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spk01: Good day and welcome to the SPARC Network's fiscal 2021 fourth quarter and year-end earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. And to withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mr. Todd Curley. Please go ahead, sir.
spk00: Thank you, operator. Good afternoon and welcome to SPARC Network's fiscal 2021 fourth quarter and year-end earnings conference call. With me on today's call are SPARC's CEO, Eric Eichmann, and Chief Financial Officer, David Clark. Before I turn the call over to Eric, I'd like to cover a few quick items. This afternoon, Spark Networks issued a press release announcing its fiscal 2021 fourth quarter and full year financial results. This release is available on the company's website at spark.net. Additionally, this call is being broadcast live over the internet for all interested parties and the webcast will be archived on the investor relations page of the company's website. I want to remind everyone that on today's call, management will discuss certain factors that are likely to influence the business going forward. Any factors discussed today that are not historical facts, particularly comments regarding our long-term prospects and market opportunities, should be considered forward-looking statements. These forward-looking statements may include comments about the company's plans and expectations of future performance. Forward-looking statements are subject to a number of risks and uncertainties, which could cause actual results to differ materially. We encourage all of our listeners to review our SEC filings, including our most recent 10-K and 10-Q statements, for a complete description of these risks. Our statements on this call are made as of today, March 14th, 2022, and the company undertakes no obligation to revise or update publicly any of the forward-looking statements contained herein, whether as a result of new information, future events, changes in expectations, or otherwise. Additionally, throughout this call, we'll be discussing certain non-GAAP financial measures. Today's earnings release and the related current report on Form 8K describe the differences between our non-GAAP and GAAP reporting, and present the reconciliation between the two for the periods reported in the release. With that said, I'll now turn the call over to Eric Eichmann, CEO of Spark Networks. Eric, please go ahead.
spk03: Thank you, Todd. Good afternoon, everyone, and welcome to our fiscal 2021 fourth quarter and year-end earnings conference call. Thank you for joining us today. Before I recap our progress in 2021, let me tell you why we are excited about the future of Spark Networks. Currently, our family of brands serve roughly 4 million page views per day of singles searching for serious relationships and millions of paid subscribers per year, making Spark the fourth largest online subscription-based dating company across North America and Europe. With this scaled platform, we have a large growth opportunity ahead of us, and with our new credit facility in place, we now have the financial flexibility to begin to execute on a strong and well-developed roadmap of strategies and investments that we believe will drive growth in 2022 and beyond. With the right talent in place, the right product strategy, scalable technology, and financial flexibility, we are now well-positioned to return to growing our revenues. Now, let me provide some background on Spark for those of you that are new to the company. Spark is a leading social dating platform for meaningful relationships, focusing on the 40-plus demographic and faith-based affiliation. This segment of the online dating market is large and underserved and one of the fastest-growing segments of the online dating market. For top five properties, Zoosk, Elite Singles, Silver Singles, Christian Mingle, and J-Date, provides Spark a significant opportunity for growth as users are increasingly looking for apps that deal in long-term relationships instead of casual dating. Four of the five properties, Elite Singles, Silver Singles, Christian Mingle, and JDate, are focused on more specific segments within the meaningful relationship market. Elite Singles and Silver Singles are aimed at a more mature demographic that is growing rapidly while Christian Mingle and J-Base are targeting meaningful relationships with space-based affiliations. These four brands made up close to half of our total revenue in 2021 and collectively grew their revenue 5% and subscribers 3% year over year in 2021. With these strong brands and limited competition in these growing market segments, We are confident that we can continue to grow these brands' revenue in 2022. Zoosk is our fifth and largest brand and targets a broader demographic within the meaningful relationship category. With 40 million members worldwide, Zoosk is designed to forge meaningful relationships with other singles using big data insights from its vast membership base to deliver highly accurate and tailored matches and to provide social features to make the dating journey as seamless as possible. While Zoosk revenue declined year over year in 2021, we have been making the necessary product improvements to return Zoosk to revenue growth in 2022. In the fourth quarter, we launched a new feature, Zoosk Great Dates, to complement Zoosk Live, our free live streaming service that is available 24-7 on our iOS and Android apps. Available on demand with a subscription, Zeus Great Dates allows you and your match to access