-- Record High Contribution(1) of $11.7 Million
-- Record High 74% Contribution Margin
-- 3% Sequential Revenue Growth in Jewish Networks as 2Q JDate® Price
Increase Takes Hold
-- 6% Sequential Revenue Growth in Affinity Networks
-- 51% Increase in Cash Flow from Operations to $4.0 Million, Versus Q3
'06
-- 4.1 Million Shares Repurchased in Q3 Reduces Shares Outstanding to
26.8 Million
"I continue to be pleased with our ability to do what we say we are going
to do. In the third quarter, we advanced our strategy to maximize
operational and financial efficiency to strengthen our core brands and
drive profitable organic growth," stated Adam Berger, Chairman and Chief
Executive Officer of Spark Networks, Inc.
"Once again, JDate showed its resilience and strength as a brand and a paid
social network as subscribers increased 3% sequentially, following a 14%
price increase to one-month subscriptions in April. JDate's subscriber base
returned to its pre-price increase levels, finishing the third quarter at
74,078 paid subscribers with a more favorable mix toward three and
six-month subscription plans, and a healthier subscriber base with
increased deferred revenue. We will continue to examine pricing across all
of our brands and networks and may consider further adjustments in either
direction."
"While top line revenue declines in our mass appeal site,
AmericanSingles®, continued to offset and mask revenue growth from our
other more affinity-focused communities, our key profit measures of
contribution, contribution margin, and adjusted EBITDA(2) excluding Scheme
of Arrangement and Sarbanes-Oxley (SOX) compliance costs, increased.
Contribution rose to a record $11.7 million, contribution margin achieved a
record 74%, adjusted EBITDA excluding Scheme and SOX costs, increased 6%
sequentially and 11% compared to Q3 '06 to $4.8 million, the second highest
in the history of the company. Cash flow from operations increased 51% to
$4.0 million."
Berger stated, "While we will continue to press costs out of our business,
improve our products, and increase marketing efficiency -- our next
challenge is to leverage our solid balance sheet and our ability to deliver
consistent cash flow to drive profitable revenue growth. With our strong
and stable cash flow, we believe a wide range of options are available to
us to fund continued organic or acquisitive growth, or pursue other value
creating initiatives, such as our share repurchase program. In Q3, we
repurchased 4.1 million shares and since the program's inception last
November, we repurchased an aggregate of 15% of our outstanding shares."
Financial Results
Reported revenue for the third quarter of 2007 was $15.8 million, a
decrease of 10% compared to $17.5 million in the third quarter of 2006.
Revenue for the nine months was $49.2 million, a decrease of 5% compared to
$51.6 million for the same period last year.
Contribution for the third quarter of 2007 was $11.7 million, an increase
of 1% compared to $11.6 million for the third quarter of 2006. Contribution
for the nine months was $32.9 million, a decrease of 1% compared to $33.3
million for the same period last year.
Net income for the third quarter of 2007 was $2.0 million, or $0.07 per
share, compared to $2.8 million, or $0.09 per share, for the third quarter
of 2006. The decrease in net income was due to $1.1 million in costs
associated with the Company's Scheme of Arrangement and its first year
implementation of SOX compliance during the third quarter of 2007, versus
no such costs in the same period last year. Excluding Scheme and SOX costs,
net income for the quarter increased to $3.1 million or $0.11 per share.
Net income for the nine months was $2.1 million, or $0.07 per share,
compared to $3.9 million, or $0.12 per share, for the same period last
year. Contributing to the decrease in net income for the nine month period
was an impairment expense of approximately $1.9 million, related to the
impairment of the book carrying value of goodwill under FAS 142 related to
AmericanSingles; $1.1 million in share-based compensation expense related
to the acceleration of vesting and extension of the exercise period of
options for our former CEO and Chairman of the Board, in connection with
his resignation as CEO of the Company; and Scheme and SOX related costs of
$2.4 million. Excluding Scheme and SOX costs, net income for the nine
months increased to $4.5 million, or $0.15 per share.
