Match Group Inc (MTCH) 2016 Q2 法說會逐字稿

Good day and welcome to IAC reports Q2 2016 results conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Glenn Schiffman. Please go ahead

Thank you, operator. Good morning, everyone. Glenn Schiffman here and welcome to our second-quarter earnings call. Joining me today is Joey Levin, our CEO. And we're also thrilled to have Chris Terrill, the CEO of Home Advisor, on the phone. As you know, in order to give you more time to digest our respective results, Match Group held their second-quarter earnings call yesterday morning. The focus of this call will be IAC ex Match.

Similar to last quarter, supplemental to our quarterly earnings release, we've also published our quarterly shareholder letter. We will not be reading our shareholder letter on this call, but we encourage you to read it in its entirety. It's currently available on the Investor Relations section of our website. I will shortly turn the call over to Joey, who will make a few brief introductory remarks, and then we will open it up to Q&A.

Before we get to that, I'd like to remind you that during the call, we may discuss our outlook and future performance. These forward-looking statements typically may be preceded by words such as we expect, we believe, we anticipate or similar statements. These forward-looking views 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 second-quarter press release and our periodic reports filed with the SEC.

We'll also discuss certain non-GAAP measures which, as a reminder, include adjusted EBITDA which we'll refer to today as EBITDA for simplicity during the call. I'll also refer you to our press release and again to the Investor Relations section of our website for all comparable GAAP measures and full reconciliations for all material non-GAAP measures. Now let's jump right into it. Joey.

Yes, I just wanted to expand on the introduction of Chris who is joining us today for the first time. Obviously, given the focus on Home Advisor, in the letter I thought it'd be good have him here to answer questions and you'd hear it straight from the horse's mouth. HomeAdvisor had an unbelievable quarter and, really an unbelievable few years, but this quarter proved that there's profit and real profit in this business on top of all the revenue growth we've been delivering. I think that's going to continue for foreseeable future.

When Chris joined us, which was in April of 2011, the growth of this business had slowed meaningfully. And Chris's first fiscal year on the core domestic business, I think, he delivered 3% revenue growth which was down from 14% two years earlier than that. And he came in about 12 months into the job and he said, actually, from here I'm going to drop revenue further. I'm going to cut profit in half and it's going to stay down there for a little while we fix some things.

And I think it's an incredible testament to Chris and the team there, to take that risk and also it's a testament to what we do IAC in terms of what sort of had two choices then, which was either fire Chris or give him the rope to operate. And we obviously gave them the rope and they've done an unbelievable job building that business. And it's finally now proven out so this is the team that's responsible at core for leading that and you all can have it them with some questions now.

The only other thing I'll add is, when I think about the quarter overall for IAC, obviously HomeAdvisor was great; publishing and applications, not great. We did some real work there in terms of cost cutting and we've got to put those businesses, and I think it's a different story between applications and publishing, but they've got to be on a track that you can rely on; and we're hard at work on that and I think the work we did this quarter goes towards that end.

So with that, on with the questions.

(Operator Instructions)

John Blackledge, Cowen and Company

Great thanks. Two questions, the first one for Chris. So HomeAdvisor had exceptional revenue growth again, big margin upside led by 28% incremental EBITDA margins. Could you just discuss the key drivers of the second-quarter revenue growth and also frame the longer-term opportunity for HomeAdvisor? And both on the top line, where it seems per the letter you are getting more comfortable with potentially $1 billion in revenue in the next three to five years> Also discuss where margins will shake out at those levels?

Then for Joey, your Company has bought back over $200 million in shares thus far this year. You took a little break at a point in Q2 to perhaps preserve some cash for our potential opportunities. Could you just discuss what you're seeing on the M&A front and whether it be tuck-in purchasing businesses or new businesses? Thanks.

Thanks, this is Chris Terrill. So your first question was, just what was the outperformance. We've been investing for a long time in growing our service provider network in MTV. All of those are profitable for us, but they take time to pay out over several months. And so what you've seen is the outperformance on FDs that are sold. And then we also got a little bit stronger June, falling a little bit weaker April and May and all of those led to sort of stronger revenue growth.

And then we had some leverage in terms of our paid and free mix shift. And then we had a couple of other items that benefited the quarter. But overall, what you're seeing is, as Joey mentioned, a lot of the investments we've made early on are starting to really flow through and are positive for us.

I think your other question was what are the fundamental drivers long-term. That's a little bit of a long answer I'll give you. But I think we've just begun to tap into many of these things. We're very bullish on how these will play out over the future and we've got a lot of things to focus on. Continuing to grow our service provider base, is a huge opportunity for us.

We've really hit our stride. Productivity is strong within our sales team and we see growth of the service provider base for years to come. Additionally, a lot of the new service providers we're bringing in are much more valuable than the past. They have more capacity, more ability to spend and so I think you'll see them be able to add more significantly over time.

