SPARK NETWORKS® REPORTS FOURTH QUARTER AND FULL YEAR 2016 RESULTS
LOS ANGELES, Calif., March 21, 2017 -- Spark Networks, Inc. (NYSE MKT: LOV) reported fourth quarter and full year 2016 financial results today.
“We made clear progress in the fourth quarter to improve profitability and implement a unified technology platform across our networks as we work to reposition the business for the future,” said Danny Rosenthal, Chief Executive Officer of Spark Networks. “The significant improvement in adjusted EBITDA in Q4 reflects our actions to reduce costs as we focus on driving operational efficiency and profitable growth in the future.
“We expect 2017 will be a transformational year for Spark. Our priorities are clear: operating profitably, relaunching our technology platform and driving future growth through effective marketing investments. Importantly, we are on track to deliver our new technology platform and re-launch JDate in Q2 and Christian Mingle in Q3. We have more work to do, but with our new platform in place and our focus on operating efficiently, we will be well-positioned to invest behind data-driven marketing programs that enable us to connect customers and drive future growth and value creation.”
Key Quarterly Metrics
| | | | |
| Revenue | | | |
Contribution1 | | | |
| Net Loss | | | |
Adjusted EBITDA2 | | | |
| Cash Balance | | | |
Period Ending Subs3 | 142,372 | 158,233 | 200,023 |
Avg. Paying Subs3 | 150,675 | 173,564 | 199,781 |
| ARPU | $16.89 | $15.81 | $17.26 |
Fourth Quarter 2016 Financial Results
Revenue: For the fourth quarter of 2016, total revenue was $7.7 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, reflecting reduced direct marketing investment in the Jewish and Christian Networks. These decreases were partially offset by a 7% sequential increase in ARPU from the prior quarter.
Contribution: Contribution was $7.1 million in the quarter, an increase of 4% compared to the year ago period, and a 1% decrease from the prior quarter. Our contribution margin increased to 91% from 85% in the prior quarter and 64% in the year ago period. Total direct marketing expenses decreased 83% to $673,000 in the fourth quarter of 2016 as compared to $3.9 million in the prior year period.
Net Loss: Net Loss was $(3.7) million in the quarter, a $(2.5) million decline versus the year ago period and a $(3.6) million decrease from the prior quarter. In the fourth quarter, the Company recognized $4.5 million of non-cash intangible and long-lived asset impairment expense. $4.2 million of the impairment expense was related to goodwill and intangible assets within our Jewish Networks reporting unit.
Adjusted EBITDA: For the fourth quarter of 2016, Adjusted EBITDA was $1.8 million, an increase of $1.7 million versus the year ago period and a $252,000 increase from the prior quarter. Current period Adjusted EBITDA does not include $4.5 million of non-cash intangible and long-lived asset impairment expense.
Cash: Cash provided by operating activities in the fourth quarter was $568,000. At December 31, 2016, the Company had $11.4 million in cash and cash equivalents, compared to $11.3 million at the end of the prior quarter. At quarter end, the Company had no outstanding debt.
Key Annual Metrics
| | | |
| Revenue | | |
Contribution1 | | |
| Net Loss | | |
Adjusted EBITDA2 | | |
| Cash Balance | | |
Period Ending Subs3 | 142,372 | 200,023 |
Avg. Paying Subs3 | 178,407 | 203,557 |
| ARPU | $16.13 | $18.92 |
Full Year 2016 Financial Results
Revenue: For the full year 2016, total revenue was $35.1 million, a decrease of 27.1% compared to the year ago period. The year over year decrease was primarily driven by 10.3% and 13.4% decreases in average paying subscribers for the Jewish and Christian Networks segments, respectively, coupled with decreases in ARPU of 17.2% and 14.0%, within these segments, respectively.
Contribution: For the full year 2016, contribution was $26.7 million, a decrease of 6% compared to the year ago period. Our contribution margin increased to 76% from 59% in the year ago period. The margin expansion was primarily driven by our Christian Networks, which increased contribution margin to 67% from 39% in the year ago period.
Net Loss: For the full year 2016, Net Loss was $(6.9) million, a $(5.5) million decline versus the year ago period. In 2016, the Company recognized $4.6 million of non-cash intangible and long-lived asset impairment expense. $4.2 million of the impairment expense was related to goodwill and intangible assets within our Jewish Networks reporting unit.
