Q1 2021 Spark Networks SE Earnings Call
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Good morning, ladies and gentlemen, and thank you for waiting and welcome to Spark networks conference call to provide the company's results for the first quarter 2021 financial results disc.
This conference call is being recorded we are broadcasting alive and listen only mode. I would now like to turn the conference over to Chris Kamara, VP, Vice President of Investor Relations. Mr. Martin You May begin your conference.
Thank you operator, and thank you everyone for joining us on this call.
On the call with me as Chief Executive Officer, Eric Eichmann.
Earlier today, we published our first quarter 2021 financial results, which can be found on our Investor Relations section of our company's website at www Dot spark dot net.
I'd like to remind everyone listening today and he comments made on this call may contain forward looking information or projections regarding future results or guidance.
We caution you that such statements are in fact predictions and are subject to risks and uncertainties that could.
Cause actual events or results to differ materially from our statements or projections.
Additional risks uncertainties and factors that cause actual events or results to differ materially from these forward looking statements may be found on the company's filings with the SEC.
Following our prepared remarks management will conduct a brief question and answer session.
This call is being recorded and will be available for playback on the Investor Relations section of our website.
That being said I would now like to turn the call over to Mr. Eric Eichmann CEO of Spark networks. Eric. Please go ahead.
Thank you, Chris and thank you all for joining us on the call today.
And I'm excited to talk to you today as it is our first quarterly earnings report as a domestic filer. We are now reporting on a quarterly basis, providing investors with increased transparency on our business performance and allowing us to more actively built a diversified shareholder base we have.
Updated our investor presentation, highlighting spark large opportunities for future growth, we will be unveiling. These presentation. Later this week at our first of several institutional investor conferences.
<unk> presentation will also be available on our website.
As COVID-19 restrictions continue to relax more singles are starting to date offline.
Social distancing and Lockdowns have accelerated the adoption of new online and social interactions and many of these will continue to be part of everyday life.
One area that shows a great deal of staying power you social discovery.
For those of you that don't know social discovery is where people leverage online activities, social media and other communication platforms to forge new relationships with people and expand their social networks and the context of dating activities, such as gaming or video streaming allow users connecting and and.
Formal way without the added stress of a real day.
The social discovery market has tremendous potential with some analysts are projecting that the market could eventually reach twice the size of the entire online dating market.
Our stated goal is to be the leader and social dating for a meaningful relationship.
Mentoring our user experiences with social discovery features is a primary objective for 2020 one.
Earlier this year, we announced that we would deliver and live streaming video to our largest brand Zeus via an agreement the partnership meet groups.
We are on track to launch these functionality in early Q3 live streaming should help juice expanding its user base and <unk>.
Prove engagement and increase revenue.
We're also working on adding social discovery features to our other key brands silver singles elite symbols and Christian mingle.
Another area of focus is enhancing or core brands trucks.
We are expanding safety features we.
Revitalizing our brands with compelling new designs and implementing a stronger CRM strategy and improving matchmaking algorithms. We believe that these updates will enrich the user experience and ultimately increase engagement and customer satisfaction.
We now have half of our users experiencing these new designs on juice and elite singles and user feedback is positive we expect to fully rolled these out to our audiences in Q2.
Lastly, we are focused on delivering organic growth or target market is meaningful relationships, mostly focused on debt 40, plus demographic and faith based interest. These segments are growing at 7% faster than the overall market we.
Spec Zeus, our largest brand with approximately 50% of revenue to start growing organically by the end of the year.
And the shingles, silversea and goals and Christian mingle or next three largest brands should continue to grow organically this year.
Now turning to our financials revenue for the first quarter of 2021 was $56 4 million a decrease of $1 3 million compared to 57 7 million in the first quarter of 2020.
The decrease in revenue was attributable to the 3% decrease and the number of average paying subscribers, specifically driven by disk or.
Our three largest legacy brands Silverstein goals elite singles and Christian Mingle collectively grew by low double digits in the North American market.
Adjusted EBITDA was four point and 8 million and the first quarter of 2021, a decrease of $2 7 million compared to the $7 5 million in the first quarter of 2000 and twice.