interactive video dates designed to inspire fun conversations and avoid awkward silences. This first-of-its-kind feature is perfect for a low-impact first date. Today, subscribers can go on interactive virtual dates to four exciting destinations, Athens, Naples, Kyoto, and Paris. which we launched on Valentine's Day, with more new locations coming soon, including New Orleans and Las Vegas. Now more than ever, we are providing our community of singles new seamless ways to connect virtually, and Zeus Great Dates is part of our commitment to help people build more meaningful relationships. Users that have experienced Zeus Great Dates so far have provided strong positive feedback on these new features. With this new innovation, as well as several other products and user experience upgrades delivered during the year, we have reduced Zoosk's revenue decline. And for the second consecutive quarter, we saw new Zoosk organic registrations grow. In the fourth quarter, Zoosk's organic traffic grew 8% sequentially and 74% year over year. We are confident that the improvements we made to Zoosk in 2021 and will continue to make in 2022, are enhancing our competitive differentiation and will drive increased engagement, resulting in a return to revenue growth produced in 2022. As a matter of fact, so far in 2022, we have seen a significant acceleration of Q4 to Q1 billions growth versus last year. Looking ahead, we are investing in product, technology, marketing, and talent to capture the large market opportunity for Spark. On the product and technology front, we are working to further improve our properties, features, and functionality. First, we are putting in place a number of revenue-generating enhancements, such as improved first-time user experience, new matching technology, and optimization of payment pages. Second, we are revamping our apps, significantly improving the app user experience and app monetization capabilities. Finally, we are planning to simplify our technology platform's complexity by integrating our top four non-duced brands onto one platform. This should lead to better platform stability, reduced technology costs, and an increased ability to launch new features and functionalities on all brands. On the marketing front, we plan to continue to optimize our marketing efforts and increase our overall marketing spend during the year. For example, we have introduced fully automated customer relationship management campaigns, allowing us to increase their frequency, which has already resulted in higher billings. Additionally, with our new debt agreement in place and its less restrictive covenant, we expect to invest in excess of $110 million in 2022 marketing spend, and are exploring additional opportunities to expand our marketing efforts. Much of this increase in marketing spend will be on our renewed focus on brand building capabilities, ensuring our portfolio of brands clearly communicate our unique and differentiated brand propositions, which ultimately ensures our community of singles find their ideal matches on our platform. Lastly, we believe there are opportunities to further increase our performance marketing spend profitably in 2022 beyond 2021 levels. One of our most important strategies for growth is investing in talent to capture Spark's significant future potential. Adding to our recently hired CFO and head of brand marketing, we are excited to welcome Ken Chen, or new chief product officer who will start in early Q2. Ken comes with over 20 years experience in product leadership for online marketplace, eBay, and SeekAsia, and e-commerce, Farfetch, and World Travel. Also, Ishani Patel, our new head of corporate and business development, started in February and comes with extensive experience in strategy and business development in the media and online travel industries. So to recap, Both parts of the Spark business today are addressing the fast-growing, meaningful dating segment of the online dating market, representing an over $2.3 billion addressable market. The first part of our business includes four brands that make up close to half of our business that grew collectively both their revenue and subscribers for the full year 2021. We plan to continue to invest in marketing dollars and product resources in 2022 to increase these brands' share in the markets they serve. The second part is ZUSC, which is also addressing the meaningful market segment, as well as the emerging category of social discovery. The new features and upgrades we made to the platform in 2021 have been well received, and we are starting to see leading indicators of growth. Growth of organic registrations, an increase in conversion rates, and an acceleration of quarter-on-quarter growth are clear signs that the Zeus turnaround is working. We are confident in our strategy and execution for returning Zeus to revenue and subscriber growth in 2022. For the first time under my tenure, we have the financial flexibility to begin to execute on a strong and well-developed roadmap of strategic investments, which should, further our ability to scale. We believe this investment in talent, product, technology, and marketing in 2022, as well as our position in the market, will allow us to capture the significant market opportunity we have in front of us and return the company to total revenue growth in 2022. This is why I am excited about the future of Spark Networks. With that, Let me turn the call over to David, who will take us through our financials in more detail, and then we'll take any questions you may have. David?
