SOURCE: Spark Networks Inc.

Spark Networks Inc.

August 11, 2014 16:01 ET

Spark Networks® Reports Second Quarter Financial Results

LOS ANGELES, CA--(Marketwired - Aug 11, 2014) - Spark Networks, Inc. (NYSE MKT: LOV)

  • Contribution margin1 reaches 50%
  • Contribution2 increases 109% year-over-year
  • Average paying subscribers3 decline by 9%

Spark Networks, Inc. (NYSE MKT: LOV), a leader in creating niche-focused brands that build and strengthen the communities they serve, today reported financial results for the second quarter ended June 30, 2014.

Financial Highlights

         
    Q2 2013   Q2 2014
  Revenue $17.6 Million   $15.8 Million
  Contribution Margin 21%   50%
  Net Loss $(3.3) Million   $(1.1) Million
  Net Loss Per Share $(0.15)   $(0.05)
         

Financial Results

Revenue in the second quarter of 2014 was $15.8 million, a decrease of 10% compared to the year-ago period. The decrease was primarily driven by a 9% decrease in average paying subscribers, reflecting an 8% and 7% decline in average paying subscribers for the Christian and Jewish Networks segments, respectively.

Direct marketing expenses in the second quarter of 2014 were $7.9 million, a decrease of 43% compared to the year-ago period. Christian Networks accounted for the majority of the decrease, reflecting the company's strategy to reduce and reallocate direct marketing investments in the segment. 

Contribution in the second quarter of 2014 was $7.8 million, an increase of 109% compared to the year-ago period. Christian Networks was the primary driver behind this improvement, generating positive contribution for the first time in 15 quarters. The positive contribution was driven by improved marketing efficiency and growth in the winback and renewal subscriber bases.

Total cost and expenses in the second quarter of 2014 were $16.8 million, a decrease of 19% compared to the year ago period. The decrease in expenditures is largely a result of the reduction in Christian Networks direct marketing expense.

Net loss in the second quarter of 2014 was $(1.1) million, or $(0.05) per share, compared to a net loss of $(3.3) million, or $(0.15) per share, in the year ago period.

Adjusted EBITDA4 in the second quarter of 2014 was a loss of $363,000, an improvement of 84% compared to the year-ago period. Excluding proxy-related fees and costs in the second quarter of 2014, Adjusted EBITDA would have been approximately $1.0 million.

Total average paying subscribers in the second quarter of 2014 were 275,345, a decrease of 9% compared to the year-ago period. Christian Networks average paying subscribers were 181,062 in the second quarter of 2014, an 8% decrease compared to the year-ago period. The decrease reflects the impact of the reduction and reallocation of direct marketing investments, the effects of certain affiliate-driven email deliverability issues experienced in the first quarter of 2014, and an increase in failed renewal transactions as a result of credit and debit card turnover associated with a security breach at a major US-based retailer. Jewish Networks average paying subscribers were 78,856, a 7% decrease compared to the year-ago period. The decrease also reflects the aforementioned email deliverability and payment card renewal issues. Other Networks average paying subscribers were 15,427, a 27% decrease compared to the year-ago period. 

Balance Sheet, Cash, Debt
As of June 30, 2014, the company had cash and cash equivalents of $10.1 million, a decrease of 32% from $14.7 million at December 31, 2013. As of June 30, 2014, the company had no outstanding debt.

   
SPARK NETWORKS, INC.  
SEGMENT RESULTS FROM OPERATIONS5  
(in thousands except subscriber and ARPU information)  
   
    Q2 2013   Q3 2013   Q4 2013   Q1 2014   Q2 2014   Q2 '14 v. Q2 '13  
                                     
Net Revenue                                    
Jewish Networks   $ 6,460   $ 6,433   $ 6,444   $ 6,124   $ 5,895   -8.7 %
Christian Networks     10,260     10,088     9,989     9,789     9,199   -10.3 %
Other Networks     775     715     667     610     570   -26.5 %
Offline & Other Businesses     86     125     104     93     93   8.1 %
  Total Net Revenue   $ 17,581   $ 17,361   $ 17,204   $ 16,616   $ 15,757   -10.4 %
                                     
Direct Mktg. Exp.                                    
Jewish Networks   $ 776   $ 822   $ 991   $ 1,115   $ 693   -10.7 %
Christian Networks     12,866     11,659     11,769     10,104     7,073   -45.0 %
Other Networks     152     123     121     142     115   -24.3 %
Offline & Other Businesses     31     30     36     25     28   -9.7 %
  Total Direct Mktg. Exp.   $ 13,825   $ 12,634   $ 12,917   $ 11,386   $ 7,909   -42.8 %
                                     
