Match Group, Inc. (MTCH) FY 2022 MD&A

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

Key Terms:

Operating and financial metrics:

•Americas includes North America, Central America, South America, and the Caribbean islands.

•Europe includes continental Europe, the British Isles, Iceland, Greenland, and Russia, but excludes Turkey (which is included in APAC and Other).

•APAC and Other includes Asia, Australia, the Pacific islands, the Middle East, and Africa.

•Direct Revenue is revenue that is received directly from end users of our services and includes both subscription and à la carte revenue.

•Indirect Revenue is revenue that is not received directly from an end user of our services, substantially all of which is advertising revenue.

•Payers are unique users at a brand level in a given month from whom we earned Direct Revenue. When presented as a quarter-to-date or year-to-date value, Payers represents the average of the monthly values for the respective period presented. At a consolidated level, duplicate Payers may exist when we earn revenue from the same individual at multiple brands in a given month, as we are unable to identify unique individuals across brands in the Match Group portfolio.

•Revenue Per Payer (“RPP”) is the average monthly revenue earned from a Payer and is Direct Revenue for a period divided by the Payers in the period, further divided by the number of months in the period.

Operating costs and expenses:

•Cost of revenue - consists primarily of the amortization of in-app purchase fees, compensation expense (including stock-based compensation expense) and other employee-related costs for personnel engaged in data center and customer care functions, credit card processing fees, hosting fees, live video costs, 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 service 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 includes online marketing, including 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, 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 service offerings and related technology.

Long-term debt:

•Credit Facility - The revolving credit facility under the credit agreement of MG Holdings II. At December 31, 2022, there was $0.4 million in outstanding letters of credit and $749.6 million of availability under the Credit Facility.

•Term Loan - The term loan facility under the credit agreement of MG Holdings II. At December 31, 2022 and December 31, 2021, the Term Loan bore interest at LIBOR plus 1.75% and the then

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applicable rates were 6.49% and 1.91%, respectively. At December 31, 2022, $425 million was outstanding.

•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. At December 31, 2022, $450 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, which were issued on May 19, 2020. At December 31, 2022, $500 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. At December 31, 2022, $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. At December 31, 2022, $500 million aggregate principal amount was outstanding.

•3.625% Senior Notes - MG Holdings II’s 3.625% Senior Notes due October 1, 2031, with interest payable each April 1 and October 1, which were issued on October 4, 2021. At December 31, 2022, $500 million aggregate principal amount was outstanding.

•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 were exchangeable into shares of the Company's common stock. Interest was payable each April 1 and October 1. In October 2022, the then outstanding 2022 Exchangeable Notes were settled at maturity with cash on hand.

•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 at December 31, 2022 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 at December 31, 2022 was $575 million.

Non-GAAP financial measure:

•Adjusted Operating Income - is a Non-GAAP financial measure. See “Non-GAAP Financial Measures” for the definition of Adjusted Operating Income and a reconciliation of net earnings attributable to Match Group, Inc. shareholders to operating income and Adjusted Operating Income.

Separation from IAC

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 part of the Separation, Former Match Group merged with and into MG Holdings II, an indirect wholly-owned subsidiary of Match Group, with MG Holdings II surviving the merger as an indirect wholly-owned subsidiary of Match Group. As a result of the Separation, the operations of Former IAC businesses other than Match Group are presented as discontinued operations.

For additional information relating to the Separation and the related transactions and agreements, see “Part I—Item 1—Business—Separation of Match Group and IAC” and “Part I—Item 1—Business—Relationship with IAC after the Separation.”

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MANAGEMENT OVERVIEW

Match Group, Inc., through its portfolio companies, is a leading provider of digital technologies designed to help people make meaningful connections. Our global portfolio of brands includes Tinder®, Hinge®, Match®, Meetic®, OkCupid®, Pairs™, Plenty Of Fish®, Azar®, Hakuna®, and more, each built to increase our users’ likelihood of connecting with others. Through our trusted brands, we provide tailored services to meet the varying preferences of our users. Our services 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.

Sources of Revenue

All of our services provide the use of certain features for free as well as a variety of additional features through a subscription or, for certain features, on a pay-per-use, or à la carte, basis. Our revenue is primarily derived directly from users in the form of recurring subscription fees and à la carte purchases.

Subscription revenue is presented net of credits and credit card chargebacks. Payers who purchase subscriptions or à la carte features pay in advance, primarily by using a credit card or through mobile app stores, and, subject to certain conditions identified in our terms and conditions, all purchases are final and nonrefundable. Fees collected, or contractually due, in advance for subscriptions are deferred and recognized as revenue using the straight-line method over the term of the applicable subscription period, which primarily ranges from one to six months, and corresponding in-app purchase fees incurred on such transactions, if any, are deferred and expensed over the same period. Revenue from the purchase of à la carte features is recognized based on usage. We also earn revenue from online advertising, which is recognized every time an ad is displayed.

