Spark Networks SE
Q1 2013 Earnings Call Transcript

Published: 23 Apr 2013

[Operator:]

Greetings, and welcome to the Spark Networks First Quarter 2013 Earnings Call. [Operator Instructions] It is now my pleasure to introduce your host, Josh Kreinberg, General Counsel of Spark Networks. Thank you, Mr. Kreinberg, you may begin.

[Joshua A. Kreinberg:]

Thank you for joining us today. I'm Josh Kreinberg, General Counsel for Spark Networks. On today's call are Greg Liberman, our Chief Executive Officer; and Brett Zane, our Chief Financial Officer. Before we begin, there are a few items that I need to cover with you. Today, we issued a press release announcing our first quarter financial results. It is available on our company's website at www.spark.net in both the Investor Relations and Media Center sections. In the press release and our prepared remarks on this call, we will refer to adjusted EBITDA, which we define as earnings before interest, taxes, depreciation, amortization, stock-based compensation, asset impairments, noncash currency translation adjustments for intercompany loans and the income recognized from noncash assets received in connection with the legal judgment. Although adjusted EBITDA is a non-GAAP 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 GAAP. In addition, because adjusted EBITDA is not calculated in accordance with GAAP, it may not be comparable to similarly titled measures employed by other companies. A reconciliation of EBITDA and 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 within the meaning of the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. Such information is subject to the risks and uncertainties described in the company's news releases and securities filings. The information on this call shall not constitute an offer to sell or the solicitation of an offer to buy our securities. As a result of our recent SEC filings, we are now in a quiet period and are unable to respond to questions after our prepared remarks. This call is being recorded. At this time, I will turn the call over to our Chief Executive Officer, Greg Liberman.

[Gregory R. Liberman:]

Thanks, Josh. Good afternoon, everyone, and thank you for joining us on today's call. We appreciate your continued interest and support and look forward to sharing our first quarter results with you today. As we last spoke, just over 6 weeks ago, and the business continues to perform as expected, we will keep today's remarks fairly brief. And as Josh mentioned, since we are not a quiet period, we will not be taking any questions on today's call. As our results clearly demonstrate, we continued to deliver against the strategic plan we have articulated for you over the past several quarters. The momentum we've built throughout 2012 continued into the first quarter of 2013 with the company achieving a number of new records. For Q1, revenue totaled $17.3 million, up 19% year-over-year and 6% sequentially, marking our ninth consecutive quarter of year-over-year and 10th consecutive quarter of sequential revenue growth. That revenue growth was driven by the continued growth of our subscriber base as the average paying subscribers increased another 23% to end the quarter at nearly 300,000, setting another all-time high. Powering our results were the performances of our Christian Networks and Jewish Networks segments, led by our category leading ChristianMingle and JDate brands. Once again, Christian Networks set new records for revenue in average paying subscribers, delivering double-digit percentage increases on both fronts despite their much higher comparative basis. And while Christian Networks continue to grow, Jewish Networks continue to generate cash as it maintained its consistent operating performance, generating contribution margin of nearly 90% for yet another quarter. Looking a little closer at our growth engine, Christian Networks revenue grew 45% to total $9.9 million, while average paying subscribers grew another 51% to end the quarter at 187,000. As I've stated before, although we are pleased about what our Christian Networks segment has achieved to date, we remain even more excited about the significant opportunity ahead of us. Our Christian Networks fees thus remained unchanged, and we will continue to invest in the future growth of the business not only by way of direct marketing spend, but also by further strengthening our relationships in the Christian community and enhancing our products to better serve our current and potential members. And while we continue to meaningfully invest in the Christian Networks segment, the first quarter marked a significant milestone for us as our revenue growth outpaced the growth of our direct marketing investment. As a result, despite record-high direct marketing spend of $11.7 million, segment contribution margin in the quarter improved 38%, demonstrating a leverage inherent in our business model. That being said, I will reiterate that we intend to continue to invest in our business to drive long-term, sustainable growth for Christian Networks and the company. Before touching on JDate for a moment and then turning the call over to Brett, I want to spend just a few moments talking about mobile, which continues to be a key area of focus as people access our communities increasingly via mobile devices. For the first quarter, mobile log-ins on ChristianMingle grew 63% and now comprise approximately 40% of all log-ins to the community. And we saw a very similar trend on JDate, where mobile log-ins grew 66% and accounted for nearly 1/4 of all log-ins. We continue to believe that enabling people to access our communities via multiple platforms, whether they be desktop or mobile, tablet, phone or other emerging devices, is critical. And to that end, I am pleased to announce that this month, we soft launched our first native mobile application for ChristianMingle. The ChristianMingle companion app that we designed to further enhance our members' experience and engagement with us not only represents our first native application for ChristianMingle, but also the first app we have developed specifically for the Android platform. Looking ahead, we plan to continue to expand our mobile footprint with special emphasis on our key Christian and Jewish communities. And speaking of our Jewish communities, as I said earlier, contribution margin for the Jewish Networks segment remained exceptional, and it's customary, nearly 90% for the first quarter. In addition, Jewish Networks' sequential performance during the first quarter of 2013 on both the revenue and paying subscriber front exhibited solid year-over-year improvements compared to the comparable period last year. We are pleased with our ability to stabilize our Jewish Networks business, whose mature cash flow generating characteristics enable us to continue investing in other growth opportunities like our Christian Networks business. To wrap up, we are excited to have gotten out of the gate so quickly in 2013, look forward to building upon the positive momentum throughout the year and, of course, we'll keep you updated on our progress along the way. With that, I will now turn the call over to Brett to discuss our first quarter financial results in greater detail.

