SOURCE: Spark Networks, Inc.

Spark Networks, Inc.

March 05, 2015 16:01 ET

Spark Networks® Reports Fourth Quarter Financial Results

LOS ANGELES, CA--(Marketwired - Mar 5, 2015) - Spark Networks, Inc. (NYSE MKT: LOV)

  • Total contribution1 of $9.1 million, highest since Q1 2009
  • Adjusted EBITDA2 of $4.1 million, highest since Q3 2008
  • Net income of $3.9 million, highest since Q4 2007

Spark Networks, Inc. (NYSE MKT: LOV), a leader in creating iconic, niche-focused brands and communities that help individuals make life-long relationships with others that share their interests and values, today reported financial results for the fourth quarter and full year ended December 31, 2014.

Financial Highlights

             
    Q4 2013   Q3 2014   Q4 2014
  Revenue   $17.2 Million   $15.0 Million   $14.3 Million
  Contribution   $4.3 Million   $9.0 Million   $9.1 Million
  Adjusted EBITDA   $(2.8) Million   $2.5 million   $4.1 million
  Net (Loss) Income   $(3.5) Million   $(1.0) Million   $3.9 Million
  Cash Balance   $14.7 Million   $9.3 Million   $11.7 Million
  Avg. Paying Subs3   292,760   257,679   227,874
  ARPU   $18.54   $18.33   $19.47
             

Financial Results
Revenue in the fourth quarter of 2014 was $14.3 million, a decrease of 17% compared to the year ago period, and a 5% decrease from the prior quarter. The year over year decrease was primarily driven by a 22% decrease in average paying subscribers3, reflecting a 27% and 12% decrease in average paying subscribers for the Christian and Jewish Networks segments, respectively. The sequential decrease was primarily driven by a 15% and 4% decrease in average paying subscribers for the Christian and Jewish Networks segments, respectively. Full year 2014 revenue was $61.6 million, an 11% decrease compared to 2013. The decrease was primarily driven by a 12% decline in average paying subscribers, reflecting a 12% and 8% decrease in average paying subscribers for the Christian and Jewish Networks segments, respectively.

Direct marketing expenses in the fourth quarter of 2014 were $5.1 million, a decrease of 60% compared to the year-ago period and a 15% decrease compared to the prior quarter. Christian Networks accounted for the majority of the decrease, reflecting the Company's strategy to reduce and reallocate direct marketing investments in the segment. Full year 2014 direct marketing expenses were $30 million, a decrease of 41%, reflecting a 44% reduction in direct marketing expenses for the Christian Networks segment. 

Contribution in the fourth quarter of 2014 was $9.1 million, an increase of 113% compared to the year ago period and a 2% increase compared to the prior quarter. Christian Networks was the primary driver with improved marketing efficiency and a better mix within our paying subscriber base. Full year 2014 contribution was $31.2 million, an 80% year-over-year increase, reflecting a $16.9 million increase in Christian Networks contribution. Christian Networks contribution for the quarter and full year, were positive in 2014, for the first time since the third quarter and full year of 2010, respectively.

Excluding direct marketing expenses, cost and expenses in the fourth quarter of 2014 were $5.9 million, a decrease of 24% compared to the year ago period. The decrease is a combination of lower sales and marketing expenses, and general and administrative expenses, primarily reflecting the impact of the Company's expense reduction and improved efficiency program announced in the third quarter of 2014. Excluding direct marketing expenses and non-recurring items, full year 2014 cost and expenses decreased 2% to $28.9 million compared to 2013. During 2014, the Company incurred one-time expenses totaling $3.3 million, comprised of approximately $1.3 million of severance costs and $2.0 million of proxy contest costs.

Net income in the fourth quarter of 2014 was $3.9 million, or $0.16 per share, compared to a net loss of $(3.5) million, or $(0.15) per share, in the year ago period and $(969,000), or $(0.04) per share, in the prior quarter. Full year 2014 net loss was $(1.1) million, or $(0.05) per share, compared to a net loss of $(12.4) million, or $(0.54) per share, in 2013. 

