This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk03: Good morning, ladies and gentlemen, and thank you for waiting. Welcome to Spark Network's conference call to provide the company's results for the first quarter 2021 financial results. This conference call is being recorded. We are broadcasting live in listen-only mode. I would now like to turn the conference over to Chris Kamara, VP, Vice President of Investor Relations. Mr. Kamara, you may begin your conference.
spk01: Thank you, Operator. Thank you, everyone, for joining us on this call. On the call with me is Chief Executive Officer, Eric Eichmann. Earlier today, we published our first quarter 2021 financial results, which can be found on our investor relations section of our company's website at www.spark.net. I'd 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 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, management will conduct a brief question and answer session. This call is being recorded and will be available for playback on the investor relations section of our website. With that being said, I would now like to turn the call over to Mr. Eric Eichmann, CEO of Spark Networks. Eric, please go ahead.
spk04: Thank you, Chris, and thank you all for joining us on the call today. I'm excited to talk to you today as it is our first quarterly earnings report as a domestic filer. We are now reporting on a quarterly basis, providing investors with increased transparency on our business performance and allowing us to more actively build a diversified shareholder base. We have updated our investor presentation, highlighting Spark's large opportunities for future growth. We will be unveiling this presentation later this week at our first of several institutional investor conferences. The updated presentation will also be available on our website. As COVID restrictions continue to relax, more singles are starting to date offline. Social distancing and lockdowns have accelerated the adoption of new online social interactions, and many of these will continue to be part of everyday life. One area that shows a great deal of staying power is social discovery. For those of you that don't know, social discovery is where people leverage online activities, social media, and other communication platforms to forge new relationships with people, and expand their social networks. In the context of dating, activities such as gaming or video streaming allow users to connect in an informal way without the added stress of a real date. The social discovery market has tremendous potential, with some analysts projecting that the market could eventually reach twice the size of the entire online dating market. Our stated goal is to be the leader in social dating for meaningful relationships. Augmenting our user experiences with social discovery features is a primary objective for 2021. Earlier this year, we announced that we would deliver live streaming video to our largest brand, Zoosk, via an agreement with the Parship Meet Group. We are on track to launch this functionality in early Q3. Live streaming should help Zoosk expand its user base, improve engagement, and increase revenue. We're also working on adding social discovery features to our other key brands, Silver Singles, Elite Singles, and Christian Mingle. Another area of focus is enhancing our core brand's products. We are expanding safety features, revitalizing our brands with compelling new designs, implementing a stronger CRM strategy and improving matchmaking algorithms. We believe that these updates will enrich the user experience and ultimately increase engagement and customer satisfaction. We now have half of our users experiencing these new designs on Zoosk and Elite Singles and user feedback is positive. We expect to fully roll these out to our audiences in Q2. Lastly, we are focused on delivering organic growth. Our target market is meaningful relationships, mostly focused on the 40-plus demographic and faith-based interests. These segments are growing at 7% faster than the overall market. We expect Zoosk, our largest brand with approximately 50% of revenues, to start growing organically by the end of the year. Elite Singles Silver Singles and Christian Mingle, our next three largest brands, should continue to grow organically this year. Now, turning to our financials. Revenue for the first quarter of 2021 was 56.4 million, a decrease of 1.3 million compared to 57.7 million in the first quarter of 2020. The decrease in revenue was attributable to the 3% decrease in the number of average paying subscribers, specifically driven by Zoosk. Our three largest legacy brands, Silver Singles, Elite Singles, and Christian Mingle, collectively grew by low double digits in the North American market. Adjusted EBITDA was $4.8 million in the first quarter of 2021. a decrease of 2.7 million compared to the 7.5 million in the first quarter of 2020. The year-over-year decrease is mainly due to the revenue decrease stated above, a decline in non-priority markets such as Eastern Europe, and headcount increases in G&A, product, and tech areas. Marketing contribution for the first quarter 2021 was $26 million compared to $27.8 million during the