Adjusted EBITDA for the third quarter of 2007 was $3.7 million, a decrease
of 14% compared to $4.3 million for the third quarter of 2006. Excluding
Scheme and SOX costs, adjusted EBITDA for the quarter increased 11%, to
$4.8 million compared to $4.3 million in the third quarter of last year.
Adjusted EBITDA for the nine months was $10.1 million, a decrease of 2%
compared to $10.3 million during the same period in 2006. Excluding Scheme
and SOX costs, adjusted EBITDA for the nine months increased 21%, to $12.4
million, compared to $10.3 million for the same period last year. See the
attached Consolidated Statement of Operations for a reconciliation of
EBITDA and adjusted EBITDA to net income.
Average paying subscribers(3) for the Company, as a whole, in the third
quarter of 2007 were 208,828, a decrease of 13% compared to 240,859 for the
third quarter of 2006. Average paying subscribers for the nine months were
220,147, a decrease of 7% compared to 236,955 for the same period last
year.
Segment Reporting(4)
During the third quarter, the Company changed its financial reporting to
include data on four newly-defined operating segments: Jewish Networks,
which consists of JDate.com, JDate.co.il, Cupid.co.il® and their
respective co-branded websites; General Market Networks, which consists of
AmericanSingles.com, its co-branded and private label websites, and
Date.co.uk™ and Date.ca®; Affinity Networks, which consists of the
Company's Provo, Utah-based properties which are primarily made up of sites
targeted towards various religious, ethnic, geographic, and special
interest groups; and Offline & Other Businesses, which consists of revenue
generated from offline activities, HurryDate® events and online
subscriptions, and other websites and businesses. The change, in compliance
with Financial Accounting Standard No. 131, is a result of the change to
the Company's overall revenue mix. The Company believes the new segments
will provide investors with a more accurate picture of the performance of
the business.
The Company reported third quarter 2007 revenue for Jewish Networks of $8.5
million, an increase of 3% compared to $8.2 million in the prior quarter,
and an increase of 4% compared to $8.1 million for the third quarter of
2006. Revenue from Jewish Networks for the nine months was $25.0 million,
an increase of 5% compared to $24.0 million for the same period last year.
The Company reported third quarter 2007 revenue for General Market Networks
of $3.4 million, a decrease of 20% compared to $4.3 million in the prior
quarter, and a decrease of 44% compared to $6.1 million for the third
quarter of 2006. General Market Networks revenue for the nine months was
$12.7 million, a decrease of 36% compared to $20.0 million for the same
period last year. The planned decrease in revenue for the General Market
Networks is largely attributable to a 34% decrease in the marketing spend
for this segment in first nine months of 2007 compared to the first nine
months of 2006.
The Company reported third quarter 2007 revenue for Affinity Networks of
$3.4 million, an increase of 6% compared to $3.2 million in the prior
quarter, and an increase of 12% compared to $3.0 million for the third
quarter of 2006. Affinity Networks revenue for the nine months was $9.8
million, an increase of 44% compared to $6.8 million for the same period
last year.
The Company reported third quarter 2007 revenue for Offline & Other
Businesses of $497,000, a decrease of 44% compared to $886,000 in the prior
quarter, and an increase of 131% compared to $215,000 for the third quarter
of 2006. The sequential decrease was due to JDate's Memorial Day travel
event in the second quarter with no comparable trip in the third quarter.
Offline & Other Businesses revenue for the nine months was $1.6 million, an
increase of 75% compared to $920,000 for the same period last year. The
increase is primarily due to the acquisition of HurryDate during the first
quarter of 2007.
Average paying subscribers for Jewish Networks were 94,072 during the third
quarter of 2007, a decrease of 2% compared to 95,953 for the third quarter
of 2006. Average paying subscribers for the nine months were 95,004,
compared to 94,595 for the same period last year.
Average paying subscribers for General Market Networks were 49,047 during
the third quarter of 2007, a decrease of 43% compared to 85,593 for the
third quarter of 2006. Average paying subscribers for the nine months were
61,481, a decrease of 36% compared to 95,748 for the same period last year.
Average paying subscribers for Affinity Networks were 63,514 during the
third quarter of 2007, an increase of 7% compared to 59,313 from the third
quarter of 2006. Average paying subscribers for the nine months were
62,124, an increase of 34% compared to 46,289 for the same period last
year.