Trends affecting our business

Over the last several years, we have seen significant changes in our business. Tinder has grown from incubation to the largest contributing brand in our portfolio and Hinge has grown meaningfully since acquisition. We have acquired brands such as Azar, Hakuna, and The League and incubated new brands such as Chispa™, BLK®, Stir, and Upward, where we have seen initial growth and we expect to see additional growth opportunities into the future. With our evolving portfolio of brands, we have seen a number of other significant trends in our business in recent years, including the following:

Lower cost users. All of our brands rely on word-of-mouth, or free, user acquisition to varying degrees. Word-of-mouth acquisition is typically a function of scale (with larger communities driving greater numbers of referrals), youthfulness (with the viral effect being more pronounced in younger populations due, in part, to a significantly higher concentration of people seeking connections in any given social circle and the increased adoption of social media and similar platforms among such populations), and monetization rate (with people generally more likely to talk openly about using technologies to meet people that are less heavily monetized). Additionally, some, but not all, of our brands spend meaningfully on paid marketing. Accordingly, the average amount we spend to acquire a user differs significantly across brands based in large part on each brand’s mix of paid and free acquisition channels. As our mix has shifted toward younger users, our mix of acquisition channels has shifted toward lower cost channels, driving a decline over the past several years in the average amount we spend to acquire a new user across our portfolio. As a percentage of revenue, our costs of acquiring users have declined.

Changing paid acquisition dynamics. Even as we increase our acquisition of lower cost users, paid acquisition of users remains an important driver of our business. The channels through which we market our brands are always evolving, but we are currently in a period of rapid change as TV and video consumption patterns evolve and internet consumption occurs regularly on mobile devices. As we adapt our paid marketing activities to maximize user engagement with our brands, we may increase our use of paid advertising at brands where we traditionally relied on word-of-mouth engagement to leverage these shifts in media consumption patterns and fuel international growth. Other brands in our portfolio may reduce paid marketing activities to reflect the change in audience engagement.

In-App Purchase Fees. Purchases made by our customers through mobile applications, as opposed to desktop or mobile web, continue to increase. Purchases processed through the in-app payments systems provided by the Apple App Store and Google Play Store are subject to in-app purchase fees, which are generally

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30% of the purchase price (Google reduced its in-app purchase fees for subscriptions to 15% as of January 1, 2022). As a result, the percentage of our revenues paid to Apple and Google continues to be a significant and growing expense. For additional information, see “Item 1 Business—Dependencies on services provided by others—App Stores.”

On March 31, 2022, Google began enforcing its new in-app payments policy, which requires all developers to process all in-app purchases of subscriptions and features entirely through Google’s in-app payment system. If an application developer failed to comply by June 1, 2022, Google threatened to remove that developer’s applications from the Google Play Store and not allow it to make updates to its applications. In May 2022, several of our subsidiaries filed a complaint in federal district court in California against Google alleging that Google’s dominance and anti-competitive conduct in the Android app distribution and in-app payment markets violate federal antitrust laws, particularly with respect to the requirement that we use Google’s in-app payment system exclusively. For additional information, see “Item 3 Legal Proceedings—Google Litigation.” While Google has already enforced its new payments policy in most jurisdictions, it has not done so with respect to our applications due to a stipulation reached by the parties in the ongoing Google litigation.

Increase in acceptance and growth of technologies to meet people globally. Over the past decade, there has been meaningful growth in the usage of technologies to meet people in North America and Western Europe, and we see the potential for similar growth in the rest of the world in the years ahead. As more internet-connected people seeking connections utilize technologies to meet people and the stigma around using such technologies continues to erode, we believe that there is potential for accelerating growth in the use of these technologies globally. As a result, new services, entrants to the market, and business models are likely to continue to emerge, sometimes at the expense of our existing brands, through harnessing a new technology or a new or existing distribution channel, creating a new or different approach to connecting people, or some other means.

Implementing new technologies that enhance our user experience. We expect new technologies to continue to drive user engagement. As new technologies develop, we evaluate if those technologies can be incorporated into our apps and will enhance the user experience. We believe that implementation of recent advances in technology, such as live video and live experiences, have enhanced our brands’ ability to attract and retain users. We expect new technologies to continue to drive user engagement and expect other technologies beyond video and live experiences to be tested in our services and incorporated into our apps in the future.

