Spark Networks(R) Reports Fourth Quarter and Full Year 2007 Financial Results
Fourth Quarter Sequential Revenue Increases on Strong Margins Contradicting Historical Season Trends
BEVERLY HILLS, CA -- (MARKET WIRE) -- 02/19/08 -- Spark Networks, Inc. (AMEX: LOV), a leading provider of online personals services, today reported financial results for the fourth quarter and full year ended December 31, 2007.
Fourth Quarter and Full Year Highlights
-- 2% fourth quarter sequential revenue increase
-- 14% full year revenue increase when excluding General Market segment
-- 10% full year adjusted EBITDA increase excluding Scheme & SOX
-- 695,000 shares repurchased in Q4 reduced shares outstanding to 26.1
million
-- $30 million revolver secured
"In 2007 we accomplished most of the initial objectives I identified when I became CEO last February. We improved product innovation and marketing, and strengthened our core brands," stated Adam Berger, Chairman and Chief Executive Officer of Spark Networks, Inc. "In Q4, our pace of consumer facing initiatives increased, highlighted by the launch of JDate.fr for the French-language market, the addition of several ad networks, and product enhancements such as a photo gallery.
"Quarterly revenue increased sequentially despite the customary seasonal weakness. Contribution(1) margin was 70% in the quarter and 68% for the year. Jewish Networks showed continued strength, with quarterly and annual sequential revenue increases, and contribution margins of 93% for the quarter and 90% for the year.
"General Market Networks continued to mask growth from our other affinity-focused communities. Excluding General Market Networks' revenue decline, the Company saw 14% revenue growth and 13% contribution improvement over last year."
Berger continued, "We had several non-recurring events and non-cash charges in 2007 which make it difficult to see our true performance. These events include a tax benefit resulting from the release of valuation allowances against our cumulative net operating losses, our Scheme of Arrangement, an impairment charge for AmericanSingles®, the start-up costs associated with SOX compliance, and share-based compensation charges. Adjusted EBITDA for 2007 excluding Scheme and SOX expenses was $16.8 million versus $15.3 million in 2006 -- a 10% improvement.
"In 2008, we plan to continue growing JDate behind product innovation, examine pricing opportunities to grow Other Affinity Networks, increase the importance of ad sales, and use our balance sheet and strong cash flow to fund continued organic or acquisitive growth, and pursue other value creating initiatives."
Financial Results
Reported revenue for the fourth quarter of 2007 was $16.0 million, a decrease of 7% compared to $17.2 million in the fourth quarter of 2006 and a 2% increase over the prior quarter. Revenue for the full year was $65.2 million, a decrease of 5% compared to $68.9 million for the 12 months ended December 31, 2006.
Contribution for the fourth quarter of 2007 was $11.2 million, an increase of 2% compared to $11.0 million for the fourth quarter of 2006 and a 4% decrease over the prior quarter. Contribution for the full year was $44.1 million compared to $44.3 million for 2006.
Operating expenses for the fourth quarter of 2007 were $9.6 million compared to $8.3 million for the fourth quarter of 2006 and $9.7 million for the prior quarter. The $1.3 million increase over the fourth quarter of 2006 is primarily due to a $0.7 million increase in share-based compensation, $0.3 million of SOX related expenses and the combination of a $0.5 million bonus accrual reversal in the fourth quarter of 2006 and a $0.3 million bonus accrual in the fourth quarter of 2007, offset by lower customer service and technical operations expenses.
Operating expenses for the full year of 2007 were $40.5 million compared to $37.7 million in 2006. The $2.8 million increase can be primarily attributed to a $1.8 million increase in the impairment expense associated with the book carrying value of goodwill for AmericanSingles, $1.9 million of Scheme costs, $0.8 million of SOX related costs, $1.5 million of additional share-based compensation expense, offset by lower customer service, technical operations and product development costs.
