Q4 2022 Spark Networks SE Earnings Call
the Clark.
Before I turn the call over to Chelsea, I'd like to cover a few quick items.
This afternoon, Spark Networks issued a press release announcing its fiscal 2022 fourth-quarter and full-year financial results. This release is available on the company's website at spark.net. 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. These forward-looking statements may include comments about the company's plans and expectations of future performance, including comments regarding our review of strategic alternatives. Thank you.
Forward-looking statements are subject to a number of risks and uncertainties, which could cause actual results to differ materially. We 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, March 30, 2023, 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.
Our statements on this call are made as of today March 30th 2023, 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 will 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.
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 Chelsea Grayson, CEO of Spartan Networks. Chelsea, please go ahead.
With that said I'll now turn the call over to Chelsea Basin CEO Spark networks Chelsea. Please go ahead.
Thank you, Todd, and good afternoon, everyone. To begin, I'm delighted to tell you today that I've accepted the board's request to become the company's permanent CEO. Over the past four months, I've had the opportunity as an intern...
Thank you Todd and good afternoon, everyone to begin I'm delighted to tell you today that I have accepted the board's request to become the company's permanent CEO .
Over the past four months I've had the opportunity as interim CEO to learn extensively about sparks operations and its great brands and the many opportunities that exist for this great company.
I'm CEO .
to learn extensively about Sparks' operations, its great brands, and the many opportunities that exist to improve this great company.
But before I discuss those opportunities and our plans moving forward, I'd like to take a few minutes to update everyone on the status of the strategic review process. At this time, the review is still ongoing. We don't have any material updates to share on this call. We do believe the company is in a solid position with a portfolio of well-known brands that drive meaningful relationships.
Before I talk about those opportunities and our plans moving forward I'd like to take a few minutes to update everyone on the status of the strategic review process. At this time. The review is still ongoing we don't have any material updates to share on this call. We do believe the company is in a solid position with a portfolio of well known.
Brands that drive meaningful relationships in key well defined vertical niches, including the 40, plus demographic busy and discerning professionals based based affiliation and people who are looking for long term committed relationships and well positioned to meet our customers, where they're most comfortable and to capitalize on it.
and key.
Well-defined vertical niches.
Including the 40-plus demographic, busy and discerning professionals, faith-based affiliations, and people who are looking for long-term committed relationships, we are well-positioned to meet our customers where they're most comfortable and to capitalize on the continued embrace of online dating in the marketplace.
Continued embraced of online dating in the marketplace.
Well, 2022 was a disappointing year.
While 2022 was a disappointing year for spark it's clear to me that spark is far more than just yes, well this called strategic value as a large mass market dating site. We also have a base of quality affinity brands, including elite singles Silver singles E Darling.
For Spark, it's clear to me that Spark is far more than just Zeus. While Zeus Cold's strategic value is in being a large mass-market dating site, we also have a base of quality affinity brands, including Elite Singles, Silver Singles, eDarling, Christian Mingle, and Jdate that are in demand by a large global paying subscriber base.
Christian mingle and J J that are in demand by a large level paying subscriber base or.
Our non-Zeus business is close to 50% of our total revenue, and several of our non-Zeus brands have some of the best.
Our non juice business is close to 50% of our total revenue in several of our non juice brands have some of the best returns on capital in our portfolio.
Returns on capital in our portfolio.
Going forward, we have identified several areas where we believe the company can significantly increase cost efficiency and solidify around a lower revenue base, with a well-diversified collection of meaningful key brands. Our goal is to substantially improve adjusted dividend margins.
Going forward, we've identified several areas, where we believe the company can substantially increased cost efficiency and solidify around a lower revenue base with a well diversified collection of key meaningful brands with the goal of substantially improving adjusted EBITDA margins improve.
Improving profitability is our highest priority, and we have already started reviewing areas where we can achieve this by significantly reducing costs, even if doing so may negatively impact our revenue generation for this year.
Improving profitability is our highest priority and we've already started reviewing areas, where we can achieve this by significantly reducing costs, even if doing so may negatively impact our revenue generation for this year.
We're targeting at least a 50% increase in adjusted EBITDA in 2023, or 28 million dollars.
We're targeting at least a 50% increase in adjusted EBITDA in 2023 or $28 million and adjusted EBITDA.
dollars in adjusted EBITDA.
Going forward, we plan to accelerate our debt paydown with additional free cash flow.
Going forward, we plan to accelerate our debt pay down with additional free cash flow.
Our long-term goal is to achieve and sustain 20...
Our long term goal is to achieve and sustain 25% to 30% plus adjusted EBITDA margins consistent with industry averages.
to 30% plus adjusted EBITDA margins consistent with industry averages. As such, we plan to continue modernizing our technologies, improving our marketing engagements, and enhancing how we collect and act on data to produce superior products and experiences for every one of our customers.