Adjusted EBITDA in the fourth quarter of 2014 was $4.1 million compared to a loss of $(2.8) million in the year ago period and income of $2.5 million (excluding non-recurring charges) in the prior quarter. Excluding the aforementioned non-recurring expenses, full year 2014 Adjusted EBITDA was income of $5.5 million, compared to a loss of $(9.1) million in 2013.

Total average paying subscribers in the fourth quarter of 2014 were 227,874, a decrease of 22% compared to the year ago period, and a decrease of 12% from the prior quarter. Christian Networks average paying subscribers were 141,188 in the fourth quarter of 2014, a 27% decrease compared to the year-ago period and a 15% decrease compared to the prior quarter. Jewish Networks average paying subscribers were 73,429, a 12% decrease compared to the year-ago period and a 4% decrease compared to the prior quarter. Other Networks average paying subscribers were 13,257, a 23% decrease compared to the year-ago period and a 7% decrease compared to the prior quarter. For the full year 2014 average paying subscribers were 261,734, a 12% decrease compared to 2013.

Balance Sheet, Cash, Debt
As of December 31, 2014, the company had cash and cash equivalents of $11.7 million, a decrease of 21% from $14.7 million at December 31, 2013. As of December 31, 2014, the company had no outstanding debt.

Commentary and Outlook
Chief Executive Officer Michael Egan stated, "We are now in the "walk" phase of our "crawl, walk, run" plan. The second half of 2014 was a significant adjustment for the company as we focused our efforts on improved marketing and corporate efficiency. The first half of 2015, alongside continual operational improvement, is primarily about bringing on the talent and resources we require to fine tune and to begin to implement our growth plans. We are well on our way. For the second half of 2015, our "run" plan is to reinvigorate profitable subscriber growth by year end.

"We plan to accomplish this by first investing in our product and technology to become more nimble and provide our members with valuable new features and services. Secondly, we will continue optimizing our marketing, exploring alternative acquisition channels that are unique to our communities, and incorporating deeper data analysis to ensure that we find and retain our members at more profitable levels. Finally, we will be evolving our member service model so that we can better ensure that our ChristianMingle and JDate members succeed in finding their true, long-term partners.

"It is important to note that given the long-tail nature of our business, both a portion of our 2014 second half profitability, and much of the decline in revenue and membership that we have seen and will continue to see for a little while longer, is the result of the historical customer cohorts that were acquired via aggressive and unprofitable marketing strategies. As this wave flattens, we anticipate we will experience our trough subscriber count in the first quarter 2015, in line with previously released guidance. We anticipate trough revenue will occur in the second quarter 2015, with sequential quarterly improvement thereafter."

   
SPARK NETWORKS, INC.  
SEGMENT4 RESULTS FROM OPERATIONS  
(in thousands except subscriber and ARPU information)  
   
    Q4 2013     Q1 2014     Q2 2014   Q3 2014   Q4 2014   Q4 '14 v.
Q4 '13
 
                                         
Net Revenue                                        
Jewish Networks   $ 6,444     $ 6,124     $ 5,895   $ 5,724   $ 5,502   -14.6 %
Christian Networks     9,989       9,789       9,199     8,672     8,215   -17.8 %
Other Networks     667       610       570     533     504   -24.4 %
Offline & Other Businesses     104       93       93     79     43   -58.7 %
  Total Net Revenue   $ 17,204     $ 16,616     $ 15,757   $ 15,008   $ 14,264   -17.1 %
                                         
Direct Mktg. Exp.                                        
Jewish Networks   $ 991     $ 1,115     $ 693   $ 628   $ 684   -31.0 %
Christian Networks     11,769       10,104       7,073     5,293     4,325   -63.3 %
Other Networks     121       142       115     107     116   -4.1 %
Offline & Other Businesses     36       25       28     19     4   -88.9 %
  Total Direct Mktg. Exp.   $ 12,917     $ 11,386     $ 7,909   $ 6,047   $ 5,129   -60.3 %
                                         
Contribution                                        
Jewish Networks   $ 5,453     $ 5,009     $ 5,202   $ 5,096   $ 4,818   -11.6 %
Christian Networks     (1,780 )     (315 )     2,126     3,379     3,890   NM  
Other Networks     546       468       455     426     388   -28.9 %
Offline & Other Businesses     68       68       65     60     39   -42.6 %
  Total Contribution   $ 4,287     $ 5,230     $ 7,848   $ 8,961   $ 9,135   113.1 %
                                         
