Spark Networks SE
Q2 2018 Earnings Call Transcript

Published: 30 Aug 2018

[Operator:]

Greetings and welcome to Spark Networks' Half Year 2018 Earnings Conference Call. At this time, all participants will be in listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, today’s conference is being recorded. I would now like to turn the conference over to your host, Robert O'Hare, Chief Financial Officer. Please go ahead.

[Rob O'Hare:]

Thank you for joining us today. I’m Rob O'Hare, Chief Financial Officer for Spark Networks SE. On today's call with me is Jeronimo Folgueira, Spark's Chief Executive Officer. Before we begin, there are a few items I need to cover with you. Today, we issued a press release announcing our first half 2018 financial results. It is available within the Investor Relations section of our company's website at www.spark.net. In the press release and in our prepared remarks from this call, we refer to adjusted EBITDA, which is defined in our SEC filings. Although adjusted EBITDA is a non-IFRS financial measure, we believe it may be useful to investors when evaluating the Company's current financial performance. However, investors should not consider adjusted EBITDA as an alternative to net income, cash flow from operations or any other measure for determining the Company's operating performance calculated in accordance with IFRS. Further, because adjusted EBITDA is not calculated in accordance with IFRS, it may not be comparable to similarly titled measures employed by other companies. A reconciliation of adjusted EBITDA to net income can be found in the consolidated statements of operations included in our earnings release. I would like to remind everyone listening today that any comments made on this call may contain forward-looking information or projections regarding future results or events. We caution you that such statements are in fact predictions that 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 could cause actual events or results to differ materially from these forward-looking statements may be found in the Company's filings with the SEC. Following our prepared remarks, Jeronimo and I will conduct a question-and-answer session. This call is being recorded and will be available for playback on the Investor Relations section of our website for the next two weeks. With that, I will now turn the call over to Jeronimo.

[Jeronimo Folgueira:]

Thanks, Rob, and thanks everyone for joining the call today. We have had a very productive first half of the year and our growth plans are working well. I would like to use the first portion of the call to provide an update on our key growth priorities we outlined in our last earnings call in April. I will then turn the call back to Rob for a discussion on our first half 2018 financial results and an update on our expectations for the second half of 2018 and our preliminary view of 2019. As we discussed a few months ago, we view 2018 as a foundational year for building a strong base for profitable and sustainable long-term revenue growth. We are continuing to focus our growth strategy in three discrete areas. The first is continuing to drive growth for EliteSingles, our largest brand. Secondly, we are making the marketing and product investments and optimization required to stabilize and ultimately grow the JDate, JSwipe and Christian Mingle brands that were added to our portfolio following the close of the merger with Spark Networks Inc. last November. Last but not least, we are investing to grow our brand portfolio with the launch of SilverSingles last December and we are very excited by the results so far and the long-term potential of this new category. From a geographic perspective, we are primarily focusing these initiatives within North America, which accounts for more than half of the US$5 billion global online dating industry. Our largest brand, EliteSingles accounted for nearly 60% of our total revenues in the first half of 2018. For the last three years, expanding Elite’s brands in North America has been the top company priority and the first half of 2018 was no different. On a constant currency basis, Elite North America grew in excess of 16% year-over-year. This growth was offset by a 12% FX headwind as the Euro strengthened significantly versus the US Dollar in the first half of 2018, resulting in a 4% year-over-year revenue growth for Elite North America on a reported basis. While we are pleased to see the continued growth of Elite’s revenue in North America, we are even more excited about our ability to drive an acceleration in subscriber KPIs as Elite's North American brand recognition continues to grow. Our second focus area for 2018 is the stabilization of the JDate, JSwipe and Christian Mingle brands that were added to our portfolio through the merger with Spark Networks Inc. I am pleased with the improvements we have made to these brands following the close of the merger and confident that we can continue to make further improvements. Our initial work has focused on increasing the monetization of the Spark Inc. brands, and we have seen monthly Average Revenue Per User, or ARPU, increase by over 5% since the merger closed. These ARPU improvements helped drive stable revenue in local currency throughout the first half of 2018. Further, we remain confident that the improvement in ARPU, in combination with the other product, marketing and conversion improvements we have implemented will allow us to grow revenue for these brands in the fourth quarter of 2018 and into 2019. This will be the first period of positive year-over-year revenue growth since the first quarter of 2013 for these brands. As we discussed in our last call, we launched SilverSingles in mid-December 2017 to meet the underserved needs of singles over the age of 50. We spoke previously about the strong initial results and today we couldn’t be happier with the performance of this new brand. SilverSingles continues to grow each month and as we exited the first half of 2018, SilverSingles had over 35,000 paying subscribers and contributed 8% of our total revenue in the month of June. Two-thirds of SilverSingles' revenue is generated in North America. We invested nearly €7 million in SilverSingles direct marketing in the first half of the year, resulting in a roughly €4 million net loss in the reported financials for this period. This significant investment was the result of the strong marketing KPIs SilverSingles has demonstrated since the launch. Given the strong growth of SilverSingles throughout the first half of the year, we are confident that the brand will be cash flow break-even in the second half of 2018 and break-even on an Adjusted EBITDA basis in 2019. With our biggest investment period now behind us and the brand continuing to perform, we are very optimistic about the long-term revenue and profitability potential of SilverSingles, particularly in North America. Rob will provide a more detailed look at our financials in a moment, but I will close with this. While there is a lot of work left to do at Spark, it's encouraging to see results that confirm our growth initiatives are working. We are very excited by the results we have seen so far in 2018 and we are confident that we can continue to grow the business into 2019 and beyond at healthy rates and with increasing profitability. With that, I’ll now turn the call over to Rob.

