Spark Community SE (NASDAQ:LOV) This fall 2022 Earnings Name Transcript

Spark Networks SE (NASDAQ:LOV) This fall 2022 Earnings Name Transcript March 30, 2023

Operator: Good afternoon, and welcome to Spark Community’s fourth quarter and full yr 2022 convention name. All members can be in listen-only mode. Please observe, this occasion is being recorded. I’d now like to show the convention over to Todd Kehrly of MKR Investor Relations. Please proceed.

Todd Kehrly: Thanks, operator. Good afternoon everybody, and welcome to Spark Networks’ fiscal 2022 fourth quarter and year-end convention name. Becoming a member of me on immediately’s name are Spark’s CEO, Chelsea Grayson; and Chief Monetary Officer, David Clarke. Earlier than I name Chelsea, I wish to cowl a number of fast gadgets. This afternoon, Spark Networks issued a press launch saying its fiscal 2022 fourth quarter and full yr monetary outcomes. This launch is on the market on the corporate’s web site at spark.web. As well as, this name is being broadcast reside over the Web for all events, and the webcast can be archived on the Investor Relations web page of the Firm’s web site. I want to remind everybody that on immediately’s name, administration will talk about some points which will affect the enterprise going ahead.

Any issues mentioned immediately that aren’t historic data, significantly feedback about our long-term prospects and market alternatives, ought to be thought-about forward-looking statements. These forward-looking statements might embrace feedback in regards to the Firm’s plans and expectations of future efficiency, together with feedback concerning our evaluation of strategic choices. Ahead-looking statements are topic to numerous dangers and uncertainties, which may trigger precise outcomes to vary materially. We encourage all of our listeners to evaluation our SEC filings, together with our most up-to-date 10-Okay and 10-Q, for a whole description of those dangers. Our statements on this name are made as of immediately, March 30, and the Firm undertakes no obligation to revise or replace any forward-looking statements contained herein, whether or not on account of new data, future occasions, adjustments in expectations or in any other case.

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Moreover, all through this name, we are going to talk about sure non-GAAP monetary measures. At this time’s earnings launch and present report on Type 8K describe the variations between our non-GAAP and GAAP reporting and current a reconciliation between the 2 for the intervals reported within the launch. With that mentioned, I’ll now flip the decision over to Chelsea Grayson, CEO of Spark Networks. Go forward, Chelsea.

Chelsea Grayson: Thanks, Todd, and good afternoon, everybody. To start with, I’m happy to tell you immediately that I’ve accepted the Board’s request to turn into the Everlasting CEO of the Firm. During the last 4 months, I’ve had the chance as interim-CEO to be taught extensively about Spark’s operations, its nice model, and the various alternatives that exist to develop this nice firm. However earlier than I speak about these alternatives and our plans transferring ahead, I wish to take a couple of minutes to replace everybody on the standing of this strategic evaluation course of. Right now, the evaluation continues to be ongoing. We wouldn’t have any materials updates to share on this name. We consider the corporate is in a robust place with a portfolio of well-known manufacturers that drive significant relationships in key particular vertical niches with the over 40 inhabitants, busy and discerning professionals, faith-based associates and people searching for Lengthy-term dedicated relationships and assembly our clients the place they’re most snug and well-positioned to capitalize on the continued embrace of on-line courting within the market.

Though 2022 was a disappointing yr for Spark, it is clear to me that Spark is rather more than simply Zoosk. Whereas this chilly strategic worth is a big mass market courting web site, we’ve a base of high quality affinity manufacturers together with EliteSingles, SilverSingles, Ederling, Christian Mingle and Jadet which are in demand by a big international paying clientele. Our non-Zoosk enterprise accounts for near 50% of our whole income and a number of other of our non-Zoosk manufacturers in our portfolio have among the finest returns on capital. Going ahead, we’ve recognized numerous areas the place we consider the corporate can considerably improve price effectivity and strengthen a decrease income base with a well-diversified assortment of core significant manufacturers, aiming to considerably enhance adjusted EBITDA margins.

Bettering profitability is our high precedence and we’ve already begun reviewing areas the place we will obtain this by considerably decreasing prices though doing so might negatively affect our income technology for this yr. We’re concentrating on not less than a 50% improve in Adjusted EBITDA or $28 million in Adjusted EBITDA in 2023. Going ahead, we plan to speed up our debt repayments with extra free money circulate. Our long-term aim is to realize and preserve adjusted EBITDA margins of 25% to 30% plus, according to the trade common. As such, we plan to proceed to modernize our applied sciences to enhance our advertising engagement and enhance how we acquire and course of knowledge to create superior merchandise and experiences for every of our clients, and to take action at a way more reasonably priced price. the way in which

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Our mission is to create an setting by way of a mixture of social media engagement that positions our manufacturers as a welcoming group for like-minded customers and modern cellular app engagement and enabling applied sciences to create an ever-expanding circle of shoppers. To attain this, we should enhance our product choices and undertake more practical and trendy advertising strategies, each when it comes to advertising expertise and model advertising. On the product entrance, my aim is to evolve Spark right into a product-first firm targeted on delivering considerably enhanced cellular apps to the market. Spark has been internet targeted for a very long time. Whilst our clients transfer away from the desktop mannequin, we plan to consolidate round a diversified core of core significant manufacturers and purpose to realize a real income base by 2023.