Average paying subscribers for Offline & Other Businesses were 2,195 during
the third quarter of 2007, compared to zero in the third quarter of 2006.
Average paying subscribers for the nine months were 1,538, compared to 323
in the same period last year. The increase of paying subscribers in our
Offline & Other Businesses segment is attributable to the acquisition of
HurryDate's online personals subscription business during the first quarter
of 2007.
Balance Sheet, Cash, Debt
As of September 30, 2007, the Company had a cash and marketable securities
position of $8.3 million compared to $20.6 million at December 31, 2006.
Cash flow from operations for the third quarter of 2007 was $4.0 million,
an increase of 51% compared to $2.7 million during the third quarter of
2006. As of September 30, 2007, the Company had accumulated approximately
$40.0 million of net operating losses (NOLs) to offset future income taxes.
During the quarter, the Company purchased approximately 4.1 million shares
for $17.4 million.
Investor Conference Call
The Company will discuss its financial results during a live teleconference
today at 1:30 p.m. Pacific time.
Call Title: Spark Networks Q3 '07 Financial Results Toll-Free (United States): +1 866-225-6564 International: +1 416-641-6141 Confirmation #: 3240433 One-Week Replay Toll-Free (United States): +1-800-408-3053 International: +1-416-695-5800 Confirmation #: 3240433In addition, the Company will host a webcast of the call which will be accessible in the Investor Relations section of the Company's website under "Conference Calls and Presentations" at: http://www.spark.net/investor.htm. Safe Harbor Statement: This press release contains forward-looking statements. Any statements in this news release that are not statements of historical fact may be considered to be forward-looking statements. Written words, such as "may," "will," "expect," "believe," "anticipate," "estimate," "intends," "goal," "objective," "seek," "attempt," or variations of these or similar words, identify forward-looking statements. By their nature, forward-looking statements and forecasts involve risks and uncertainties because they relate to events and depend on circumstances that will occur in the near future. There are a number of factors that could cause actual results and developments to differ materially, including, but not limited to our ability to: attract members; convert members into paying subscribers and retain our paying subscribers; develop or acquire new product offerings and successfully implement and expand those offerings; keep pace with rapid technological changes; maintain the strength of our existing brands and maintain and enhance those brands and our dependence upon the telecommunications infrastructure and our networking hardware and software infrastructure; identify and consummate strategic acquisitions and integrate acquired companies or assets; obtain financing on acceptable terms; and successfully implement our current long-term growth strategy. For a discussion of these and further risks and uncertainties, please see our filings with the Securities and Exchange Commission. We file annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any reports, statements or other information that we file at the SEC's public reference room at 100 F Street, N.E., Washington, D.C., 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Our public filings with the SEC also are available from commercial document retrieval services and at the web site maintained by the SEC at http://www.sec.gov. About Spark Networks, Inc.: The Spark Networks portfolio of consumer websites includes, among others, JDate.com (www.jdate.com), AmericanSingles.com (www.americansingles.com), BlackSingles.com® (www.blacksingles.com), and ChristianMingle®.com (www.christianmingle.com). (1) "Contribution" is defined as net revenue less direct marketing and "Contribution Margin" is defined as contribution divided by revenue. (2) "Adjusted EBITDA" is defined as earnings before interest, taxes, depreciation, amortization, share-based compensation and impairment of long-lived assets. Adjusted EBITDA should not be construed as a substitute for net income (loss) or net cash provided by (used in) operating activities (all as determined in accordance with GAAP) for the purpose of analyzing our operating performance, financial position and cash flows, as adjusted EBITDA is not defined by GAAP. However, the Company regards adjusted EBITDA as a complement to net income and other GAAP financial performance measures, including an indirect measure of operating cash flow. As such, management believes that the investment community finds it to be a useful tool to perform meaningful comparisons of past, present and future operating results and as a means to evaluate the results of core on-going operations. (3) Paying subscribers are defined as individuals who have paid a monthly fee for access to communication and website features beyond those provided to our members. Average paying subscribers for each month are calculated as the sum of the paying subscribers at the beginning and end of the month, divided by two. Average paying subscribers for periods longer than one month are calculated as the sum of the average paying subscribers for each month, divided by the number of months in such period. (4) In accordance with Financial Accounting Standard No. 131, the Company's financial reporting includes detailed data on four separate operating segments. The Jewish Networks segment consists of the Company's JDate.com, JDate.co.il and Cupid.co.il websites and their respective co-branded websites. The General Market Networks segment consists of the Company's AmericanSingles.com website, its co-branded and private label websites, and Date.co.uk and Date.ca. The Affinity Networks segment consists of all of the Company's Provo, Utah-based properties which primarily consist of sites targeted towards various religious, ethnic, geographic and special interest groups including BlackSingles.com and ChristianMingle.com. The Offline & Other Businesses segment consists of revenue generated from offline activities, HurryDate events and subscriptions and other websites and businesses.
