Q1 2022 Spark Networks SE Earnings Call

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Good day and welcome to the Spark networks first quarter fiscal 2022 financial results Conference call. All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star keys, followed by zero.

After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two.

Please note this event is being recorded.

I would now like to turn the conference over to Todd currently of MK or Investor Relations. Please go ahead. Thank you operator, good afternoon and welcome to Spark Networks' fiscal 2022 first quarter earnings Conference call with me on today's call are Sparks, CEO , Eric Eichmann, and Chief Financial Officer, David Clark.

Before I turn the call over to Eric I'd like to cover a few quick items. This afternoon spark networks issued a press release announcing its fiscal 2022 first quarter financial results. This release is available on the company's website at spark dot net. Additionally.

Additionally, this call is being broadcast live over the Internet for all interested parties and the webcast will be archived on the Investor Relations page of the company's website.

I want to remind everyone that on today's call management will discuss certain factors that are likely to influence the business going forward any factors discussed today that are not historical facts, particularly comments regarding our long term prospects and market opportunities should be considered forward looking statements.

Looking statements May include comments about the company's plans and expectations of future performance forward looking statements are subject to a number of risks and uncertainties, which could cause actual results to differ materially.

Encourage all of our listeners to review, our SEC filings, including our most recent 10-K and 10-Q for a complete description of these risks.

Our statements on this call are made as of today may nine 2022, and the company undertakes no obligation to revise or update publicly any of the forward looking statements contained herein, whether as a result of new information future events changes in expectations or otherwise. Additionally throughout this call we'll be discussing certain.

non-GAAP financial measures today's earnings release, and the related current report on form 8-K describe the differences between our non-GAAP and GAAP reporting.

And present the reconciliation between the two for the periods reported in the release.

With that said I'll now turn the call over to Eric Eichmann CEO of Spark networks. Eric. Please go ahead.

Thank you Todd and good afternoon, everyone.

I want to start by providing more color around the world developed roadmap of strategies and investments that we have put in place to drive revenue growth and ultimately shareholder value in 2022 and beyond.

Spark is a leader in social data for meaningful relationships targeting the 40, plus demographic and people with religious affiliation we estimate the worldwide online bidding market for meaningful relationships to be about $2 3 billion grew.

Growing at over 6% a year.

We capture about 30% of this market in the U S with our strong portfolio of brands, which includes Zeus elite single Silver singles Christian Mingle and J D.

We are focused on five core markets U S, Canada, U K, France, and Australia, representing over 90% of our revenues with the U S being our biggest focus with approximately two thirds of total revenues.

At the end of the first quarter, we completed the refinancing of our debt facility with MTGE that for the first time in my tenure positions us to drive revenue growth for both <unk> and spark as a whole.

Given the fact that we didn't complete the refinancing of the debt agreement until the end of the quarter. The first quarter results. We are reporting today are not indicative of the growth opportunity. We have ahead of us.

Park is the fourth largest online subscription base dating company across North America, and Europe by revenue and with our scale and our new debt facility in place. We now have the financial flexibility to execute on our plan to return to revenue growth in fact, when we look at our metrics.

April which takes into account the start up or ramped up marketing spend we are seeing growth indicators across our key brands. Some of these include.

New subscriber growth produced or largest property grew 15% year over year. In April . This is the leading growth indicators for our platform increases in profitable marketing spend made possible by our new debt agreement are driving this growth.

<unk> subscribers coming from win backs and renewals grew 15% from the first week. The last week of April win backs and renewals are dependent on the overall subscriber base.

And as such are lagging growth indicators, we are seeing good momentum on both which over time should translate into accelerated momentum for billings.

Female engagement, a leading indicator of a healthier and more productive dating platform is growing on Zeus, which we attribute to product improvements put in place in Q4 last year and Q1, this year and updating matching algorithm and a revamped first time user experience have driven the following year over year.

Increases.

A 14% increase in female paid subscriber conversions, a 14% increase in positive response rates to matches, a 9% increase in female daily active users and a four 5% increase in female.

First day retention.

We also saw higher conversion and lower charge backs in the quarter because of our payment optimization efforts, which include migrating to a more strategic payment partnership with Adrian.

Abandoned cart and more targeted CRM campaigns.

Have also driven higher conversions.

We plan to accelerate this growth momentum with further marketing and product investments.

Through our new debt agreement, we have an opportunity to meaningfully increase or 2022 direct marketing spend compared to 2021 and at similar levels of efficiency. We believe this increase in direct marketing spend will result in mid to high single digit revenue growth.

In 2022 and position us for even stronger revenue growth in 2023 and beyond.

Some of these marketing investments include increasing spend improving and scalable channels that we have cut.