Another big area that's important for us is pushing up repeat homeowner usage on an annualized basis. Right now, we take about 1.5 of service requests annually out of the six to eight that an average homeowner has. And we think there are huge opportunities to grab more of that share over time. We've got basically the ability to take more share to some degree of the off-line service requests that are through word-of-mouth.

And so, as more and more of those service requests move from off-line to online, we want to be that brand of choice. We think we're just in the early, early innings of this becoming a more online-based process. I think there's huge opportunity upside there.

We continue to have strong pricing power; we're continuously looking at the ROIs that our service providers get from our products and what their win rate is. I think, on a sort of average basis relative to other alternatives out there, we're still relatively low-priced. And I think as we continue to drive up the win rate of our service providers, we will have pricing power over time.

I think one of the big things that's coming up for us is the fact that we had such low unaided awareness still. I mean, we're the leader on almost every category in the space and yet we still have low unaided awareness. So as we build that over time, I think that's going to be a critical driver for us. And I think also, we'll be well-positioned as the millennials start to have children, move into that second home, have more discretionary income, we want to be a brand of choice and we think our Instabook and Instaconnect align nicely with what they will be looking for.

And then finally, we're just growing our mobile share and I think there's real opportunity as this becomes more of a mobile-first business to be there, as the brand of choice, again, for anyone who's looking for a mobile option. So I think we have a wide variety of areas that we can really grow the business.

And then I think, from a margin perspective, this business in 2011 and 2012, we were delivering what was approaching 20% margins. We've made great investments; those investments are multi-month paybacks, but we are seeing them flow through. And I'll be very disappointed if we don't significantly beat our historical high-margin ranges over the coming years. I think you're going to see margin really flow through in the business and this is going to be a strong margin business.

That's great, thank you.

John, on your question of cash and M&A opportunities, I think I said last quarter, and that remains true, we're prioritizing tuck-ins over new, but we certainly continue to look at new. I don't think there's anything imminent on that front, but that's where we are looking. And we'll prioritize behind, as I said, the four areas of strength. I think if we can supplement HomeAdvisor with M&A, we'll supplement HomeAdvisor with M&A. We'll look internationally. And new areas are something that will always interest us that we'll always continue to explore, but there's nothing imminent.

Thank you.

Dan Salmon with BMO Capital Markets

Good morning, everyone. Maybe two questions for Chris. First, there's a nice little chart here in the shareholder letter showing the rate of growth of paying service professionals plus sales reps and it seems like it works in a fairly linear fashion and obviously both have ramped up considerably in the last couple of years. I'm curious here, do you think that continues to move linearly going forward or is there an opportunity to build leverage off of that as one of the levers to drive your margin expansion?

And then, just a second question, is if you could remind us a little bit on quality control. I know you have a screening process for the service professionals at the outset and I'm sure reviews play into that as well. But just how you maintain quality control on an ongoing basis, I'd be curious to just hear a bit more about.

Sure, so thanks Dan. On your first question, yes there is some linear correlation relative to adding sales folks and driving our service provider network. Although I think we're seeing more, if you look at that chart, we're seeing better and better productivity. Our productivity is getting stronger, but in conjunction, we're tending to actually bring in higher quality service providers while maintaining high productivity levels; and that's not easy to do. That means we are putting more and more restrictions on our sales folks, forcing them to bring in the very best of the best and those better service providers can spend more. They have greater capacity; they tend to stay longer and have better long-term retention characteristics.

So I think we will get more and more leverage over time, with our sales force, as we bring in the better and better guys. I also think, what you're seeing is, again it goes to unaided awareness. As our awareness gets stronger and stronger, the sale gets easier and easier as service providers realize homeowners are coming to us as the marketplace of choice, they are more compelled to sign up; that makes that sale easier over time.

So I think we'll continue to have growth. We'll have sales folks over the coming years. I don't see that slowing up and I think we'll get more productivity out of them.

I think on the quality control question, we truly have quality controls that are unmatched in the industry. First we perform criminal and financial background screening on applicants, which is costly, and we think it's an important thing to do. We reject 10% of folks who try to come in and many service providers know we're going to screen them, so they don't even try. And then, of those that we tell we're going to screen, try and we reject those.

Those rejections are expensive; there are lots of people that would love to have the number of people we're rejecting on a monthly basis as their entire service provider network, but we think it's important to maintain in quality. We'll find that a lot of these guys who don't pass our background check, you may find them on other list sites or competitors. And that's fine, because we really only want the top guys. We don't want the Chuck in the truck and we want the guys that have a lot of capacity that are going to stick around for years to come and provide really high-quality service to our homeowners.

And then, once a service provider comes into the network, we have a very, very robust fraud monitoring and dispute resolution process. We have state-of-the-art tools to really make sure that only the best are staying in. And then a lot of the guys who come in, if they are not getting good reviews, if they are not doing quality work, they'll opt out. Our system will push them out because they can't compete.