As such we plan to continue to modernize our technology to improve our marketing engagements and to improve how we collect and act on data to produce superior products and experiences for every one of our customers and to do all of that in a much more cost effective way.
and to do all of that in a much more cost-effective way.
Our goal is to create an environment using a combination of social media engagement that positions our brands as welcoming communities for like-minded users. Coupled with contemporary mobile app engagement and supportive technology, we aim to generate a perpetually expanding circle of customers.
Our goal is to create an environment through a combination of social media engagement that positions. Our brands is welcoming communities for like minded users coupled with contemporary mobile app engagement and support of technology to generate a perpetually expanding circle of customers.
To achieve this, we must improve our product offerings and embrace more effective and modern marketing approaches, both on the marketing technologies and the brand marketing side.
To achieve this we must improve our product offerings and embraced more effective and modern marketing approaches both on the marketing technologies and our brand marketing side on.
On the product front, my goal is for Spark to evolve into a product-first company, focusing on delivering significantly enhanced mobile apps to the market. For far too long, Spark has been web-focused, even as our customers have transitioned away from the desktop model. We plan to solidify around a diversified core of key, meaningful brands with the goal of achieving a trough revenue base in 2023.
On the product front my goal is for spark to evolve into a product first company focusing on delivering significantly enhanced mobile apps to the market for far too long spark has been web focused even as our customers have transitioned away from the desktop model, we plan to solidify around a diversified core key meaningful brands and with the goal of achieving.
Trough revenue base in 2023.
In parallel, we plan to improve product functionality across the platforms with the goal of improving retention and engagement.
In parallel we plan to improve product functionality across the platforms with the goal of improving retention and engagement.
And important as product initiatives are, we view them as...
An important product initiatives are we view them as about one critical step in our growth plan for spark as I mentioned on my call in January Spark is depended on increasingly dated modes of performance marketing such as the increasingly less effect. They have an expensive affiliate marketing strategy that it's used in the day it was founded.
...but one critical step in our growth plan for Spark. As I mentioned on my call in January, Spark is dependent on increasingly dated modes of performance marketing.
such as the increasingly less effective and expensive affiliate marketing strategy that has been used since the day it was founded.
We've already begun to assess.
We've already begun to assess and revamped our marketing approach for all of our products with the goal of taking advantage of more effective and cost efficient modes of brand and performance marketing.
Revamp our marketing approach for all of our products with the goal of taking advantage of more effective and cost-efficient methods of brand and performance marketing.
For all the work we're doing to create new products, we have to do all we can to ensure that...
For all the work we're doing to create new products, we have to do all we can to ensure their success and widespread adoption. Once we debut them, but we have to do so in a cost effective way, we plan to reallocate our capital into more profitable marketing channels and diversify away from affiliate to direct and social channels.
success and widespread adoption once we debut them, but we have to do so in a cost-effective way. We plan to reallocate our capital into more profitable marketing channels and diversify away from affiliate to direct and social channels.
As I'm sure many of you have seen, the amount of content we generate and deploy today across free social media platforms has risen significantly in the past couple of months. This is no coincidence. In fact, it's at the core of our focus on leveraging what we consider the broadest-reaching free marketing platforms. Doing so significantly increases our ability to direct the content we create to reach the audience with whom we want it to resonate and to repurpose it as much as possible as we focus on increasing our social media presence and brand marketing initiatives.
I'm sure. Many of you have seen the amount of content, we generate and deploy today across three social media platform has risen significantly in the past couple of months.
This is no coincidence in fact is at the core of our focus on leveraging what we consider the broadest reaching three marketing platforms.
So significantly increases our ability to direct the content, we create to reach the audience with him we want it to resonate and to repurpose it repurpose it as much as possible as we focus on increasing our social media presence and brand marketing initiatives.
And doing so is meant to reduce our marketing expenses as we reallocate our marketing budget across our highest ROI yields.
In doing so it's meant to reduce our marketing expenses as we reallocate our marketing budget across our highest ROI yields I.
I hope you can tell how excited I am about the road ahead for Spark.
I Hope you can tell how excited I am about the road ahead for spark.
As I said at the beginning of my remarks, our highest priorities are to become more cost-efficient and to increase our profitability.
As I said at the beginning of my remarks, our highest priorities are becoming more cost efficient and increasing our profitability.
We believe the best way to build and sustain shareholder value is to target higher annual adjusted EBITDA margins by right sizing.
We believe the best way to build and sustain shareholder value is to target higher annual adjusted EBITDA margins by right sizing our cost structure investing in our brands that are at the heart of the highest ROI reallocating capital to customer acquisition channels with the highest returns and strengthening our defined in diverse brands.
Our cost structure.
investing in our brands that have the highest ROI, reallocating capital to customer acquisition channels with the highest returns, and strengthening our defined and...
diverse brand.
