Spark Networks SE

Good afternoon and welcome to the SPARC Network's Fiscal 2022 Third Quarter Earnings Conference Call. All participants will be in 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 touchtone phone. To withdraw from the question queue, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Todd Curley, MKR Investor Relations. Please go ahead.

Thank you, Operator. Good afternoon and welcome to SPARC Network's Fiscal 2022 Third Quarter 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 2022 third quarter 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, including comments regarding our review of strategic alternatives. 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, for a complete description of these risks. Our statements on this call are made as of today, November 8, 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.

Thank you, Todd, and good afternoon, everyone. Before we begin our regular earnings commentary, I wanted to remind everyone that on June 1st, we announced that Spark had initiated a comprehensive review of strategic alternatives for the company. At this time, the review is still ongoing. Spark is the fourth largest online subscription dating company across North America and Europe by revenue and is a leader in social dating for meaningful relationships, targeting the 40-plus demographic and people with religious affiliations. We estimate the worldwide online dating market for meaningful relationships is approximately $2.3 billion of spend annually with anticipated single-digit annual percentage growth over the next five years. We capture about 30% of this market in the U.S. with our strong portfolio of brands, which includes Zoosk, Elite Singles, Silver Singles, Christian Mingle, and J-Date. Let me first review our third quarter results. We continue to be impacted by foreign exchange headwinds in the third quarter as the U.S. dollar strengthened against all major currencies. These contributed to our third quarter revenue being down 9.6% year over year to $48.2 million. On a constant currency basis, third quarter revenue would have been $51.5 million, down 3.4% year over year. During the quarter, we scaled back our user acquisition spend to focus on profitability and to account for a seasonally slow time of the year for online dating, which impacted our ability to grow revenue during the quarter. Despite this, We delivered initial subscriber growth of 5.1% and total average subscriber growth of 3.4% for our largest brand, Zoosk, in the third quarter. Since we acquired Zoosk three years ago, its subscriber base has declined every quarter until last quarter. So we are excited to see our hard work to turn this around, paying off with the second consecutive quarter of Zoosk subscriber growth. From a profitability perspective, we delivered a 66% increase in adjusted EBITDA of $8.3 million, or 17% of revenue, compared to $5 million, or 9% of revenue in the third quarter of last year. Now, let me provide some detail around the significant product improvements we made during the quarter, which we believe drove increased conversion rates and engagement. In fact, our subscription conversion rates for both ZUSC and non-ZUSC brands increased 11%, which we attribute to product improvements we made during the quarter, as well as our ability to drive higher quality traffic. First, By modernizing used profile content and streamlining the profile completion experience, we encouraged users to create high-quality profiles, driving increased engagement between users. As a result, our user profile completion rates improved dramatically with completion rates of new users' profiles improving five-fold. Stronger profiles drive greater interaction between users and positively impact engagement and subscriptions. During the quarter, we launched a refresh of the Zoosk Android app in the UK with improved engagement and retention metrics and an uplift in conversion rates. Following these app refresh, Zoosk's Google Play Store ratings improved 0.5 points. We expect that our other app ratings will also improve as we continue to update our apps. We are rolling out these updates to the U.S. and other markets. We plan to launch updated apps for Elite Singles on iOS and Android and Zoosk on iOS in the next couple of months. We also made product improvements during the quarter to combat fraud reducing increases in fraud during the first half of the year by as much as 80% on some of our brands. During the quarter, we successfully deployed new Zoosk prices, leading to increased conversion and a higher average price for Zoosk subscriptions. Based on these successful changes, we believe there is additional room for improvement on pricing in the future. As a result of these efforts, we saw a meaningful increase in positive customer feedback in the quarter, to the highest levels we have seen since acquiring Zoosk. On the marketing front, after expanding our user acquisition spend in Q2, our focus shifted to driving profitability for Q3 and Q4. With this new focus, we increased our measure of subscriber profitability by 13% during the third quarter versus last year. In addition, we made great progress implementing a CRM tool that should significantly advance our lifecycle communications with potential subscribers, which we believe will drive increased revenue and profitability in Q4 and beyond. The product improvements, including enhanced payment configurations, And marketing's focus on higher quality traffic led to an increase in our subscription conversion rates across all brands by 11% over the quarter. Finally, I want to touch on the macro environment. While I am happy with the progress we are making, we are facing a tougher economic climate. Publicly issued results from other established dating brands showed year-over-year revenue declines of 15%, And while our quarterly revenue trajectory compares favorably to these other brands, it suggests a temporary slowdown in demand for our products. As a result, we plan to continue to contain costs and further prioritize investments throughout the rest of the years to focus on profitability. In summary, in Q3, we significantly increased profitability and made good progress in evolving our products. We saw improved conversion and engagement metrics, and for the second quarter in a row, saw subscription growth at Zoosk. We will continue to execute on product improvements while we focus on profitability and on strengthening our market position and financial outlook. With that, I'll ask David Clark, our Chief Financial Officer, to add more color around our financial performance for the quarter. David?