Impacts of the Coronavirus. When the novel coronavirus (“COVID-19”) first hit Western Europe and the U.S. in 2020, user engagement increased significantly, but subscribers who purchase a subscription for the first time (“first-time subscribers”) declined at most of our brands as meeting in person was restricted. As 2020 progressed, propensity to pay rebounded across our portfolio, and first-time subscribers climbed amid reduced COVID-19 cases, but then faced new headwinds at the end of 2020. In 2021 and continuing into 2022, we saw a new normalization level as vaccines rolled out globally, even as several countries experienced additional waves of cases. The Omicron variant surge caused a modest impact on our business, with rolling global effects as the wave passed through various parts of the globe. Despite these past effects, the business has proven to be quite resilient over the last three years and we do not currently expect significant effects from COVID-19 in the near future.

Other trends or factors affecting the comparability of our results

Advertising spend. Our advertising spend, which is included in our selling and marketing expense, has consistently been one of our larger operating expenses. How we deploy our advertising spend varies among brands, with the majority of our advertising spend taking place online, including search engines, social media sites, streaming services and influencers. Additionally, some brands utilize television and out-of-home marketing campaigns, such as on outdoor billboards. For established brands, we seek to optimize for total return on advertising spend by frequently analyzing and adjusting spend to focus on marketing channels and markets that generate returns above our thresholds. Our data-driven approach provides us the flexibility to scale and optimize our advertising spend. We spend advertising dollars against an expected lifetime value of a Payer that is realized over a multi-year period. While this advertising spend is intended to be profitable on that basis, it is nearly always negative during the period in which the expense is incurred. For newer brands that are gaining scale, or existing brands that are expanding into new geographies, we may make incremental advertising investments to establish the brand before optimizing monetization of the brand. In general, our more established brands spend

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a higher proportion of their revenue on advertising while our newer brands spend a lower proportion and tend to rely more on word of mouth and other viral marketing. Our advertising spend may be incurred unevenly throughout the year.

International markets. Our services are available across the world. Our international revenue represented 55% and 54% of our total revenue for years ended December 31, 2022 and 2021, respectively. We vary our pricing to align with local market conditions and our international businesses typically earn revenue in local currencies. As foreign currency exchange rates change, translation of the statement of operations of our international businesses into U.S. dollars affects year-over-year comparability of operating results.

2022 Consolidated Results

In 2022, revenue grew 7%, operating income decreased 40%, and Adjusted Operating Income grew 6% year-over-year. Revenue growth was primarily due to strong growth at Tinder and Hinge, as well as the acquisition of Hyperconnect in June 2021. Operating income and Adjusted Operating Income benefited from lower selling and marketing expense and general and administrative expense as a percentage of revenue, both excluding stock-based compensation expense, partially offset by an increase in cost of revenue due to higher-in app fees, and an increase in product development expense primarily due to increase in compensation expense. Operating income was further impacted by impairments of intangible assets and increased stock-based compensation expense primarily due to new grants made during the year.

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Results of Operations for the years ended December 31, 2022, 2021 and 2020

The following discussion should be read in conjunction with “Item 8. Consolidated Financial Statements and Supplementary Data.” For a discussion regarding our financial condition and results of operations for the year ended December 31, 2021 compared to the year ended December 31, 2020, please refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 24, 2022.

Revenue

______________________

(a)     Our ability to eliminate duplicate Payers at a brand level for periods prior to Q2 2020 is impacted by data privacy requirements which require that we anonymize data after 12 months, therefore Payer data for those periods is likely overstated. Additionally, as Payers is a component of the RPP calculation, RPP is likely commensurately understated for these same periods due to these data privacy limitations.

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For the year ended December 31, 2022 compared to the year ended December 31, 2021

Americas Direct Revenue grew $117.0 million, or 8%, in 2022 versus 2021, driven by 6% growth in RPP and 2% growth in Payers. RPP growth was driven by both higher average prices paid for subscriptions and increased average á la carte purchases per Payer at Tinder and Hinge. Growth in Payers was primarily driven by Tinder and Hinge, partially offset by decreases at Plenty Of Fish and Match.

Europe Direct Revenue grew $27.1 million, or 3%, in 2022 versus 2021, driven by 2% growth in Payers and 1% growth in RPP. Growth in Payers and RPP was primarily due to Tinder with contributions from Hinge and the acquisition of Hyperconnect in June 2021, partially offset by decreases at Meetic. RPP growth was unfavorably impacted by the strength of the U.S. dollar against the Euro and British Pound compared to 2021.

APAC and Other Direct Revenue grew $63.3 million, or 11%, in 2022 versus 2021, driven by 19% growth in Payers, partially offset by a 7% decrease in RPP. Payer growth was primarily driven by Tinder and the acquisition of Hyperconnect. RPP was unfavorably impacted by the strength of the U.S. dollar compared to the Japanese Yen and Turkish Lira.

