- Company Focused on Returning to Revenue Growth and
Improving Profitability
- Company Outlines Operational Transformational
Framework
- Strategic Review Process Continues
BERLIN, May 15, 2023
/PRNewswire/ -- Spark Networks SE (NASDAQ: LOV) (the "Company"), a
leading social dating platform for meaningful relationships, today
reported financial results for its first quarter ended March 31, 2023.
![(PRNewsfoto/Spark Networks SE) (PRNewsfoto/Spark Networks SE)](https://mma.prnewswire.com/media/680237/Spark_Networks_Logo.jpg)
Chelsea Grayson, CEO of Spark
Networks, said: "Our two highest priorities remain returning to
revenue growth and improving profitability. We strongly believe
this can be achieved through the implementation of our strategic
plan, which is focused on a future state of the Company that has a
substantially lower cost base, more efficient marketing spend, and
an improved user experience. Spark's diversified portfolio of
leading brands (including Zoosk, EliteSingles, SilverSingles,
eDarling, Christian Mingle, and
Jdate) hold significant value in the online dating market and are
in demand by our global subscriber base. We continue to target at
least a 50% increase in Adjusted EBITDA to $28 million in 2023, and our long-term goal is to
achieve and sustain 25-30% plus Adjusted EBITDA margins consistent
with industry averages, which should allow us to fulfill our intent
to accelerate the paydown of our debt. To start 2023, in the first
quarter, our seasonally weakest quarter, our Adjusted EBITDA margin
grew from 2% to 6% year-over-year, which signals what we intend to
be the start of a year of efficiency for Spark."
With new management and learnings from the strategic review
process, the Company believes it can achieve significant
efficiencies by both substantially reducing costs and growing
revenue through the following changes that are currently planned or
in process:
- Exit Germany: The
Company plans to close its Berlin
operations by January 2024, which it
expects will result in significant cost savings, in part because of
the related downsizing of the employee population by approximately
200 full-time positions. In the fourth quarter of this year, the
Company intends to commence the process of redomiciling from
Germany to become a Delaware corporation. Partly owing to these
efforts, the Company expects to become a lower fixed-cost,
decentralized organization with the goal of retaining best-in-class
service providers that will be held highly accountable for results
and some of whom the Company expects to compensate on a
shared-success basis.
- Improve Product & User Experience: The Company plans
to outsource its IT services to a third-party, offshored vendor
with the goal of creating a more modern technology stack, an
improved user experience, and further cost savings.
- Hire a CRO: The Company plans to hire a Chief Revenue
Officer to join its senior leadership team. The CRO role will be
responsible for revenue growth and capital allocation by brand,
ensuring an improved user experience and strategic
partnerships.
- Substantially Improve Marketing Yield and Process: The
Company plans to onboard a leading performance marketing agency.
The Company expects that this critical and evolutionary step
forward will simultaneously transform the marketing strategy away
from the Company's legacy reliance on affiliate relationships – an
outmoded practice that continues to return less and less for
companies across all industries – and embrace a careful but
expeditious pivot to a contemporary and integrated program more in
line with the approach used by other companies in the sector. For
perspective, the Company's publicly traded peers have achieved
$4 in revenue from $1 in direct marketing using direct marketing
channels such as SEM, SEO, and TV. Additionally, its peers enjoy
high-margin renewals and win-back streams. By comparison, the
Company's experience with affiliate marketing has returned
approximately $2 for every
$1 spent with a less attractive
win-back/renewal stream. The Company expects that its transition
away from affiliate marketing (2:1 yield) to potentially
higher-yielding channels (4:1 yield) can give it a potential
longer-term upside of up to a 100% improvement versus its current
marketing yields.
The Company expects to begin reallocating its
customer acquisition budget into a curated mix of direct response
television advertising, paid social, SEM/SEO, lifecycle customer
nurturing and engagement and conversion rate optimization, along
with a range of other interactive engagements. Moreover, the
real-time data and additional testing the Company expects to
achieve with this approach should enable it to further realign its
spending accordingly. The Company expects these efforts will result
in the reduction of approximately 40 full-time employees, or
roughly $7 million in headcount cost,
and yield $10 to $20 million in incremental annual revenue by the
end of 2024 as compared to its current run rate.