In parallel, we plan to enhance product performance throughout platforms with the aim of enhancing retention and engagement. As vital as product initiatives are, we see them as only one vital step in our development plan for Spark. As I discussed in my name in January, Spark’s efficiency relies on more and more dated modes of promoting, such because the more and more much less efficient and costly online marketing techniques which were used since its inception. We’ve got already begun evaluating and restructuring our advertising strategy for all our merchandise with the purpose of leveraging more practical and cost-effective modes of name and efficiency advertising. With all of the work we do to develop new merchandise, we should do all the things we will to make sure their success and widespread adoption as soon as they debut.

However we’ve to do it in a cheap method. We plan to reallocate our capital to extra worthwhile advertising channels and diversify from affiliate to direct and social channels. As I am positive a lot of you will have seen, the quantity of content material we create and place on all three social media platforms immediately has grown considerably over the previous few months. That is no coincidence. The truth is, it is on the coronary heart of our focus and what we take into account to be three broad advertising platforms. Doing so considerably will increase our capacity to handle the content material we create to achieve the viewers we would like it to resonate with, and to revitalize it as a lot as doable, as we give attention to rising our social media presence and model advertising initiatives.

And doing so means decreasing our advertising spend as we reallocate our advertising price range round our highest ROI yields. I hope you possibly can inform how excited I’m in regards to the highway forward for Spark. As I mentioned initially of my feedback, our high priorities have gotten less expensive and rising our profitability. We consider the easiest way to create and maintain shareholder worth is to focus on greater annual adjusted EBITDA margins by right-sizing our price construction, investing in our manufacturers which have the very best ROI, reallocating and strengthening capital to buyer acquisition channels with the very best returns. Our defining and various model. We consider we will enhance our merchandise and operations, whereas additionally rising our Adjusted EBITDA by way of the initiatives we plan to implement this yr, not the least of which is driving extra free money circulate after which deploying it neatly, together with Loans with fee

With that, I will ask our Chief Monetary Officer, David Clarke, so as to add extra colour round our monetary efficiency for the quarter and the total yr. David?

David Clark: Thanks, Chelsea. Good afternoon everybody. Income for the fourth quarter of 2022 was $41.6 million in comparison with $52 million for the fourth quarter of 2021. Income for the total yr 2022 was $216.9 million in comparison with $187.8 million. Primarily as a consequence of forex fluctuations and low acquisition prices throughout this era. Revenues for the fourth quarter and full yr of ’22 would have been $43.7 million and $197.1 million, respectively, on a continuing forex foundation. Paying clients had been 713,000 on the finish of the fourth quarter, down sequentially from 804,000 within the third quarter. We attribute the quarter-over-quarter decline in Subs’ payout to decrease acquisition prices within the fourth quarter.

Spark’s month-to-month common income, or month-to-month ARPU, fell to $18.44 within the fourth quarter of 2022, in comparison with $20.17 for a similar interval in 2021. ARPU for the total yr 2022 fell to $19.29 in comparison with $20.66 in 2021. . As some extent of reference, we applied value will increase on Zoosk in February after full testing, and we are going to proceed to discover value will increase throughout our portfolio in 2023. Web loss was $17.2 million within the fourth quarter of 2022 in comparison with a web lack of $19.9 million in the identical interval of 2021. For the total yr, web loss was $44.2 million in comparison with a web lack of $68.2 million in 2021. Adjusted EBITDA for the fourth quarter was $11 million, a 26% adjusted EBITDA margin in comparison with adjusted EBITDA of $14.3 million within the fourth quarter of 2021.

Adjusted EBITDA for the total yr 2022 was $18.5 million with a ten% adjusted EBITDA margin in comparison with adjusted EBITDA of $33 million in 2021. We attribute the year-over-year lower in Adjusted EBITDA primarily to decrease income technology. Shifting to the stability sheet, the corporate ended the fourth quarter with $11.4 million in money and a GAAP debt stability of $94.8 million, or web debt of $83.4 million. As a reminder, no principal repayments are required underneath the MGG contract till June 2023. So Chelsea famous that numerous adjustments are underway aimed toward a stronger product providing and a a lot improved advertising engine, and most significantly, a cheaper method to take action. Nevertheless, whereas we’ve begun this course of, we’re nonetheless evaluating how finest to make these long-term adjustments.

As such, we really feel prudent to offer additional earnings steerage till we absolutely implement these adjustments. Having mentioned that, we consider we will considerably enhance our operations and obtain not less than a 50% improve in Adjusted EBITDA for the total yr or $28 million in Adjusted EBITDA with the initiatives we are going to implement this yr. Our long-term targets are to realize and preserve adjusted EBITDA margins of 25% to 30% plus, according to the trade common. We intend to deleverage considerably to maneuver to an easier, extra worthwhile enterprise mannequin. With that, we’re joyful to take your questions. operator?

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