Contribution                                    
Jewish Networks   $ 5,684   $ 5,611   $ 5,453   $ 5,009   $ 5,202   -8.5 %
Christian Networks     (2,606 )   (1,571 )   (1,780 )   (315 )   2,126   N/A  
Other Networks     623     592     546     468     455   -27.0 %
Offline & Other Businesses     55     95     68     68     65   9.7 %
  Total Contribution   $ 3,756   $ 4,727   $ 4,287   $ 5,230   $ 7,848   108.9 %
                                     
Average Paying Subs.                                    
Jewish Networks     84,487     83,732     83,175     80,395     78,856   -6.7 %
Christian Networks     196,598     197,420     192,349     189,251     181,062   -7.9 %
Other Networks     21,183     19,073     17,236     16,396     15,427   -27.2 %
  Total Avg. Paying Subs.6     302,268     300,225     292,760     286,042     275,345   -8.9 %
ARPU7                                    
Jewish Networks   $ 25.15   $ 25.28   $ 25.34   $ 24.87   $ 24.43   -2.9 %
Christian Networks     16.55     16.07     16.14     16.19     15.64   -5.5 %
Other Networks     11.49     12.08     12.44     12.08     11.97   4.2 %
  Total ARPU7   $ 18.60   $ 18.38   $ 18.54   $ 18.40   $ 17.95   -3.5 %
   
   
   
Distribution of New Subscription Purchases8  
                               
    Q2 2013     Q3 2013     Q4 2013     Q1 2014     Q2 2014  
                               
Jewish Networks                              
  1 month plans   42.2 %   40.1 %   39.9 %   39.5 %   40.4 %
  3 month plans   25.0 %   27.3 %   26.2 %   26.7 %   23.6 %
  6 month plans   32.8 %   32.6 %   33.9 %   33.8 %   36.0 %
    100.0 %   100.0 %   100.0 %   100.0 %   100.0 %
                               
Christian Networks                              
  1 month plans   44.9 %   43.6 %   43.5 %   44.4 %   44.8 %
  3 month plans   25.3 %   23.1 %   25.9 %   21.7 %   18.6 %
  6 month plans   29.8 %   33.3 %   30.6 %   33.9 %   36.6 %
    100.0 %   100.0 %   100.0 %   100.0 %   100.0 %
                               
Other Networks                              
  1 month plans   58.5 %   60.8 %   57.5 %   57.9 %   55.4 %
  3 month plans   13.0 %   12.6 %   12.8 %   13.2 %   12.7 %
  6 month plans   28.5 %   26.5 %   29.7 %   28.9 %   31.9 %
    100.0 %   100.0 %   100.0 %   100.0 %   100.0 %
       
       
       
    Composition of Average Paying Subscriber Base9  
                               
                               
    Q2 2013     Q3 2013     Q4 2013     Q1 2014     Q2 2014  
                               
Jewish Networks                              
First Time Subscribers   24.8 %   25.3 %   24.2 %   23.1 %   22.4 %
Winback Subscribers   31.5 %   30.6 %   29.9 %   29.3 %   29.8 %
Renewal Subscribers   43.7 %   44.1 %   45.9 %   47.6 %   47.8 %
Total   100.0 %   100.0 %   100.0 %   100.0 %   100.0 %
                               
Christian Networks                              
First Time Subscribers   55.0 %   53.8 %   52.0 %   49.1 %   45.8 %
Winback Subscribers   18.4 %   18.5 %   18.9 %   19.3 %   19.9 %
Renewal Subscribers   26.6 %   27.7 %   29.1 %   31.6 %   34.3 %
Total   100.0 %   100.0 %   100.0 %   100.0 %   100.0 %
                               
Other Networks                              
First Time Subscribers   34.3 %   33.9 %   31.8 %   32.1 %   32.2 %
Winback Subscribers   22.9 %   24.7 %   24.2 %   23.2 %   23.1 %
Renewal Subscribers   42.8 %   41.4 %   44.0 %   44.7 %   44.7 %
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): 1-877-407-0789
International: 1-201-689-8562 

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 August 25, 2014.

Replay 
Toll-Free (United States): 1-877-870-5176 
International: 1-858-384-5517
Passcode: 13586085

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; identify and consummate strategic acquisitions and integrate acquired companies or assets; obtain financing on acceptable terms; and successfully implement both cost cutting initiatives and 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 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 Margin" is defined as Contribution divided by revenue, net of credits and credit card chargebacks.

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

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 The company reports Adjusted EBITDA as a supplemental measure to generally accepted accounting principles in the United States ("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 the income (loss) recognized from non-cash assets received in connection with a legal judgment.