The year over year decrease is mainly due to the revenue decrease stated about a decline in non priority markets such as eastern Europe and.
And head count increases and G&A product and take care of it.
Marketing contribution for the first quarter 2021 was $26 million compared to $27.8 million. During the same three month period in 2020.
The six 6% decrease is the direct result of our revenue decline and impact from non priority geography.
Turning to our key performance indicators.
Average paying subscribers decreased by 27837 or 3% to 896344 in the first quarter of 2021 compared to 924000 and 181 in the same period of 2020.
Spark monthly average revenue per user or monthly <unk> increased slightly to reach 28 point $97 in the first quarter of 2020, one compared to 20.8 dollars in the same period of 2020.
Net cash used in operating activities was 0.4 million during the first quarter of 2021 compared to $4 3 million during the same period, 2020, a decrease of $3 9 million each.
This change is attributable to an increase in accounts payable and and increased E ease for revenue.
Net loss was $6 $5 million and the first quarter of 2021 and increase of $2 7 million compared to net loss of three 8 million debt first quarter of 2020. The increase and net loss was primarily driven by a decrease in contribution and increases and G&A tech and product.
Personnel expense it.
Shifting to the balance sheet. The company ended the quarter with $17 $3 million and cash and $96 1 million in debt as of March 31st 2021, we are reporting equity of 91.8 million compared to about $94 $9 million as of December.
Remember 31st 2020 as of March 31st 2021, the company's long term debt position.
And at 101 million point H.
These figures are in line with our expectation and we are reiterating our previously stated 2021 guidance of $238 million to $244 million and revenues and adjusted EBITDA of $33 million to $36 million as for the second quarter 'twenty.
'twenty, one we anticipate revenue and that $54 million to $56 million range and adjusted EBITDA of six to 7 million.
Finally <unk>.
Just one quick note to mention that while we are not making any announcements today, we are making good progress in our CFO search.
I am pleased with the business current trajectory, we are making good progress towards becoming the leaders and social day for meaningful relationships.
We are adding social features to a user experience and making significant product improvements to our platform.
We have a large opportunity and the fast growing 40, plus and faith based relationships segment, which combined with our strong brands and product improvements should allow us to grow for years to come.
This concludes our prepared remarks now let me turn the call over to the operator to take your questions operator.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad and.
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One moment, please while we poll for questions.
My first question comes from Austin, <unk> with Canaccord Genuity. Please proceed with your question.
Hi, Thanks for taking my questions.
And the first one is on new social features can you give a little bit more detail on the features that you expect to be implemented.
And the remaining part of the year on the on the non news.
Core brands.
Okay, well. Thank you often I appreciate the question.
And so as you know on Zeus.
We are launching and we expect in Q3 everything is going as expected to launch live streaming. So we're excited about that and without sort of providing any particular expectation on the other brands. Some of the things that we're looking at are things like gaming content.
And content for a Christian mingle.
You know potentially virtual tours that we would offer for people to either date or you know meet people are it could be a good day. There are other things that are also possibles like a movie night.
And that that could be out there and again these things are things that are.
We're looking for a third party partners to work with to augment.
The features that we have on our brand and so we're excited because there's actually quite a bit.
Companies out there that are interested are in.
And sort of being able to reach Daters, a single people too to drive somewhat and the activities. So.
And it's gonna be a combination of these things and that we will prioritize as we go throughout the year.
Got it.
And given that your focus is on the 40, plus age group and faith based.
How does <unk> fit into that portfolio longer term and a longer term and can you maybe talk through what Zeus current demographic snapshot is.
Yeah. So it's a great question until it actually fits very well into that two skus about meaningful sort of serious relationships.
On the average age and there's a there's a broad sort of a range. So when we say 40, plus we don't mean debt you know there could be somebody at 27 and that might be interested.
Interested and being on our property. So what we have an average age of about 42 on juice and so it fits well that demographic and that we're talking about and it's also all about and sort of finding a relationship long term right and so that's one of the things that makes a difference Zeus keys about sort of.