spk05: Thanks, Eric. Good afternoon, everyone. I will jump right into a review of our recent financial results. Revenue for the fourth quarter of 2021 was $52 million compared to $58.1 million in the fourth quarter of 2020. And for the full year, revenue was $216.9 million compared to $233 million for the full year of 2020. Four of our five largest brands, Elite Singles, Silver Singles, Christian Mingle, and JD, collectively grew 5% during the year and represented nearly half of total company revenue for the full year of 2020. Decrease in total revenue during the year in the fourth quarter is directly attributable to the decrease in ZUSC revenue and low marketing spend due to restricted debt covenants in our old debt agreement. Adjusted EBITDA was $14.3 million in the fourth quarter of 2021, and that compares to $13.1 million in the fourth quarter of 2020. $33 million for the full year compared to $38.9 million last year. The year-over-year increase of the fourth quarter was due to expense management and lower marketing costs due to coverage earnings, while the year-on-year decrease for the full year primarily due to the Zeus revenue decline and our increased product investment during the year. For the quarter, average paying subscribers decreased to 858,975 in the fourth quarter of 2021, compared to 929,503 for the same period in 2020. The decrease is primarily a result of constraints on marketing spend and the tough comp to the fourth quarter of last year, which saw higher engagement due to the COVID lockdowns. BART's monthly average revenue per user, or monthly ARPU, decreased slightly to $20.17 in the fourth quarter of 2021, compared to $20.02 in the same period of 2020. The decline in ARPU was a result of us emphasizing longer-duration subscriptions through price expense. Net loss was $9.9 million in the fourth quarter of 2021, compared to a net loss of $45.1 million in the fourth quarter of 2020. decrease in net loss was primarily due to a Zeus impairment charge that was taken in the year-ago quarter. For the fourth quarter, operating loss decreased $33.6 million year-over-year to $11.5 million. For the full year, net loss was $68.2 million compared to $46.6 million in 2020, and the increase in net loss for the year was driven by a non-cash gap-related increase in income tax expense for the full year. Shifting to the balance sheet, the company ended the fourth quarter with $16.1 million of cash and outstanding debt of $82.1 million, or net debt of $66 million. We continue to improve our balance sheet, having reduced our debt by nearly $17 million beginning 2020, including a $2.6 million reduction in the fourth quarter. As I stated in the last call, one of my primary objectives since joining the company in August of 2021 was to explore debt refinancing opportunities to allow us to invest in growing our businesses and our share of this fast-growing market. We were able to successfully refinance our existing debt facility to better fund our growth initiatives in 2022. Under the new $100 million debt facility with MGG Investment Group, we've extended our maturity dates and improved our covenant flexibility, which will allow us to invest appropriately in growing our business in 2022 and beyond. Under the guidance of half of our business already in growth mode, and the other half showing signs of positive turnaround, we are confident in our ability to return to total revenue growth for the full year of 2022. Additionally, we see improving COVID environment as having less of an impact on our results this year versus 2021. Accordingly, with our new debt facility in place and Affiliate Invest, we expect to grow our top line this year and deliver stable adjusted EBITDA margins. We expect strong EBITDA to cash conversion based on the expectation low single-digit millions in CapEx and software capitalization, and the fact that we have collectively over $100 million in tax net operating losses. As the year progresses, we will provide investors with more specific expectations. In conclusion, we believe Spark represents a very attractive investment opportunity with upside potential given its positioning as one of the four global online dating platform scales with strong brands and a large and growing market. And with that, we're happy to take your questions. Operator?
spk01: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you're using a speaker phone, please pick up your handset before pressing the keys. And to withdraw your question, please press star then 2. And at this time, we'll pause momentarily to assemble our roster. And the first question will come from Raj Sharma with B Reilly. Please go ahead.
spk02: Hi. Good afternoon. Thank you. I wanted to understand, there's great news on the debt refinance. Of course, the interest rate differential is pretty significant. plus you've paid down some debt. Can you give some more color on how the refinancing makes it less restrictive for you on what you need to do in terms of the covenants and in terms of your marketing restrictions?
spk03: Yeah, Raj, thank you for the question. It's good to hear from you. So I'll give just a high level and then I'll pass it on to David to provide some more of the details. But basically, If you look at our old debt agreement, we had very strict net leverage covenants, which pushed us to generate profitability. And the easiest way for the company, as we are a subscription business and we incur the marketing costs before the revenue comes in, was to cut marketing. And so as time went by, the covenants became tighter and tighter all the way to a 1.75 net leverage covenant, and so that limited our ability to grow the business and invest. The new covenants that we have in the agreement are much more flexible, and I'll let David talk through the specifics of the agreement. But overall, it will allow us, as we said in the call, to invest in the key areas that we need to invest in, namely product technology and marketing.
spk05: Yeah, Raj, while there is some savings in the overall interest expense, the important thing is what Eric just described in terms of the flexibility to invest in the business, including in user acquisitions. But also the other way the old agreement was kind of constraining us is almost all, in fact, all of the excess cash generated by our business was going to our lender. In this case, The way the amortization schedule is set up, there's actually no principal amortization in the first year of the loan, and then it steps up to about 5% per year, and then eventually 10%. So it really brings us flexibility, not just on a covenant perspective, but also on the ability to carry higher cash balances to be opportunistic. in the business going forward.
