Spark Networks SE (LOV) CEO Eric Eichmann on Q4 2021 Results – Earnings Call Transcript


Spark Networks SE (NASDAQ:LOV) This autumn 2021 Earnings Convention Name March 14, 2022 5:00 PM ET

Firm Individuals

Todd Kehrli – IR

Eric Eichmann – CEO

David Clark – CFO

Convention Name Individuals

Raj Sharma – B. Riley

Operator

Good afternoon, and welcome to Spark Networks Fiscal 2021 Fourth Quarter and Yearend Earnings Convention Name. All contributors will likely be in a listen-only mode. [Operator instructions] Please be aware, this occasion is being recorded.

I might now like to show the Convention over to Mr. Todd Kehrli. Please go forward, Sir.

Todd Kehrli

Thanks, operator. Good afternoon, and welcome to Spark Community’s fiscal 2021 fourth quarter and yearend earnings convention name. With me on immediately’s name are Spark’s CEO, Eric Eichmann; and Chief Monetary Officer, David Clark.

Earlier than I flip the decision over to Eric, I’d prefer to cowl a number of fast gadgets. This afternoon, Spark Networks issued a press launch saying its fiscal 2021 fourth quarter and full yr monetary outcomes. This launch is obtainable on the corporate’s web site at spark.internet. Moreover, this name is being broadcast reside over the web for all events and the webcast will likely be archived on the Investor Relations web page of the corporate’s web site.

I wish to remind everybody that on immediately’s name, administration will talk about sure elements which can be prone to affect the enterprise going ahead. Any elements mentioned immediately that aren’t historic info, notably feedback concerning our long run prospects and market alternatives needs to be thought-about forward-looking statements. These forward-looking statements could embrace feedback in regards to the firm’s plans and expectations of future efficiency. Ahead-looking statements are topic to a variety of dangers and uncertainties, which may trigger precise outcomes to totally different materially. We encourage all of our listeners to assessment our SEC filings, together with our most up-to-date 10-Ok and 10-Q for an entire description of those dangers. Our statements on this name are made as of immediately, March 14, 2022, and the corporate undertakes no obligation to revise or replace publicly any of the forward-looking statements contained herein whether or not because of new data, future occasions, adjustments in expectations or in any other case.

Moreover, all through this name, we’ll be discussing sure non-GAAP monetary measures. Immediately’s earnings launch and the associated present report on kind 8-Ok, describe the variations between our non-GAAP and GAAP reporting and current the reconciliation between the 2 for the durations reported within the launch.

With that stated, I am going to flip the decision over to Eric Eichmann, CEO of Spark Networks. Eric, please go forward.

Eric Eichmann

Thanks, Todd. Good afternoon, everybody and welcome to our fiscal 2021 fourth quarter and yearend earnings convention name. Thanks for becoming a member of us immediately. Earlier than I recap our progress in 2021, let me inform you why we’re enthusiastic about the way forward for Spark Networks.

At present, our household of manufacturers serve roughly 4 million web page views per day of single trying to find severe relationships and hundreds of thousands of paid subscribers per yr, making Spark the fourth largest on-line subscription-based relationship firm throughout North America and Europe. With this scaled platform, we now have a big progress alternative forward of us and with our new credit score facility in place, we now have the monetary flexibility to start to execute on a robust and properly developed roadmap of methods and investments that we consider will drive progress in 2022 and past.

With the best expertise in place, the best product technique, scalable know-how, and monetary flexibility, we at the moment are properly positioned to return to rising our income.

Now let me present some background on Spark for these of you which can be new to the corporate. Spark is a number one social relationship platform for significant relationships, specializing in the 40-plus demographic and religion primarily based affiliation. The section of the net relationship market is giant and underserved and one of many quickest rising segments of the net relationship market or prime 5 properties, Zoosk, Elite Singles, Silver Singles, Mingle, and Jdate supplies Spark a major alternative for progress as customers are on the lookout for apps that deal in long run relationships, as a substitute of informal relationship.

4 of the 5 properties Elite Singles, Silver Singles, Christian Mingle and Jdate are centered on extra particular segments inside the significant relationship market. Elite Singles and Silver Singles are aimed toward a extra mature demographic that’s rising quickly whereas Christian Mingle and Jdate are concentrating on significant relationships with religion primarily based affiliations.