Net income for the fourth quarter of 2007 was $6.6 million, or $0.25 per share, compared to $2.7 million, or $0.09 per share, for the fourth quarter of 2006, reflecting, among other differences, a $4.7 million income tax benefit primarily resulting from the release of valuation allowances associated with our accumulated net operating losses.
Net income for the full year was $9.0 million, or $0.31 per share, compared to $6.6 million, or $0.21 per share in 2006. Contributing to the increase in net income for the full year was a $4.4 million income tax benefit primarily resulting from the release of valuation allowances associated with our accumulated net operating losses, offset by a $1.9 million impairment expense related to the book carrying value of goodwill of AmericanSingles and $1.9 million in Scheme costs.
Additionally, we recognized a one-time cumulative non-cash share-based compensation expense of $0.6 million for the fourth quarter of 2007 and $0.3 million for the full year reflecting an adjustment to the fair value calculation of options under SFAS 123(R) since its adoption in July 2005.
Adjusted EBITDA(2) for the fourth quarter of 2007 was $4.0 million, a decrease of 24% compared to $5.2 million for the fourth quarter of 2006 and a 7% increase versus the prior quarter. Adjusted EBITDA for the full year was $14.0 million, a decrease of 8% compared to $15.3 million during the same period in 2006. Excluding Scheme and SOX costs, Adjusted EBITDA for the full year increased 10%, to $16.8 million, compared to $15.3 million for 2006. See the attached Consolidated Statement of Operations for a reconciliation of EBITDA and adjusted EBITDA to net income.
Average paying subscribers(3) for the Company, as a whole, in the fourth quarter of 2007 were 200,850, a decrease of 15% compared to 236,609 for the fourth quarter of 2006. Average paying subscribers for full year were 215,323, a decrease of 9% compared to 236,868 for 2006.
Segment Reporting(4)
The Company reported fourth quarter 2007 revenue for Jewish Networks of $8.6 million, an increase of 3% compared to $8.3 million for the fourth quarter of 2006 and an increase of 2% compared to $8.5 million in the prior quarter. Revenue from Jewish Networks for the full year was $33.6 million, an increase of 4% compared to $32.2 million for 2006.
The Company reported fourth quarter 2007 revenue for General Market Networks of $3.0 million, a decrease of 46% compared to $5.5 million for the fourth quarter of 2006 and a decrease of 13% compared to $3.4 million in the prior quarter. General Market Networks revenue for the full year was $15.7 million, a decrease of 38% compared to $25.4 million for 2006. The planned decrease in revenue for General Market Networks is largely attributable to a 38% decrease in the marketing spend for this segment in 2007 compared to 2006.
The Company reported fourth quarter 2007 revenue for Other Affinity Networks of $3.5 million, an increase of 20% compared to $2.9 million for the fourth quarter of 2006 and compared to $3.4 million in the prior quarter. Other Affinity Networks revenue for the full year was $13.3 million, an increase of 37% compared to $9.7 million for 2006.
The Company reported fourth quarter 2007 revenue for Offline & Other Businesses of $1.0 million, an increase of 77% compared to $544,000 for the fourth quarter of 2006 and an increase of 94% compared to $497,000 in the prior quarter. Offline & Other Businesses revenue for the full year was $2.6 million, an increase of 75% compared to $1.5 million for 2006.
Average paying subscribers for Jewish Networks were 94,595 during the fourth quarter of 2007, a decrease of 2% compared to 96,886 for the fourth quarter of 2006. Average paying subscribers for the full year were 94,903, compared to 95,168 for 2006.
Average paying subscribers for General Market Networks were 41,763 during the fourth quarter of 2007, a decrease of 48% compared to 80,930 for the fourth quarter of 2006. Average paying subscribers for the full year were 56,551, a decrease of 39% compared to 92,043 for 2006.
Average paying subscribers for Other Affinity Networks were 61,978 during the fourth quarter of 2007, an increase of 5% compared to 58,793 from the fourth quarter of 2006. Average paying subscribers for the full year were 62,087, an increase of 26% compared to 49,415 for 2006.