[Rob O'Hare:]

Thanks, Jeronimo. I am going to share some additional color on our first half 2018 results. As a reminder, the first half of 2018 was our first six months reporting period to include the full impact of Spark Networks Inc. results and will affect the comparability of pre-merger periods. Starting with revenue, we finished the first half of 2018 with €53 million of total revenue, an increase of 25.9%, compared to the six months ended June 30, 2017 and a 21.8% increase from the six months ended December 31, 2017. The year-over-year and sequential increases were driven by growth in our average paying subscribers resulting from marketing efforts in North America and the addition of JDate, JSwipe and Christian Mingle following the Affinitas-Spark merger in November 2017. Revenue in the six months ended June 30, 2018 includes €9.9 million of post-merger revenue from Spark, net of a €289,000 write-off of contracts liabilities relating to the Affinitas / Spark Merger. Moving down the income statement, contribution was €20.4 million for the six months ended June 30, 2018, an increase of 39.7%, compared to the six months ended June 30, 2017 and a 16.5% increase from the six months ended December 31, 2017. Our contribution margin increased to 38.5% from 34.7% in the six months ended June 30, 2017 and decreased from 40.3% in the six months ended December 31, 2017. The year-over-year margin expansion was primarily driven by revenue growth in North America. North America contribution margin increased to 36.4% from 15.8% in the six months ended June 30, 2017. Contribution in the six months ended June 30, 2018 includes €8.2 million of post-merger contribution from Spark, net of a €289,000 write-off of contract liabilities relating to the Affinitas / Spark Merger. For the first half of 2018, adjusted EBITDA excluding non-recurring charges was €2.4 million, an increase of €62,000 versus the six months ended June 30, 2017 and a decrease of €1.8 million from the six months ended December 31, 2017. Turning to the balance sheet, Spark ended the first half of 2018 with €8.1 million in cash and cash equivalents, compared to €6.7 million in mid-year 2017. On June 30, 2018, the Group had €14 million of debt outstanding stemming from the €15 million term loan we raised at the end of March 2018. Today we have an additional €10 million of undrawn committed capital via our revolving credit facility and an incremental €35 million via an uncommitted acquisition facility. Now let's review our expectations for 2018 and 2019. In our last earnings call in late April, we set US Dollar-denominated revenue and adjusted EBITDA ranges for 2018 of $127 million to $133 million and $13 million to $18 million respectively. These ranges assumed the US Dollar to Euro exchange rate at the time of the announcement of $1.23 per Euro. The implied Euro-denominated 2018 guidance ranges would therefore have been

[Rob O'Hare:]

Yes, sure. Thanks everyone for listening in and we look forward to connecting with you again on our next earnings call. Thanks.

[Operator:]

This will conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.