SOURCE: Spark Networks

Spark Networks

November 10, 2016 16:11 ET

Spark Networks® Reports Third Quarter 2016 Financial Results

LOS ANGELES, CA--(Marketwired - Nov 10, 2016) - Spark Networks, Inc. (NYSE MKT: LOV)

Quarterly Highlights

  • Spark Networks raised over $9 million during Q3 and ended the quarter with $11.3 million in cash

  • Net Loss of $94,000, a $728,000 improvement from the prior year period

  • Adjusted EBITDA increases to $1.5 million, an 18% margin

  • JSwipe current paid subscribers now represent 4% of total Jewish Networks subscribers with ARPU in-line with total Jewish Networks

Spark Networks, Inc. (NYSE MKT: LOV), today reported financial results for the third quarter ended September 30, 2016.

Summary Quarterly Metrics

             
    Q3 2016   Q2 2016   Q3 2015
Revenue   $8.4 Million   $9.1 Million   $11.7 Million
Contribution1   $7.2 Million   $7.6 Million   $7.3 Million
Net (Loss) Income   $(94) Thousand   $329 Thousand   $(822) Thousand
Adjusted EBITDA2   $1.5 Million   $1.4 Million   $309 Thousand
Cash Balance   $11.3 Million   $3.1 Million   $14.4 Million
Period Ending Subs3   158,233   183,678   197,832
Avg. Paying Subs3   173,564   189,938   197,109
ARPU   $15.81   $15.70   $19.04
             

Third Quarter 2016 Financial Results

Revenue: For the third quarter of 2016, total revenue was $8.4 million, a decrease of 28% compared to the year ago period, and an 8% decrease from the prior quarter. The year over year decrease was primarily driven by decreases in both average paying subscribers and average revenue per user ("ARPU"). The sequential decrease was driven by decreases in average paying subscribers, partially offset by a slight increase in ARPU. The decrease in average paying subscribers was the result of seasonality and our decision to reduce our paid marketing efforts and offer fewer promotional pricing discounts.

Contribution: For the third quarter of 2016, contribution was $7.2 million, a decrease of 1% compared to the year ago period, and a 6% decrease from the prior quarter. Our contribution margin increased to 85% from 84% in the prior quarter and 62% in the year ago period. The sequential increase in contribution margin was driven by reductions in direct marketing within our Christian and Other Networks. Total direct marketing expenses decreased 72% to $1.2 million in third quarter of 2016 as compared to $4.4 million in the prior year period. We expect comparable year over year declines in direct marketing expenses in the fourth quarter of 2016 as management develops, implements and refines our direct marketing strategy.

Net Loss: For the third quarter of 2016, Net Loss was $94,000, a $728,000 improvement versus the year ago period and a $423,000 decrease from the prior quarter. During the second quarter of 2016, the Company released a prior-period tax reserve after agreeing to settlement terms in a state tax matter, resulting in $719,000 of non-cash tax benefit in the year to date period.

Adjusted EBITDA: For the third quarter of 2016, Adjusted EBITDA was $1.5 million, an increase of $1.2 million versus the year ago period and a $101,000 increase from the prior quarter. Excluding the operating impact of Smooch Labs, Adjusted EBITDA for the third quarter was $1.7 million. Current period Adjusted EBITDA does not include $803,000 of non-recurring severance and legal expenses related to the financings completed in the quarter.

Liquidity: For the third quarter of 2016, the Company ended with $11.3 million in cash and cash equivalents, compared to $3.1 million at the end of the prior quarter. As of September 30, 2016, the Company had no outstanding debt.

Commentary and Outlook

Chief Executive Officer Danny Rosenthal stated, "The Company has undergone a great deal of change in the last three months with new leadership and priorities across our Product, Technology and Marketing teams.

"One quarter into my tenure at Spark, I wanted to share initial observations and our approach. We have a better understanding of structural problems the business has faced. These have been driven by problems with technology and product that have prevented investment in modernizing our brands. Some of these challenges have been overcome in the short term through marketing spend, but that is not a sustainable approach that will enable the company to thrive and grow.

"Our strategy to improve operations and maximize long term potential is founded in fixing these core issues and doing fewer things in a better way. More specifically, we have made the decision to focus on holistically improving our core JDate and Christian Mingle offerings. Accordingly, we have paused work on initiatives that do not support this objective. Examples of non-core initiatives that we are not currently prioritizing include the Church Partnership Program, the CrossPaths mobile application, and the expansion of Christian Mingle into Latin America. Our improvement plan is not limited to marketing or product improvements, but rather the desire to grow our business through customer communications and interactions that are built upon a deep understanding of customer needs and to support this growth with a highly-scalable technology platform.