Indirect Revenue decreased $1.8 million primarily due to lower ad impressions, partially offset by a higher rate per impression compared to the prior year.

Cost of revenue (exclusive of depreciation)

For the year ended December 31, 2022 compared to the year ended December 31, 2021

Excluding the Hyperconnect acquisition, cost of revenue increased 9% primarily due to an increase in in-app purchase fees of $47.7 million, which included a $21.2 million escrow amount related to litigation regarding the fees paid to the Google Play Store, and an increase in hosting fees of $26.4 million. The additional 5% increase is due to the acquisition of Hyperconnect in June 2021. For the year ended December 31, 2022, total in-app purchase fees were $622.5 million.

Selling and marketing expense

For the year ended December 31, 2022 compared to the year ended December 31, 2021

Selling and marketing expense decreased as a result of reduced marketing spend at most brands across the portfolio.

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General and administrative expense

For the year ended December 31, 2022 compared to the year ended December 31, 2021

General and administrative expense increased primarily due to an increase in compensation expense of $35.2 million primarily related to (i) an increase in stock-based compensation associated with new awards granted in 2022 and higher modification expense on existing awards, and (ii) an increase in headcount. Additional increases were due to an increase in travel expenses of $12.9 million as in person activities began to return to pre-pandemic levels. These increases were partially offset by a decrease in legal and other professional fees, partially due to higher expense in 2021 related to the former Tinder employee litigation and fees related to the Hyperconnect acquisition in June 2021.

Product development expense

For the year ended December 31, 2022 compared to the year ended December 31, 2021

Product development expense increased primarily due to an increase in compensation expense of $91.8 million in part due to increased headcount at Tinder and Hinge and an increase in stock-based compensation associated with new awards granted in 2022.

Depreciation

For the year ended December 31, 2022 compared to the year ended December 31, 2021

Depreciation increased primarily due to an increase in building and leasehold improvements and furniture and other equipment.

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Impairment and amortization of intangibles

For the year ended December 31, 2022 compared to the year ended December 31, 2021

Impairment of intangibles in 2022 was primarily composed of an impairment of $270.1 million related to Hyperconnect intangible assets that stemmed from a decline in projections related to a lower outlook for the business since the acquisition in June 2021, including foreign currency impacts in certain of Hyperconnect’s key markets, and the use of increased discount rates in the valuation of the Azar and Hakuna brands as a result of increased risk-free rates and overall market volatility in general. There were also additional impairments in 2022 of $49.4 million related to the Meetic and Match brands in Europe and certain affinity brands in the U.S.

Amortization of intangibles increased primarily due to an increase in definite-lived intangibles related to the acquisition of Hyperconnect in June 2021.

Operating Income and Adjusted Operating Income

For a reconciliation of net earnings attributable to Match Group, Inc. shareholders to operating income and Adjusted Operating Income, see “Non-GAAP Financial Measures.”

For the year ended December 31, 2022 compared to the year ended December 31, 2021

Operating income decreased 40% or $336.7 million, and Adjusted Operating Income increased 6% or $60.3 million. Operating income and Adjusted Operated Income each benefited from the increase in revenue of $205.6 million which was driven by growth at Tinder and Hinge as well as the acquisition of Hyperconnect, and lower selling and marketing expense and general and administrative expense as a percentage of revenue, both excluding stock-based compensation expense. That benefit was partially offset by an increase in cost of revenue due to higher in-app purchase fees, including a $21.2 million escrow amount related to litigation with Google in 2022, and an increase in product development expense primarily due to increased compensation expense. Operating income further declined due to the impairments of intangible assets of $319.5 million and increased stock-based compensation expense.

At December 31, 2022, there was $369.3 million of unrecognized compensation cost, net of estimated forfeitures, related to all equity-based awards, which is expected to be recognized over a weighted average period of approximately 2.5 years.

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Interest expense

For the year ended December 31, 2022 compared to the year ended December 31, 2021

Interest expense increased primarily due to the issuance of the 3.625% Senior Notes on October 4, 2021 and a higher LIBOR rate on the Term Loan in 2022; partially offset by decreases from the settlement and maturity of the remaining 2022 Exchangeable Notes.

Other income (expense), net

________________________

NM = not meaningful

Other income, net, in 2022 includes interest income of $4.4 million, gains of $3.5 million related to finalization of a legal settlement, and gains of $2.7 million related to mark-to-market adjustments pertaining to liability classified equity instruments. These items were partially offset by $2.0 million in net foreign currency losses.

Other expense, net, in 2021 includes a $441.0 million loss related to the settlement of the former Tinder employee litigation, a $14.6 million loss related to the changes in fair value of derivatives created as we repurchased a portion of our outstanding 2022 Exchangeable Notes, a $5.2 million inducement expense arising from the repurchased 2022 Exchangeable Notes, and $1.8 million in net foreign currency losses. These items were partially offset by $2.4 million of fair market value gains on the net settlement of certain note hedges and warrants relating to the repurchased 2022 Exchangeable Notes.