Average Paying Subs.                                        
Jewish Networks     83,175       80,395       78,856     76,481     73,429   -11.7 %
Christian Networks     192,349       189,251       181,062     166,908     141,188   -26.6 %
Other Networks     17,236       16,396       15,427     14,290     13,257   -23.1 %
  Total Avg. Paying Subs.5     292,760       286,042       275,345     257,679     227,874   -22.2 %
ARPU                                        
Jewish Networks   $ 25.34     $ 24.87     $ 24.43   $ 24.53   $ 24.44   -3.6 %
Christian Networks     16.14       16.19       15.64     16.01     17.57   8.8 %
Other Networks     12.44       12.08       11.97     12.11     12.27   -1.3 %
  Total ARPU6   $ 18.54     $ 18.40     $ 17.95   $ 18.33   $ 19.47   5.0 %
                                         
   
Distribution of New Subscription Purchases7  
                               
    Q4 2013     Q1 2014     Q2 2014     Q3 2014     Q4 2014  
                               
Jewish Networks                              
  1 month plans   39.9 %   39.5 %   40.4 %   38.5 %   41.4 %
  3 month plans   26.2 %   26.7 %   23.6 %   24.9 %   24.3 %
  6 month plans   33.9 %   33.8 %   36.0 %   36.6 %   34.3 %
    100.0 %   100.0 %   100.0 %   100.0 %   100.0 %
                               
Christian Networks                              
  1 month plans   43.5 %   44.4 %   44.8 %   50.6 %   53.7 %
  3 month plans   25.9 %   21.7 %   18.6 %   20.8 %   20.7 %
  6 month plans   30.6 %   33.9 %   36.6 %   28.6 %   25.6 %
    100.0 %   100.0 %   100.0 %   100.0 %   100.0 %
                               
Other Networks                              
  1 month plans   57.5 %   57.9 %   55.4 %   58.6 %   59.2 %
  3 month plans   12.8 %   13.2 %   12.7 %   12.2 %   11.0 %
  6 month plans   29.7 %   28.9 %   31.9 %   29.2 %   29.8 %
    100.0 %   100.0 %   100.0 %   100.0 %   100.0 %
                               
       
    Composition of Average Paying Subscriber Base8  
                               
                               
    Q4 2013     Q1 2014     Q2 2014     Q3 2014     Q4 2014  
                               
Jewish Networks                              
First Time Subscribers   24.2 %   23.1 %   22.4 %   21.9 %   22.4 %
Winback Subscribers   29.9 %   29.3 %   29.8 %   29.5 %   29.2 %
Renewal Subscribers   45.9 %   47.6 %   47.8 %   48.6 %   48.4 %
Total   100.0 %   100.0 %   100.0 %   100.0 %   100.0 %
                               
Christian Networks                              
First Time Subscribers   52.0 %   49.1 %   45.8 %   42.7 %   38.0 %
Winback Subscribers   18.9 %   19.3 %   19.9 %   20.5 %   19.7 %
Renewal Subscribers   29.1 %   31.6 %   34.3 %   36.8 %   42.3 %
Total   100.0 %   100.0 %   100.0 %   100.0 %   100.0 %
                               
Other Networks                              
First Time Subscribers   31.8 %   32.1 %   32.2 %   31.2 %   30.6 %
Winback Subscribers   24.2 %   23.2 %   23.1 %   22.6 %   21.8 %
Renewal Subscribers   44.0 %   44.7 %   44.7 %   46.2 %   47.6 %
Total   100.0 %   100.0 %   100.0 %   100.0 %   100.0 %
                               

Investor Conference Call
The company will discuss its financial results during a live teleconference today at 1:30 p.m. Pacific time.

Toll-Free (United States): 1-877-705-6003
International: 1-201-493-6725 

In addition, the company will host a webcast of the call which will be accessible in the Investor Relations section of the company's website at www.spark.net or by clicking http://investor.spark.net.

A replay will begin approximately three hours after completion of the call and run until March 19, 2015.