These 4 manufacturers made up near half of our whole income in 2021, and collectively grew the income 5% and subscribers 3% year-over-year in 2021. With these robust manufacturers and restricted competitors on this rising market section, we’re assured that we will proceed to develop these model’s income in 2022. Zoosk is our fifth and largest model and goal a broader demographic inside the significant class. With 40 million members worldwide, Zoosk is designed to forge significant relationships with different singles utilizing massive knowledge insights from its huge membership base to ship extremely correct and tailor-made matches and to supply social options, to make the relationship journey as seamless as attainable.

Whereas Zoosk income declined year-over-year in 2021, we now have been making the mandatory product enhancements to return Zoosk to income progress in 2022. Within the fourth quarter, we launched a brand new characteristic Zoosk Nice Date to enhance Zoosk Stay or free reside streaming service that’s out there 24X7 on our iOS and Android apps. Obtainable on demand with a subscription Zoosk Nice Date permits you and your match to entry interactive video dates designed to encourage enjoyable dialog and keep away from awkward silences. This primary of its form characteristic is ideal for a low affect first date.

Immediately, subscribers can go on interactive digital dates to 4 thrilling locations Athens, Naples, Kyoto and Paris, which we launched on Valentine’s Day, with extra new areas coming quickly, together with New Orleans and Las Vegas. Now greater than ever, we’re offering our group of singles, new seamless methods to attach nearly and Zoosk Nice Dates is a part of our dedication to assist individuals construct extra significant relationships. Customers which have skilled Zoosk Nice Dates up to now, have supplied robust constructive suggestions on this new characteristic.

With these new innovation, in addition to a number of different merchandise and consumer expertise upgrades delivered through the yr, we now have diminished Zoosk’s income decline and for the second consecutive quarter, we noticed new Zoosk’s natural registrations develop. Within the fourth quarter, Zoosk’s natural visitors grew 8% sequentially and 74% yr over yr.

We’re assured that the enhancements we make to Zoosk in 2021 and can proceed to make in 2022 are enhanced our aggressive differentiation and can drive elevated engagement leading to a return to income progress for Zoosk in 2022. As a matter of reality, up to now in 2022, we now have seen a major acceleration of This autumn to Q1 billings progress versus final yr.

Trying forward, we’re investing in product, know-how, advertising and expertise to seize the big market alternative for Spark. On the product and know-how entrance, we’re working to additional enhance our properties, options and performance. First, we’re putting in a variety of income producing enhancements, comparable to an improved first time consumer expertise, new matching know-how and optimization of fee pages. Second, we’re revamping our apps considerably enhancing the app consumer expertise and app monetization capabilities. Lastly, we’re planning, simplify our know-how platforms complexity by combine our prime 4 non-Zoosk manufacturers on to at least one platform. These ought to result in higher platform stability, diminished know-how prices and an elevated stability to launch new options and functionalities on all manufacturers.

On the advertising entrance, we plan to proceed to optimize our advertising efforts and improve our total advertising spend through the yr. For instance, we now have launched totally automated buyer relationship administration campaigns, permitting us to extend their frequency, which has already resulted in larger billings. Moreover, with our new debt settlement in place, and it is much less restrictive covenant, we anticipate to put money into extra of $110 million in 2022 advertising spend and are exploring extra alternatives to develop our advertising efforts. A lot of those improve in advertising spend will likely be on our renewed give attention to model constructing capabilities, guaranteeing our portfolio of manufacturers clearly talk our distinctive and differentiated model propositions, which in the end ensures our group of singles discover their ultimate matches on our platforms. Lastly, we consider there are alternatives to additional improve our efficiency advertising spend profitably in 2022 past 2021 ranges.

Certainly one of our most necessary methods for progress is investing in expertise to seize Sparks important future potentials, including to our employed CFO and head of brand name advertising, we’re excited to welcome Ken Chin [ph] our new Chief Product Officer who will begin in early Q2. Ken comes with over 20 years expertise in product management for on-line market, eBay and [indiscernible] and e-commerce, Farfetch and World Journey. Additionally Ishant Patel our new Head of Company and Enterprise Growth began in February and comes with intensive expertise in technique and enterprise growth within the media and on-line journey industries.