Income tax provision (benefit)

For discussion of income taxes, see “Note 3—Income Taxes” to the consolidated financial statements included in “Item 8—Consolidated Financial Statements and Supplementary Data.”

For the year ended December 31, 2022, the Company recorded an income tax provision from continuing operations of $15.4 million at an effective tax rate of 4%, which is lower than the statutory rate primarily due to (i) a reversal of valuation allowances in certain foreign jurisdictions as we expect to be able to use the deferred tax assets in these jurisdictions in the coming years, (ii) favorable outcomes of tax audits and (iii) a lower tax rate on U.S. income derived from foreign sources.

For the year ended December 31, 2021, the Company recorded an income tax benefit of $19.9 million, despite pre-tax income, primarily due to (i) excess tax benefits generated by the exercise and vesting of stock-based awards and (ii) research credits. This benefit was partially offset by an increase in the valuation allowance for foreign losses and U.S. foreign tax credits.

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In August 2022, the Inflation Reduction Act (“IRA”) was enacted. Among other things, the IRA imposes a 15% corporate alternative minimum tax (“AMT”) for tax years beginning after December 31, 2022, and levies a nondeductible 1% excise tax on net stock repurchases after December 31, 2022. Currently, we do not qualify for the AMT. The impact of the new excise tax will vary depending on the amount and frequency of any future share repurchases, as well as any permitted reductions or exceptions to the amount subject to the excise tax.

Related party transactions

For discussion of related party transactions, see “Note 15—Related Party Transactions” to the consolidated financial statements included in “Item 8—Consolidated Financial Statements and Supplementary Data.”

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NON-GAAP FINANCIAL MEASURES

Match Group reports Adjusted Operating Income and Revenue excluding foreign exchange effects, both of which are supplemental measures to U.S. generally accepted accounting principles (“GAAP”). Adjusted Operating Income 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 how our business performed without the effect of exchange rate differences when compared to prior periods. We believe that investors should have access to 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 Operating Income

Adjusted Operating Income 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 to 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 Operating Income measure because they are non-cash in nature. Adjusted Operating Income has certain limitations because it excludes the impact of certain expenses.

Non-Cash Expenses That Are Excluded From Adjusted Operating Income

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, we remit the required tax-withholding amounts from 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 (i) acquired indefinite-lived intangible assets, which consist of trade names and trademarks, and (ii) goodwill, which 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.

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The following table reconciles net earnings attributable to Match Group, Inc. shareholders to operating income and Adjusted Operating Income:

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 currencies, and unfavorably impacted as the U.S. dollar strengthens relative to other 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 tables present the impact of foreign exchange effects on total revenue and Direct Revenue by geographic region, and RPP on a total basis and by geographic region, for the year ended December 31, 2022 compared to the year ended December 31, 2021:

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FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES

Financial Position

Long-term Debt

For a detailed description of long-term debt, see “Note 7—Long-term Debt, net” to the consolidated financial statements included in “Item 8. Consolidated Financial Statements and Supplementary Data.”

Cash Flow Information

In summary, the Company’s cash flows from continuing operations are as follows:

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2022

Net cash provided by operating activities attributable to continuing operations in 2022 includes adjustments to earnings consisting primarily of $366.3 million of impairments and amortization of intangibles; $203.9 million of stock-based compensation expense; $43.6 million of depreciation; and other adjustments of $7.0 million, which includes amortization of deferred financing costs of $6.7 million. Partially offsetting these adjustments was a deferred income tax benefit of $30.0 million. The decrease in cash from changes in working capital primarily consists of a decrease in accounts payable and other liabilities of $472.6 million due mainly to the settlement payment for Rad, et al. v. IAC/InterActiveCorp, et al. and related arbitrations, and timing of other payments; an increase in accounts receivable of $6.7 million primarily related to increased revenue from mobile applications; and a decrease in deferred revenue of $6.5 million. These uses of cash were partially offset by an increase from other assets of $59.6 million primarily due to the amortization of prepaid hosting services.

Net cash used in investing activities attributable to continuing operations in 2022 consists primarily of capital expenditures of $49.1 million that are primarily related to internal development of software and computer hardware to support our services, and cash used in an acquisition, net of cash acquired, of $25.7 million.

