Spark Networks(R) Reports Second Quarter Financial Results

LOS ANGELES, CA -- (Marketwired) -- 08/11/14 -- 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 )

For More Information
Investors:
Addo Communications
Laura Bainbridge; Kimberly Esterkin
Email Contact; Email Contact
310-829-5400

Source: Spark Networks Inc.