A fun environment, when you find sort of real people and that's one of the promises were delivering on and and the integration of live streaming talks very well to the fun part of zone, which is something we hear from our users and when we asked them. What does this mean for you so and so it is very much within.
The definition of 40 plus.
Okay.
Okay. Thanks for taking my questions.
Thank you.
Yeah.
Our next question comes from Kara Anderson with B Riley Securities. Please proceed with your question.
Hey, Eric.
Hello.
And then and any ability with now the first quarter behind us and to keep guidance can you just provide a little bit more detail around the thought behind and second half the year and I think.
Each of the fleet and buy them.
Okay.
Yeah. So I appreciate that question, obviously look we would when we thought about this year and we've talked publicly or guidance for the year is the guidance and that shows year over year increase in our revenues and a big part of that comes from the work that we've been doing last year and the work that we're doing this year around and improving.
And our products and improving or marketing dosing starts coming in.
In Q1, and Q2, and so more of that impact sort of comes out from Q3 and Q4 and that's why when you. If you if you do the numbers and I just don't.
Have the exact numbers in front of me, but if you take the guidance that we have for Q2 plus the results from Q1, we have a bit of a and acceleration for Q3 and Q4 and that's expected.
So no no there's no change and expectations for more part and we're going to launch live streaming debt has a revenue stream associated with it where we're launching as I mentioned and the script, we're launching the new designs, which we've seen very good results with <unk>, we're continuing to improve.
And optimize our properties with the new CRM strategy with funnel and price optimization and a lot of those things are work now that we expect to have an impact in Q3 and Q4 and so that's why you know in part and that just seems a bit of an acceleration towards the end of the year and a lot of those improvements come on and since two so you know, we we we announced and we re.
Trading today that we expect is to by the end of the year and growing organically, which as you know is he's one of the main reason why we still have a bit of a decrease on our topline.
And we're supposed to last year.
Does that make sense.
Yes, and yes.
Follow up on that on on one point and our live streaming revenue associated.
That doesn't mean that first day I guess like what does that ramp look like and is this meaningful contributions and you know why are you drawing from from other experiences people are out of debt.
In terms of how that ramp.
Yeah. So so Zeus Gov all of our brands like if you think about our brands are mostly about subscription revenue.
Revenues and just keep the one that has more pay as you go revenue. So we expect that you know of lifestyle and it would be a good sort of element he might actually increase engagement and might lead also to a higher subscription revenue, but we haven't accounted for that at this point our expectation is that we have.
It will be.
And I don't see a large part of our revenue base for this but a meaningful one.
In terms of sort of providing a difference in terms of top line. So.
You know beyond the revenue which of course he is important.
What we're hoping to have as we sort of start deploying a lot of these social.
Social discovery features is really making our platforms.
A lot more engaged and theres always going to be something going on and I do so you know, whereas in the past you might come to this because we're prompting you because you've found a match now you can come at anytime because there's something going on and just livestream and calling on and you can meet people and be sort of comedy club type environment, which live streaming so.
You know, there's there's expectations on revenue, but importantly, there's also expectations on on <unk>.
Gage men and.
And sort of what people will do on just can and how much debt platform will improve in terms of customer satisfaction and engagement.
And on the top on engagement can you just talk a little bit further about kind of and trends and engagement that you've seen and certain markets have reopened and just how that might be affecting them.
And its Paul.
Yeah.
Way too many people coming back.
Yeah, it's interesting because we so.
And we thought about this we always thought that he was going to be.
You should have a neutral effect when things opened up and as you know, 70% or about 70% of our revenues are and the U S. So.
And the U S has opened up more than you need sort of all the geographies you hear from the travel operators that they're seeing sort of levels that are that are back to the 2000 and.
And 20 levels and so so that's that's good and and the positives for US and you go you know singles can now data applying which ultimately is what they wanted to do they don't want to spend all of their time on line and altering the person out their dreams offline and half a day and so that's good because it pushes people to say, okay, now I'm fully and I went and meet people and so that's.
As a positive.
And the probably the negative as people are spending less time in front of their computers fights and they they have the ability to go outside and enjoy the sun and and and meet people.
But they've seen online and so I think those two things are.
Our neutralizing each other if you will and so were you know.