Replay 
Toll-Free (United States): 1-877-870-5176 
International: 1-858-384-5517
Passcode: 13601876

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; continue to depend upon the telecommunications infrastructure and our networking hardware and software infrastructure; estimate on-going general and administrative costs, and obtain financing on acceptable terms. 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 current 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 Web sites includes, among others, JDate®.com (www.jdate.com), ChristianMingle®.com (www.christianmingle.com), Spark®.com (www.spark.com), BlackSingles.com® (www.blacksingles.com), and SilverSingles®.com (www.silversingles.com).

1 "Contribution" is defined as revenue, net of credits and credit card chargebacks, less direct marketing.

2 The company reports Adjusted EBITDA as a supplemental measure to generally accepted accounting principles ("GAAP"). This measure is one of the primary metrics by which we evaluate the performance of our businesses, budget, forecast and compensate management. We believe this measure provides management and investors with a consistent view, period to period, of the core earnings generated from on-going operations and excludes the impact of: (i) non-cash items such as stock-based compensation, asset impairments, non-cash currency translation adjustments related to an inter-company loan and (ii) one-time items that have not occurred in the past two years and are not expected to recur in the next two years. Adjusted EBITDA should not be construed as a substitute for net income (loss) (as determined in accordance with GAAP) for the purpose of analyzing our operating performance or financial position, as Adjusted EBITDA is not defined by GAAP.

"Adjusted EBITDA" is defined as earnings before interest, taxes, depreciation, amortization, stock-based compensation, impairment of long-lived assets, non-cash currency translation adjustments for an inter-company loan and non-recurring proxy contest costs and severance expense.

3 "Average paying subscribers" are defined as individuals who have paid a monthly fee for access to communication and Web site 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 Segment Reporting guidance, 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, JDate.fr, JDate.co.uk and Cupid.co.il Web sites and their respective co-branded Web sites. The Christian Networks segment consists of the company's ChristianMingle.com, ChristianMingle.co.uk, ChristianMingle.com.au, Believe.com, ChristianCards.net, ChristianDating.com, DailyBibleVerse.com and Faith.com Web sites. The Other Networks segment consists of Spark.com and related other general market Web sites as well as other properties which are primarily composed of sites targeted towards various religious, ethnic, geographic and special interest groups. The Offline & Other Businesses segment consists of revenue generated from offline activities and HurryDate events and subscriptions.

5 Total Average Paying Subscribers excludes results from the company's HurryDate business due to its relative size.

6 ARPU is defined as average revenue per user per month. Total ARPU excludes results from the company's HurryDate business due to its relative size.

7 One month plans may also include a small amount of two month plans. Three month plans may include a small amount of four month plans. Six month plans may include a small amount of twelve month plans.

8 Represents the type of subscriber comprising the average paying subscribers in that period. First Time Subscribers are defined as those subscribers that have never purchased a subscription from the company for that reporting segment. Winback Subscribers are defined as those individuals who have purchased a subscription from the company for that reporting segment, allowed their subscription to lapse, and subsequently purchased a subscription from the company for that reporting segment. Renewal Subscribers are defined as those subscribers that have auto-renewed a subscription from the company for that reporting segment.

   
SPARK NETWORKS, INC.  
CONSOLIDATED BALANCE SHEETS  
(in thousands, except share data)  
   
    December 31,     December 31,  
    2013     2014  
Assets                
Current assets:                
  Cash and cash equivalents   $ 14,723     $ 11,696  
  Restricted cash     1,296       1,056  
  Accounts receivable     1,569       1,308  
  Deferred tax asset - current     10       11  
  Prepaid expenses and other     1,787       1,516  
    Total current assets     19,385       15,587  
Property and equipment, net     3,901       4,072  
Goodwill     9,305       8,575  
Intangible assets, net     2,269       2,469  
Deferred tax asset - non-current     186       68  
Deposits and other assets     208       234  
    Total assets   $ 35,254     $ 31,005  
                 