So we have a number of things we use that are sort of unmatched in the industry in terms of how we let guys in, once they come in, how we monitor them and then we'll push out about 25% to 28% that do come in the network. And trust me, like I said, lots of folks do not want to have to have these quality controls because they want to let anybody in, because it's expensive and difficult to build a really quality network.

The other thing I would just add on the linear efficiency of sales growth and as fee growth, if we're at 6% share right now of SDs, I don't know what number we need to get to, I think it's meaningfully above where we are right now, but it's not 100% for the reasons that Chris said with respect to quality, it may not even be 50%. What we need is liquidity in the marketplace across every job, across every geography and then you just keep calling for quality. And I think that you start to get much more efficiency once you have absolute liquidity everywhere and then you start going for there. So, I don't know when, I think we're a ways from getting to that level, but, at some point, it's very much not linear. That's on top of the efficiency points that Chris made.

Great, thanks very much.

Brian Fitzgerald, Jefferies.

Thanks guys. So a question around the eight jobs per year for the average household and you guys are tapping into 1.5. Can you give us some color on how quickly you can close that gap, capture more of the jobs? What does that trajectory look like? And then, maybe a quick housekeeping one on the publishing side of things, the restructuring charges. Can you give us some color on how much of that should be allocated to Ask, versus maybe, About or anything else in there? Thanks.

Go ahead, Chris, you go first and I'll take it from there.

So Brian, it's a good question. There are those sort of six to eight opportunities per year; we're still taking a relatively small percentage of those. Lots of room to grow. I think what's important, from the way we look at it, is we're seeing annual repeat usage grow very nicely particularly for our brand of traffic and our app users. And we're getting also much better at predicting what a homeowner's next service request need is, as well as making things like repeat tasks easier to accomplish through our InstantBooking engine. So I think IB and IC, Instabook, InstaConnect, scale over time as we get smarter at our predictive algorithms, I think you'll see us accelerate our share of homeowners' annual needs.

And then we also our benefiting, as we get more sophisticated with our sort of internal operations, whether it's through email or operations team to reach back out and tap into some of those additional needs that homeowners have. And I think what you're seeing is, more and more, folks are sticking with us, staying in our ecosystem and relying on us to take care of the majority of their home needs. So I think that's -- we're just starting out but we've got all of the infrastructure we need to really take more of that annual share over time.

And Brian on your question on the publishing restructuring, I'll turn it to Glenn in a second, but the short answer is it weighs much more heavily towards Ask and Other than it is towards the premium brands. And the thing that has been most hit in this business, in the publishing business, is really our ability to market our properties.

And the Ask & Other properties are much more dependent on that marketing than the premium brands. The premium brands do some marketing as well, but the Ask and Other were much more dependent on that and that has really been what's been hitting the business. We're now a quarter into the new Google deal, the lower mobile rev share was a factor in our ability to do that.

We talked about last quarter, the loss of the right rail inventory which really has nothing to do with our deal with Google, they just -- it's something that they eliminated and so it's less real estate for us to market on. That portion of the business is where we've been most meaningfully hit and that's where we took a lot of infrastructure out. And so there's meaningful cost savings there. I don't know the percentage. I don't know if you do.

It's in excess of 75%. The $4.5 million was a charge we took this quarter. The annualized impact of that is $18 million; embedded in that $18 million you saw in our press release, is eliminating the losses associated with the sale of Ask FM. AskFM, obviously, is in the Ask and Other category, so if you include that and the other cost savings attached thereto, it would be in excess of 75%.

Thanks, guys.

Sure.

Jason Helfstein, Oppenheimer.

Thanks, one for Chris, are you seeing any impact on traffic conversion rates or service provider demands since Angie went to a free model? And then, second, for Joey, you guys highlighted in the letter the non-dating business continues to trade at no or a negative value. What about potentially swapping your application business into another public company and taking stock to make the value more transparent because there still are a lot of companies out there who have similar businesses. Thanks.

Go ahead, Chris.

Sure, hi Jason. So, we've seen no impact aside from seeing some decrease in Angie's brand term searches, which started in Q2 as they pulled back on TV. We really truly see no impact on our business at all. I think the broader commentary is that this is a really huge market, a $400 billion market. We tend to not really bump into competitors much in this space and I think we're all going after the service product that we think best fit our model.

For us, what we really look at, is it is not the competition as someone may think of, it's looking at other alternatives online. What we think of it is, the opportunity for this 70% of all these off-line word-of-mouth service requests, to take as much share of that as we can and to be positioned to take that as it moves online. That's the really, really big opportunity; it's what we're focused on and it's what we're trying to position ourselves to take advantage of.

Jason, on your question of whether to sell the applications business or merge it into something, or all that. It's not impossible; we always look at things with our assets and see if there's a structure that makes better sense than the structure we have or creates more value than the structure have now. I don't see that as obvious right now in that business; it provides real cash flow for us. That cash flow provides value to us in funding other businesses and I think that will continue for a while and I don't know that we would get the value for that cash flow outside as we get the value for the cash flow inside. The fact now is we're not getting a multiple on it in our stock price, but we can deploy that cash flow; and that cash flow has value to us over time, in terms of our ability to use it and I don't know that we would get cash-on-cash value for it in that external structure. If there is one that makes sense, that's something that we'll look at as we look at that with all of our businesses but I think it's probably a stretch right now.

