flames, spread the fire, everyone want to think about it because Gold was a product that people saw real value in and we saw a huge jump in PMC from that. So that’s kind of how we look back on '17 and kind of think about the components of what we did. And I guess at this point now we’re onto '18.

So with that, I think we’ll leave it there for the moment. We appreciate very much everyone joining us again today and we look forward to talking to you all next quarter. Thanks so much..

Thanks..

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