Spark Networks(R) 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	)