- Target Achieving Scale in Key Markets: The Company plans
to solidify its marketing efforts around a diversified core of key
meaningful brands, several of which it plans to freshen over the
course of this year. Importantly, the Company expects the data it
garners through its revamped marketing approach can help inform its
decisions.
- Retained Strong Strategic Advisors for Digital
Transformations: The Company has engaged Ankura Consulting
Group as an external advisor to support it through this
transformation process. Ankura has expertise in unlocking value
through digital transformations across digital marketing, strategy,
and maximizing equity value.
Ms. Grayson added, "We believe the best way to increase
the value of the Company is to significantly transform our
operations and right-size our cost structure while reallocating
capital to customer acquisition channels with the highest returns
and investing in our brands with the highest ROI. We believe these
efforts will ultimately yield a simpler, more profitable business.
And given the importance of our offering for so many of our users,
we fully understand the trust they're placing in us and we're
continually open to engaging with them in new ways and through new
partnerships with influencers and other trusted sources."
First Quarter 2023 Financial Results
- Revenue was $41.3 million,
compared to $49.9 million in the
first quarter of 2022. On a constant currency basis,(1)
revenue would have been $42.1 million
in the first quarter of 2023.
- Net loss was $4.4 million,
compared to $7.5 million in the first
quarter of 2022.
- Adjusted EBITDA(3) was $2.4
million, or a 6% Adjusted EBITDA margin, compared to
$1.0 million, or a 2% Adjusted EBITDA
margin, in the first quarter of 2022.
Please see the table captioned "Reconciliation of Net loss to
Adjusted EBITDA" included at the end of this release for a
reconciliation of Adjusted EBITDA, which is a non-U.S. GAAP
measure, and Adjusted EBITDA margin, which is a non-U.S. GAAP
ratio, to U.S. GAAP.
Strategic Alternatives Review Update
The company continues its strategic alternatives review. The
Company has had active discussions with several strategic buyers.
While no transaction has resulted to date, Spark has implemented
key learnings from these discussions and plans to implement many of
these ideas in its action items described above.
Investor Conference Call
Spark Networks management will host a conference call and live
webcast for analysts and investors tomorrow pre-market open at
8:00 a.m. Eastern Time (5:00 a.m. Pacific Time) to discuss the Company's
financial results.
To access the live call, dial 1-888-349-0106 (US and
Canada) or +1 412-902-0131
(International) and ask to join the Spark Networks' call.
A live and archived webcast of the conference call will be
accessible on the Investor Relations section of the Company's
website at https://investor.spark.net/investor-relations/home. In
addition, a phone replay will be available approximately two hours
following the end of the call and will remain available for one
week. To access the call replay, dial 1-877-344-7529 (US) or +1
412-317-0088 (International) and enter the replay passcode:
5755781.
About Spark Networks SE
Spark Networks SE (NASDAQ: LOV) is a leading social dating
platform for meaningful relationships focusing on the 40+
demographic and faith-based affiliations. Spark's portfolio of
premium and freemium dating apps include Zoosk, EliteSingles,
SilverSingles, Christian Mingle,
Jdate, and JSwipe, among others. Spark is headquartered in
Berlin, Germany, with offices in
New York and Utah.