In 2021 due to debt covenants under our old debt facility, including affiliate marketing paid search and media buying.

Investing in new channels, such as Tictoc native and display.

We expect these to provide significantly higher reach for our brands at attractive returns.

Finally targeting the majority of these increased spend in the U S. Our largest and most attractive online dating market.

We're also continuing to focus on high return product initiatives, specifically, improving Zeus profiles to drive higher engagement in the first seven days of registration enhancing or search and matching algorithms across all brands driving higher engagement and ultimately billings.

And simplifying our technology infrastructure by moving our primary brands from three platforms to two we plan to collapse most of our non Zeus platforms into one, allowing us to upgrade our ability and speed to drive innovation and improvements across all platforms.

Finally, we are also revamping all our mobile apps. We believe this represents a significant.

Future growth opportunity for spark as we look to capture our fair share of mobile App revenue.

All of these product initiatives in concert with our increased marketing spend are fueling the growth we saw in April and give us confidence in our ability to grow revenue in 2022 and beyond.

We believe the investment in talent product technology, and marketing in 2022 as well as our position in the market will allow us to capture the significant market opportunity. We have in front of US and returned the company to total revenue growth in 2022.

With that I'll ask David Clark, our Chief financial Officer to add more color around our financial performance for the quarter David.

Thank you Eric and good afternoon, everyone.

Revenue for the first quarter of 2022 was $52 4 million compared to $56 $4 million in the first quarter of 2021.

On a constant currency basis that number would have been $54 $6 million down only 3% year over year.

We attribute the decrease in total revenue during the first quarter because of decrease in used revenue, resulting from continued lower marketing spend in last year's fourth quarter and this year's first quarter before our refinancing.

Adjusted EBITDA was $3 $5 million in the first quarter compared with $5 $1 million in the first quarter of 2021 the year over year decrease for the first quarter was primarily due to the Zeus revenue decline and increased product investment during the quarter.

Fourth quarter average paying subscribers decreased 839000.

Compared to 896000 in the same period of 2021.

We attribute this decrease primarily to the constraints on marketing spend the calendar year.

Monthly average revenue per user or monthly <unk> decreased slightly to $20 81 in the first quarter of 2022 compared to $20 97.

In the same period of 2021.

The decline in <unk> was a result of emphasizing longer duration subscriptions through pricing.

Net loss was $5 3 million in the first quarter of 2022 compared to a net loss of $6 5 million.

In the first quarter of 2021.

Shifting to the balance sheet. The company ended the quarter with $13 million in cash and a GAAP debt balance of $94 $3 million or net debt of $81 3 million during the quarter, we were able to successfully refinance our existing debt facility to better fund our growth initiatives in 2022.

Under the new $100 million debt facility with MTGE investment group, we have extended our maturity date and improved our covenant flexibility, which should allow us to invest in growing our business in 2022 and beyond.

In fact, as Eric mentioned, we increased our direct marketing spend falling to close the refinancing for the month of April we saw positive leading indicators of growth from this increased investment as new subscribers and <unk> in April grew 15% year over year.

We also saw billings, which include win backs and renewals grow across <unk> and <unk> brands in April .

Turning to guidance, we have put in place a well developed roadmap strategies and investments to drive revenue growth ultimately shareholder value in 2022 and beyond with our new debt facility in place. We now have the financial flexibility to execute on this plan accordingly for the full year of 2022, we expect to return to mid to high single digits.

Total revenue growth year over year, and with that we're happy to take your questions operator.

Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.

We're using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.

Once again pressing star then one will allow you to ask a question.

At this time, we will just pause momentarily to assemble our roster.

Okay.

And once again, if you would like to join the question queue. Please press Star then one.

And the first question will be from Raj Sharma with B Riley. Please go ahead.

Hi, thank.

Thank you for taking my question could you talk a little bit about your.

Initiatives on sort of live streaming social discovery, how those are some of the other.

Things that youre doing to push up subscriber growth and engagement.

Brian Hi, Thank you very much for the question.

Maybe.

Yes.

On the subscriber growth that we're seeing which is very exciting for us as you know has been.

Declining property.

We acquired it and now we are now thanks to a lot of the things that we're doing around improving the product and also the improvement from or typically we're able to spend more profitably something that we have not done over the last couple of years, we actually have decreased marketing so.

Marketing is helping we have a number of opportunities to dispense profitably at similar levels of efficiency that we've had.

Subscribers and we're seeing that.

Feeling really good momentum.

On that end and then also we talked a bit about the product initiatives in India.

In the discussion of it we talked about female engagement metrics are the most important that we look at on the platform. We have response rate.

Going up by 14%.

That's very positive that means that the.