You saw in Joey's letter, the attraction of that business, not unlike a lot of our other business, frankly, is the cash flow conversion; we convert 80% to 90% of that adjusted EBITDA to the cash flow, so the pretax cash-flow line.

Thank you.

Peter Stabler, Wells Fargo Securities.

Good morning. Some questions for Chris on HomeAdvisor. First of all, can you give us some thoughts on international. The growth rate there is respectable, obviously trailing domestic. What kind of investment do you guys need to make in the international operations over the next several years? What kind of growth rate do you think you can get to and what kind of investment is needed? Is it sales force investment; is it structural?

And then, beyond that I was wondering -- you mentioned in the letter that the direct traffic is up 48%. I'm wondering if you could give us or share with us any sort of absolute number and what you're getting there? And then, if I could squeeze a last one in, you mentioned $60 million in TV spend in 2016. Any view on what we could expect over the next couple of years, given the fact that you're not happy with your unaided awareness? Thanks so much.

I'll sneak in on international, Peter, and then I'll turn the rest to Chris. There's a few ways to invest in the international business. Right now it's a low single-digit investment. We've expanded that a bit, but we're talking about tiny numbers now. I think, and I talked about it a little bit in the letter, when we go into a new country, we can use our technology, we can use our platform, we can use our know-how, we can use our experience. But in an individual geography, you need a SP network and you need a brand and whether it's the same brand or a different brand, you've still got to build it in that market.

So does take some capital and that does take some time. I think we're learning now what it looks like to build from scratch and we're doing that in Italy, we're starting to build from scratch in terms of using what we have, but build the SP network and the brand from scratch. And France and Netherlands are doing well, so we can fund a little bit of that investment through that other infrastructure.

I think we're still looking at, in terms of investment there, in the single-digit millions of what we would spend. I think if we can supplement with M&A, we could spend more money and then move a little bit faster, but that's the way we're thinking about it.

Hi, Peter, so I'm going to answer your last question first. You'd asked about our $60 million spend in 2017, which we are still on pace to hit. When I started our TV push in 2013, the goal was to figure out, does TV work, then to figure out what the right spend levels are and then to see how do we ladder that spend-up, so we don't get out of balance on the supply and demand side. I am very bullish that we have a long way to go to spend in TV.

I've done TV for a long time; I've spent hundreds of millions on TV in the past and I'm not seeing anything that concerns me about the years to come. I think we'll probably spend in the range of $80 million next year and we'll keep at a pretty strong pace thereafter. But all of our television is ROI-positive, which is unique in television unto itself, but ours is very strong; it continues to hold and I think we have a lot of upside. We're a business where, yes we want to get out and prove our unaided awareness and we have got a long way to go there, but we also are a shoulder tap business where we're constantly reminding people of things they have on their list that we can solve for them. So I think TV will be a big part of our mix in the future and I see us continuing to spend up over the years to come.

On the traffic question, can you clarify? Basically our traffic tends to move somewhat in-line with what you see in our revenue growth, et cetera. I don't believe we release uniques, but can you tell me specifically what you were asking.

What he wants to know, I think Chris, is which we're not going to answer is, exactly what percentage of our traffic is direct. It's a meaningful percentage of the business, but in terms of the breakdown of what comes direct and what comes from the other sources, I don't know if we can answer that. If you guys in review, you want to share it, I'm fine with it.

We've strategically been looking to build our direct and our brand of traffic. It's been growing very, very nicely as a percentage and it will continue to grow.

Thanks for the color.

Ross Sandler, Deutsche Bank.

Great. I guess the first high-level question for Chris. Thanks for joining the call. So we know the business model for HomeAdvisor, Angie's List, maybe some newer entrants like Thumbtack and, potentially, Google at some point, are all different, but there's some convergence going on. And it seems like, over the course of history, each of these companies has had a period of ramping up or ramping back the marketing.

But if we just fast-forward, call it, five, 10 years, what do you see the market share looking like for the various top players? And you listed a bunch of metrics in the letter today, what do you view as the key differentiators for HomeAdvisor versus some of these other platforms? Is it organic traffic and a sense of community on the user side, or is it service provider ROI? What of the key KPIs that you look at relative to your competition?

And then, Joey, just a clarification on the guidance reduction in publishing and apps. So if we take like $30 million-ish full-year reduction midpoint for those two and we look at you're shutting down certain areas of the business, there's the Google right-hand side changes -- can you just isolate how much of that $30 million is from shutdown and restructuring charges versus the ongoing Google-related stuff? And then, do we feel like we're at a point right now after those right-hand rail changes that we have a decent level of visibility on Google-related run rate going forward? Thanks.