We believe we can improve our products and operations while at the same time increasing our adjusted EBITDA with the initiatives we plan to implement this year. Not least among these is driving additional free cash flow and then deploying that smartly, including by paying down debt. We believe we can improve our products and operations while at the same time increasing our adjusted EBITDA with the initiatives we plan to implement this year.
We believe we can improve our products and operations while at the same time, increasing our adjusted EBITDA with the initiatives. We plan to implement this year not the least of which is driving additional free cash flow and then deploying that smartly.
Clothing by paying down debt.
With that, I'll ask David Clark, our Chief Financial Officer, to add more color to our financial performance for the quarter and the full year. David?
With that I'll ask David Clark, our Chief financial Officer to add more color around our financial performance for the quarter and the full year David.
Thank you, Chelsea. Good afternoon, everyone.
Thank you Chelsea and good afternoon, everyone.
Revenue for the fourth quarter of 2022 was $41.6 million, compared to $52 million in the fourth quarter of 2021. Revenue for the full year of 2022 was $187.8 million, compared to $216.9 million in 2021.
Revenue for the fourth quarter of 2022 was $41 $6 million compared to $52 million in the fourth quarter of 2021.
For the full year of 2022 was 187 $8 million compared to $216 $9 million in 2021.
We attribute the year-over-year decrease in total revenue largely to currency fluctuations and lower acquisition spending during this period.
We attribute the year over year decrease in total revenue largely due to currency fluctuations and lower acquisition spend during this period.
On a constant currency basis, revenue for the fourth quarter and the full year 2022 would have been $43.7 million and $197.1 million, respectively.
On a constant currency basis revenue for the fourth quarter and full year, 2022, would've been $43 $7 million and $197 $1 million respectively.
For the fourth quarter, the end-of-period paying subscribers was 713,000, down sequentially from 804,000 in the third quarter.
For the fourth quarter end of period paying subscribers for 713000 down sequentially from 804000 in the third quarter.
We attribute the quarter-over-quarter decline in paying subs to lower acquisition spend in the fourth quarter.
We attribute the quarter over quarter decline in paying subs to lower acquisition spend in the fourth quarter.
Spark's monthly average revenue per user, or monthly ARPU.
Sparks monthly average revenue per user or monthly or food.
Decreased to $18.44 in the fourth quarter of 2022, compared to $20.17 for the same period in 2021.
Kris to $18.44 in the fourth quarter of 2022 compared to $20 17 for the same period in 2021.
Our POO decreased to $19.29 for the full year 2022 compared to $20.66 in 2021.
Our Peru decreased to $19 29 for the full year 2022, compared to $20 66 and 2021.
Now, we attribute the decline in our pool primarily to currency fluctuations.
Yeah.
Clients are primarily to currency fluctuations.
As a point of information, we implemented a price increase on ZUSK in February after thorough testing, and we will continue to explore price increases across our portfolio in 2023.
A point of information, we implemented a price increase on Zeus in February after thorough testing and we will continue to explore price increases across our portfolio in 2023.
Net loss for the fourth quarter of 2022 was $17.2 million, compared to a net loss of $19.9 million in the same period of 2021. For the full year, net loss was $44.2 million, compared to a net loss of $68.2 million in 2021.
Net loss was $17 $2 million for the fourth quarter of 2022 compared to a net loss of $19 $9 million in the same period of 2021.
For the full year net loss was $44 $2 million compared to a net loss of $68 $2 million in 2021.
Adjusted EBITDA was $11 million for the fourth quarter, a 26% adjusted EBITDA margin compared to the adjusted EBITDA of $14.3 million in the fourth quarter of 2021.
Adjusted EBITDA was $11 million for the fourth quarter, a 26% adjusted EBITDA margin compared to adjusted EBITDA of $14 $3 million in the fourth quarter 2021.
Adjusted EBITDA was $18.5 million for the full year of 2022, a 10% adjusted EBITDA margin, compared to adjusted EBITDA of $33 million in 2021.
Adjusted EBITDA was $18 $5 million for the full year of 2022, a 10% adjusted EBITDA margin compared to adjusted EBITDA of $33 million in 2020.
We attribute the year-over-year decrease in adjusted EBITDA primarily to lower revenue generation.
We attribute the year over year decrease in adjusted EBITDA, primarily due to lower revenue generation.
Shifting the balance sheet, the company ended the fourth quarter with $11.4 million in cash and a gap debt balance of $94.8 million or net debt of $83.4 million.
Shifting to the balance sheet. The company ended the fourth quarter and $1 $4 million in cash and a GAAP debt balance of $94 $8 million or net debt of $83 $4 million.
As a reminder, there is no principal amortization required under the MGP agreement until June of 2023.
As a reminder, there is no principal amortization of acquired into the MG agreement until June of 2023.