Safe Harbor Statement
This press release contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, statements involving known and unknown risks,
uncertainties, and other factors that may cause Spark Networks'
performance or achievements to be materially different from those
of any expected future results, performance, or achievements. These
statements include, without limitation, statements regarding
whether we will return to revenue growth and improve profitability;
whether we will implement our strategic plan as expected, and
whether it will lead to a substantially lower cost base, more
efficient marketing spend, and an improved user experience; whether
we will achieve a 50% increase in Adjusted EBITDA to $28 million in 2023; whether we will achieve and
sustain 25-30% plus Adjusted EBITDA margins consistent with
industry averages; whether 2023 will be a year of efficiency for
Spark; whether we will be able to paydown our debt as anticipated;
whether our Adjusted EBITDA margins will continue to grow; whether
we operate more efficiently; whether we will achieve significant
efficiencies by substantially reducing costs and growing revenue
through the changes described above; whether we will implement the
changes described above as expected; whether we will close our
Berlin operations, reduce the
number of full-time employees as expected and achieve significant
costs savings thereby as anticipated; whether we will reduce our
employee headcount as expected; whether we will redomicile the
Company to the United States as
expected; whether we will become a lower fixed-cost, decentralized
organization; whether we will retain best-in-class service
providers that will be held highly accountable for results and some
of them will be compensated on a shared-success basis; whether we
will outsource our IT services as expected, and whether that
outsourcing will yield a more modern technology stack, an improved
user experience, and further cost savings; whether we will hire a
Chief Revenue Officer as expected; whether we will substantially
improve our marketing yield and process; whether we will onboard a
leading marking agency as expected and if so whether it will
simultaneously transform our marketing strategy away from our
legacy reliance on affiliate relationships and help us embrace a
careful but expeditious pivot to a contemporary and integrated
program more in line with the approach used by other companies in
our sector; whether we will transition away from affiliate
marketing to higher-yielding channels that will yield a longer-term
upside of up to 100% improvement versus our current marketing
yields; whether we will reallocate our customer acquisition budget
into a curated mix of direct response television advertising, paid
social, SEM/SEO, lifecycle customer nurturing and engagement and
conversion rate optimization, along with a range of other
interactive engagements; whether we will achieve the expected the
real-time data and additional testing and if so whether it the will
enable us to further realign our spending accordingly; whether we
will reduce the number of our full-time marketing employees as
expected; whether we will achieve an incremental $10 to $20 million
in incremental annual revenue by the end of 2024 as compared to our
current run rate; whether we will solidify our marketing efforts
around a diversified core of key meaningful brands and freshen them
as expected; whether the data we garner will improve our decision;
whether transforming our operations and right-sizing our cost
structure while reallocating capital to customer acquisition
channels with the highest returns and investing in our brands with
the highest ROI is the best way to increase the value of the
Company; whether these efforts will yield a simpler, more
profitable business; and the results, if any, of our strategic
alternatives review, including whether we will implement our
learnings therefrom in the plan described above as expected.
Any statements in this press release that are not statements of
historical fact may be considered to be forward-looking statements.
Written words, such as "believes," "hopes," "intends," "estimates,"
"expects," "projects," "plans," "anticipates," "guides," and
variations thereof, or the use of future tense, identify
forward-looking statements. By their nature, forward-looking
statements and forecasts involve risks and uncertainties because
they relate to events and depend on circumstances that will occur
in the near future. There are a number of factors that could cause
actual results and developments to differ materially, including,
but not limited to, risks related to the degree of competition in
the markets in which Spark Networks operates; risks related to the
ability of Spark Networks to retain and hire key personnel,
operating results and business generally; the timing and market
acceptance of new products introduced by Spark Networks'
competitors; Spark Networks' ability to comply with new and
evolving regulations relating to data protection and data privacy;
general competition and price measures in the market place; risks
related to the duration and severity of COVID-19 and its impact on
Spark Networks' business; and general economic conditions.
Additional factors that could cause actual results to differ are
discussed under the heading "Risk Factors" in Spark Networks' most
recent Annual Report on Form 10-K and in other sections of Spark
Networks' filings with the Securities and Exchange Commission
("SEC"), and in Spark Networks' other current and periodic reports
filed or furnished from time to time with the SEC. All
forward-looking statements in this press release are made as of the
date hereof, based on information available to the Company as of
the date hereof, and the Company assumes no obligation to update
any forward-looking statement except as required by law.
For More Information
Investor contact:
MKR Investor Relations, Inc.