5 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.

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

7 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.

8 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.

9 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,     June 30,  
    2013     2014  
Assets         (unaudited)  
Current assets:                
  Cash and cash equivalents   $ 14,723     $ 10,083  
  Restricted cash     1,296       1,222  
  Accounts receivable     1,569       1,400  
  Deferred tax asset - current     10       15  
  Prepaid expenses and other     1,787       695  
    Total current assets     19,385       13,415  
Property and equipment, net     3,901       3,982  
Goodwill     9,305       9,370  
Intangible assets, net     2,269       2,492  
Deferred tax asset - non-current     186       47  
Deposits and other assets     208       270  
    Total assets   $ 35,254     $ 29,576  
                 
Liabilities and Stockholders' Equity                
Current liabilities:                
  Accounts payable   $ 1,516     $ 1,548  
  Accrued liabilities     5,761       5,154  
  Deferred revenue     8,830       8,331  
  Deferred tax liability - current portion     526       526  
    Total current liabilities     16,633       15,559  
Deferred tax liability - non-current     1,781       1,821  
Other liabilities     1,717       1,713  
    Total liabilities     20,131       19,093  
Commitments and contingencies                
Stockholders' equity:                
Authorized capital stock consists of 100,000,000 shares of Common Stock, $0.001 par value; issued and outstanding: 23,915,875 and 24,001,937 shares at June 30, 2014 and December 31, 2013, respectively:     24       26  
  Additional paid-in-capital     70,747       70,121  
  Accumulated other comprehensive income     776       787  
  Accumulated deficit     (56,424 )     (60,451 )
  Total stockholders' equity     15,123       10,483  
    Total liabilities and stockholders' equity   $ 35,254     $ 29,576  
                     
                     
                     
SPARK NETWORKS, INC.  
CONSOLIDATED STATEMENTS OF OPERATIONS  
(unaudited, in thousands, except per share data)  
   
    Three Months Ended June 30,     Six Months Ended June 30,  
    2013     2014     2013     2014  
                                 
Revenue   $ 17,581     $ 15,757     $ 34,844     $ 32,373  
                                 
Cost and expenses:                                
  Cost of revenue (exclusive of depreciation shown separately below)     14,770       8,866       28,427       21,230  
  Sales and marketing     1,287       1,369       2,549       2,931  
  Customer service     688       763       1,391       1,551  
  Technical operations     267       300       599       641  
  Development     793       900       1,584       1,759  
  General and administrative     2,274       4,069       5,208       7,026  
  Depreciation     472       523       925       1,040  
  Amortization of intangible assets     -       10       -       20  
  Impairment of long-lived assets     265       -       265       -  
Total cost and expenses     20,816       16,800       40,948       36,198  
                                 
Operating loss     (3,235 )     (1,043 )     (6,104 )     (3,825 )
Interest (income) expense and other, net     (43 )     (48 )     (96 )     (17 )
Loss before income taxes     (3,192 )     (995 )     (6,008 )     (3,808 )
Provision for income taxes     84       140       208       219  
Net loss   $ (3,276 )   $ (1,135 )   $ (6,216 )   $ (4,027 )
                                 
Net loss per share - basic and diluted   $ (0.15 )   $ (0.05 )   $ (0.29 )   $ (0.17 )
Weighted average shares outstanding - basic and diluted     22,485       23,851       21,745       23,886  
                                 
                                 
                                 
Stock-based compensation:   Three Months Ended June 30,   Six Months Ended June 30,
(in thousands)  
    2013   2014   2013   2014
Sales and marketing   $ 37   $ 38   $ 71   $ 76
Technical operations     1     -     2     -
Development     3     -     7     -
General and administrative     153     112     302     252
             
             
             
Reconciliation of Net Loss to Adjusted EBITDA:
(in thousands)
  Three Months Ended June 30,     Six Months Ended June 30,  
    2013     2014     2013     2014  
                                 
Net loss   $ (3,276 )   $ (1,135 )   $ (6,216 )   $ (4,027 )
Interest     19       12       34       24  
Taxes     84       140       208       219  
Depreciation     472       523       925       1,040  
Amortization     -       10       -       20  
EBITDA     (2,701 )     (450 )     (5,049 )     (2,724 )
Stock-based compensation     194       150       382       328  
Impairment of long-lived assets     265       -       265       -  
Non-cash currency translation adjustments     (37 )     (63 )     (116 )     (43 )
Adjusted EBITDA   $ (2,279 )   $ (363 )   $ (4,518 )   $ (2,439 )
                                 

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