Spark Networks(R) Reports Fourth Quarter and Full Year 2016 Results

LOS ANGELES, CA / ACCESSWIRE / 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

Q4 2016

Q3 2016

Q4 2015

Revenue

$7.7 Million

$8.4 Million

$10.7 Million

Contribution1

$7.1 Million

$7.2 Million

$6.8 Million

Net Loss

$(3.7) Million

$(94) Thousand

$(1.2) Million

Adjusted EBITDA2

$1.8 Million

$1.5 Million

$116 Thousand

Cash Balance

$11.4 Million

$11.3 Million

$6.6 Million

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

2016

2015

Revenue

$35.1 Million

$48.1 Million

Contribution1

$26.7 Million

$28.4 Million

Net Loss

$(6.9) Million

$(1.4) Million

Adjusted EBITDA2

$2.5 Million

$2.8 Million

Cash Balance

$11.4 Million

$6.6 Million

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)

Q4 2016

Q3 2016

Q2 2016

Q1 2016

Q4 2015

Q4 ’16 v. Q4 ’15

Q4 ’16 v. Q3 ’16

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

-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

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

-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

Q4 2016

Q3 2016

Q2 2016

Q1 2016

Q4 2015

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%

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%

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%

Composition of Average Paying Subscriber Base7

Q4 2016

Q3 2016

Q2 2016

Q1 2016

Q4 2015

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%

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%

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%

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)

December 31,

2016

2015

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:

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,

Years Ended

December 31,

2016

2015

2016

2015

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

293

108

Impairment of intangible and long-lived assets

4,480

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

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

Customer service

–

Technical operations

)

–

Development

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

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

4,629

197

Amortization of intangible assets

293

108

Non-cash currency translation adjustments

100

(24

)

(66

)

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

SOURCE: Spark Networks, Inc.

ReleaseID: 457860

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