Todd Kehrli
lov@mkr-group.com
Non-GAAP Financial Measures
To supplement our consolidated financial statements, which are
prepared and presented in accordance with GAAP, we use the
following non-GAAP financial measures: constant currency revenue,
Adjusted EBITDA and Adjusted EBITDA margin. These measures are
derived on the basis of methodologies other than in accordance with
U.S. GAAP. We are not able to provide a reconciliation of our
Adjusted EBITDA margin financial guidance or other non-GAAP
financial guidance to the corresponding GAAP measure without
unreasonable effort because of the uncertainty and variability of
the nature and amount of the non-recurring and other items that are
excluded from such non-GAAP financial measures. Such adjustments in
future periods are generally expected to be similar to the kinds of
charges excluded from such non-GAAP financial measure in prior
periods. The exclusion of these charges and costs in future periods
could have a significant impact on our non-GAAP financial
measures.
1 We provide a constant currency revenue amount to
present a period-to-period comparison of business performance that
excludes the impact of foreign currency fluctuations. We define
non-GAAP constant currency revenue as total revenue excluding
the effect of foreign exchange rate movements. Non-GAAP constant
currency revenue are calculated by translating current quarter
revenues using prior period exchange rates.
2 Revenue for the three months ended March 31, 2023 includes virtual currency deferred
revenue of $0.3 million. During the
quarter ended September 30, 2022, the
Company analyzed its virtual currency deferred revenue balance to
determine the likelihood of redemption. Virtual currency is paid
for upfront and is recorded as deferred revenue until the currency
is redeemed, at which point the Company recognizes the revenue. The
Company's analysis showed a likelihood of redemption of its virtual
currency after 12 months of purchase is remote. Based on this
analysis, during the three months ended March 31, 2023, the Company recognized revenue of
$0.3 million related to its virtual
currency deferred revenue that had been included in the Company's
deferred revenue balance for more than 12 months. Going forward the
Company will continue to analyze its virtual currency deferred
revenue balance and will recognize revenue on a quarterly basis for
all virtual currency that is held for longer than 12 months.
3 Adjusted earnings before interest, taxes,
depreciation and amortization ("Adjusted EBITDA"), a non-U.S. GAAP
financial measure, and Adjusted EBITDA margin, a non-GAAP ratio,
are a few of the primary metrics by which we evaluate the
performance of our business, budget, forecast and compensate
management. We believe these measures provide management and
investors with a consistent view, period to period, of the core
earnings generated from the ongoing operations and allows for
greater transparency with respect to key metrics used by senior
leadership in its financial and operational decision-making. We
define Adjusted EBITDA as net earnings (loss) excluding interest
expense, (gain) loss on foreign currency transactions, income tax
(benefit) expense, depreciation and amortization, asset
impairments, stock-based compensation expense, acquisition related
costs and other costs. We define Adjusted EBITDA margin as Adjusted
EBITDA divided by revenue. Each of Adjusted EBITDA and Adjusted
EBITDA margin has inherent limitations in evaluating the
performance of the Company, and you should not consider these
measures in isolation or as a substitute for analyzing the
Company's results as reported under U.S. GAAP. Some of these
limitations include:
- Adjusted EBITDA and Adjusted EBITDA margin do not reflect the
cash capital expenditures during the measurement period;
- Adjusted EBITDA and Adjusted EBITDA margin do not reflect any
changes in working capital requirements during the measurement
period;
- Adjusted EBITDA and Adjusted EBITDA margin do not reflect the
cash tax payments during the measurement period; and
- Adjusted EBITDA and Adjusted EBITDA margin may be calculated
differently by other companies in our industry, thus limiting its
value as a comparative measure.
Because of these limitations, Adjusted EBITDA and Adjusted
EBITDA margin should be considered in addition to other financial
performance measures, including net income (loss) and our other
U.S. GAAP results. A reconciliation of the Adjusted EBITDA
and Adjusted EBITDA margin for the three months ended March 31, 2023 and 2022 can be found in the table
below captioned "Reconciliation of Net loss to Adjusted
EBITDA."