Hi, Ross, this is Chris. Your first question on market share, I think I'm probably too biased to be able to answer this perfectly objectively. But I think what you're going to see over the coming years, are models like ours where it's just really, really easy for a homeowner to get in and book a service provider directly from their calendar, to be connected with them directly and to have this sort of highly interactive, highly dynamic marketplace that has much less friction. I know you're saying that there's some similarities, but I'd argue there's some strong differences between what we do and what everyone else is doing.

I think if you just look at what's happened in getting car service. Nobody wants to go and look on a list, find the car service, try to call them, hope they answer, maybe they do. If they answer it, maybe they come and pick you up. You want to get your phone, you want to hit a button, and you want the car to show up and get you to where you need. And we think of home services the exact same way. And so, our belief is that there will be a dominant market either an outright winner or the dominant winner in this space taking the majority of share, because it's just so easy, efficient to find the home-help you need.

And when you look at our scale, you look at our liquidity, we believe we're well on the way of getting there. So I'm not going to predict what our market share is, but if we continue to execute the way we have, we have a really strong lead and we plan to lean in on that and be that marketplace where it's just so easy for the service provider to get the high-quality homeowner that keeps their business cranking. And if you're a homeowner, it's just really, really easy to get all of your home needs taken care of through us. So I think that's what our view of the future is.

In terms of the key differentiators, certainly there are big differences between what we do and some of the older list-based or directory businesses. In terms of service providers, the fact that they can track their spend, the fact that they can look at their ROI, the that fact that they can tap into performance-based marketing and the fact that they can control how much work they do or don't get based on their needs is really important. I think if you just look at our philosophical approach to others, we provide real-time matching and connectivity marketplace that allows that quick and effective connection for homeowners; it eliminates a lot of the friction.

I touched on, we allow our service providers to have a lot of control over what they do, when they work and I think those things are really, really fundamentally different. They are hard to build; we've invested over $1 billion creating them. We have one of the most sophisticated algorithms allocating supply and demand. And so, I think those things really do differentiate us. It may seem, from the outside looking in, that all of these services are similar. But I would argue, if you really dig in, we're pretty radically different and we have a lot of features and functionality on both sides of the marketplace that makes us unique and very appealing to participate in.

And Ross, Chris used the word marketplace many times. I think that's, simply put, the true differentiator between us and the other players in the industry and I think Joey goes through a lot of great descriptions in the letter as to why that's true. And why our marketplace will help redefine this industry, reengineer this industry and provide a ton of value to both the supply and demand side and, in so doing, the flywheel that we talked about in the previous shareholder letter really kicks in and accelerates as you are seeing in our operating results.

Yes, if I can try a third way, very simply, there is a lot of listings businesses, you put up a listing and hopefully your phone rings and I'll presume on a lot of those platforms, your phone does ring. That is a fine service for a service professional, but it's very different than a service that really fills up your book for you, that paces out your jobs for you, that organizes your jobs for you geographically, on the SP side. And on the consumer side, it takes a lot of the work of the process. So, I think we've beaten that one up.

On your question on publishing and applications and the guidance and the changes, I think, Ross, very specifically, of the $30 million or whatever the number is, I think $6 million or $7 million specifically is restructuring in this quarter. The broader question, in terms of our visibility on Google, and I think we have to answer it in two pieces; publishing and applications are really separate.

I'll do publishing first. I talked about our ability to market those businesses and that being meaningfully hampered. I think that's true and where that settles out, I actually don't know right now. I think that's a bit of a moving target. But I think it's not as -- I mean, it's certainly relevant from a cash-flow perspective, but when I think about the publishing businesses and their relationship to Google, I really focus on four businesses right now and we can talk about them one at a time.

Dictionary.com is a nice stable cash-flow business with a great consumer brand, a well-known consumer brand, a large audience. Investopedia is a growing, growing in audience, growing in revenue, growing really nicely on both of those fronts, actually; basically break-even and both of them get some traffic from SEO from Google, but not entirely dependent on SEO from Google and not really dependent at all on Google in terms of monetization.

And Daily Beast, same story; that one we're still net investing, though we've cut losses there. Revenue going very nicely; I think traffic outpacing competition. And then the last is About.com, where we've got a strategy that we believe in. Very Well is working so far; I think it's ahead of our expectations so far, but that verticalization strategy of About is going to take some time. I think it is the right one; I think we are confident in it, but it's going to take some time.

But I look at all four of those things and say, each one has real value and a real future, really independent of Google. You always want to be getting traffic from Google, but as a real future, independent of any issues there. The rest of the businesses have had real troubles with Google and that's something that we've been dealing with.

On the applications side, we're one quarter into the new deal and, I said this last quarter, and it remains true this quarter. I think our expectations for what was going to happen to that business have helped. We took a step down in the business, but it's relatively stable. I talked about RPQ last quarter; it was something that was hurting us year over year. I said that was stabilizing and I think that has stabilized, meaning it's actually sequentially flat to up a little bit.