"Within Marketing, we have significantly reduced paid marketing efforts and completely stopped any television advertising. These reductions have helped us identify inefficient marketing channels, and will give us a baseline against which to measure as we ramp our paid marketing efforts in November and continuing through Valentine's Day.

"Spark's strong and iconic brands have been hampered by a technology platform that is, at its core, over 15 years old. The Technology and Product teams are now aligned around the development of a single new, scalable, shared platform to support our customer-facing sites and applications. It is important to note, that this platform will also serve as the foundation for new internal systems and tools that will drive much-needed efficiencies within our Customer Service and Marketing teams.

"We expect our development and product work to result in the launch of new versions of JDate and Christian Mingle in Q2 and Q4 of 2017, respectively. We will also work to migrate our other existing brands onto this shared platform by the Q1 of 2018. Once complete, this transition will allow us to further rationalize our broader cost structure while also improving our ability to test and optimize new product features and marketing strategies.

"While the last quarter has allowed us to identify and prioritize areas for improvement, the real work is still ahead of us. We are confident that we possess the resources, team, and capital to complete the ambitious plans we have for the next five quarters and position Spark for future growth. We are excited to complete the work necessary to effect positive change at Spark, and we look forward to sharing our progress with our customers and shareholders over the coming months."

   
SPARK NETWORKS, INC.  
SEGMENT4 RESULTS FROM OPERATIONS  
(in thousands except subscriber and ARPU information)  
   
    Q3 2016   Q2 2016   Q1 2016   Q4 2015   Q3 2015   Q3 '16 v. Q3 '15     Q3 '16 v. Q2 '16  
                                           
Revenue                                          
Jewish Networks   $ 3,322   $ 3,628   $ 3,994   $ 4,299   $ 4,613   -28.0 %   -8.4 %
Christian Networks     4,673     5,044     5,405     5,940     6,581   -29.0 %   -7.3 %
Other Networks     385     413     438     446     466   -17.4 %   -6.8 %
Offline & Other Businesses     11     13     21     20     22   -50.0 %   -13.4 %
  Total Revenue   $ 8,391   $ 9,098   $ 9,859   $ 10,705   $ 11,682   -28.2 %   -7.8 %
                                           
Direct Mktg. Exp.                                          
Jewish Networks   $ 420   $ 372   $ 497   $ 648   $ 619   -32.2 %   12.7 %
Christian Networks     750     1,001     4,420     3,111     3,664   -79.5 %   -25.0 %
Other Networks     60     105     120     129     141   -57.5 %   -42.8 %
  Total Direct Mktg. Exp.   $ 1,230   $ 1,478   $ 5,038   $ 3,888   $ 4,424   -72.2 %   -16.8 %
                                           
Contribution                                          
Jewish Networks   $ 2,902   $ 3,256   $ 3,497   $ 3,652   $ 3,994   -27.3 %   -10.9 %
Christian Networks     3,923     4,043     985     2,829     2,917   34.5 %   -3.0 %
Other Networks     325     308     318     316     325   -0.1 %   5.3 %
Offline & Other Businesses     11     13     20     20     22   -50.6 %   -14.4 %
  Total Contribution   $ 7,161   $ 7,620   $ 4,821   $ 6,817   $ 7,258   -1.3 %   -6.0 %
                                           
Period Ending Subs                                          
Jewish Networks     52,952     59,868     63,982     65,004     64,144   -17.4 %   -11.6 %
Christian Networks     95,047     112,895     122,935     123,800     122,068   -22.1 %   -15.8 %
Other Networks     10,234     10,915     11,321     11,219     11,620   -11.9 %   -6.2 %
  Total Period Ending Subs.     158,233     183,678     198,238     200,023     197,832   -20.0 %   -13.9 %
                                           
Average Paying Subs.                                          
Jewish Networks     57,684     61,732     63,930     64,627     63,538   -9.2 %   -6.6 %
Christian Networks     105,108     117,024     124,180     123,888     121,597   -13.6 %   -10.2 %
Other Networks     10,772     11,182     11,341     11,266     11,974   -10.0 %   -3.7 %
  Total Avg. Paying Subs.     173,564     189,938     199,451     199,781     197,109   -11.9 %   -8.6 %
                                           
ARPU                                          
Jewish Networks   $ 18.79   $ 19.33   $ 20.46   $ 21.82   $ 23.80   -21.0 %   -2.8 %
Christian Networks     14.60     14.09     14.17     15.25     17.19   -15.0 %   3.7 %
Other Networks     11.69     12.15     12.52     12.72     12.58   -7.0 %   -3.8 %
  Total ARPU5   $ 15.81   $ 15.70   $ 16.12   $ 17.26   $ 19.04   -16.9 %   0.7 %
                                           