Adjusted EBITDA: For the full year 2016, Adjusted EBITDA was $2.5 million, a decrease from $2.8 million in the year ago period. Current period Adjusted EBITDA does not include $1.2 million of severance payments and $4.6 million of non-cash intangible and long-lived asset impairment expense.
Cash: Cash used in operating activities in 2016 was $1.4 million. At December 31, 2016, the Company had $11.4 million in cash and cash equivalents, compared to $6.6 million at the end of 2015. At year end, the Company had no outstanding debt.
SPARK NETWORKS, INC.
SEGMENT4 RESULTS FROM OPERATIONS
(in thousands except subscriber and ARPU information)
| | | | | | | | |
| | | | | | | | |
| Revenue | | | | | | | |
| Jewish Networks | $3,136 | $3,322 | $3,628 | $3,995 | $4,299 | -27.1% | -5.6% |
| Christian Networks | 4,262 | 4,673 | 5,044 | 5,405 | 5,940 | -28.2% | -8.8% |
| Other Networks | 335 | 385 | 413 | 438 | 446 | -24.8% | -13.0% |
| Offline & Other Businesses | 10 | 11 | 13 | 21 | 20 | -49.9% | -9.1% |
| Total Revenue | $7,743 | $8,391 | $9,098 | $9,859 | $10,705 | -27.7% | -7.7% |
| | | | | | | | |
| Direct Mktg. Exp. | | | | | | | |
| Jewish Networks | $316 | $420 | $372 | $497 | $648 | -51.2% | -24.7% |
| Christian Networks | 316 | 750 | 1,001 | 4,420 | 3,111 | -89.8% | -57.9% |
| Other Networks | 41 | 60 | 105 | 120 | 129 | -68.4% | -31.7% |
| Total Direct Mktg. Exp. | $673 | $1,230 | $1,478 | $5,038 | $3,888 | -82.7% | -45.3% |
| | | | | | | | |
| Contribution | | | | | | | |
| Jewish Networks | $2,820 | $2,902 | $3,256 | $3,497 | $3,652 | -22.8% | -2.8% |
| Christian Networks | 3,946 | 3,923 | 4,043 | 985 | 2,829 | 39.5% | 0.6% |
| Other Networks | 294 | 325 | 308 | 318 | 316 | -7.0% | -9.4% |
| Offline & Other Businesses | 10 | 11 | 13 | 20 | 20 | -49.9% | -8.0% |
| Total Contribution | $7,070 | $7,161 | $7,620 | $4,821 | $6,817 | 3.7% | -1.3% |
| | | | | | | | |
| Period Ending Subs | | | | | | | |
| Jewish Networks | 51,519 | 52,952 | 59,868 | 63,982 | 65,004 | -20.7% | -2.7% |
| Christian Networks | 82,163 | 95,047 | 112,895 | 122,935 | 123,800 | -33.6% | -13.6% |
| Other Networks | 8,690 | 10,234 | 10,915 | 11,321 | 11,219 | -22.5% | -15.1% |
| Total Period Ending Subs. | 142,372 | 158,233 | 183,678 | 198,238 | 200,023 | -28.8% | -10.0% |
| | | | | | | | |
| Average Paying Subs. | | | | | | | |
| Jewish Networks | 52,493 | 57,684 | 61,732 | 63,930 | 64,627 | -18.8% | -9.0% |
| Christian Networks | 88,774 | 105,108 | 117,024 | 124,180 | 123,888 | -28.3% | -15.5% |
| Other Networks | 9,408 | 10,772 | 11,182 | 11,341 | 11,266 | -16.5% | -12.7% |
| Total Avg. Paying Subs. | 150,675 | 173,564 | 189,938 | 199,451 | 199,781 | -24.6% | -13.2% |
| | | | | | | | |
| ARPU | | | | | | | |
| Jewish Networks | $18.58 | $18.79 | $19.33 | $20.46 | $21.82 | -14.8% | -1.1% |
| Christian Networks | 15.75 | 14.60 | 14.09 | 14.17 | 15.25 | 3.3% | 7.9% |