And so I feel reasonably good about that; it's still a tough year on year comps but seems stable. And applications delivered a really good quarter. What we're dealing with on the applications side, in terms of visibility and why the outlook is a bit weaker is, we had in the quarter really two browsers impacting us. IE made a change, Internet Explorer made a change and Chrome made a change. The pace of changes in browsers has accelerated dramatically and we generally deal with one change at a time and it's fine; we can absorb it.

Two changes that each of them made impacted our install base. And so, while we've mitigated one of them completely and the other one partially, the change to the install base is hard to recover, so that's what showing up in the back half of our year. But when I look at the outlook, we've got a good business. The marketing is working; margin is working. All that is in place and I feel confident about it that we've got this change. They do happen periodically and sometimes we win against the browser; sometimes we lose. This one, two at once, we couldn't really absorb and that's the outlook.

The last thing I will say on that is, we do within our applications business, 75% of our applications business is the consumer side, somewhere in that neighborhood, 70% to 75%. And within our consumer side, we've got a business that's now totally, I think, about 16% of that business is totally outside of that Google ecosystem. And that's our Apple on mobile business and our similar subscription business and that would have been 6% or 7% this time last year. And that's growing really nicely, especially the mobile one.

So I'm feeling very confident in our ability to grow that mobile business. Obviously, for it to overtake the desktop business, it's got to grow a lot more but the pace of growth is nice and the fact that we're able to market those products profitably is working and interesting. So that's a long-winded answer, but that's how we are thinking about it.

And coming back to your restructuring cost, it's $6.5 million in Q2 and you may remember there is $2.1 million in Q1. So our guidance includes those two negatives in it.

Does that answer your question, Ross?

Yes, super helpful guys, thanks for the color.

Heath Terry, Goldman Sachs.

Great, thanks. Chris, could you give us an idea of what marketing spend grew this year on a year-over-year basis and remind us what that growth was in Q1? Then if we look at the 700 basis points of margin expansion that you saw quarter over quarter, can you give us a sense of how that broke down over the different line items, cost-of-sales, marketing, product development?

Then, Joey, I appreciate you covering all the detail on the applications business. I'll put that aside. But the one question that I do have, you mentioned the consumer product. Can you just unpack for us which products there are, the ones that are generating that revenue and then what's declining versus what's not? And then, last one, promise. What's starting the double-digit sequential growth in video after the last two quarters where we've seen that decline? Is it just seasonality or is there specific content or user programs that's pushing that?

Hi, Heath, this is Chris. I think your first question was what was the increase in sales and marketing in Q2, is that correct?

Yes and how did it compare to what the increase in Q1? If you can remind us what that number was.

Sure, it was 32% in Q2. Let me pull up, try to find the increase in Q1. I'll get that in a second. Your second question, can you remind of what your second question was on?

Sure, on the 700 basis points of margin expansion, can you just give a sense of how that broke down over cost of sales or gross profit, marketing, product development, the different line items there?

So, we've never broken that out. I'll defer to my see colleagues on the call as well. I don't think we've given that level of detail. I don't know how you guys feel about sharing that?

It doesn't have to be exact numbers; if you just want to give us some direction, that's useful too.

We haven't disclosed that.

I continue to look up the answer. We've got a lot of questions there. So I was looking up the answer to the other one. But what is the question? Where the margin expansion came from?

Yes.

I think it's all the things that we've talked about meaning we're making more money per service professional right now. Consumers are doing more through their platform; so when you get both of those things happening, there's more margin in an individual transaction. Also just, I don't have the exact number in front of me, but I think the growth in revenue outpaced the growth in marketing spend. So there's some margin by definition in there. I'm going to try and think of what the other factors I would miss are.

Product development.

Yes, what was the pace of growth in product development as against revenue? That is meaningfully growing too, but probably not as fast as revenue.

Yes, you're correct.

I guess, Heath, the overall thing is, the revenue is outpacing growth in all of those things, but all those things: sales, marketing and product development are all still growing meaningfully. The only that is probably, I don't know, but the only one off the top of my head that may be outpacing revenue growth could be the sales expense. It's probably in that same neighborhood.

That's right.

Was there another HomeAdvisor question?

No. That was it on HomeAdvisor. And then, just on the applications business, if you can unpack for us what specific products are generating the revenue in terms of importance now and what's declining versus what's not.

Yes, so the thing I was talking about specifically was the mobile products. Our consumer mobile products which is really a positive brand called Aplon, that's up, I don't know, I think more than double year on year. There's a range of products. I was actually just trying to pull it up in the app store, but for some reason, the App Store isn't loading for me. I think we've got a notepad product that's done very well; we've got a flight tracker product that has done well. We've got a number of weather products that have done well. I think, at one point we had two or three of the top-five weather apps. I don't know if we do at this minute, but generally in and out there. I'm trying to try to think of the products that have come out. Those of the ones within mobile that are working and those have no search dependency at all. The revenue from those products comes from advertising and actually paid. We're one of, I think, few people who still make money charging for apps there. And in upsells within the apps, but actually charging for the apps themselves too. And then, Heath, you had a third question, I think.