                                           
                                           
Distribution of New Subscription Purchases6
 
    Q3 2016   Q2 2016   Q1 2016   Q4 2015   Q3 2015
                     
Jewish Networks                    
  1 month plans   32.6%   28.2%   26.4%   32.8%   35.6%
  3 month plans   18.4%   19.2%   17.0%   19.8%   19.9%
  6 month plans   49.0%   52.6%   56.6%   47.3%   44.5%
    100.0%   100.0%   100.0%   100.0%   100.0%
                     
Christian Networks                    
  1 month plans   36.5%   39.2%   32.9%   38.5%   39.6%
  3 month plans   22.4%   25.7%   20.5%   21.6%   18.4%
  6 month plans   41.1%   35.1%   46.7%   39.9%   42.0%
    100.0%   100.0%   100.0%   100.0%   100.0%
                     
Other Networks                    
  1 month plans   51.1%   52.2%   55.8%   59.9%   62.0%
  3 month plans   9.5%   10.8%   11.6%   10.6%   11.4%
  6 month plans   39.4%   37.1%   32.6%   29.6%   26.6%
    100.0%   100.0%   100.0%   100.0%   100.0%
 
Composition of Average Paying Subscriber Base7
 
    Q3 2016   Q2 2016   Q1 2016   Q4 2015   Q3 2015
                     
Jewish Networks                    
First Time Subscribers   23.7%   24.6%   24.7%   23.1%   21.7%
Winback Subscribers   34.6%   34.0%   32.5%   32.0%   30.5%
Renewal Subscribers   41.7%   41.4%   42.8%   44.9%   47.8%
Total   100.0%   100.0%   100.0%   100.0%   100.0%
                     
Christian Networks                    
First Time Subscribers   39.9%   42.0%   43.1%   41.3%   39.1%
Winback Subscribers   26.4%   26.0%   24.6%   23.7%   23.3%
Renewal Subscribers   33.7%   32.0%   32.3%   35.0%   37.6%
Total   100.0%   100.0%   100.0%   100.0%   100.0%
                     
Other Networks                    
First Time Subscribers   32.7%   33.0%   31.9%   30.0%   31.2%
Winback Subscribers   22.9%   22.4%   21.7%   21.0%   22.0%
Renewal Subscribers   44.4%   44.6%   46.4%   49.1%   46.8%
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 November 24, 2016.

Replay 

Toll-Free (United States): 1-844-512-2921 

International: 1-412-317-6671
Passcode: 13648150

Safe Harbor Statement:

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, statements regarding the Company's new strategy, statements regarding the expected benefits to the Company of significantly reducing paid marketing effort, statements regarding the expected benefits of the Company's new technology platform, statements regarding the expected launch of new versions of JDate and Christian Mingle in 2017, statements regarding the Company's efforts to migrate other existing brands onto its new platform by the end of next year, and statements regarding the ability of the Company to complete its plans for the next five quarters and position Spark for future growth. Any statements in this press 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: successfully implement our strategy to stabilize our subscriber base and grow; avoid significant subscriber declines; attract and retain members; convert members into paying subscribers and retain our paying subscribers; retain and enhance the new marketing team; develop or acquire new product offerings and successfully implement and expand those offerings; keep pace with rapid technological changes, including making the technology stack more nimble; drive use of newly-updated mobile applications; 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. Additional factors that could cause actual results to differ are discussed under the heading "Risk Factors" and in other sections of the Company's filings with the Securities and Exchange Commission ("SEC"), and in the Company's other current and periodic reports filed or furnished from time to time with the SEC. All forward-looking statements in this press release are made as of the date hereof, based on information available to the Company as of the date hereof, and the Company assumes no obligation to update any forward-looking statement.

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), JSwipe (www.jswipeapp.com), CROSSPATHS (www.crosspathsapp.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 non-GAAP 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. A reconciliation of the Adjusted EBITDA for the three and nine months ended September 30, 2016 can be found in the table below.

"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 significant executive and non-executive severance, and acquisition costs.

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. Period ending subscribers for each quarter represent the paying subscriber count as of the last day of the period. 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. The calculation excludes results from the Company's HurryDate business due to its relative size.

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 JDate, JDate.co.il, JDate.fr, JDate.co.uk, Cupid.co.il, and JSwipe. The Christian Networks segment consists of ChristianMingle, CrossPaths, ChristianMingle.co.uk, ChristianMingle.com.au, Believe.com, ChristianCards.net, ChristianDating.com, DailyBibleVerse.com and Faith.com. The Other Networks segment consists of Spark.com and related other general market websites 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 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.

6 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.

7 Represents the composition of average paying subscribers in the 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. Figures exclude results from JSwipe and CrossPaths.