same three-month period in 2020. The 6.6% decrease is the direct result of our revenue decline and impact from non-priority geography. Turning to our key performance indicators, average paying subscribers decreased by 27,837, or 3%, to $896,344 in the first quarter of 2021, compared to $924,181 in the same period of 2020. SPARC's monthly average revenue per user, or monthly ARPU, increased slightly to reach $20.97 in the first quarter of 2021, compared to in the same period of 2020. Net cash used in operating activities was 0.4 million during the first quarter of 2021 compared to 4.3 million during the same period 2020, a decrease of 3.9 million. This change is attributable to an increase in accounts payable and an increase in deferred revenue. Net loss was $6.5 million in the first quarter of 2021, an increase of $2.7 million compared to net loss of $3.8 million in the first quarter of 2020. The increase in net loss was primarily driven by a decrease in contribution and increases in G&A, tech, and product personnel expenses. Shifting to the balance sheet, The company ended the quarter with $17.3 million in cash and $96.1 million in debt. As of March 31, 2021, we are reporting equity of $91.8 million compared to about $94.9 million as of December 31, 2020. As of March 31, 2021, the company's long-term debt position stands at $101 million These figures are in line with our expectations, and we are reiterating our previously stated 2021 guidance of $238 to $244 million in revenues and adjusted EBITDA of $33 to $36 million. As for the second quarter 2021, we anticipate revenue in the $54 to $56 million range and adjusted EBITDA of $6. to 7 million. Finally, just one quick note to mention that while we are not making any announcements today, we are making good progress in our CFO search. I am pleased with the business current trajectory. We are making good progress towards becoming the leaders in social dating for meaningful relationships. We are adding social features to a user experience and making significant product improvements to our platform. We have a large opportunity in the fast-growing 40-plus and faith-based relationship segment, which combined with our strong brands and product improvements should allow us to grow for years to come. This concludes our prepared remarks. Now, let me turn the call over to the operator to take your questions. Operator.
spk03: Thank you. At this time, we'll be conducting a question-and-answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from Austin Moldau with canachorgenuity. Please proceed with your question.
spk06: Hi, thanks for taking my questions. The first one's on new social features. Can you give a little bit more detail on the features that you expect to be implemented in the remaining part of the year on the non-Zeus core brands?
spk00: Okay. Well, thank you, Austin.
spk04: Appreciate the question. So, as you know, on Zoosk, we are launching and we're expecting Q3 of things going as expected to launch live streaming, so we're excited about that. And without sort of providing any particular expectation on the other brands, some of the things that we're looking at are things like gaming content, Christian content for uh christian mingle uh you know potentially virtual tours that we would offer for people to either date or you know meet people uh it could be a good date there are other things that are also uh possible like a movie night uh that could be out there and again these things are things that uh we're looking for uh third-party partners to work with uh to augment the features that we have on our brand so we're excited because there's actually quite a bit of companies out there that are interested in being able to reach daters, single people, to drive some of these activities. So it's going to be a combination of these things, and we'll prioritize as we go throughout the year.
spk06: Got it. Given that your focus is on the 40-plus age group, faith-based, how does Zoosk fit into that portfolio longer term? And can you maybe talk through what Zoosk's current demographic snapshot is?
spk04: Yeah, so it's a great question. So Zoosk actually fits very well into that. Zoosk is about meaningful, sort of serious relationships. The average age, and there's a broad sort of range. So when we say 40 plus, we don't mean that, you know, there can be somebody that's 27 that might be uh interested in being on our properties so but we have an average age of about 42 um on zoosk uh so it fits well that demographic uh that we're talking about and it's also all about sort of finding a relationship long term right and so that's one of the things that makes uh a difference zoosk is about sort of a fun environment when you find sort of real people. And that's one of the promises we're delivering on. And the integration of live streaming talks very well to the fun part of this, which is something we hear from our users when we ask them, what does this mean for you? So it's very much within the definition of 40 plus.
spk06: Okay. Thanks for taking my questions.
spk04: Yep. Thank you.
spk03: Our next question comes from Kara Anderson with B Reilly Securities. Please proceed with your question.
spk02: Hey, Eric.