Video.

In terms of where video revenues is. The pace of video revenue growth. I think that -- Glenn, do you have that one?

Yes. As we had guided, the timing of certain Electus projects we had a big Electus project in revenue from that in Q1, that didn't repeat in Q2, so we had guided to that. And obviously, on a quarter over quarter had guided that down, but on a year-over-year basis still strong and healthy growth.

Okay. Great, thank you

Eric Sheridan, UBS.

Thanks so much and thanks for all the color on HomeAdvisor. Maybe just switching gears a little bit, Joey, for you on Vimeo. You're now interim CEO of Vimeo. I want to understand what your focus is in terms of what are incremental investments in that business, how you're spending your time in that role and maybe even what you're thinking about in terms of a permanent CEO for the Vimeo business. And then one follow-up on the Match Group holding as we get further removed from the IPO. Any updated thoughts on how you think about the holding in Match Group and ways in which you can create additional shareholder value at that stake? Thanks.

Sure. On Vimeo, the thing that we did in that business, that I think is really tremendous, is we built this incredible creator platform. That's at 720,000 subs right now. That's growing nicely. And I think this may answer Heath's earlier question too. We've made some changes there, some improvements there. I think that's accelerating a little bit in terms of its growth. That's a great core of a business.

The next phase in Vimeo's life, is basically the greatest gift that we can give to these creators who use our platform, is audience. And so our next phase is focused on how to adapt the UI for consumers and how to adapt the UI to enable, encourage, improve our creators' ability to sell their content. And so, we're doing a lot of investment in that regard, a lot of focus in that regard. There other things we can do to supplement that. We can bring specific content, specific kinds of content, on the platform which bring larger audiences and that we think can translate to value for the whole creator committee or encourage more creators to come on. But that's the sort of phase in Vimeo's life that we are in right now and that's where the investment is going.

In terms of the CEO, we're actively looking for a CEO. I'm not in a rush to hire somebody. I'm actually having fun there. I'm learning a lot. We're, I think, making progress in that business but we definitely do want a permanent CEO. We will hire one. I've met a bunch of great candidates actually. I think it's attracting a very interesting candidate pool, but we're not in a rush. We don't need to fill the role tomorrow.

Your last question is what we're doing with our Match stake. Nothing to say there, as you probably expect. There's no plans to do anything right now. We obviously look at all of our assets all the time and think about what makes the most sense for everything and we'll report if we have anything to say on that.

I'm sure you were on the Match call yesterday. Look, as shareholders among the many things that excites is about Match, is that free cash flow yield there on the slide that Gary had towards the end of Gary and Frank's presentation.

Great.

Chris Merwin, Barclays.

Great, thank you. Just a couple. First for Chris, Instant Book and Instaconnect, I think you said are about 10% of requests now. So where does that number settle out in the next few years? And why isn't that higher already and, if that number does move higher, can you talk about the impact on our life for service professionals on the platform? And then, just a second question on M&A in general, buybacks are not the near-term priority. Just curious how you're thinking about M&A and whether it's augmenting some of the assets you have in any existing categories or perhaps moving into a new category altogether. Thank you.

Hi Chris, a couple of things. Instant Book and Instaconnect are right around 10% of our mix now. I could see that growing materially over those coming years, whether that ends up being one-quarter or one-third or one-half, we'll have to wait and see. But I think the things that is interesting is you have to get the service provider set up and using it and that's not always the easiest thing because that's a behavioral change for them.

So the guys who are a little more sophisticated and get it, sign up, love it and want as much as they can get. The others we have to do a little more hand holding, a little more training. We've got a lot of initiatives to go out there, get more guys into it, get their calendar online. And we're seeing good effort there and good response and I think that will allow us to continue to grow. We sort of had the big surge; we went from no Instant Bookings last year to approaching 1 million this year. So you kind of get that first wave in and then we'll methodically work our way through and get more and more guys signed up.

I think the other part of the equation is, as homeowners continue to experience Instant Booking Instaconnect and they really love it, it's very, very high satisfaction, they'll look for it more, they'll tell friends and family and I think you'll see more requests for it which will lead more service providers to want to sign up. So I think you'll definitely see it accelerate over time.

In terms of ROI, the thing that we like so much is that the win rates are sky-high for Instant Booking Instantconnect. They are exponentially greater than our markets, you know Match model and I think that's why you're seeing the guys that use it really, really like it, high satisfaction and why you'll see more adoption over time. Obviously, when someone schedules an appointment into your calendar and you're a service provider and you can just simply show up, give them a quote or do the work, that's their ideal scenario.