Liabilities and Stockholders' Equity                
Current liabilities:                
  Accounts payable   $ 1,516     $ 1,300  
  Accrued liabilities     5,761       3,948  
  Deferred revenue     8,830       7,092  
  Deferred tax liability - current portion     526       496  
    Total current liabilities     16,633       12,836  
Deferred tax liability     1,781       1,607  
Other liabilities     1,717       807  
    Total liabilities     20,131       15,250  
Commitments and contingencies                
Stockholders' equity:                
Authorized capital stock consists of 100,000,000 shares of Common Stock, $0.001 par value; issued and outstanding: 24,001,937 and 24,556,182 shares at December 31, 2013 and 2014, respectively:     24       25  
  Additional paid-in-capital     70,747       72,522  
  Accumulated other comprehensive income     776       759  
  Accumulated deficit     (56,424 )     (57,551 )
  Total stockholders' equity     15,123       15,755  
    Total liabilities and stockholders' equity   $ 35,254     $ 31,005  
                 
   
SPARK NETWORKS, INC.  
CONSOLIDATED STATEMENTS OF OPERATIONS  
(unaudited, in thousands, except per share data)  
   
    Three Months Ended
December 31,
    Years Ended December 31,  
    2013     2014     2012     2013     2014  
                                         
Revenue   $ 17,204     $ 14,264     $ 61,743     $ 69,409     $ 61,645  
                                         
Cost and expenses:                                        
  Cost of revenue (exclusive of depreciation shown separately below)     13,911       6,087       49,216       55,958       34,321  
  Sales and marketing     1,629       828       3,991       5,601       5,127  
  Customer service     765       749       2,534       2,902       3,038  
  Technical operations     280       213       1,363       1,167       1,130  
  Development     799       801       3,346       3,129       3,446  
  General and administrative     2,790       1,828       8,787       10,494       13,300  
  Depreciation     533       495       1,673       1,987       2,053  
  Amortization of intangible assets     10       10       13       20       40  
  Impairment of goodwill, long-lived assets and other assets     -       25       -       265       128  
Total cost and expenses     20,717       11,036       70,923       81,523       62,583  
                                         
Operating (loss) income     (3,513 )     3,228       (9,180 )     (12,114 )     (938 )
Interest (income) expense and other, net     (56 )     241       (238 )     (229 )     564  
(Loss) income before income taxes     (3,457 )     2,987       (8,942 )     (11,885 )     (1,502 )
Provision for income taxes     92       (882 )     6,047       495       (375 )
Net (loss) income   $ (3,549 )   $ 3,869     $ (14,989 )   $ (12,380 )   $ (1,127 )
Net (loss) income per share-- basic and diluted   $ (0.15 )   $ 0.16     $ (0.72 )   $ (0.54 )   $ ($0.05 )
Weighted average shares outstanding - basic     23,938       24,425       20,781       22,795       24,064  
Weighted average shares outstanding - diluted     23,938       24,634       20,781       22,795       24,064  
         
                                         
Stock-based compensation:                    
(in thousands)                    
         
    Three Months Ended
December 31,
  Year Ended December 31,
    2013   2014   2012   2013   2014
Cost of revenue   $ -   $ -   $ 8   $ -   $ 3
Sales and marketing     38     11     76     145     110
Customer service     -     -     2     -     -
Technical operations     -     -     118     4     -
Development     -     -     42     10     -
General and administrative     153     322     567     608     833
                               
             
Reconciliation of Net (Loss) Income to Adjusted EBITDA:

(in thousands)
  Three Months Ended
December 31,
    Years Ended December 31,  
    2013     2014     2012     2013     2014  
                                         
Net (loss) income   $ (3,549 )   $ 3,869     $ (14,989 )   $ (12,380 )   $ (1,127 )
Interest expense     18       12       59       71       48  
Tax provision (benefit)     92       (882 )     6,047       495       (375 )
Depreciation     533       495       1,673       1,987       2,053  
Amortization     10       10       13       20       40  
EBITDA     (2,896 )     3,504       (7,197 )     (9,807 )     639  
Stock-based compensation     191       333       813       767       946  
Impairment of long-lived assets and other assets     -       25       -       265       128  
Non-cash currency translation adjustments     (82 )     234       (124 )     (297 )     518  
Non-recurring proxy and severance     -       -       -       -       3,308  
Non-repetitive property possession     -       -       (151 )     -       -  
Adjusted EBITDA   $ (2,787 )   $ 4,096     $ (6,659 )   $ (9,072 )   $ 5,539