spk03: And just maybe to compare the net leverage numbers that we have in the old agreement, we're about 1.75. Now in the new agreement, it's 4.5. It starts at 4.5. It starts at 4.5. So it's a dramatic difference and a dramatic difference in terms of flexibility for the business.
spk05: And the MGG guys also know our business well. They're growth-oriented. You know, I think they're going to be good partners going forward.
spk02: Got it. Thank you for that. And so just related to that, I guess your statement is that you want to spend $110 million on marketing. So that is basically after the restrictions have been lifted, that's how much you want to spend. Can you talk about marketing efficiency? And we already assume that this brings in greater revenues, but does it also – maintain similar EBITDA margins?
spk03: Let me divide the question into three answers. One is if you look at what we did last year, there were several times during the year where we could spend profitably at similar margins. where we couldn't or we didn't because we had limitations from our debt covenants. And so that's an area where we expect to see some growth that will happen in our spending. The second area is brand building capabilities. So we haven't really spent, because that was the first area that we sort of reduced or marketing spend in terms of brand building. And it's not just sort of running ads that are top of the funnel, but much more sort of building the capabilities around research, about positioning our brand in social sort of marketing, which we haven't done in the past. And so that's another area of investment that's very important for the company. And it's harder to gauge the exact return, but generally over time that's a very high return. And the third area I would say is, you know, we haven't tested as much new channels, and our ability to grow our marketing spend goes to making sure we test new channels, and then as we see things that work, we scale those things. And, again, in the past, that's an activity that we didn't run. So all in all, we expect that marketing spend will grow. And, you know, we mentioned 110. That's That's where we think at least we will be, but if there are more opportunities, we'll continue to look at those. Obviously, always with the parameters that we have in place around profitability that are important to us.
spk02: All right. Thank you. So just a couple more questions on more administrative. Did you report a contribution margin and a contribution dollar amount for the quarter or for the year? And also, am I missing the – there's some direct marketing costs and sales and marketing, et cetera, sort of a breakdown on that. If you could just address the contribution and what you think that the contribution would stay – the contribution margin would stay stable in fiscal 22.
spk05: So you're asking what the contribution margin was for a full year of 2021?
spk02: Yes. And then would it stay stable or increase in 2022?
spk05: So in 2021 for the full year, gross margin on a dollar basis and gross margin would also include costs deducted for credit card fees and App Store fees and also data deductions data center fees. So the gross margin in the aggregate was dollar amount, about $86 million. I can also get these numbers offline.
spk02: Yeah, 40%.
spk05: So I think we anticipate that that's, yeah, I mean, you heard Eric say that as we look at at dialing up spend, we're going to be also evaluating against profitability and lifetime customer value. So, yeah, I would think our expectation would be, you know, stable, maybe even hopefully improving gross margins going forward, especially as the year elapses. We've got a number of product improvements we're implementing heavily in the second half of the year.
spk02: Right, and then just lastly on Zoosk, you stated that organic growth at Zoosk is up 74% year-on-year. The traffic growth obviously has not been monetized yet, and indications, you know, your social discovery, your live streaming are doing well, and they convert at some point. If these were to convert at your historical rates or at your expected rates, what sort of a year-on-year revenue increase would that translate to for Zoosk? Just one, perhaps more sort of qualitative color would be great on Zoosk.
spk03: There's a couple things that are exciting about Zoosk in terms of thinking about the turnaround for it. One is we mentioned is Organic registrations going up and so that's a key indicator Why because as you know or marketing spend has been going down and so non organic registrations have been going down But seeing that there is interest In Zeus can there's more and more organic registrations is a good indicator The second thing that we mentioned is normally from q4 to q1 you have growth just because q1 is or is more of the high season quarter in the industry and And this year we've seen an acceleration of that growth versus what it was last year. So those two things are good indicators of growth. We're not yet providing guidance for ZUSC revenue growth, but we expect it to be healthy growth that would happen sometime across the threshold, if you will, in the middle of the year. So that's a good indication of where we should be going.
spk02: Great. Thank you for answering my questions again. Yeah. I'll take it offline from you. Thank you.
spk04: All right. Thank you, Roger. Appreciate it.
spk01: Again, if you have a question, please press star, then 1. This concludes our question and answer session. I would like to turn the conference back over to Eric Eichmann for any closing remarks. Please go ahead, sir.
spk04: All right. Thanks, everyone, for your interest in Spark Networks, and thank you for joining our call. Have a great day.
spk01: This concludes our conference call for today. You may now disconnect.
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