So, I think you're going continue to see these products grow and I think, to some of the earlier questions, these are not easy things to build unless you have our sort of algorithms, unless you have our technology, unless you're taking the time, effort, and energy to profile what the job is from the homeowner's side and profile what the service provider does; it's very difficult to do this matching particularly in real time in understanding these sort of capacity capability of any given month of the service provider. So we've invested a lot; it takes a lot of to make this happen and we think we're the only one with a national platform and we plan to really lean into it.

And the other thing I would add, Chris, something I've said before, is our demo skews a little bit older, that's homeowners generally skew a little bit older and there's still a huge portion of our demo that believes they want to get multiple choices for booking a job and that's a better way of doing things. I think, over time, that portion of the demo goes away and the younger demo who says just let the platform choose for me, is growing and growing much faster. But that's still a huge portion of the demo there and that's going to work against that growth rate as much as it is to our frustration.

On M&A and buybacks and augmenting existing businesses, we got this question earlier in the call. The answer's the same. It's, we're going to prioritize M&A for our existing businesses and particularly the businesses that are strong and executing well right now. But we will always look at new things. It's a much higher bar for new things, but we will look at them and if something makes sense, we will act on it.

Thanks.

Operator, we have time for two more.

Robert Peck, SunTrust.

Hello, this is Sagar on for Bob. He had to hop onto another call. Chris, $1 billion revenue in years three to five is pretty broad. I know Joey said that number could've been sandbagged. Can you narrow that range for us and tell us what your assumptions are to get there? And Joey, second question would be, your leverage ratio backing out Match is pretty low and you have multiple uses for cash [receipt], as you've mentioned. Is there any chance you guys are going to raise debt or put it to other purposes as well?

Sagar, this is Chris. Yes, I'm not going to narrow that range, but what I will give you some color on is, that my thinking is really simply based on the trajectory of the business as it's growing today. We continue to have a very predictable business. We know, as we grow our service provider network, what that lifetime value and what those retention curves look like. Both are increasing. Our lifetime value since I have been here has tripled. Retention continues to extend. So I will just simply say, I'm as bullish as ever on that statement. I'll stick to sort of that range but the real driver is just simply the trajectory of the business and the predictability of the marketplace that we're in.

Coming into $1 billion anywhere in that three to five year range would require our growth rate to decelerate meaningfully from where it is and I don't think any of us expect our growth rate to decelerate meaningfully from where it is. In terms of the leverage ratio, we've historically have been comfortable around 3X. That's not a rule, but that's historically where we've been comfortable. We're not an institution that likes to operate in a highly-levered position. Again, not a rule, but that's the direction that we generally lean and I think that is as much as I can answer the question.

Yes and remember, we have $1.2 billion of cash.

Thanks for your help on both of those.

Stephen Ju, Credit Suisse.

Thanks and good morning. So, a longer-term product question for Chris on HomeAdvisor. I do realize it may be pretty difficult for you to figure out the exact dollar size of the jobs being done and, if there isn't an answer right now, it's fine. But is there an opportunity to get paid on a billings basis and can't that be a more attractive revenue model and perhaps a larger revenue opportunity for your longer-term? Thanks.

Sure, Stephen, so we actually know exactly what our jobs are being done. By virtue of our scale, our liquidity, the fact that we're nationwide, the fact that we profile a job before it gets submitted. We collect the actual cost at the ZIP-code level. Our cost-guide database is the world's largest, at down to the ZIP-code level. So we have a very, very good sense of what our job is and that changes geography. A plumbing job in Beverly Hills has a different value to us than a plumbing job in Des Moines, Iowa.

We're very sophisticated about how we understand our pricing at the zip-code and geo level. We have all of that data, and frankly, we utilize that data to align supply and demand and to optimize how we monetize the business. So we have all that and we use it aggressively. In terms of a win-fee. We've done that testing. It always sounds like the nirvana that everybody thinks we should go for. It's really, really complicated in this space. There is not necessarily -- we've done a lot of surveys. There's necessarily a huge demand from homeowners and service providers at the same time. We know that's where the space is going.

So, we're putting billing in place. We're getting ahead of the curve. We do think, we do currently allow service providers through our M-help product to do billing directly. And for some categories and some service providers, we will look at that in the future. But the way we monetize our InstantBooking, we think is the better way to go at this. And we'll always look at different alternatives, but if you look at the model, the folks who leaned on that model exclusively and our own internal test, it's very, very difficult to make work. Sometimes, particularly at the higher-end jobs, take a very long time to come to fruition. And we just find that our model is the most efficient, effective and the best way to align service provider needs and homeowner needs. And so, we'll always look at it. Billing will be part of what we do. We've already introduced it, M-help. We're going to continue to test and introduce it. We're not adverse to it. But I think, thinking about it as a better alternative to what we are doing, we just don't see that.

Thank you.

I think that wraps it up. We ran over a bit, so thanks everybody. Thanks Chris for joining us and we'll talk to you all next time.

That concludes today's program. Thank you for your participation. You may now disconnect.