From from what we've seen there is not a significant impact one way or the other from the opening I think there's there's pluses and minuses and and there some canceling each other out.
Got it and then and the last one from me is just on and pricing whether or not you're seeing any increase and.
Yes.
Protecting contribution margins or if there's any anticipation for that.
Yeah, we've seen a little bit of and increase.
And and the C P M and and the C P fees, but not I wouldn't say that that's driving.
And the business you know as we move forward, we're making improvements constantly to our marketing mix and even though there's a little bit of pressure there are and I would say, there's a bit of pressure because of.
And prices, but obviously, there's also sort of an increase from other people and the market sort of being a bit more aggressive from a from an ASP perspective.
And so that you know that.
That has created a pressure for us, but I wouldn't say that that's.
On a very soon and she can either in terms of the performance of the business. So it's it's one factor, but not not.
Not a big factor.
Great. Thanks, that's it from me.
Thank you.
Our next question is from Adam Waldow with Lismore Partners. Please proceed with your question.
Good day, Eric. Thank you very much for taking my questions. My questions are all around balance sheet and liquidity dynamics.
When we last talked around the last quarterly results release for 2000, and yearend pardon me 2001, a year and you. All had indicated that you were expecting sort of EBITDA guidance conversion on the $33 million to $36 million of EBITDA guidance, but you are reaffirming today to convert into free.
Free cash flow at about a 70% to 75% rate, which should have been you know which would be comfortable in terms of covering the current portion of long term debt and and.
And you're reaffirming.
The 33, and 36 million of EBITDA guidance, and say do you see anything different and in terms of the ability to cover the current portion of long term debt for this year.
From internally generated cash over.
Over the balance of 2021, and then a couple of follow ups.
Yeah. So the short answer is no.
We feel comfortable debt with the current guidance from 33 36.
And we're able to meet our obligations to our debt holders.
And.
As I mentioned, where we're very much in line with our expectations now.
Okay, Great and then and so you you foresee that.
By going out and trying to sort of.
Restructure the debt terms of any of the current debt given obviously whats occurred with COVID-19, you feel very comfortable and in terms of being able to meet the existing debt schedule.
For the balance of this year, Okay, and then the final thing around our balance sheet liquidity dynamics and as is when we last talked to you know you you aspired to up sales as growth would return later this year.
<unk> and Bottomline to pursue a restructuring of the debt overall, either through the capital markets or the bank market or a combination thereof is that still on the to do list for this year or is that very much dependent on the rate at which our growth will return and the second half. Thank you.
Alright. Thank you for that question and look I I think in general if you if there are better terms.
Four or debt out there, it's something that we obviously are interested in.
And it is not a big priority right now and in particular, you know I'm I'm, hoping and I mentioned that we're making good progress on the CFO search and and and <unk>.
Net debt will sort of conclude successfully you know soon and I think when.
Person comes in and I think he'd becomes a bigger.
And sort of thing for us, but we can look at it I do think that it's important to start delivering on on the business growth as we've said and we stabilize the business last year. So we're very close in terms of.
<unk> of revenues versus Q1 last year, and so that they're trying to ease the momentum is very positive and so we feel very good and the expectation is that once we saw that momentum and secure and.
See that momentum for a couple of quarters will be and are better positioned to go out to debt markets and find potentially on your deal. So so something not I wouldn't say that that's something and the next couple of quarters that we would be focused on but you know after that of course, if there is an opportunity we would always look at it but after that its something you guys.
Certainly we will continue to be something we'd look at.
And some more of late 2020, one early 2020 two our to do list.
Well unless somebody comes and and propose and something we can't refuse so but yeah. That's what I would say thank you very much.
Yes.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad, one moment, while we poll for questions.
Our next question comes from Jonathan Fite with KMF investments. Please proceed with your question.
Good morning. This is Jonathan Fite, Thanks, Erik for taking my call just had a quick follow up on the last balance sheet question can you remind me of any kind of key EBITDA or cash flow covenants associated with the debt position.
Yeah, absolutely Jonathan there there are there are two there's theres a net leverage covenant.
Covenant.
Would you sort of net debt over.