Net cash used in financing activities attributable to continuing operations in 2022 is primarily due to purchases of treasury stock of $482.0 million, payments of $176.3 million to settle the outstanding 2022 Exchangeable Notes, payments of $109.3 million of withholding taxes paid on behalf of employees for net settled equity awards, purchases of non-controlling interests for $10.6 million, and payments of $7.5 million to settle outstanding warrants associated with the 2022 Exchangeable Notes. These uses of cash were partially offset by proceeds of $75.9 million related to the settlement of certain note hedges associated with the 2022 Exchangeable Notes, and $20.5 million of proceeds from the issuance of common stock pursuant to stock-based awards.

2021

Net cash provided by operating activities attributable to continuing operations in 2021 includes adjustments to earnings consisting primarily of $146.8 million of stock-based compensation expense; $41.4 million of depreciation; $28.6 million of amortization of intangibles; and other adjustments of $27.7 million, which includes amortization of deferred financing costs of $9.0 million. Partially offsetting these adjustments was deferred income tax benefit of $58.0 million. The increase in cash from changes in working capital primarily consists of an increase in accounts payable and accrued expenses and other current liabilities of $458.8 million due mainly to the timing of payments, with the former Tinder employee litigation settlement, which was paid in 2022, being the primary component; and an increase in deferred revenue of $26.3 million, due mainly to growth in subscription sales. These increases in cash were partially offset by an increase in accounts receivable of $34.0 million primarily related to an increase in revenue.

Net cash used in investing activities attributable to continuing operations in 2021 consists primarily of cash used to acquire Hyperconnect, net of cash acquired, of $859.9 million, and capital expenditures of $80.0 million that are primarily related to internal development of software and computer hardware to support our services.

Net cash provided by financing activities attributable to continuing operations in 2021 is primarily due to proceeds from the settlement of certain note hedges of $1.1 billion, partially offset by an $882.2 million outflow related to the settlement of certain outstanding warrants, in each case associated with the settlement of a portion of the 2022 Exchangeable Notes; proceeds of $500.0 million from the issuance of the 3.625% Senior Notes; and $58.4 million of proceeds from the issuance of common stock pursuant to stock-based awards. These increases in cash were partially offset by payment of $630.7 million to repurchase a portion of the outstanding 2022 Exchangeable Notes and payment of $15.7 million for withholding taxes paid on behalf of employees for net settled equity awards.

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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. At December 31, 2022, $749.6 million was available under the Credit Facility that expires on February 13, 2025.

The Company has various obligations related to long-term debt instruments and operating leases. For additional information on long-term debt, including maturity dates and interest rates, see “Note 7—Long-term Debt, net” to the consolidated financial statements included in “Item 8—Consolidated Financial Statements and Supplementary Data.” For additional information on the operating leases, including a schedule of obligations by year, see “Note 13—Leases” to the consolidated financial statements included in “Item 8—Consolidated Financial Statements and Supplementary Data.” The Company believes it has sufficient cash flows from operations to satisfy these future obligations.

In connection with our agreement with Google to withdraw our temporary restraining order, we have agreed to pay $40 million into an escrow account with scheduled payments through July 2023, of which we have paid $21.2 million as of December 31, 2022.

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 2023 cash capital expenditures will be between $60 million and $70 million, an increase from 2022 cash capital expenditures. The increase is primarily driven by planned leasehold improvements in our recently leased office space in Vancouver and at our New York City office.

Our U.S. federal net operating losses, primarily generated from excess tax benefits from the exercise and vesting of stock-based awards, have been largely utilized through 2022. Based on current estimates, we anticipate a $70 million to $80 million increase in cash taxes paid during 2023 compared to the cash taxes paid in 2022. This estimate will be impacted by a variety of factors, including our stock price at the time stock-based awards vest or are exercised.

We have entered into various purchase commitments, primarily consisting of web hosting services that are currently committed through September 2025. Our obligations under these various purchase commitments, which were impacted by usage rates in 2022, are $83.4 million for 2023, $101.9 million for 2024, and $82.7 million for 2025.

The Company does not have any off-balance sheet arrangements at December 31, 2022, other than those described above.

In May 2022, our Board of Directors approved a new share repurchase program (the “Share Repurchase Program”) to repurchase up to 12.5 million shares of our common stock. Under the Share Repurchase Program, shares of our common stock may be purchased on a discretionary basis from time to time, subject to general business and market conditions and other investment opportunities, through open market purchases, privately negotiated transactions or other means, including through Rule 10b5-1 trading plans. The Share Repurchase Program may be commenced, suspended or discontinued at any time. During the year ended December 31, 2022, we repurchased 7.2 million shares for $482.0 million, on a trade date basis. As of December 31, 2022, a total of 5.3 million shares remain available for repurchase under the repurchase program.