spk03: Hello.
spk02: So with better visibility with now the first quarter behind us and 2Q guidance, can you just provide a little bit more detail around the thoughts behind the second half of the year that get you to the full year guidance?
spk04: Yeah, so appreciate that question. Obviously, look, when we thought about this year and we've talked, obviously, our guidance for the year is a guidance that shows year-over-year increase in our revenues. And a big part of that comes from the work that we've been doing sort of last year and the work that we're doing this year around improving our products and improving our marketing. Those things start coming in. uh in q1 and q2 and so more of that impact sort of uh comes out in q3 and q4 and that's why when you if you if you do the numbers and i just don't have the exact numbers in front of me but if you take the guidance that we have for q2 plus the results from q1 we have a bit of an acceleration for q3 and q4 and that's expected uh so so no no there's no change in expectations For more part, we're going to launch live streaming that has a revenue stream associated with it. We're launching, as I mentioned in the script, we're launching the new designs, which we've seen very good results with. We're continuing to improve and optimize our properties with a new CRM strategy, with funnel and price optimization. A lot of those things are work now that we expect to have an impact. in Q3 and Q4. And so that's why, you know, in part, what you see is a bit of an acceleration towards the end of the year. And a lot of those improvements come on ZUSCs, too. So, you know, we announce and we're reiterating today that we expect ZUSCs to, by the end of the year, be growing organically, which, as you know, is one of the main reasons why we still have a bit of a decrease on our top line this quarter versus last year. Does that make sense?
spk02: Yeah. And just to follow up on that, on one point, the live streaming revenue associated that you expect to be associated with it for Zeus, I guess, like, what does that ramp look like? Is this meaningful contributions? And, you know, what are you drawing from, from other experiences, people have added this in terms of how that ramp?
spk04: Yeah. So, so Zeus of all of our brands, like if you think about our brands are mostly about subscription, uh, revenues in Zeus, he's the one that has more pay as you go, uh, revenue. So we expect that, you know, live streaming would be a good sort of element. He might actually increase engagement and might lead also to, uh, higher subscription revenue. But, uh, we haven't accounted for that at this point. So our expectation is that we will be, uh, Let's see, a large part of our revenue base for Zeus, but a meaningful one in terms of sort of providing a difference in terms of the top line. But beyond the revenue, which of course is important, what we're hoping to have as we sort of start deploying a lot of these social discovery features is really making our platforms a lot more engaged there's always going to be something going on at Zeus so you know whereas in the past you might come to Zeus because we're prompting you because you found a match now you can come at any time because there's something going on there's live streaming going on and you can meet people in this sort of comedy club type environment which live streaming is so you know there's There's expectations on revenue, but importantly, there's also expectations on engagement and sort of what people will do on Zoosk and how much the platform will improve in terms of customer satisfaction and engagement.
spk02: And on the topic of engagement, can you just talk a little bit further about kind of in trends and engagement that you've seen as certain markets have reopened and just how that might be affecting customers? I guess, to the willingness to pay if there are more ways to meet people coming back.
spk04: Yeah, it's interesting because we thought about this. We always thought that it was going to be sort of a neutral effect when things opened up. And as you know, 70% or about 70% of our revenues are in the U.S. And the U.S. has opened up more than we need. sort of other geographies you hear from the travel operators that they're seeing sort of levels that are back to the 2020 levels. And so that's good. And the positives for us is, look, singles can now date offline, which ultimately is what they want to do, right? They don't want to spend all their time online not to meet the person of their dreams offline and have a date. And so that's good because it pushes people to say, okay, now I'm fully in. I want to meet people. And so that's a positive. Probably the negative is people are spending less time in front of their computers, right? They have the ability to go outside and enjoy the sun and meet people that they've seen online. So I think those two things are neutralizing each other, if you will. And so from what we've seen, there's not a sort of significant impact one way or the other from the opening. I think there's pluses and minuses, and they're sort of canceling each other out.
spk02: Got it. And then the last one for me is just on ad pricing, whether or not you're seeing any increases and if that is affecting contribution margins or if there's any anticipation for that.