Looking ahead, as Chelsea noted, we have several changes underway aimed at a stronger product offering and a much-improved marketing engine. Most importantly, we are doing all of this in a much more cost-effective way.
Looking ahead as Chelsea noted several changes underway aimed at a stronger product offering and a much improved marketing engine and most important of all doing all of it in a much more cost effective way.
However, while we started this process, we were still evaluating how to best make those long-term changes.
However, while we have started this process we were still evaluating that.
To make those long term changes.
As such, we feel it is prudent to defer providing formal earnings guidance until we have fully implemented these changes. Having said that, we do believe we can significantly improve our operations and drive at least a 50% increase in adjusted EBITDA, or $28 million in adjusted EBITDA, for the full year, with the initiatives we will implement this year.
As such we feel it prudent and for providing formal earnings guidance until we have fully implemented. These changes having said that we do believe we can significantly improve our operations and drive at least a 50% increase in adjusted EBITDA or $28 million and adjusted EBITDA for the full year with the initiatives.
Our long-term goals are to achieve and sustain 25 to 30 percent or higher adjusted EBITDA margins, consistent with industry averages.
This year, our long term goals to achieve and sustain 25% to 30% plus adjusted EBITDAR EBITDA margins consistent with the industry averages.
We aim to substantially deleverage moving forward with a simpler, more profitable business model.
We aim to substantially deleverage moving forward around a simpler more profitable business model.
With that, we're happy to take your questions. Operator?
With that we're happy to take your questions operator.
We will now begin the question-and-answer section.
We will now begin the question and answer.
Section two.
To ask a question, you may press star, then one on your telephone keypad.
I ask a question you May press Star then one on your telephone keypad.
If you are using a speakerphone, please pick up your handset before pressing the key.
If you're using a speakerphone please pick up your handset before pressing the case.
To withdraw your question, please press star then two
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble the roster.
At this time, we will pause momentarily to assemble the roster.
And our first question will come from Raj Sharma of B. Riley. Please go ahead.
And our first question will come from Raj Sharma of B Riley. Please go ahead.
Hi, thanks for taking my question. If I can kind of delve in a little deeper on subscriber growth.
Okay.
Hi, Thanks for taking my question.
If I can kind of delve in a little deeper on subscriber growth.
With Zoosk and Non-Zoosk, and since you have just realized that Non-Zoosk is an incredibly high ROI brand, how do you see even one of them growing in subscriber growth in Q2? And then I have a follow-up question on your.
With Zeus and Nanjing and since you have just kind of realize the Zeus is incredibly.
Incredibly high Rois of brand.
How do you see one of them growing in subscribers and RP and then I have a follow on question on.
How should we view direct marketing costs going forward?
Okay.
How should we view.
Direct marketing costs going forward.
Yeah, I'll, I'll, and I'll turn this over to David since I know he's probably eager to answer.
Yeah, I'll I'll and I'll turn this over to David since I know, it's probably eager to answer this question, but but you know generally the way that that will get their spending our money more efficiently with the non <unk> brands because the money just grows legs that where they're much more efficiently.
This question, but you know, generally, the way we will get there is by spending our money more efficiently with the non-Zoosk brands. This is because the money just grows legs over there much more efficiently, and those brands' platforms are much stickier. So, once you get people, their affinity increases.
And does those brands that the platforms. They're on you now have are much stickier. So once you get people because.
sites slash apps.
Because their affinity based sites slash apps and the way the tech is developed and that.
and the way the tech has developed and the updated apps that we've launched and are in the process of launching now, it's much easier to get people to not just subscribe but also renew their subscriptions. But I'll turn it over to David for a deeper dive on details there.
Updated apps that we've launched and are in the process of launching now it's much easier to get people to not just subscribe, but also renew their subscriptions, but I'll I'll turn it over to David for a deeper dive on details there.
Yes, I'd say, you know, as Chelsea just mentioned, going forward this year, we are prioritizing profitability and free cash flow. In the past, we had tried to push the envelope to drive Zoosk subscriber growth primarily, but of course, on all platforms. Now, we're going to focus on really receiving payback from customer lifetime value and therefore place more emphasis on the non-Zoosk brands as opposed to Zoosk, to maximize profitability and free cash flow this year.
Yeah I'd say.
Chelsea just touched on it going forward. This year, we are prioritizing profitability and free cash flow in the past we had tried to push the envelope to drive Zeus subscriber growth, primarily but also go to court.
Of course, all all platforms now.
Now, we're going to be focused on really a payback from.
Customer lifetime value and therefore placed more emphasis on the non Zeus brands as opposed to as opposed to just to maximize profitability and free cash flow this year.
Uh, how does that?
How does that.
How does that play into the direct marketing costs? Do you see those declining? Where were they, if you can give me the number, where were they for the quarter? And do you see them declining?
How does that play into the direct marketing costs, and then you're saying it was declining.