At December 31, 2022, 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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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The following disclosure is provided to supplement the descriptions of Match Group’s accounting policies contained in “Note 2—Summary of Significant Accounting Policies” to the consolidated financial statements included in “Item 8—Consolidated Financial Statements and Supplementary Data” in regard to significant areas of judgment. Management of the Company is required to make certain estimates, judgments and assumptions during the preparation of its consolidated financial statements in accordance with GAAP. These estimates, judgments and assumptions impact the reported amount of assets, liabilities, revenue and expenses and the related disclosure of contingent assets and liabilities. Actual results could differ from these estimates. Because of the size of the financial statement elements to which they relate, some of our accounting policies and estimates have a more significant impact on our consolidated financial statements than others. What follows is a discussion of some of our more significant accounting policies and estimates.

Business Combinations

Acquisitions are an important part of our growth strategy. The purchase price of each acquisition is attributed to the assets acquired and liabilities assumed based on their fair values at the date of acquisition, including identifiable intangible assets that either arise from a contractual or legal right or are separable from goodwill. The fair value of these intangible assets is based on valuations that use information and assumptions provided by management. The excess purchase price over the net tangible and identifiable intangible assets is recorded as goodwill and is assigned to the reporting unit that is expected to benefit from the combination as of the acquisition date.

For a discussion of the Company’s acquisition of The League in 2022, see “Note 5—Goodwill and Intangible Assets” to the consolidated financial statements included in “Item 8—Consolidated Financial Statements and Supplementary Data.”

Recoverability of Goodwill and Indefinite-Lived Intangible Assets

Goodwill is the Company’s largest asset with a carrying value of $2.3 billion and $2.4 billion at December 31, 2022 and 2021, representing 56% and 48%, respectively, of the Company’s total assets. Indefinite-lived intangible assets, which consist of certain of the Company’s acquired trade names and trademarks, have a carrying value of $189.0 million and $576.7 million at December 31, 2022 and 2021, respectively.

Goodwill and indefinite-lived intangible assets are assessed annually for impairment as of October 1, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit or the fair value of an indefinite-lived intangible asset below its carrying value.

In performing its annual goodwill impairment assessment, the Company has the option under GAAP to qualitatively assess whether it is more likely than not that the fair value of a reporting unit is less than its carrying value; if the conclusion of the qualitative assessment is that there are no indicators of impairment, the Company does not perform a quantitative test, which would require a valuation of the reporting unit, as of October 1. If needed, the annual or interim quantitative test of the recovery of goodwill involves a comparison of the estimated fair value of each reporting unit to its carrying value, including goodwill. If the estimated fair value of the reporting unit exceeds its carrying value, goodwill of the reporting unit is not impaired. If the carrying value of the reporting unit exceeds its estimated fair value, an impairment loss equal to the excess is recorded. The 2022 and 2021 annual assessments did not identify any goodwill impairments.

As a result of the Separation in 2020, the Company had a negative carrying value for the Company’s annual goodwill test at both October 1, 2022 and 2021. Additionally, an impairment test of goodwill was not necessary because there were no factors identified that would indicate an impairment loss. The Company continued to have a negative carrying value at December 31, 2022.

The Company has the option to qualitatively assess whether it is more likely than not that the fair values of its indefinite-lived intangible assets are less than their carrying values. For certain indefinite-lived intangible assets, for which the fair value as of the most recent assessment date significantly exceeded the carrying value, the Company performed a qualitative impairment assessment as of October 1, 2022 and concluded that it was more likely than not that the fair values of those indefinite-lived intangible assets continued to exceed the carrying values. For assets in which a quantitative assessment is performed, the Company determines the fair value of its indefinite-lived intangible assets using an avoided royalty discounted cash flow (“DCF”) valuation

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analysis. Significant judgments inherent in this analysis include the selection of appropriate royalty and discount rates and estimating the amount and timing of expected future cash flows. The discount rates used in the DCF analyses are intended to reflect the risks inherent in the expected future cash flows generated by the respective intangible assets. The royalty rates used in the DCF analyses are based upon an estimate of the royalty rates that a market participant would pay to license the specific trade names and trademarks. The future cash flows are based on the Company’s most recent forecast and budget and, for years beyond the budget, the Company’s estimates are based, in part, on forecasted growth rates. Assumptions used in the avoided royalty DCF analyses, including the discount rate and royalty rate, are assessed at least annually based on the actual and projected cash flows related to the asset, as well as macroeconomic and industry specific factors. The discount rates used in the Company’s quantitative assessments as part of the annual indefinite-lived impairment assessment ranged from 12% to 16% in 2022 and 10% to 16% in 2021, and the royalty rates used ranged from 3% to 8% in 2022 and 5% to 8% in 2021.