Spark Networks
SE
|
Condensed
Consolidated Balance Sheets (Unaudited)
|
(in
thousands)
|
|
|
|
March 31,
2023
|
|
December 31,
2022
|
Assets
|
|
|
|
|
Cash and cash
equivalents
|
|
$
10,282
|
|
$
11,438
|
Accounts receivable,
net
|
|
5,585
|
|
5,154
|
Goodwill and intangible
assets
|
|
131,174
|
|
132,575
|
Other assets
|
|
16,723
|
|
15,210
|
Total
assets
|
|
$
163,764
|
|
$
164,377
|
Liabilities and
Shareholders' Deficit
|
|
|
|
|
Debt
|
|
$
95,093
|
|
$
94,817
|
Accounts
payable
|
|
7,553
|
|
6,487
|
Deferred
revenue
|
|
28,945
|
|
28,085
|
Accrued expenses and
other current liabilities
|
|
26,848
|
|
24,247
|
Other
liabilities
|
|
17,425
|
|
17,527
|
Total
liabilities
|
|
175,864
|
|
171,163
|
Total shareholders'
deficit
|
|
(12,100)
|
|
(6,786)
|
Total liabilities and
shareholders' deficit
|
|
$
163,764
|
|
$
164,377
|
Spark Networks
SE
|
Condensed
Consolidated Statements of Operations (Unaudited)
|
(in
thousands)
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2023
|
|
2022
|
Revenue
|
|
$
41,339
|
|
$
49,907
|
Operating costs and
expenses:
|
|
|
|
|
Cost of revenue,
exclusive of depreciation and amortization
|
|
27,292
|
|
34,246
|
Other operating costs
and expenses
|
|
15,224
|
|
16,038
|
Total operating costs
and expenses
|
|
42,516
|
|
50,284
|
Operating
loss
|
|
(1,177)
|
|
(377)
|
Other expense,
net
|
|
(3,137)
|
|
(7,386)
|
Loss before income
taxes
|
|
(4,314)
|
|
(7,763)
|
Income tax (expense)
benefit
|
|
(45)
|
|
292
|
Net loss
|
|
$
(4,359)
|
|
$
(7,471)
|
|
|
|
Reconciliation of
Net loss to Adjusted EBITDA (Unaudited):
|
|
|
|
|
Three Months Ended
March 31,
|
(in
thousands)
|
|
2023
|
|
2022
|
Net
loss
|
|
$
(4,359)
|
|
$
(7,471)
|
Interest
expense
|
|
3,817
|
|
6,882
|
(Gain) loss on foreign
currency transactions
|
|
(680)
|
|
767
|
Income tax expense
(benefit)
|
|
45
|
|
(292)
|
Depreciation and
amortization
|
|
618
|
|
603
|
Impairment of
intangible assets
|
|
1,100
|
|
—
|
Stock-based
compensation expense
|
|
173
|
|
502
|
Other
costs(1)
|
|
1,651
|
|
22
|
Adjusted
EBITDA
|
|
$
2,365
|
|
$
1,013
|
|
(1) Includes severance, and
consulting and advisory fees related to special
projects.
|
Spark Networks
SE
Condensed
Consolidated Statements of Cash Flows (Unaudited)
(in
thousands)
|
|
|
|
Three Months Ended
March 31,
|
|
|
2023
|
|
2022
|
Net loss
|
|
$
(4,359)
|
|
$
(7,471)
|
Adjustments to
reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
Non-cash items and
other non-operating charges
|
|
2,877
|
|
7,576
|
Change in operating
assets and liabilities
|
|
1,460
|
|
(10,580)
|
Net cash used in
operating activities
|
|
(22)
|
|
(10,475)
|
Capital
expenditures
|
|
(840)
|
|
(490)
|
Net cash used in
investing activities
|
|
(840)
|
|
(490)
|
Net cash provided by
financing activities
|
|
—
|
|
7,774
|
Effects of exchange
rate fluctuations on cash and cash equivalents and restricted
cash
|
|
(291)
|
|
55
|
Net decrease in cash
and cash equivalents and restricted cash
|
|
(1,153)
|
|
(3,136)
|
|
|
|
|
|
Cash and cash
equivalents and restricted cash at beginning of period
|
|
11,569
|
|
16,279
|
Cash and cash
equivalents and restricted cash at end of period
|
|
$
10,416
|
|
$
13,143
|
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SOURCE Spark Networks SE