[Brett A. Zane:]

Thank you, Greg. Revenue in the first quarter of 2013 was $17.3 million, a 19% increase from the $14.6 million reported in the first quarter of 2012. The increase was driven by higher subscription revenue from the Christian Networks segment. Christian Networks revenue increased 45% to $9.9 million in the first quarter of 2013 compared to $6.9 million in the first quarter of 2012. The higher Christian Networks revenue reflects a 51% increase in average-paying subscribers. The higher-paying subscriber count was primarily driven by 20% increase in year-over-year direct marketing investments and in the increasing number of win back and renewal subscribers. While ARPU also increased on a sequential basis, it dipped by approximately 3% on a year-over-year basis in Q1 2013. The slight drop in ARPU reflects a shift in our paying subscriber base for longer-term plans. Jewish Networks revenue decreased 2% to $6.5 million in the first quarter of 2013 compared to $6.6 million in the first quarter of 2012. The lower revenue primarily reflects a 1% decrease in average paying subscribers and ARPU. As with the Christian Networks ARPU, the Jewish Networks ARPU decline is primarily a result of the shift in our subscriber base to longer-term plans in the first quarter of 2013. That being said, for the first time since 2008, our first quarter net cash sales for Jewish Networks grew on a year-over-year basis. Total company contribution was $4.6 million in the first quarter of 2013, a 26% increase from $3.6 million in the first quarter of 2012. The increase was driven by higher Christian Networks contribution. Christian Networks contribution improved to a loss of $1.8 million in the first quarter 2013 from a loss of $2.9 million in the first quarter of 2012 despite a 20% increase in our marketing spend. Jewish Networks contribution decreased 1% to $5.7 million in the first quarter of 2013 from $5.8 million in the first quarter of 2012, reflecting a slight decrease in recognized revenue that I've described earlier. Cost and expenses in the first quarter of 2013 increased 16% to $20.1 million compared to $17.3 million in the first quarter of 2012. The increase was primarily attributable to a $1.8 million increase in cost of revenue, a $289,000 increase in sales and marketing and a $696,000 increase in G&A expenses. Cost of revenue increased 15% to $13.7 million from $11.8 million in the first quarter of 2012. The increase was driven by a $1.9 million increase in direct marketing investments for the Christian Networks segment. Sales and marketing expenses increased 30% to $1.3 million in the first quarter of 2013 compared to $973,000 in the first quarter of 2012, reflecting higher compensation expenses and placement fees. Compensation expense and placement fees increased by approximately $200,000 as we continue to execute our plans to expand our product, customer acquisition and community management teams. G&A expenses increased 31% to $2.9 million in the first quarter of 2013 compared to $2.2 million in the first quarter of 2012, reflecting higher legal and accounting expenses. Legal fees increased by approximately $480,000, reflecting both litigation costs, as well as costs associated with our recent SEC filings, including our proxy statement, which we filed earlier this year than we did last. We do not anticipate similar increases in legal fees for the remainder of the year. Additionally, our accounting fees increased by approximately $73,000, reflecting the cost associated with some tax planning projects and our SEC filings. We believe any increases in accounting fees will be much more muted for the remainder of the year as a majority of the work required to be performed for those specific projects occurred in the first quarter of 2013. Adjusted EBITDA in the first quarter of 2013 was a loss of $2.2 million compared to a loss of $2.1 million in the first quarter of 2012. Net loss in the first quarter of 2013 was $3 million or $0.14 per share compared to a net loss of $1.7 million or $0.08 per share in the first quarter of 2012. Weighted average shares outstanding for the first quarter of 2013 and 2012 were approximately $21 million and $20.6 million, respectively. Capital expenditures in the first quarter of 2013 were $484,000 compared to $649,000 in the first quarter of 2012. In the first quarter of 2012, we purchased more computer hardware relative to the first quarter of 2013. That concludes our prepared remarks. As Greg and Josh mentioned earlier, we will not be entertaining questions on today's call, but thank you for joining us today.

[Operator:]

This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.