Not only are we getting more people into the platform, but the platform is actually getting people more engaged we have a couple of initiatives that we've talked about in the prior quarter. One obviously is this drive and the other one and theyre, both social saving initiatives, we're trying to get people too.

Sort of do things more socially on the platform, we continue to get great.

Feedback on this great data or.

Virtual data two exciting destinations, we actually launched Harry if you remember on Valentine's day and have launched a couple of destination. Since then people that go through the experience loved the experience, we're getting a lot of good feedback and as we get more engagement to the platform. Obviously, what we're hoping to do is get more people.

Into that experience, we're also using that.

Calling card produced in our advertising and people are reacting well Thats building.

Jason on juice versus other platforms.

Something that no other.

No other data platform has out there.

Okay.

Great and then.

Are you able to control change shortly.

Quite a bit of talk.

Last year about the ability to sort of extending the amount of time that.

The.

If there is are on the.

This slide if you would talk about that sort of keeping them.

So one of a couple of comments on this one of the things that we started do we.

With Q1, Q2 last year E providing incentives.

To get people in particular lines as we had done a lot of these optimizations on the other brands previously but on juice.

Getting people that were sort of renewing or subscribing for one two months to subscribe to six months.

And thats, great because obviously, we get more billings upfront and we get people to stay longer.

And that has been quite successful.

Its revenues are.

No.

Recognized over time, even though we get the money upfront.

One of the impacts that we've had in terms of revenue recognition, but the same time, we've gotten a lot of people to commit to longer periods and so thats been a very good and healthy driver for US. In addition to that some of the initiatives that we talked about in terms of.

Engagement on the platform.

In fact, one of the key themes that we look at these what we call. The first time user experience.

Within that fall out at the beginning.

Is where we have the most churn and that's what we want to make sure that people as they go in they find match.

Matches that work for them matches that they want to talk to matches that are active.

And a big part of revamping, our matching algorithm and getting them in touch.

With those folks and the most.

The most critical audience or folks that we have on our platform are female and Thats what were seeing do you have engagement.

Measuring is going up we are also doing a number of things from a sort of optimization perspective.

On other fronts, one we talked about the payment optimization.

Being able to.

Using <unk>, which is the.

Or preferred.

Sort of payment mechanism being.

Being able to increase conversion.

Reduced charge backs, which is great.

And then finally, we've also switched to grades as the CRM system, giving us a lot more flexibility in terms of targeting and automating a lot of our CRM campaigns and thats driving more engagement, but it's also helping us.

Drive more revenues or billings.

<unk>.

With that sort of revenue campaigns. There. So all of those things are coming into.

And to play on.

We've improved atmos. It is the first time user experience has improved the rest of it hasn't changed dramatically, but it has been an improvement overall.

Got it and then just lastly, I know you indicated.

New growth mid to high single digits.

Any sort of guy.

Guidance on the direct marketing costs or and or.

EBITDA line I know last year, you guys guide to that.

Do you take.

<unk> hired with the direct marketing costs will be from last year.

Yes, David do you want to talk a bit about that.

Sure Yeah. So we indicated on the last call that we expected to spend probably a range of 110.

With the refinancing we're going to reevaluate that.

And we want to have that flexibility because as you know in period, we can spend money that actually will be accretive over time, but it may not show up as revenue or EBITDA because of our revenue recognition. So.

We.

Fully expect to be covenant compliant and actually put cash up on the balance sheet, even at a potentially higher spend and we're evaluating that right now.

Okay.

Correct. So.

Okay. So.

I think yes.

Reiterate what David said I think we are.

We're sort of we wanted to remain flexible and that's in part why we remain a bit new to mute.

You did.

The EBITDA.

The opportunity that we see is increasing or marketing at similar or better efficiency levels and so that does have a very positive effect on billings and has a very positive effect on <unk>.

On.

On subscribers.

Nothing sort of immediately within the year translates into revenue or EBITDA.

Yes sure sure Okay. Great. Thanks. Thank you all taking my questions offline.

Thank you. Thank you.

And again, if you have a question. Please press Star then one.

Ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to Eric Eichmann for any closing remarks.

Thank you operator.

Before we conclude on the <unk>.

Nestor relations front, we will be attending two investor conferences in May next Wednesday, we will be participating in the Sidoti.

Micro cap virtual Investor Conference and the following week on Wednesday, we will be attending the 17th annual Needham Technology and media conference in person that's in New York.

We will be hosting one on one investor meetings at both of these conferences.

With that I want to thank everyone for your interest in spark networks and coordinating our call. We look forward to updating you on our continued progress in the future have a great day.

Thank you Sir Conference has now concluded. Thank you for attending today's presentation you may now disconnect.

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