Balance Sheet, Cash, Debt
As of December 31, 2007, the Company had a cash and marketable securities balance of $9.0 million compared to $20.6 million at December 31, 2006. During the quarter, the Company purchased 695,000 shares at an average price of $4.00 per share or $2.8 million, and for the full year the Company purchased 5.4 million shares at an average price of $4.34 per share or $23.4 million. Cash flow from operations for the fourth quarter of 2007 was $4.2 million, a decrease of 13% compared to $4.8 million during the fourth quarter of 2006. For the year ended December 31, 2007, cash flow was $14.8 million, an increase of 13%, compared to cash flow from operations of $13.1 million for 2006. As of December 31, 2007, the Company had approximately $40 million of net operating losses available to offset future income taxes.
On February 14, 2008, the Company executed a credit agreement with Bank of America, N.A. for a $30.0 million non-amortizing revolving credit facility. The initial term of the facility is three years, and the credit agreement provides the Company with the opportunity to extend beyond the initial term, subject to the lender's consent. The per annum interest rate for this facility is based upon a financial leverage ratio of less than 1.00, 1.00 to 1.49 and 1.50 and greater. The corresponding interest rates on LIBOR based borrowings are LIBOR plus 1.50%, 1.75% and 2.00%, respectively. In the event the Company elects to borrow under a base rate loan, the corresponding interest rates are the prime rate plus, 0.50%, 0.75% and 1.00%, respectively. The Company pays a 0.125% per annum commitment fee on all funds not utilized under this facility, measured on a daily basis. There is no prepayment penalty or premium associated with the early termination of this facility. The credit agreement includes customary affirmative and negative covenants.
Investor Conference Call
The Company will discuss its financial results during a live teleconference today at 1:30 p.m. Pacific time.
Call Title: Spark Networks Q4 '07 Financial Results Toll-Free (United States): +1 800-355-4959 International: +1 416-695-9719 Confirmation #: 3248604 One-Week Replay Toll-Free (United States): +1 800-408-3053 International: +1 416-695-5800 Confirmation #: 3252950
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 under "Conference Calls and Presentations" at: http://www.spark.net/investor.htm.
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 and our dependence 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 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 special 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 websites includes, among others, JDate.com (www.jdate.com), AmericanSingles.com (www.americansingles.com), BlackSingles.com® (www.blacksingles.com), and ChristianMingle®.com (www.christianmingle.com).
(1) "Contribution" is defined as net revenue less direct marketing and "Contribution Margin" is defined as contribution divided by revenue.
(2) "Adjusted EBITDA" is defined as earnings before interest, taxes, depreciation, amortization, share-based compensation and impairment of long-lived assets. Adjusted EBITDA should not be construed as a substitute for net income (loss) or net cash provided by (used in) operating activities (all as determined in accordance with GAAP) for the purpose of analyzing our operating performance, financial position and cash flows, as adjusted EBITDA is not defined by GAAP. However, the Company regards adjusted EBITDA as a complement to net income and other GAAP financial performance measures, including an indirect measure of operating cash flow. As such, management believes that the investment community finds it to be a useful tool to perform meaningful comparisons of past, present and future operating results and as a means to evaluate the results of core on-going operations.
(3) Average 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. 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) In accordance with Financial Accounting Standard No. 131, 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 and Cupid.co.il websites and their respective co-branded websites. The General Market Networks segment consists of the Company's AmericanSingles.com website, its co-branded and private label websites, and Date.co.uk and Date.ca. The Other Affinity Networks segment consists of all of the Company's Provo, Utah-based properties which primarily consist of sites targeted towards various religious, ethnic, geographic and special interest groups including BlackSingles.com and ChristianMingle.com. The Company has previously referred to this segment as Affinity Networks. The Offline & Other Businesses segment consists of revenue generated from offline activities, HurryDate events and subscriptions and other websites and businesses.