You know what are the if you can give me the number where were they.
And do you see them declining.
But that also kind of leads to a decline in revenues. Can you talk about that?
But that also kind of leads to a decline in revenues can you talk about that.
Yeah, I mean, there's a level below which we can't decline, right? Because...
Yeah, I, you know I mean, theres, a bottom below which we can't decline right because we've got you know we've.
We have agreements with our lender, covenants with the lender. So, unless we had a different agreement there, there's a floor. So barring that, it's about rebalancing.
Got it.
You know agreements with our lender covenants with our lender.
So unless we had a different agreement there you know there's a certain there's a floor I don't I don't so barring that it's about rebalancing.
Right? So, it's about spending differently with an intensely increased emphasis on the non-Zeus side of the house.
Right. So it's about spending differently with a with an intensely increased emphasis over on the nonferrous side of the house.
So, my remarks today are.
So my remarks today aren't meant to reflect less spending, but differently balanced spending and more efficient and smarter spending.
aren't meant to reflect less spending but, differently balanced spending, and more efficient and smarter spending.
Updated spending.
Updated spending.
And I don't actually think.
And I don't I don't actually think.
I don't think that to the extent.
I don't think that to the extent.
We were able to spend less on UAC, yet that doesn't necessarily presume a direct correlation with a drop in revenue. I think that the more intelligently you spend those dollars, the better you weaponize the content you've got with more modernized performance marketing and other marketing technologies. I think, actually, you.
We were able to spend less on U S. C that it would that bad at all presumed a direct correlation with a drop in revenue I think that the more intelligently you spend those dollars the better your weaponized the content, you've got less more modernized performance marketing and other marketing technologies I.
I think actually you.
You'd be just fine if you did it with the right folks.
You'd be just fine if you did it if you did it with the right folks right.
Right. Do you have any questions about user acquisition in the fourth quarter?
Right right.
<unk>.
And then on user acquisition in the fourth quarter.
Operator: The Clark. Before I turn the call over to Chelsea, I'd like to cover a few quick items. This afternoon, Spark Networks issued a press release announcing its fiscal 2022 fourth-quarter and full-year financial results. This release is available on the company's website at spark.net. 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.
Yes, the direct marketing costs for fourth quarter and we do kind of see that.
Yes.
Marketing costs for fourth quarter.
Underneath that.
Yeah, just under 15 million.
Yes, just under $5 million.
I'm sorry I missed that. Just under $15 million in the fourth quarter, right? We got it.
Sure.
I'm, sorry, I missed that just under three.
For $15 million in the fourth quarter you got it.
Got it.
Got it.
Can you talk a little bit more about what has made you realize Nonzuski is a high ROI brand, or a set of brands and niches, that you're going to allocate more dollars to, but wisely so?
What what Pat.
Can you talk a little bit more about what has made you realized non Xu skus a high ROI brand now or set of brands in niche.
Operator: 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. These forward-looking statements may include comments about the company's plans and expectations of future performance, including comments regarding our review of strategic alternatives. Thank you.
Then youre going to allocate.
More dollars student, but wisely, so yeah, yeah, well I mean, I I mean.
Yeah, well, I mean, I.
I credit David. Yeah, I'm sorry.
Yeah I'm sorry.
No, and you're moving away from, are you moving away from ZUSC or are you finding a new focus on non-ZUSC?
No I know and you are moving away from are you moving away from Zeus are you finding a new focus on ounces.
Yeah.
Yeah, I think it's not moving away necessarily to the point of abandonment. It's just rebalancing where we think the dollars grow legs. Like I said, David has done some work with his group and shown that it's a shorter and more predictable payback period on the non-Zoos side of things. And the LTV over there is just better.
Yeah, Yeah, well I think it's not moving away necessarily to the point of abandonment. It's just rebalancing, where we think the dollar square labs like I said, you know David has done some work with his grip.
Operator: Forward-looking statements are subject to a number of risks and uncertainties, which could cause actual results to differ materially. We 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, March 30, 2023, 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.
And shown that it's that it's a shorter and more predictable payback period on the nonferrous side of things and the L. T V over there as you just get better Bang for your Buck Yeah, and so you know after taking a look at at what he tested out with his with his group that was it felt to us like the move to to go with.
Bang for your buck.
Yeah, and so, you know, after taking a look at what he tested out with his group, it was.
If you have any questions, please feel free to contact me.
It felt to us like the move to go with. And we've talked to other experts who have started to preliminarily - again, as both David and I have said - we're still in the process of assessing. But it looks preliminarily that third-party neutrals agree with us as well. So, it seems intelligent to go down that path.
And we've talked to other experts that have.
Started to preliminarily again, you know as both David and I have said, we're still in the process.
Assessing but it it looks preliminarily that that third party neutrals that great with us as well so.
Operator: Additionally, throughout this call, we will 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.