spk04: Yeah, we've seen a little bit of an increase in the CPMs and the CPCs, but I wouldn't say that that's driving the business. As we move forward, we're making improvements constantly to or marketing mix. And even though there's a little bit of pressure there, and, you know, I would say there's a bit of pressure because of ad prices, but obviously there's also sort of an increase from other people in the market sort of being a bit more aggressive from an ad perspective. And so that, you know, that has created a pressure for us, but I would say that that's uh very significant either in terms of the performance of the business so it's one factor but not not not not a big factor great thanks thank you our next question is from adam waldo with list more partners please proceed with your question uh good day eric thank you very much for taking my questions um my questions are all around balance sheet liquidity dynamics um
spk05: When we last talked around the last quarterly results released for 2020 year-end, you all had indicated that you were expecting sort of EBITDA guidance conversion on the $33 to $36 million of EBITDA guidance, which you're reaffirming today, to convert into free cash flow at about a 70% to 75% rate, which would be comfortable in terms of covering the current portion of long-term debt. In your reaffirming the $33 million to $36 million of EBITDA guidance, do you see anything different in terms of the ability to cover the current portion of long-term debt for this year from internally generated cash over the balance of 2021 and then a couple follow-ups?
spk04: Yeah, so the short answer is no. We feel comfortable with the current guidance, $33 million to $36 million. we're able to meet our obligations to our debt holders. And as I mentioned, we're very much in line with our expectations now.
spk05: Okay, great. And then, so you foresee then not going out and trying to sort of restructure the terms of any of the current debt, given obviously what's occurred with COVID, you feel very comfortable in terms of being able to meet the existing debt schedule. For the balance of this year. Okay. And then the final thing around balance sheet liquidity dynamics then is when we last talked, you know, you aspire to, you know, obviously as growth would return later this year, top line and bottom line, to pursue a restructuring of the debt overall, either through the capital markets or the bank market or a combination thereof. Is that still on the to-do list for this year or is that very much dependent on the rate at which growth will return in the second half? Thank you.
spk04: All right. Thank you for that question. Look, I think in general, if there are better terms for or out there, it's something that we obviously are interested in. It is not a big priority right now. In particular, you know, I'm hoping and I mentioned that we're making good progress on the CFO search. And, you know, I'm hoping that that will sort of conclude successfully, you know, soon. And I think when technology that person comes in, I think it becomes a bigger sort of thing for us that we can look at. I do think that it's important to start delivering on the business growth, as we've said, and we've stabilized the business last year, as you saw. We're very close in terms of revenues versus Q1 last year, and so the trend is the momentum is very positive. And so we feel very good. And, um, the expectation is that once we saw that momentum secure and, um, see that momentum for a couple of quarters, we'll be in a better position to, to go out to dead markets and find potentially a new deal. So, so something that I wouldn't say that that's something in the next couple of quarters that we would be focused on. But, you know, after that, of course, if there's an opportunity, we would always look at it. But, um, after that, it's something that, uh, certainly will continue to be something we look at.
spk05: So more a late 2021 or late 2022 to-do list.
spk04: Unless somebody comes in and proposes something that we can't refuse. Fair enough. Thank you very much.
spk03: As a reminder, if you'd like to ask a question, please press star one on your telephone keypad. One moment while we poll for questions. Our next question comes from Jonathan Fitt with KMF Investments. Please proceed with your question.
spk07: Good morning. This is Jonathan Fitt. Thanks, Eric, for taking my call. Just had a quick follow-up on the last balance sheet question. Can you remind me of any kind of key EBITDA or cash flow covenants associated with the debt position?
spk04: Yeah, absolutely, Jonathan. There are two. There's a Net leverage covenant, which is the net debt over EBITDA, last 12 months EBITDA. And I think, don't quote me on this, but the terms are public. I think there we're trying to get to quarter 275 or something like that. So that's the levels that we need to meet. And then there's a liquidity covenant. That's part of the debt schedule. So those are the two.