| Other Networks | 11.55 | 11.69 | 12.15 | 12.52 | 12.72 | -9.2% | -1.2% |
Total ARPU5 | $16.89 | $15.81 | $15.70 | $16.12 | $17.26 | -2.2% | 6.8% |
Distribution of New Subscription Purchases6
| | | | | | |
| | | | | | |
| Jewish Networks | | | | | |
| 1 month plans | 45.7% | 32.6% | 28.2% | 26.4% | 32.8% |
| 3 month plans | 20.4% | 18.4% | 19.2% | 17.0% | 19.8% |
| 6 month plans | 33.9% | 49.0% | 52.6% | 56.6% | 47.3% |
| | 100.0% | 100.0% | 100.0% | 100.0% | 100.0% |
| | | | | | |
| Christian Networks | | | | | |
| 1 month plans | 52.7% | 36.5% | 39.2% | 32.9% | 38.5% |
| 3 month plans | 27.0% | 22.4% | 25.7% | 20.5% | 21.6% |
| 6 month plans | 20.3% | 41.1% | 35.1% | 46.7% | 39.9% |
| | 100.0% | 100.0% | 100.0% | 100.0% | 100.0% |
| | | | | | |
| Other Networks | | | | | |
| 1 month plans | 60.1% | 51.1% | 52.2% | 55.8% | 59.9% |
| 3 month plans | 10.5% | 9.5% | 10.8% | 11.6% | 10.6% |
| 6 month plans | 29.4% | 39.4% | 37.1% | 32.6% | 29.6% |
| | 100.0% | 100.0% | 100.0% | 100.0% | 100.0% |
Composition of Average Paying Subscriber Base7
| | | | | | |
| | | | | | |
| Jewish Networks | | | | | |
| First Time Subscribers | 22.0% | 23.7% | 24.6% | 24.7% | 23.1% |
| Winback Subscribers | 33.0% | 34.6% | 34.0% | 32.5% | 32.0% |
| Renewal Subscribers | 44.9% | 41.7% | 41.4% | 42.8% | 44.9% |
| Total | 100.0% | 100.0% | 100.0% | 100.0% | 100.0% |
| | | | | | |
| Christian Networks | | | | | |
| First Time Subscribers | 37.2% | 39.9% | 42.0% | 43.1% | 41.3% |
| Winback Subscribers | 25.1% | 26.4% | 26.0% | 24.6% | 23.7% |
| Renewal Subscribers | 37.7% | 33.7% | 32.0% | 32.3% | 35.0% |
| Total | 100.0% | 100.0% | 100.0% | 100.0% | 100.0% |
| | | | | | |
| Other Networks | | | | | |
| First Time Subscribers | 29.8% | 32.7% | 33.0% | 31.9% | 30.0% |
| Winback Subscribers | 22.2% | 22.9% | 22.4% | 21.7% | 21.0% |
| Renewal Subscribers | 48.0% | 44.4% | 44.6% | 46.4% | 49.1% |
| 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 http://investor.spark.net.
A replay will begin approximately three hours after completion of the call and run until April 4, 2017.
Replay
Toll-Free (United States): 1-844-512-2921
International: 1-412-317-6671
Passcode: 13653078
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 and the expected benefits to the Company of its new strategy, statements regarding the expected launch of new versions of JDate and Christian Mingle in 2017 on a new technology platform, and statements regarding the Company’s efforts to engage customers through data-driven marketing investments that support 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).
For More Information
Investors:
Robert O’Hare
rohare@spark.net
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 twelve months ended December 31, 2016 and December 31, 2015 can be found in the table below.