It seems intelligent to go down that path.
Got it. And then, just last, maybe this is for David. So, you were a net user of operating cash in the fourth quarter. When I think seasonally, it's supposed to be a positive quarter. So, after due diligence, Theeka Bermuda is going to give you - tell me which one you actually.
Got it.
And then just lastly, and maybe this is for David.
You want a net user of operating cash in the fourth quarter.
Operator: With that said, I'll now turn the call over to Chelsea Grayson, CEO of Spartan Networks. Chelsea, please go ahead.
When I think seasonally it's a it's supposed to be a positive quarter.
anything materially different there that happened.
Anything materially different there that happened.
Chelsea Grayson: Thank you, Todd, and good afternoon, everyone. To begin, I'm delighted to tell you today that I've accepted the board's request to become the company's permanent CEO . Over the past four months, I've had the opportunity as an intern... I'm CEO to learn extensively about Sparks' operations, its great brands, and the many opportunities that exist to improve this great company.
No, usually that probably falls out of, there probably was higher spend in the third quarter, there was higher spend in the third quarter and we were just, you know, had had a.
No I, usually that probably falls out of that probably was higher spend in the third quarter. There was higher spend in the third quarter and the fourth quarter and we were just.
You don't have had a.
use of cash to pay off those those payables.
Use of cash to pay off those those payables.
Thanks. I'll get back in line. Thank you for answering my questions.
Got it thanks I'll get back in line. Thank you for answering my questions.
Thanks, Raj.
Thanks Raj.
Chelsea Grayson: But before I discuss those opportunities and our plans moving forward, I'd like to take a few minutes to update everyone on the status of the strategic review process. At this time, the review is still ongoing. We don't have any material updates to share on this call. We do believe the company is in a solid position with a portfolio of well-known brands that drive meaningful relationships and key well-defined vertical niches.
At this time, we are showing no further questions in the queue. I would like to turn the conference back over to management for any closing remarks.
At this time, we are showing no further questions in the queue I would like to turn the conference back over to management for any closing remarks.
Thank you everyone for your interest in Spark Networks, and thank you for joining our call. We'll see you on the next one and have a great day.
Thanks, everyone for your interest in spark networks and thank you for joining our call. We'll see on the next one and have a great day.
The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
Also, check out our works at K Jayd.
Chelsea Grayson: Including the 40-plus demographic, busy and discerning professionals, faith-based affiliations, and people who are looking for long-term committed relationships, we are well-positioned to meet our customers where they're most comfortable and to capitalize on the continued embrace of online dating in the marketplace.
Yeah.
Okay.
the the the the the the.
[music].
Chelsea Grayson: Well, 2022 was a disappointing year for Spark, it's clear to me that Spark is far more than just Zeus. While Zeus Cold's strategic value is in being a large mass-market dating site, we also have a base of quality affinity brands, including Elite Singles, Silver Singles, eDarling, Christian Mingle, and Jdate that are in demand by a large global paying subscriber base.
Chelsea Grayson: Our non-Zeus business is close to 50% of our total revenue, and several of our non-Zeus brands have some of the best returns on capital in our portfolio. Going forward, we have identified several areas where we believe the company can significantly increase cost efficiency and solidify around a lower revenue base, with a well-diversified collection of meaningful key brands.
Yes.
Chelsea Grayson: Our goal is to substantially improve adjusted dividend margins. Improving profitability is our highest priority, and we have already started reviewing areas where we can achieve this by significantly reducing costs, even if doing so may negatively impact our revenue generation for this year. We're targeting at least a 50% increase in adjusted EBITDA in 2023, or 28 million dollars in adjusted EBITDA.
Chelsea Grayson: Going forward, we plan to accelerate our debt paydown with additional free cash flow. Our long-term goal is to achieve and sustain 20...
Chelsea Grayson: To 30% plus adjusted EBITDA margins consistent with industry averages. As such, we plan to continue modernizing our technologies, improving our marketing engagements, and enhancing how we collect and act on data to produce superior products and experiences for every one of our customers. and to do all of that in a much more cost-effective way. Our goal is to create an environment using a combination of social media engagement that positions our brands as welcoming communities for like-minded users. Coupled with contemporary mobile app engagement and supportive technology, we aim to generate a perpetually expanding circle of customers.
Chelsea Grayson: To achieve this, we must improve our product offerings and embrace more effective and modern marketing approaches, both on the marketing technologies and the brand marketing side. On the product front, my goal is for Spark to evolve into a product-first company, focusing on delivering significantly enhanced mobile apps to the market. For far too long, Spark has been web-focused, even as our customers have transitioned away from the desktop model. We plan to solidify around a diversified core of key, meaningful brands with the goal of achieving a trough revenue base in 2023. In parallel, we plan to improve product functionality across the platforms with the goal of improving retention and engagement.