spk07: Okay, does that liquidity covenant imply that draining the existing cash to meet the current portion of long-term debt really isn't an option you really need? Going back to the previous question, you really need to support that current portion of long-term debt out of free cash flow for the year.
spk04: Yeah, so we have, you know, obviously we have debt firms that sort of have us pay interest on the debt, which comes from the cash, of course. But in addition to that, we also have a cash sweep that happens when we sort of go beyond a certain amount in terms of the cash holdings of the company.
spk07: Okay.
spk04: And there's repayment of the debt, of course, too. Yeah. Sure.
spk07: And then going back to some of the product enhancements that you talked about, it's been partially rolled out to some of the Zeus users, right? When we look at things like the carousel feature, That's very image-heavy, but when you look at some of the SmartPix feature, that's more text-heavy with very, very small graphics in comparison to either your carousel feature or some of the features at Match or Bumble or those types of things. So I was just wondering if you could describe a little bit more some of the product enhancements that are being rolled out to be in more line with the broader competition.
spk04: Yeah, so a couple of things. So what you see now in the U.S., about 50% of the audience, the Zeus audience is seeing the new design. Uh, it's a much cleaner design, much more contemporary. Um, in, uh, our presentation, uh, the company presentation, you see the before and after big difference, uh, very exciting. And so that should lead not just to a, a, you know, remember when, when you're singles, you know, how you present yourself on the site, it's a bit, what's your dress, what you're wearing. And so that's, uh, That's an important component. And so, you know, we're very excited about that. And we expect that the new design, just based on its look and feel, should sort of lead to better engagement from our users. But in addition to that, obviously, there's simplified responsive design that leads to also sort of better interaction from our users. So that's one big change that hopefully by the end of Q2, we will have fully made. And we, like I mentioned the call, uh, the script that we, we have seen very good, we have gotten very good user feedback on it. Live streaming is another area that we're focusing on. So that's, uh, that's going to be, um, on Zeus. Um, and then I would say, you know, beyond the, the, the carousel and some of these things that are basic functionality that you can actually, improve, we're also making a number of improvements on our CRM strategy and the matchmaking algorithm. So what's most relevant in terms of who do we match against whom and we're looking at that deeply and we think also there's quite a bit of CRM improvements that we can make. And think of CRM improvements as, you know, there's an ecosystem where if somebody gets matched up or if you receive a message, you communicate with folks out there. It's the way of telling them, hey, there's something active right now in the platform for you that's very relevant to you. So come back or sort of come and check and come and chat, come and sort of see the matches that we've had for you. There we've been sort of, I think it's been something that we haven't looked at in detail. um as we acquire juice can eat something that we're starting to look so we're excited about that um also and then um i would say that the the last thing i mentioned matchmaking algorithms uh is just you know there's there's a number of ways that we look at this in terms of sort of how we match people up and there's a there's a couple of ideas that we have there that we're excited about uh without going of course into the detail as they are uh proprietary and we want to sort of tip the competition on these things. So, yeah.
spk07: And so you said the investor presentation will be updated as some of that information out there. Is that correct?
spk04: Yes. So the, um, and, and, and Chris, I think, I think it will for sure be on our site, uh, starting Wednesday, you might be there, um, earlier. So, um, but we, um, Chris, I don't know if you have the answer to that. Chris, are you on the line? Yeah.
spk01: Yes, it's been updated, and we'll get it up there this week. Also, we're presenting at a conference, so it will be up on our website and will be unveiled to investors middle of this week.
spk07: Okay, great. And then as far as the Zeus functionality updates for the remaining users that do not have it, does that just get pushed out through an app update? So when they launch the app, they're kind of prompted to update the app to the app store and then the new functionality gets deployed or how does that get rolled out?
spk04: Correct. That's, you know, the normal sort of app updates that would happen to the app store. So for most people now it's automatic because they have it on auto magic update, right? So it happens overnight and that kind of stuff. Yeah. Very good. Thanks. Yeah. Yep. You're welcome.
spk03: There are no more questions. This concludes today's conference. You may disconnect your lines at this time and we thank you.
Disclaimer