So to recap, each components of the Spark enterprise immediately are addressing the quick rising significant relationship section of the relationship advertising, representing an over $2.3 billion addressable market. The primary a part of our enterprise, consists of 4 manufacturers that make up near half of our enterprise that grew collectively each their income and subscribers for the total yr 2021. We plan to proceed to speculate advertising {dollars} and product assets in 2022 to extend these model’s share within the markets they serve.

The second half is Zoosk, which can also be addressing the significant market section in addition to the rising class of social discovery, the brand new options and upgrades we make to the platform in 2021 have been properly acquired and we’re beginning to see main indicators of progress. Progress of natural registrations and improve in conversion charges and an acceleration of quarter on quarter progress are clear indicators that the Zoosk turnaround is working. We’re assured in our technique and execution for returning Zoosk to income and subscriber progress in 2022.

For the primary time below my tenure, we now have the monetary flexibility to start to execute on a robust and properly developed roadmap of strategic investments, which ought to additional our capacity to scale. We consider these funding in expertise, product know-how and advertising in 2022, in addition to our place out there will enable us to seize the numerous market alternative we now have in entrance of us and return the corporate to whole income progress in 2022. That is why I’m enthusiastic about the way forward for Sensible Community.

With that, let me flip the decision over to David, who will take us by way of our financials in additional element, after which we’ll take any questions you will have. David?

David Clark

Thanks, Eric. Good afternoon, everybody. I’ll soar proper into the view of our current monetary outcomes. Income for the fourth quarter of 2021 was $52 million in comparison with $58.1 million within the fourth quarter of 2020. And for the total yr income was $216.9 million in comparison with $233 million for the total yr of 2020. 4 of our 5 largest manufacturers, the Elite Single, Silver Singles, Chris Mingle and Jdate, collectively grew 5% through the yr and represented practically half of whole firm income for the total yr.

Lower in whole income through the yr and the fourth quarter is instantly attributable to the lower in Zoosk income and decrease advertising spend due restricted debt covenants in our outdated debt settlement. Adjusted EBITDA was $14.3 million within the fourth quarter of 2021 and that compares to $13.1 million within the fourth quarter of 2020. $33 million for the total yr in comparison with $38.9 million final yr. The yr over yr improve with fourth quarter was on account of expense administration and decrease advertising price on account of covenant directions whereas the yr on yr decreased for the total yr was primarily because of the Zoosk income decline and our elevated product funding through the yr.

For the quarter, common paying subscribers decreased to 858,975 within the fourth quarter of 2021 in comparison with 929,503 for a similar interval in 2020. The lower is primarily a results of constraints on advertising spend and the powerful comp to the fourth quarter final yr, which noticed larger engagement because of the COVID lockdown. Spark’s month-to-month common income per consumer or month-to-month ARPU lower barely to $20.17 within the fourth quarter of ’21 in comparison with $20.82 in the identical interval of 2020. The decline in ARPU was a results of us emphasizing longer length subscriptions.

Internet loss was $9.9 million within the fourth quarter of 2021 in comparison with a internet lack of $45.1 million within the fourth quarter of 2020. The lower in internet loss was primarily on account of a Zoosk impairment cost that was taken in a yr in the past quarter. Fourth quarter working loss decreased $33.6 million yr over yr to $11.5 million. For the total yr, internet loss was $68.2 million in comparison with $46.6 million for 2020 and the rise in internet loss for the yr was pushed by a non-cash hole associated improve earnings tax expense for the total yr.

Tipping to the steadiness sheet, the corporate ended the fourth quarter with $16.1 million of money and excellent debt of $82.1 million or internet debt of $66 million. We proceed to enhance our steadiness sheet having diminished our debt by practically $17 million, starting 2020, together with a $2.6 million discount within the fourth quarter.