EBITDA last 12 months EBITDA and I think don't quote me on this but the parents are public I think there we're trying to get to each quarter to 75 or something like that so that's to the levels that we need to meet and then there is a liquidity covenant that's part of the debt schedule.
So those are the two.
Okay, and does that and liquidity covenant and.
Imply that draining the existing cash to meet the current portion of long term debt really isn't and <unk>.
Option and you really need it.
Going back to the previous question, you really need to support that current portion of long term debt out of free cash flow for the year.
Yeah. So we we have you know obviously, we have debt terms debt.
Hum pay interest on the debt, which comes from the cash of course, but and in addition to that we also have a cash sweep that happens when we sort of go beyond a certain amount in terms of.
The cash holdings from the company.
Okay, and Theres repayment of the debt of course, there yes sure.
And then going back to some of the product enhancements that you talked about spin partially filled out that some of the Zeus.
Users right when we look at things like the Carousel feature that's very image heavy and and and but when you look at some of the smart pick feature that's more text heavy with very very small graphics and cannot be.
In comparison to either your carousel feature or some of the features that match or bump over those types of things I was just wondering if you could describe a little bit more some of the product enhancements that are being rolled out and Ah.
To be and more aligned with what the broader competition.
Yeah. So a couple of things so what you see now and the U S. It's about 50% of the audience and soon as Guardians and seeing the new design.
Much cleaner design and much more contemporary and Ah our presentation.
The company presentation and see the before and after Big difference are very exciting and so that should lead not just too.
And you know remember when your singles you know how you present yourself on the site and so what's your dress and what what you're wearing and so that's a that's an important component and so you know we're very excited about that and we expect that the new design just based on its smoke and field should sort of be to better engagement.
From our users, but in addition to that obviously, there's simplified responsive design that leads to also and sort of better interaction from our users. So that said that's one big change that hopefully by the end of Q2, we wont have fully made and we like I mentioned the call on the strip there we have seen very good and we have got from <unk>.
Good user feedback on it live streaming is another area that we're focusing on and so that's a that's gonna be on juice and then I would say you know.
Beyond the <unk>.
The carousel and some of these things that are basic functionality that you can actually improve.
Improve we're also making a number of improvements on our CRM strategy and day matchmaking algorithm. So what's most relevant in terms of who do we match against.
And whom and and that we're looking at BP and we think also there's quite a bit of.
CRM improvements that we can make and and and think of CRM improvements as you know, there's an ecosystem, where if somebody gets matched up or if you receive a message to communicate with folks out there. It's the way of telling them Hey, there's something active right now aimed a platform for you that is very relevant and she used to come back or sort of come.
And check and come and chat come and sort of see the matches that we've had for you. There we've been sort of I think it's been something that we haven't looked at in detail and as we acquired juice can it's something that we're starting to look so we're excited about that also and then I would say that the last thing I mentioned matchmaking algorithms.
As you know, there's there's a number of ways that we look at this in terms of sort of how we match people up and there's a there's a couple of ideas that we have there that we're excited about that without going on of course into the detail as they are proprietary and when I'm wondering sort of the competition on these things so yeah.
And so you said the investor presentation will be updated.
Some of that information out there is that correct, yes, so the and and and Chris I think I think it will for sure be on our site starting Wednesday might be there earlier, so but we are.
Chris I don't know if you have the answer to that and so are you on the line yeah, Yeah yeah.
It's been updated and we will get it up there. This week also work for presenting at our conference. So it will be up on our website and will be unveiled to investors on.
Middle of this week.
Okay, Great and then as far as the Zeus functionality updates for the remaining users that do not have it does that just get pushed out through <unk> and app updates on when they launch the app or they're kind of prompted day update the app to the App store and then the new functionality gets deployed or how does that get rolled out.
Correct. That's you know the normal sort of app updates that would happen to the App store. So it's for most people know it's automatic because they have it on.
Auto Magic update right. So it happens overnight and that kind of stuff yet.
Very good thanks.
Yeah Youre welcome.
There are no more questions. This concludes today's conference you may disconnect. Your lines at this time and we thank you for your participation.
Okay.
Okay.
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