Chelsea Grayson: And important as product initiatives are, we view them as but one critical step in our growth plan for Spark. As I mentioned on my call in January , Spark is dependent on increasingly dated modes of performance marketing. such as the increasingly less effective and expensive affiliate marketing strategy that has been used since the day it was founded. We've already begun to assess. Revamp our marketing approach for all of our products with the goal of taking advantage of more effective and cost-efficient methods of brand and performance marketing.
Chelsea Grayson: For all the work we're doing to create new products, we have to do all we can to ensure that success and widespread adoption once we debut them, but we have to do so in a cost-effective way. We plan to reallocate our capital into more profitable marketing channels and diversify away from affiliate to direct and social channels. As I'm sure many of you have seen, the amount of content we generate and deploy today across free social media platforms has risen significantly in the past couple of months. This is no coincidence. In fact, it's at the core of our focus on leveraging what we consider the broadest-reaching free marketing platforms.
Chelsea Grayson: Doing so significantly increases our ability to direct the content we create to reach the audience with whom we want it to resonate and to repurpose it as much as possible as we focus on increasing our social media presence and brand marketing initiatives. And doing so is meant to reduce our marketing expenses as we reallocate our marketing budget across our highest ROI yields. I hope you can tell how excited I am about the road ahead for Spark.
Chelsea Grayson: As I said at the beginning of my remarks, our highest priorities are to become more cost-efficient and to increase our profitability. We believe the best way to build and sustain shareholder value is to target higher annual adjusted EBITDA margins by right sizing. Our cost structure. Investing in our brands that have the highest ROI, reallocating capital to customer acquisition channels with the highest returns, and strengthening our defined and diverse brand.
Chelsea Grayson: We believe we can improve our products and operations while at the same time increasing our adjusted EBITDA with the initiatives we plan to implement this year. Not least among these is driving additional free cash flow and then deploying that smartly, including by paying down debt. We believe we can improve our products and operations while at the same time increasing our adjusted EBITDA with the initiatives we plan to implement this year.
Chelsea Grayson: With that, I'll ask David Clark, our Chief Financial Officer, to add more color to our financial performance for the quarter and the full year. David? Thank you, Chelsea. Good afternoon, everyone. Revenue for the fourth quarter of 2022 was $41.6 million, compared to $52 million in the fourth quarter of 2021. Revenue for the full year of 2022 was $187.8 million, compared to $216.9 million in 2021.
David Clark: We attribute the year-over-year decrease in total revenue largely to currency fluctuations and lower acquisition spending during this period. On a constant currency basis, revenue for the fourth quarter and the full year 2022 would have been $43.7 million and $197.1 million, respectively. For the fourth quarter, the end-of-period paying subscribers was 713,000, down sequentially from 804,000 in the third quarter. We attribute the quarter-over-quarter decline in paying subs to lower acquisition spend in the fourth quarter.
David Clark: Spark's monthly average revenue per user, or monthly ARPU. Decreased to $18.44 in the fourth quarter of 2022, compared to $20.17 for the same period in 2021. Our POO decreased to $19.29 for the full year 2022 compared to $20.66 in 2021. Now, we attribute the decline in our pool primarily to currency fluctuations. As a point of information, we implemented a price increase on ZUSK in February after thorough testing, and we will continue to explore price increases across our portfolio in 2023.
David Clark: Net loss for the fourth quarter of 2022 was $17.2 million, compared to a net loss of $19.9 million in the same period of 2021. For the full year, net loss was $44.2 million, compared to a net loss of $68.2 million in 2021. Adjusted EBITDA was $11 million for the fourth quarter, a 26% adjusted EBITDA margin compared to the adjusted EBITDA of $14.3 million in the fourth quarter of 2021. Adjusted EBITDA was $18.5 million for the full year of 2022, a 10% adjusted EBITDA margin, compared to adjusted EBITDA of $33 million in 2021. We attribute the year-over-year decrease in adjusted EBITDA primarily to lower revenue generation.
David Clark: Shifting the balance sheet, the company ended the fourth quarter with $11.4 million in cash and a gap debt balance of $94.8 million or net debt of $83.4 million. As a reminder, there is no principal amortization required under the MGP agreement until June of 2023. Looking ahead, as Chelsea noted, we have several changes underway aimed at a stronger product offering and a much-improved marketing engine. Most importantly, we are doing all of this in a much more cost-effective way.
David Clark: However, while we started this process, we were still evaluating how to best make those long-term changes. As such, we feel it is prudent to defer providing formal earnings guidance until we have fully implemented these changes. Having said that, we do believe we can significantly improve our operations and drive at least a 50% increase in adjusted EBITDA, or $28 million in adjusted EBITDA, for the full year, with the initiatives we will implement this year. Our long-term goals are to achieve and sustain 25 to 30 percent or higher adjusted EBITDA margins, consistent with industry averages. We aim to substantially deleverage moving forward with a simpler, more profitable business model.