As I acknowledged within the final name, one in every of my major goal since becoming a member of the corporate in August of 2021, was to discover debt refinancing alternatives to permit us to put money into rising our companies and our share of the quick rising market. We have been in a position to efficiently refinance our present debt facility to higher fund our progress initiatives in 2022. Below the brand new $100 million debt facility with MGG Funding Group, we have prolonged our maturity dates and improved our covenant flexibility, which is able to enable us to speculate appropriately in rising our enterprise in 2022 and past.

Turning to steering, with half of our enterprise already in progress mode and the opposite half displaying indicators are constructive turnaround, we’re assured in our capacity to return to whole income progress for the total yr 2020. Moreover, we see enhancing COVID atmosphere that is having much less of an affect on our outcomes this yr versus 2021.

Accordingly with our new debt facility in place and skill to speculate, we anticipate to develop our prime line this yr and ship secure adjusted EBITDA margin. We anticipate robust EBITDA money conversion primarily based on the expectation of low legit hundreds of thousands in CapEx and software program capitalization and the truth that we now have collectively over $100 million in tax internet outing loss. Because the yr progresses, we’ll present buyers with extra particular expectations.

In conclusion, we consider Spark represents a really engaging funding alternative with upside potential given its positioning is among the 4 international on-line relationship platform scale with robust manufacturers and a big rising market.

And with that, we’re joyful to take your questions. Operator?

Query-and-Reply Session

Operator

Thanks. We’ll now start the query and reply session. [Operator instructions] And the primary query will come from Raj Sharma with B. RileyRaj. Please go forward.

Raj Sharma

Hello. Good afternoon. Thanks. I wished to grasp there’s nice information on the debt refinance or the rate of interest differential is fairly important. Plus you have paid down some debt and might you give some extra shade on how the refinancing makes it much less restrictive for you on what you might want to do when it comes to the covenants and when it comes to your advertising restrictions?

Eric Eichmann

Yeah. Raj, thanks for the query. It is good to listen to from you. So I am going to, give only a excessive stage after which I am going to cross it on to David to supply some extra of the small print. However mainly in the event you take a look at our outdated debt settlement, we had very strict internet leverage covenants which pushed us to generate profitability within the simplest way for the corporate as we’re a subscription enterprise and we incurred the advertising price earlier than the income is available in, was to chop advertising and in order time glided by, the covenants grew to become tighter and tighter all the way in which to a 1.75 internet leverage covenant and in order that restricted our capacity to develop the enterprise and make investments.

The brand new covenants that we now have within the settlement are rather more versatile and I am going to let David discuss by way of the specifics of the settlement, however total it’s going to enable us, as we stated within the name to put money into the carers that we have to make investments particularly product know-how and advertising.

David Clark

Yeah. Raj, whereas there may be some financial savings within the total curiosity expense, the necessary factor is what Eric simply described when it comes to the pliability to put money into the enterprise, together with in consumer acquisitions, but additionally the opposite means the outdated settlement was form of constraining is nearly all, actually, all the extra money generated by our enterprise was going to our lender, on this case, the way in which the amortization schedule is ready up, there’s really no precept amortization within the first yr of the mortgage. After which it steps as much as about 5% per yr after which finally 10%. So it actually brings us flexibility, not simply on a covenant perspective, but additionally on the flexibility to hold larger money steadiness to be opportunistic within the enterprise going ahead.

Eric Eichmann

And simply possibly to check the online leverage numbers that we now have within the outdated agreements have been about 1.75. Now within the new settlement, I believe 4.5, it is a 4.5. So it is a dramatic distinction and the dramatic distinction when it comes to flexibility for the enterprise and the MTG guys additionally know our enterprise properly, they’re progress oriented. I believe they’ll be good companions going ahead.

Raj Sharma

Obtained it. Thanks for that. And so simply associated to that, I assume your assertion is that you simply wish to spend $110 million on advertising. Is that — so that’s mainly after new restrictions have been lifted. That is how a lot you wish to spend. Are you able to discuss advertising effectivity? And we must assume that this brings in higher revenues, however does it additionally keep type of related EBITDA margins?

David Clark

Yeah. So let me discuss possibly divide the query into three solutions. One is, in the event you take a look at what we did final yr, there have been a number of instances through the yr the place we may spend profitably at related margins the place we could not, or we did not as a result of we had limitations from our debt covenants and in order that’s an space the place we anticipate to see some progress that may occur in our spending.