SPARK NETWORKS, INC.
BALANCE SHEET
(in thousands, except share data)
September 30, December 31,
------------- -------------
2007 2006
------------- -------------
Assets (unaudited)
Current assets:
Cash and cash equivalent $ 8,103 $ 20,412
Marketable securities 196 196
Restricted cash 1,928 2,070
Accounts receivable 1,213 1,200
Deferred tax asset - current portion 10 219
Prepaid expenses and other 1,499 1,509
------------- -------------
Total current assets 12,949 25,606
Property and equipment, net 1,229 2,306
Goodwill, net 18,097 19,236
Intangible assets, net 5,144 4,406
Deposits and other assets 72 72
------------- -------------
Total assets $ 37,491 $ 51,626
============= =============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 992 $ 1,487
Accrued liabilities 4,603 4,985
Deferred revenue 4,637 4,051
Notes payable - current portion -- 1,314
Current portion of obligations under
capital leases -- 43
------------- -------------
Total current liabilities 10,232 11,880
Deferred tax liabilities 1,813 1,782
Obligations under capital leases -- 59
------------- -------------
Total liabilities 12,045 13,721
Shares subject to rescission 7,130 8,079
Commitments and contingencies -- --
Shareholders’ equity:
Authorized capital stock consists of
100,000,000 Common Shares, $0.001 par
value; issued and outstanding 26,807,789
at September 30, 2007 and 80,000,000
ordinary shares of 1p each; issued and
outstanding 30,941,465 shares as of
December 31, 2006, at stated values of: 24 517
Additional paid-in capital 54,063 67,571
Accumulated other comprehensive income 610 248
Accumulated deficit (36,381) (38,510)
Total shareholders' equity 18,316 29,826
------------- -------------
Total liabilities and shareholders'
equity $ 37,491 $ 51,626
============= =============
SPARK NETWORKS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
2007 2006 2007 2006
-------- -------- -------- --------
Net revenues $ 15,768 $ 17,506 $ 49,204 $ 51,616
Direct marketing expenses 4,076 5,903 16,277 18,350
-------- -------- -------- --------
Contribution 11,692 11,603 32,927 33,266
Operating expenses(1):
Sales and marketing (including
share-based compensation of
$129, $146, $385, and $451) 830 716 2,347 2,230
Customer service (including
share-based compensation of
$20, $7, $59, and $54) 731 910 2,516 2,716
Technical operations (including
share-based compensation of
$133, $74, $392, and $343) 1,027 1,337 3,192 4,916
Development (including
share-based compensation of
$119, $77, $354, and $332) 1,050 1,033 3,153 3,564
General and administrative
(including share-based
compensation of $586, $295,
$2,819, and $1,836) 5,591 4,539 17,037 15,063
Amortization of intangible
assets other than goodwill 330 290 1,028 884
Impairment of goodwill -- -- 1,894 --
-------- -------- -------- --------
Total operating expenses 9,559 8,825 31,167 29,373
-------- -------- -------- --------
Operating income 2,133 2,778 1,760 3,893
Interest (income) and other