(Consolidated financial statements to follow)
SPARK NETWORKS, INC.
BALANCE SHEET
(in thousands, except share data)
December December
31, 31,
-------- --------
2007 2006
-------- --------
Assets
Current assets:
Cash and cash equivalent $ 8,796 $ 20,412
Marketable securities 200 196
Restricted cash 1,706 2,070
Accounts receivable 1,433 1,200
Deferred tax asset - current 2,094 219
Prepaid expenses and other 1,289 1,509
-------- --------
Total current assets 15,518 25,606
Property and equipment, net 1,383 2,306
Goodwill, net 18,358 19,236
Intangible assets, net 5,177 4,406
Deferred tax asset - long-term 3,106 --
Deposits and other assets 66 72
-------- --------
Total assets $ 43,608 $ 51,626
======== ========
Liabilities and Shareholders Equity
Current liabilities:
Accounts payable $ 1,585 $ 1,487
Accrued liabilities 5,529 4,985
Deferred revenue 4,140 4,051
Notes payable - current portion 21 1,314
Current portion of obligations under capital leases -- 43
-------- --------
Total current liabilities 11,275 11,880
Deferred tax liabilities 595 1,782
Obligations under capital leases -- 59
Other non-current liabilities 830 --
-------- --------
Total liabilities 12,700 13,721
Shares subject to rescission 7,480 8,079
Commitments and contingencies -- --
Shareholders equity:
Authorized capital stock consists of 100,000,000
Common Shares, $0.001 par value; issued and
outstanding 26,132,789 at December 31, 2007 and
80,000,000 ordinary shares of 1p each; issued and
outstanding 30,941,465 shares as of December 31,
2006, at stated values of: 26 517
Additional paid-in-capital 52,262 67,571
Accumulated other comprehensive income
672 248
Accumulated deficit (29,532) (38,510)
-------- --------
Total shareholders equity 23,428 29,826
-------- --------
Total liabilities and shareholders equity $ 43,608 $ 51,626
======== ========
SPARK NETWORKS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share data)
Three Months
Ended Year Ended
December 31, December 31,
------------------ ----------------------------
2007 2006 2007 2006 2005
-------- -------- -------- -------- --------
Net revenues $ 16,014 $ 17,237 $ 65,218 $ 68,853 $ 65,511
Direct marketing expenses 4,818 6,224 21,095 24,574 24,411
-------- -------- -------- -------- --------
Contribution 11,196 11,013 44,123 44,279 41,100
Operating expenses(1):
Sales and marketing
(including share-based
compensation of $292,
$167, $884, $620 and
$329) 1,014 632 3,626 2,890 2,661
Customer service
(including share-based
compensation of $38,
$23, $117, $77 and $43) 663 897 3,103 3,560 2,827
Technical operations
(including share-based
compensation of $153,
$92, $633, $434 and
$241) 1,012 1,211 4,416 6,239 6,156
Development (including
share-based
compensation of $100,
$105, $534, $437 and
$239) 1,031 1,101 4,249 4,766 5,194
General and
administrative
(including share-based
compensation of $981,
$524, $3,153, $2,299
and $1,865) 5,529 4,048 21,848 18,923 23,935
Amortization of
intangible assets other
than goodwill 328 300 1,356 1,184 1,085
Impairment of goodwill -- 114 1,894 114 105
-------- -------- -------- -------- --------
Total operating expenses 9,577 8,303 40,492 37,676 41,963
-------- -------- -------- -------- --------
Operating income (loss) 1,619 2,710 3,631 6,603 (863)
Interest (income) and
other expenses, net (277) (522) (913) (696) 711
-------- -------- -------- -------- --------
Income (loss) before