   
SPARK NETWORKS, INC.  
CONSOLIDATED BALANCE SHEETS  
(in thousands, except share data)  
   
    September 30,     December 31,  
    2016     2015  
Assets                
Current assets:                
  Cash and cash equivalents   $ 11,332     $ 6,565  
  Restricted cash     506       747  
  Accounts receivable (net of allowance for doubtful accounts of $101 and $99 at September 30, 2016, and December 31, 2015, respectively)     463       790  
  Prepaid expenses and other     653       1,341  
    Total current assets     12,954       9,443  
Property and equipment, net     5,180       5,584  
Goodwill     14,681       14,450  
Intangible assets, net     3,228       3,451  
Deposits and other assets     119       148  
    Total assets   $ 36,162     $ 33,076  
Liabilities and Stockholders' Equity                
Current liabilities:                
  Accounts payable     605       1,749  
  Accrued liabilities     2,468       3,854  
  Deferred revenue     4,908       5,834  
    Total current liabilities     7,981       11,437  
Deferred tax liability - non-current     2,230       2,136  
Other liabilities     319       537  
    Total liabilities     10,530       14,110  
Commitments and Contingencies                
Stockholders' equity:                
  10,000,000 shares of Preferred Stock authorized, $0.001 par value, 450,000 of which are designated as Series C Junior Participating Cumulative Preferred Stock, with no shares of Preferred Stock issued or outstanding     -       -  
  100,000,000 shares of Common Stock authorized, $0.001 par value, with 31,874,193 and 25,845,879 shares of Common Stock issued and outstanding at September 30, 2016 and December 31, 2015     32       27  
  Additional paid-in-capital     87,019       77,188  
  Accumulated other comprehensive income     742       739  
  Accumulated deficit     (62,161 )     (58,988 )
    Total stockholders' equity     25,632       18,966  
    Total liabilities and stockholders' equity   $ 36,162     $ 33,076  
                     
                     
                     
SPARK NETWORKS, INC.  
CONSOLIDATED STATEMENTS OF OPERATIONS  
(unaudited, in thousands, except per share data)  
   
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2016     2015     2016     2015  
Revenue   $ 8,391     $ 11,682     $ 27,348     $ 37,430  
Cost and expenses:                                
  Cost of revenue (exclusive of depreciation shown separately below)     2,323       5,593       11,205       19,058  
  Sales and marketing     1,103       1,144       3,935       2,895  
  Customer service     523       769       2,356       2,239  
  Technical operations     419       210       1,021       636  
  Development     962       1,053       3,172       2,978  
  General and administrative     2,438       2,933       6,953       7,704  
  Depreciation     738       562       2,196       1,607  
  Amortization of intangible assets     68       10       224       30  
  Impairment of long-lived assets     58       26       149       132  
Total cost and expenses     8,632       12,300       31,211       37,279  
Operating (loss) income     (241 )     (618 )     (3,863 )     151  
Interest (income) expense and other, net     (82 )     191       (109 )     79  
(Loss) income before provision for income taxes     (159 )     (809 )     (3,754 )     72  
Income tax (benefit) provision     (65 )     13       (581 )     266  
Net loss     (94 )     (822 )     (3,173 )     (194 )
Other comprehensive income (loss), net of tax:                                
  Foreign currency translation adjustment     28       -       4       (5 )
Comprehensive loss   $ (66 )   $ (822 )   $ (3,169 )   $ (199 )
                                 
Net loss per share - basic and diluted   $ (0.00 )   $ (0.03 )   $ (0.12 )   $ (0.01 )
Weighted average shares outstanding - basic and diluted     29,212       25,188       27,003       24,991  
                                 
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2016     2015     2016     2015  
Stock-based compensation                                
  Sales and marketing   $ (68 )   $ 11     $ 27     $ 19  
  Customer service     4       -       8       -  
  Technical operations     (32 )     -       12       -  
  Development     7       5       18       8  
  General and administrative     207       159       719       485  
                                   
                                   
                                   
Reconciliation of Net Loss to Adjusted EBITDA:  
   
    Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
(in thousands)   2016     2015     2016     2015  
Net loss   $ (94 )   $ (822 )   $ (3,173 )   $ (194 )
Interest expense     19       15       52       35  
(Benefit) provision for income taxes     (65 )     40       (581 )     237  
Depreciation     738       561       2,196       1,606  
Impairment of long lived assets     58       26       149       132  
Amortization of intangible assets     68       10       224       30  
Non-cash currency translation adjustments     (102 )     175       (166 )     39  
Stock-based compensation     118       175       784       512  
Non-recurring financing, acquisition, and severance costs     803       129       1,234       290  
Adjusted EBITDA   $ 1,543     $ 309     $ 719     $ 2,687