Spark Networks SE (NASDAQ:LOV) Q2 2023 Earnings Call Transcript

Spark Networks SE (NASDAQ:LOV) Q2 2023 Earnings Call Transcript August 17, 2023

Operator: Good afternoon, and welcome to the Spark Networks Second Quarter 2023 Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Todd Kehrli of MKR Investor Relations. Please go ahead.

Todd Kehrli: Thank you, operator. Good afternoon, and welcome to Spark Networks’ Fiscal 2023 second quarter earnings conference call. With me on today’s call are Spark’s Interim CEO, Colleen Birdnow Brown; and Chief Financial Officer, Kristie Goodgion. Before I turn the call over to Colleen, I’d like to cover a few quick items. Today, after the close of the market, Spark Networks issued a press release announcing its fiscal 2023 second 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. 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, August 14, 2023, 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. Spark’s earnings release and the related current report on Form 8-K describe the differences between its non-GAAP and GAAP reporting and presents a reconciliation between the two for the periods reported in the release. With that said, I’ll now turn the call over to Colleen Birdnow Brown, Interim CEO of Spark Networks. Colleen, please go ahead.

Colleen Brown: Thank you, Todd, and good afternoon, everyone, and thanks for joining us today. Let me start by saying that this is a critical time in the company’s history. We have embarked on a bold transformation plan intended to return the company to competitive levels. With this plan, we expect to achieve sustainable annual revenue of $160 million for this year and drive growth from that point forward. We also believe that with the reduced expenses we are implementing, we can achieve adjusted EBITDA margins of 20% to 30% in coming years. The first step in the plan was to outsource our performance marketing. We began our implementation in June, and already we are seeing promising results. We have improved the data analytics that we are using to inform our decisions and to direct our ad spend to what we feel are our high potential brands in terms of profitability, including EliteSingles and SilverSingles.

We are rolling out the full funnel marketing approach and are introducing new channels to our marketing mix. We feel that with this initiative, we are adding expertise, scalability and stability, all while reducing our head count. As we have previously discussed, we expect these efforts will result in the reduction of approximately 40 full-time marketing employees or roughly $7 million in headcount costs and yield $10 million to $20 million in incremental annual revenue by the end of 2024 as compared to our current run rate. We are also in the process of onboarding an IT managed service provider, which we expect to be a multiyear commitment. With this initiative, we plan to outsource a significant portion of our technology engineering, maintenance functions and cybersecurity.

This not only offers prospective cost savings over the long term but also allows us to access a more robust and modern technology stack, which we expect will allow us to operate a larger and much more efficient scale and dramatically improve our products and user experience. By outsourcing these functions, we are targeting strategic areas where we can get the best expertise while streamlining our internal operations. We understand the significance of these changes and the inherent complexities involved. Over the next 18 months, we plan on continuing to implement the initiatives that our transformation plan encompasses, which includes reducing our head count from nearly 220 to 60. Associated with these reductions are significant restructuring costs, which we expect will require external funding.

However, by the end of 2025, we hope to have positioned the company for consistent and sustainable growth. In conclusion, our journey is mapped out and the early signs are promising. We believe the best way to increase the value of the company is significantly transform our operations and rightsize our cost structure while reallocate capital to customer acquisition channels with the highest returns and investing in our brands with the highest return on investment. Additionally, we believe these efforts will ultimately yield a simpler, more profitable business, and our work here will be a testament to Spark’s resilience, innovation and growth. And with that, I will turn the call over to Kristie. Kristie?

Kristie Goodgion: Thank you, Colleen, and good afternoon, everyone. It’s a pleasure to speak to you all today. Revenue for the second quarter of 2023 was $41.2 million compared to $48 million in the second quarter of 2022. We attribute the year-over-year decrease in total revenue primarily to lower user acquisition spend in the preceding three quarters. For the second quarter, end-of-period paying subscribers were 2 million, down from 3.1 million in the same period of 2022. As with revenue, we attribute the year-over-year decrease in paying subs primarily to the lower acquisition spend during the preceding three quarters. Spark’s monthly average revenue per user, or monthly ARPU, increased to $21.58 in the second quarter of 2023 compared to $20.13 in the same period of 2022.

We attribute the increase to shifting our subscriber mix primarily to higher-priced brands such as Elite and Silver and shifts in our subscription tier mix from longer-term subscriptions to shorter-term subscriptions, which drive higher ARPU. Net loss was $26.9 million in the second quarter of 2023 compared to net loss of $8.8 million in the same period of 2022. We attribute the year-over-year increase in net loss primarily to impairment charges on Zoosk and a decline in revenue for the quarter, which was offset by lower customer acquisition spend. Adjusted EBITDA was $7.2 million in the second quarter, a 17% adjusted EBITDA margin compared to adjusted EBITDA of negative $1.7 million or negative 3.6% adjusted EBITDA margin in the second quarter of 2022.

We attribute the year-over-year increase in adjusted EBITDA primarily to lower customer acquisition spend and reduced operating expenses during the second quarter of the year. Shifting to the balance sheet. The company ended the second quarter with $5.7 million in cash and a GAAP debt balance of $94.2 million or a net debt of $88.5 million. Looking ahead, as Colleen noted, over the next 18 months, we intend to complete the implementation of the transformation initiatives in our plan, which we believe will position Spark for revenue growth and profitability in 2025. We believe our transformation plan will yield a smaller, nimbler employee base, greater operational flexibility and retention of institutional knowledge, significantly more efficient and effective performance marketing and a lower and more variable cost structure.

Moving on guidance. We now expect full year 2023 adjusted EBITDA to be approximately $16 million to $18 million, with our long-term goal to achieve and sustain 20% to 30% plus adjusted EBITDA margins consistent with industry averages. And with that, I will turn the call back over to Colleen for closing remarks. Colleen?

Colleen Brown: Thanks, Kristie. Thanks, everyone, for your interest in Spark Networks, and thank you for joining this call. Have a great day.

Operator: The conference has now concluded. Thank you for attending today’s presentation, and you may now disconnect.

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