income taxes 1,896 3,232 4,544 7,299 (1,574)
(Benefit) provision for
income taxes (4,701) 531 (4,434) 736 (136)
-------- -------- -------- -------- --------
Net income (loss) $ 6,597 $ 2,701 $ 8,978 $ 6,563 $ (1,438)
======== ======== ======== ======== ========
Net income (loss) per
share - basic $ 0.25 $ 0.09 $ 0.31 $ 0.21 $ (0.06)
-------- -------- -------- -------- --------
Net income (loss) per
share - diluted $ 0.25 $ 0.09 $ 0.31 $ 0.21 $ (0.06)
-------- -------- -------- -------- --------
Weighted average shares
outstanding - basic 26,578 30,945 29,218 30,580 26,105
Weighted average shares
outstanding - diluted 26,601 31,320 29,250 31,248 26,105
Three Months Ended Year Ended
Reconciliation of Net ------------------ ----------------------------
Income to Adjusted December 31, December 31,
EBITDA 2007 2006 2007 2006 2005
Net income (loss) $ 6,597 $ 2,701 $ 8,978 $ 6,563 $ (1,438)
Interest (100) (57) (751) (166) 193
Taxes (4,701) 531 (4,434) 736 (136)
Depreciation 296 716 1,684 2,968 3,624
Amortization 329 300 1,356 1,184 1,085
-------- -------- -------- -------- --------
EBITDA 2,421 4,191 6,833 11,285 3,328
Share-based compensation 1,564 911 5,321 3,867 2,717
Impairment -- 114 1,894 114 105
-------- -------- -------- -------- --------
Adjusted EBITDA $ 3,985 $ 5,216 $ 14,048 $ 15,266 $ 6,150
1. Prior period amounts have been reclassified to conform to current
period presentation.
SPARK NETWORKS, INC.
SEGMENT RESULTS FROM OPERATIONS(1)
(in thousands except subscriber information)
Three Months
Ended Year Ended
December 31, December 31,
----------------- --------------------------
2007 2006 2007 2006 2005
-------- -------- -------- -------- --------
Net Revenues
Jewish Networks $ 8,588 $ 8,303 $ 33,624 $ 32,213 $ 29,500
General Market Networks 2,976 5,488 15,707 25,446 31,710
Other Affinity Networks 3,485 2,902 13,314 9,724 2,766
Offline & Other Businesses 965 544 2,573 1,470 1,535
-------- -------- -------- -------- --------
Total Net Revenues $ 16,014 $ 17,237 $ 65,218 $ 68,853 $ 65,511
======== ======== ======== ======== ========
Direct Marketing Expenses
Jewish Networks $ 574 $ 1,191 $ 3,281 $ 4,544 $ 3,929
General Market Networks 1,561 3,178 8,462 13,711 17,759
Other Affinity Networks 2,086 1,325 7,828 4,952 1,367
Offline & Other Businesses 597 530 1,524 1,367 1,356
-------- -------- -------- -------- --------
Total Direct Marketing
Expenses $ 4,818 $ 6,224 $ 21,095 $ 24,574 $ 24,411
======== ======== ======== ======== ========
Contribution
Jewish Networks $ 8,014 $ 7,112 $ 30,343 $ 27,669 $ 25,571
General Market Networks 1,415 2,310 7,245 11,735 13,951
Other Affinity Networks 1,399 1,577 5,486 4,772 1,399
Offline & Other Businesses 368 14 1,049 103 179
-------- -------- -------- -------- --------
Total Contribution $ 11,196 $ 11,013 $ 44,123 $ 44,279 $ 41,100
======== ======== ======== ======== ========
Average Paying Subscribers
Jewish Networks 94,595 96,886 94,903 95,168 85,723
General Market Networks 41,763 80,930 56,551 92,043 111,045
Other Affinity Networks 61,978 58,793 62,087 49,415 16,467
Offline & Other Businesses 2,514 -- 1,782 242 1,558
-------- -------- -------- -------- --------
Total Average Paying
Subscribers 200,850 236,609 215,323 236,868 214,793
======== ======== ======== ======== ========
1. Prior period amounts have been reclassified to conform to current
period presentation.
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