expenses, net (134) (80) (636) (174)
-------- -------- -------- --------
Income before income taxes 2,267 2,858 2,396 4,067
Provision for income taxes 245 34 267 205
-------- -------- -------- --------
Net income $ 2,022 $ 2,824 $ 2,129 $ 3,862
======== ======== ======== ========
Net income per share - basic $ 0.07 $ 0.09 $ 0.07 $ 0.13
-------- -------- -------- --------
Net income per share - diluted $ 0.07 $ 0.09 $ 0.07 $ 0.12
-------- -------- -------- --------
Weighted average shares outstanding
- basic 28,803 30,741 30,111 30,457
Weighted average shares outstanding
- diluted 28,825 31,271 30,197 31,299
Reconciliation of Net Income to Three Months Ended Nine Months Ended
Adjusted EBITDA ------------------ ------------------
September 30, September 30,
2007 2006 2007 2006
Net income $ 2,022 $ 2,824 $ 2,129 $ 3,862
Interest (205) (78) (651) 32
Taxes 245 34 267 205
Depreciation 338 671 1,390 2,272
Amortization 330 290 1,028 884
-------- -------- -------- --------
EBITDA 2,730 3,741 4,163 7,255
Share-based compensation 987 599 4,009 3,016
Impairment of goodwill -- -- 1,894 --
-------- -------- -------- --------
Adjusted EBITDA $ 3,717 $ 4,340 $ 10,066 $ 10,271
(1.) Prior period amounts have been reclassified to conform to current
period presentation.
SPARK NETWORKS, INC.
SEGMENT RESULTS FROM OPERATIONS (1)
(in thousands except subscriber information)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
2007 2006 2007 2006
--------- --------- --------- ---------
Net Revenues
Jewish Networks $ 8,461 $ 8,136 $ 25,037 $ 23,915
General Market Networks 3,416 6,132 12,732 19,958
Affinity Networks 3,394 3,023 9,830 6,823
Offline & Other Businesses 497 215 1,605 920
--------- --------- --------- ---------
Total Net Revenues $ 15,768 $ 17,506 $ 49,204 $ 51,616
========= ========= ========= =========
Direct Marketing Expenses
Jewish Networks $ 779 $ 1,120 $ 2,708 $ 3,350
General Market Networks 1,222 3,238 6,900 10,533
Affinity Networks 1,830 1,352 5,743 3,628
Offline & Other Businesses 245 193 926 839
--------- --------- --------- ---------
Total Direct Marketing Expenses $ 4,076 $ 5,903 $ 16,277 $ 18,350
========= ========= ========= =========
Contribution
Jewish Networks $ 7,682 $ 7,016 $ 22,329 $ 20,565
General Market Networks 2,194 2,894 5,832 9,425
Affinity Networks 1,564 1,671 4,087 3,195
Offline & Other Businesses 252 22 679 81
--------- --------- --------- ---------
Total Contribution $ 11,692 $ 11,603 $ 32,927 $ 33,266
========= ========= ========= =========
Average Paying Subscribers
Jewish Networks 94,072 95,953 95,004 94,595
General Market Networks 49,047 85,593 61,481 95,748
Affinity Networks 63,514 59,313 62,124 46,289
Offline & Other Businesses 2,195 -- 1,538 323
--------- --------- --------- ---------
Total Average Paying Subscribers 208,828 240,859 220,147 236,955
========= ========= ========= =========
(1.) Prior period amounts have been reclassified to conform to current
period presentation.
SPARK NETWORKS, INC.