The second space is model constructing capabilities. So we’ve not actually spent as a result of that was the primary space that we type of diminished our advertising spend when it comes to model constructing. And it is not simply type of working advertisements which can be prime of the funnel, however rather more type of constructing the capabilities on analysis, about positioning our model in social advertising, which we’ve not completed prior to now. And in order that’s one other space of funding that is essential for the corporate and it is more durable to gauge the precise return, however usually over time that is a really excessive return.

And the third space I might say is, we’ve not examined as a lot new channels in our capacity to develop our advertising spend goes to creating positive we check new channels after which as we see issues that work, we scale these issues. And once more, prior to now, that is an exercise that we did not run. So all in all, we anticipate that advertising spend will develop and we talked about 110 that is the place we expect at the very least we will likely be, but when there are extra alternatives, we’ll proceed to take a look at clearly at all times with the parameters that we now have in place round profitability which can be necessary to us.

Raj Sharma

Proper. Thanks. So only a couple extra questions on extra administrative, did you report a contribution margin and contribution greenback quantity for the quarter for the yr and likewise am I lacking there’s some direct advertising prices in gross sales and advertising etcetera type of a breakdown on that. In case you may simply deal with the contribution and what do you suppose that the contribution would keep? The contribution margin would keep secure in fiscal ’22.

David Clark

So that you’re asking what the contribution margin was for full yr,

Raj Sharma

Sure. After which would it not keep secure slash or improve in ’22?

David Clark

So in 2021 for the total yr gross margin on a greenback foundation and gross margin would additionally embrace price for deducted for bank card charges and app retailer charges and likewise knowledge heart charges. So the gross margin within the mixture was greenback quantity about $86 million or — doing this in actual time.

Raj Sharma

I may get these numbers offline.

David Clark

Yeah 40%. So I believe, we anticipate that that is yeah. You heard Eric say that as we take a look at dialing up spend, we’ll be additionally evaluating in opposition to profitability and lifelong buyer worth. So yeah, I might suppose our expectation can be secure, possibly even hopefully enhancing gross margins going ahead, particularly because the yr it lapses. We have a variety of product enhancements we’re implementing closely within the second half of the yr.

Raj Sharma

Proper. After which simply lastly, on Zoosk you acknowledged that natural progress that natural progress at Zoosk is up 70% yr on yr, the visitors progress, clearly will not be been monetize but and indications, your social discovery, your reside streaming or doing properly. They usually convert in some unspecified time in the future, if these have been to transform at your historic charges or at your anticipated charges, what kind of a yr on yr income improve would that translate to for Zoosk. I simply — maybe extra type of qualitative shade can be nice.

David Clark

Yeah. I believe — there is a couple issues which can be thrilling about Zoosk when it comes to interested by the turnaround for it. One is we talked about is natural registrations going up and in order that’s the important thing indicator. Why, as a result of as , know, our advertising spend has been happening and so non-organic registrations have been happening, however seeing that there’s curiosity in Zoosk and there is increasingly more natural registrations is an effective indicator.

The second factor that we talked about is generally from This autumn to Q1, you will have progress simply because Q1 is extra of the excessive season quarter within the business. And this yr we have seen an acceleration of that progress versus what it was final yr. So these two issues are, are good indicators of progress. We’re not but offering steering for Zoosk income progress, however we anticipated to be wholesome progress that might occur someday in we crossed this threshold if you’ll in the course of the yr. In order that’s a superb indication of the place we needs to be going.

Raj Sharma

Nice. Thanks for answering my questions. Once more yeah, I am going to take it offline from you. Thanks.

Operator

[Operator instructions] This concludes our question-and-answer session. I wish to flip the convention again over to Eric Eichmann, for any closing remarks. Please go forward, sir.

Eric Eichmann

All proper. Thanks everybody to your curiosity in Spark Networks. And thanks for becoming a member of our name. Have an important day.

Operator

This concludes our convention name for immediately. It’s possible you’ll now disconnect.



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Spark Networks SE (LOV) CEO Eric Eichmann on Q4 2021 Results – Earnings Call Transcript

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