“Adjusted EBITDA” is defined as earnings before interest, taxes, depreciation, amortization, stock-based compensation, impairment of intangible and 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)
| | | |
| | | |
| Assets | | |
| Current assets: | | |
| Cash and cash equivalents | $11,360 | $6,565 |
| Restricted cash | 454 | 747 |
| Accounts receivable (net of allowance for doubtful accounts of $0 and $99 at December 31, 2016 and 2015, respectively) | 525 | 790 |
| Prepaid expenses and other | 1,408 | 1,341 |
| Total current assets | 13,747 | 9,443 |
| Property and equipment, net | 4,494 | 5,584 |
| Goodwill | 10,523 | 14,450 |
| Intangible assets, net | 2,950 | 3,451 |
| Deposits and other assets | 103 | 148 |
| Total assets | $31,817 | $33,076 |
| Liabilities and Stockholders' Equity | | |
| Current liabilities: | | |
| Accounts payable | 819 | 1,749 |
| Accrued liabilities | 2,590 | 3,854 |
| Deferred revenue | 4,005 | 5,834 |
| Total current liabilities | 7,414 | 11,437 |
| Deferred tax liability - non-current | 2,092 | 2,136 |
| Other liabilities | 246 | 537 |
| Total liabilities | 9,752 | 14,110 |
| Commitments and Contingencies (Note 11) | | |
| Stockholders' equity: | | |
| 10,000,000 shares of Preferred Stock, $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, $0.001 par value, with 31,983,545 and 25,845,879 shares of Common Stock issued and outstanding at December 31, 2016 and 2015, respectively: | 32 | 27 |
| Additional paid-in-capital | 87,198 | 77,188 |
| Accumulated other comprehensive income | 713 | 739 |
| Accumulated deficit | (65,878) | (58,988) |
| Total stockholders' equity | 22,065 | 18,966 |
| Total liabilities and stockholders' equity | $31,817 | $33,076 |
SPARK NETWORKS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share data)
| | For the Three Months Ended December 31, | |
| | | | | |
| Revenue | $7,743 | $10,705 | $35,091 | $48,135 |
| Cost and expenses: | | | | |
| Cost of revenue (exclusive of depreciation shown separately below) | 1,647 | 5,017 | 12,852 | 24,075 |
| Sales and marketing | 854 | 1,242 | 4,789 | 4,137 |
| Customer service | 545 | 826 | 2,901 | 3,065 |
| Technical operations | 350 | 388 | 1,371 | 1,024 |
| Development | 748 | 1,059 | 3,920 | 4,037 |
| General and administrative | 2,038 | 2,675 | 8,991 | 10,379 |
| Depreciation | 1,038 | 604 | 3,234 | 2,211 |
| Amortization of intangible assets | 69 | 78 | 293 | 108 |
| Impairment of intangible and long-lived assets | 4,480 | 65 | 4,629 | 197 |
| Total cost and expenses | 11,769 | 11,954 | 42,980 | 49,233 |
| Operating loss | (4,026) | (1,249) | (7,889) | (1,098) |
| Interest expense and other, net | 138 | 16 | 29 | 96 |
| Loss before benefit for income taxes | (4,164) | (1,265) | (7,918) | (1,194) |
| Income tax benefit | (447) | (23) | (1,028) | 243 |
| Net loss | (3,717) | (1,242) | (6,890) | (1,437) |
| Basic and diluted loss per share | $(0.12) | $(0.05) | $(0.24) | $(0.06) |
| Shares used in computation of basic and diluted net loss per share | 31,895 | 25,675 | 28,232 | 25,170 |
| | | | | |
| Stock-based compensation: | | | | |
| | | | | |
| Sales and marketing | 6 | 28 | 33 | 47 |
| Customer service | 4 | - | 12 | - |
| Technical operations | (1) | - | 11 | - |
| Development | 10 | 4 | 28 | 12 |
| General and administrative | 179 | 238 | 898 | 723 |
| Total stock-based compensation | $198 | $270 | $982 | $782 |
| | | | | |
| Reconciliation of Net Loss to Adjusted EBITDA: | | | | |
| | | | | |
| Net Loss | $(3,717) | $(1,242) | $(6,890) | $(1,437) |
| Interest expense | 31 | 33 | 83 | 68 |
| Income tax (benefit) provision | (447) | (23) | (1,028) | 243 |
| Depreciation | 1,038 | 605 | 3,234 | 2,211 |
| Impairment of intangible and long-lived assets | 4,480 | 65 | 4,629 | 197 |
| Amortization of intangible assets | 69 | 78 | 293 | 108 |
| Non-cash currency translation adjustments | 100 | (24) | (66) | 15 |
| Stock-based compensation | 198 | 270 | 982 | 782 |
| Non-recurring financing, acquisition, and severance costs | - | 354 | 1,234 | 644 |
| Adjusted EBITDA | $1,752 | $116 | $2,471 | $2,831 |