David Clark: With that, we're happy to take your questions. Operator? We will now begin the question-and-answer section. To ask a question, you may press star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press star then two At this time, we will pause momentarily to assemble the roster.
Operator: And our first question will come from Raj Sharma of B. Riley. Please go ahead. Hi, thanks for taking my question. If I can kind of delve in a little deeper on subscriber growth. With Zoosk and Non-Zoosk, and since you have just realized that Non-Zoosk is an incredibly high ROI brand, how do you see even one of them growing in subscriber growth in Q2? And then I have a follow-up question on your. How should we view direct marketing costs going forward?
CEO & Raj Sharma (analyst): Yeah, I'll, I'll, and I'll turn this over to David since I know he's probably eager to answer. This question, but you know, generally, the way we will get there is by spending our money more efficiently with the non-Zoosk brands. This is because the money just grows legs over there much more efficiently, and those brands' platforms are much stickier. So, once you get people, their affinity increases. sites slash apps.
CEO: and the way the tech has developed and the updated apps that we've launched and are in the process of launching now, it's much easier to get people to not just subscribe but also renew their subscriptions. But I'll turn it over to David for a deeper dive on details there.
David Clark: Yes, I'd say, you know, as Chelsea just mentioned, going forward this year, we are prioritizing profitability and free cash flow. In the past, we had tried to push the envelope to drive Zoosk subscriber growth primarily, but of course, on all platforms. Now, we're going to focus on really receiving payback from customer lifetime value and therefore place more emphasis on the non-Zoosk brands as opposed to Zoosk, to maximize profitability and free cash flow this year.
Raj Sharma (analyst): Uh, how does that? How does that play into the direct marketing costs? Do you see those declining? Where were they, if you can give me the number, where were they for the quarter? And do you see them declining? But that also kind of leads to a decline in revenues. Can you talk about that?
CEO: Yeah, I mean, there's a level below which we can't decline, right? Because... We have agreements with our lender, covenants with the lender. So, unless we had a different agreement there, there's a floor. So barring that, it's about rebalancing. Right? So, it's about spending differently with an intensely increased emphasis on the non-Zeus side of the house. So, my remarks today are. aren't meant to reflect less spending but, differently balanced spending, and more efficient and smarter spending. Updated spending.
CEO: And I don't actually think. I don't think that to the extent. We were able to spend less on UAC, yet that doesn't necessarily presume a direct correlation with a drop in revenue. I think that the more intelligently you spend those dollars, the better you weaponize the content you've got with more modernized performance marketing and other marketing technologies. I think, actually, you. You'd be just fine if you did it with the right folks.
CEO: Right. Do you have any questions about user acquisition in the fourth quarter?
Raj Sharma (analyst): Yes, the direct marketing costs for fourth quarter and we do kind of see that. Yeah, just under 15 million. I'm sorry I missed that. Just under $15 million in the fourth quarter, right? We got it. Got it.
Raj Sharma (analyst): Can you talk a little bit more about what has made you realize Nonzuski is a high ROI brand, or a set of brands and niches, that you're going to allocate more dollars to, but wisely so?
CEO: Yeah, well, I mean, I. I credit David. Yeah, I'm sorry. No, and you're moving away from, are you moving away from ZUSC or are you finding a new focus on non-ZUSC?
CEO: Yeah. Yeah, I think it's not moving away necessarily to the point of abandonment. It's just rebalancing where we think the dollars grow legs. Like I said, David has done some work with his group and shown that it's a shorter and more predictable payback period on the non-Zoos side of things. And the LTV over there is just better. Bang for your buck.
CEO: Yeah, and so, you know, after taking a look at what he tested out with his group, it was. If you have any questions, please feel free to contact me. It felt to us like the move to go with. And we've talked to other experts who have started to preliminarily - again, as both David and I have said - we're still in the process of assessing. But it looks preliminarily that third-party neutrals agree with us as well. So, it seems intelligent to go down that path.
Chelsea Grayson: Got it. And then, just last, maybe this is for David. So, you were a net user of operating cash in the fourth quarter. When I think seasonally, it's supposed to be a positive quarter. So, after due diligence, Theeka Bermuda is going to give you - tell me which one you actually. anything materially different there that happened.
Raj Sharma (analyst): No, usually that probably falls out of, there probably was higher spend in the third quarter, there was higher spend in the third quarter and we were just, you know, had had a. use of cash to pay off those those payables.
David Clark: Thanks. I'll get back in line. Thank you for answering my questions. Thanks, Raj. At this time, we are showing no further questions in the queue. I would like to turn the conference back over to management for any closing remarks. Thank you everyone for your interest in Spark Networks, and thank you for joining our call. We'll see you on the next one and have a great day. The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect. Also, check out our works at K Jayd. the the the the the the.