HISTORICAL SEGMENT RESULTS BY QUARTER (1)
(in thousands except subscriber information)
Three Months Ended
-------------------------------------------------------
Mar 31, Jun 30, Sep 30, Dec 31, Mar 31, Jun 30, Sep 30,
2006 2006 2006 2006 2007 2007 2007
------- ------- ------- ------- ------- ------- -------
Net Revenues
Jewish Networks $ 7,874 $ 7,905 $ 8,136 $ 8,298 $ 8,337 $ 8,239 $ 8,461
General Market
Networks 7,061 6,765 6,132 5,488 5,032 4,284 3,416
Affinity Networks 1,724 2,076 3,023 2,902 3,229 3,207 3,394
Offline & Other
Businesses 146 559 215 549 222 886 497
------- ------- ------- ------- ------- ------- -------
Total Net
Revenues $16,805 $17,305 $17,506 $17,237 $16,820 $16,616 $15,768
======= ======= ======= ======= ======= ======= =======
Direct Marketing Expenses
Jewish Networks $ 1,067 $ 1,163 $ 1,120 $ 1,190 $ 989 $ 940 $ 779
General Market
Networks 3,845 3,450 3,238 3,178 3,638 2,040 1,222
Affinity Networks 677 1,599 1,352 1,325 1,995 1,918 1,830
Offline & Other
Businesses 68 578 193 531 135 546 245
------- ------- ------- ------- ------- ------- -------
Total Direct
Marketing
Expenses $ 5,657 $ 6,790 $ 5,903 $ 6,224 $ 6,757 $ 5,444 $ 4,076
======= ======= ======= ======= ======= ======= =======
Contribution
Jewish Networks $ 6,807 $ 6,742 $ 7,016 $ 7,108 $ 7,348 $ 7,299 $ 7,682
General Market
Networks 3,216 3,315 2,894 2,310 1,394 2,244 2,194
Affinity Networks 1,047 477 1,671 1,577 1,234 1,289 1,564
Offline & Other
Businesses 78 (19) 22 18 87 340 252
------- ------- ------- ------- ------- ------- -------
Total
Contribution $11,148 $10,515 $11,603 $11,013 $10,063 $11,172 $11,692
======= ======= ======= ======= ======= ======= =======
Average Paying Subscribers
Jewish Networks 93,523 94,311 95,953 96,886 97,124 93,815 94,072
General Market
Networks 100,282 101,367 85,593 80,930 73,485 61,910 49,047
Affinity Networks 36,058 43,498 59,313 58,793 60,092 62,766 63,514
Offline & Other
Businesses 778 189 - - 612 1,809 2,195
------- ------- ------- ------- ------- ------- -------
Total Average
Paying
Subscribers 230,641 239,365 240,859 236,609 231,313 220,300 208,828
======= ======= ======= ======= ======= ======= =======
(1.) Prior period amounts have been reclassified to conform to current
period presentation.
SPARK NETWORKS, INC.
RECLASSIFIED HISTORICAL OPERATING EXPENSES BY QUARTER (1)
(in thousands)
Three Months Ended
-------------------------------------------------------
Mar 31, Jun 30, Sep 30, Dec 31, Mar 31, Jun 30, Sep 30,
2006 2006 2006 2006 2007 2007 2007
------- ------- ------- ------- ------- ------- -------
Operating Expenses
Sales and Marketing $ 820 $ 694 $ 716 $ 627 $ 740 $ 777 $ 830
Customer Service 908 898 910 992 928 857 731
Technical Operations 1,782 1,797 1,337 1,089 1,037 1,128 1,027
Development 1,216 1,315 1,033 1,106 1,138 965 1,050
General and
administrative 5,255 5,269 4,539 4,075 6,228 5,218 5,591
Amortization 239 355 290 300 344 354 330
Impairment of
Goodwill -- -- -- 114 1,894 -- --
------- ------- ------- ------- ------- ------- -------
Total Operating
Expenses $10,220 $10,328 $ 8,825 $ 8,303 $12,309 $ 9,299 $ 9,559
======= ======= ======= ======= ======= ======= =======
Operating Expenses
include share-based
compensation as follows:
Sales and Marketing $ 153 $ 152 $ 146 $ 160 $ 126 $ 129 $ 129
Customer Service 23 24 7 16 19 20 20
Technical Operations 123 147 74 92 125 134 133
Development 123 131 77 94 116 118 119
General and
administrative 934 607 295 489 1,673 562 586
------- ------- ------- ------- ------- ------- -------
Total Share
Based
Compensation $ 1,356 $ 1,061 $ 599 $ 851 $ 2,059 $ 963 $ 987
(1.) Prior period amounts have been reclassified to conform to current
period presentation.
Contact Information: For More Information: Investors: Mark Thompson + 1-323-658-3000 ext. 4015 Media: Gail Laguna + 1-323-658-3000 ext. 4402