If the carrying value of an indefinite-lived intangible asset exceeds its estimated fair value, an impairment equal to the excess is recorded. During the year ended December 31, 2022, the Company recognized impairment charges of $244.3 million related to the Azar and Hakuna brands at Hyperconnect, $43.9 million related to the Meetic and Match brands in Europe, and $5.5 million related to certain affinity brands in the U.S. These impairments were primarily due to a decline in projections related to a lower outlook for the businesses, including foreign currency impacts in certain of Hyperconnect’s key markets, as well as the use of increased discount rates as a result of an increase in risk-free rates and overall market volatility in general.

At December 31, 2022, the aggregate indefinite-lived intangible asset balance for which the estimate of fair value at that time was less than 110% of their carrying values was approximately $84.3 million. At December 31, 2021, no indefinite-lived intangible asset balance had an estimated fair value less than 110% of carrying value.

In connection with the annual impairment assessment, the Company reviews the useful lives for intangible assets and whether events or changes in circumstances indicate that an indefinite life may no longer be appropriate. As of October 1, 2022, the Company reclassified certain indefinite-lived intangible assets with a carrying value of $49.9 million to the definite-lived intangible asset category because these assets were no longer considered to have an indefinite life.

Recoverability and Estimated Useful Lives of Long-Lived Assets

We review the carrying value of all long-lived assets, consisting of property and equipment and definite-lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The carrying value of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If the carrying value is deemed not to be recoverable, an impairment loss is recorded equal to the amount by which the carrying value of the long-lived asset exceeds its fair value. In addition, the Company reviews the useful lives of its long-lived assets whenever events or changes in circumstances indicate that these lives may be changed. During the year ended December 31, 2022, the Company recognized an impairment charge related to Hyperconnect intangible assets with definitive lives of $25.8 million, which is included within impairment and amortization of intangibles. The carrying value of property and equipment and definite-lived intangible assets was $344.9 million and $358.3 million, at December 31, 2022 and 2021, respectively.

Income Taxes

Match Group is subject to income taxes in the United States and numerous foreign jurisdictions. Significant judgment is required in determining our provision for income taxes and income tax assets and liabilities, including evaluating uncertainties in the application of accounting principles and complex tax laws.

We record a provision for income taxes for the anticipated tax consequences of our reported results of operations using the asset and liability method. Under this method, we recognize deferred income tax assets and liabilities for the future tax consequences of temporary differences between the financial reporting and tax bases of asset and liabilities, as well as for net operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be realized or settled. We recognize the deferred income tax effects of a change in tax rates in the period of enactment.

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A valuation allowance is provided on deferred tax assets if it is determined that it is more likely than not that the deferred tax asset will not be realized. We consider all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income, and tax planning strategies in assessing the need for a valuation allowance.

We recognize tax benefits from uncertain tax positions only if we believe that it is more likely than not that the tax position will be sustained based on the technical merits of the position. Such tax benefits are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. This measurement step is inherently difficult and requires subjective estimations of such amounts to determine the probability of various possible outcomes. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustment. We make adjustments to our unrecognized tax benefits when facts and circumstances change, such as the closing of a tax audit or the refinement of an estimate. Although we believe that we have adequately reserved for our uncertain tax positions, the final outcome of these matters may vary significantly from our estimates. To the extent that the final outcome of these matters is different from the amounts recorded, such differences will affect the income tax provision in the period in which such determination is made, and could have a material impact on our financial condition and operating results.

Stock-Based Compensation

The Company recorded stock-based compensation expense of $203.9 million and $146.8 million for the years ended December 31, 2022 and 2021, respectively.

Accounting for stock-based compensation at the Company is often complex due to our desire to attract, retain, and reward employees at many of our brands by allowing them to benefit from the value they help to create. We also utilize equity awards as part of our acquisition strategy. We accomplish these objectives, in part, by issuing equity awards denominated in the equity of our non-public subsidiaries as well as in Match Group, Inc. We further refine this approach by tailoring the terms of equity awards as appropriate. For example, we issue certain equity awards with vesting conditioned on the achievement of specified performance targets such as revenue or profits; these awards are referred to as performance awards. In other cases, we condition the vesting of equity awards to the achievement of value targets for a specific subsidiary or the Company’s stock price; these awards are referred to as market-based awards.

The Company issues RSUs and performance-based RSUs (“PSUs”). The value of RSUs with vesting subject only to continued service is based on the fair value of Match Group common stock on the grant date. The value of RSUs that include a market condition is based on fair value estimated using a lattice model. The value of RSUs is expensed as stock-based compensation expense over the applicable vesting term. For PSU grants, the expense is measured at the grant date as the fair value of Match Group common stock and expensed as stock-based compensation over the vesting term if the performance targets are considered probable of being achieved.

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements, see “Note 2—Summary of Significant Accounting Policies” to the consolidated financial statements included in “Item 8—Consolidated Financial Statements and Supplementary Data.”

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