SPARK NETWORKS INC - FORM 8-K - EX-99.1 - PRESS RELEASE OF SPARK NETWORKS, INC. DATED MAY 2, 2017 - May 2, 2017

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8-K - CURRENT REPORT - SPARK NETWORKS INClov_8k.htm
  Exhibit 99.1
 
 
 
SPARK NETWORKS® REPORTS FIRST QUARTER 2017 RESULTS
 
LOS ANGELES, Calif., May 2, 2017 -- Spark Networks, Inc. (NYSE MKT: LOV) reported first quarter 2017 financial results today.
 
On May 2, 2017, Spark Networks, Inc. entered into a definitive agreement with Affinitas GmbH (“EliteSingles”), which operates premium online dating platforms EliteSingles, eDarling and Attractive World to combine in a stock-for-stock merger.
 
The new public entity is expected to be listed on the NYSE MKT exchange through an American Depositary Receipt. After completion of the merger, EliteSingles shareholders will own approximately 75% of the combined company and Spark shareholders will own approximately 25%. The transaction has been approved by Spark’s Board of Directors and is expected to close in the fourth quarter of 2017, subject to Spark shareholder approval and the satisfaction of certain other customary closing conditions. Shareholders, representing approximately 35% of the outstanding Spark shares, have agreed to vote their shares in favor of the transaction.
 
Spark Networks, Inc. will not conduct a first quarter results conference call; however, Spark and EliteSingles will host a joint conference call at 7:30 AM Pacific time tomorrow, May 3, 2017, to discuss the transaction.
 
Key Quarterly Metrics
 
 
 
Q1 2017
 
 
Q4 2016
 
 
Q1 2016
 
Revenue
 
$7.3 Million
 
$7.7 Million
 
 
$9.9 Million
 
Contribution1
 
$5.8 Million
 
 
$7.1 Million
 
 
$4.8 Million
 
Net Loss
 
$(2.1) Million
 
 
$(3.7) Million
 
 
$(3.4) Million
 
Adjusted EBITDA2
 
$131 Thousand
 
 
$1.8 Million
 
 
$(2.3) Million
 
Cash Balance
 
$10.8 Million
 
 
$11.4 Million
 
 
$4.1 Million
 
Period Ending Subs3
  119,540 
  142,372 
  198,238 
Avg. Paying Subs3
  130,441 
  150,675 
  199,451 
ARPU
 $18.38 
 $16.89 
 $16.12 
 
First Quarter 2017 Financial Results
 
Revenue: For the first quarter of 2017, total revenue was $7.3 million, a decrease of 26% compared to the year ago period, and a 6% decrease from the prior quarter. The year over year and sequential decreases were primarily driven by a decrease in average paying subscribers, reflecting reduced direct marketing investment in the Jewish and Christian Networks. These decreases were partially offset by year over year and sequential increases in ARPU of 14% and 9%, respectively.
 
Contribution: Contribution was $5.8 million in the quarter, an increase of 21% compared to the year ago period, and an 18% decrease from the prior quarter. Our contribution margin decreased to 80% from 91% in the prior quarter and increased from 49% in the year ago period. Total direct marketing expenses decreased 72% to $1.4 million in the first quarter of 2017 as compared to $5.0 million in the prior year period.
 
 
 
 
Net Loss: Net Loss was $(2.1) million in the quarter, a $1.3 million improvement versus the year ago period and a $1.6 million improvement from the prior quarter.
 
Adjusted EBITDA: For the first quarter of 2017, Adjusted EBITDA was $131,000, an increase of $2.4 million versus the year ago period and a decrease of $(1.6) million from the prior quarter. The sequential Adjusted EBITDA decline from the prior quarter was partially driven by a $475,000 legal accrual for the settlement of an ongoing legal matter.
 
Cash: Cash provided by operating activities in the first quarter was $49,000. At March 31, 2017, the Company had $10.8 million in cash and cash equivalents, compared to $11.4 million at the end of the prior quarter. At quarter end, the Company had no outstanding debt.
 
 
 
 
 
 
SPARK NETWORKS, INC.
SEGMENT4 RESULTS FROM OPERATIONS
(in thousands except subscriber and ARPU information)
 
 
 
Q1 2017 
 
 
  Q4 2016 
 
 
Q3 2016 
 
 
Q2 2016 
 
 
Q1 2016 
 
 
Q1 '17 v. Q1 '16
 
 
Q1 '17 v. Q4 '16
 
 
       
       
       
       
       
 
 
Revenue
       
       
       
       
       
 
 
Jewish Networks
 $3,148 
 $3,136 
 $3,322 
 $3,628 
 $3,995 
  -21.2%
  0.4%
Christian Networks
  3,813 
  4,262 
  4,673 
  5,044 
  5,405 
  -29.5%
  -10.5%
Other Networks
  286 
  335 
  385 
  413 
  438 
  -34.7%
  -14.6%
Offline & Other Businesses
  17 
  10 
  11 
  13 
  21 
  -19.0%
  70.0%
Total Revenue
 $7,264 
 $7,743 
 $8,391 
 $9,098 
 $9,859 
  -26.3%
  -6.2%
 
    
    
    
    
    
    
    
Direct Mktg. Exp.
    
    
    
    
    
    
    
Jewish Networks
 $570 
 $316 
 $420 
 $372 
 $497 
  14.6%
  80.4%
Christian Networks
  803 
  316 
  750 
  1,001 
  4,420 
  -81.8%
  154.0%
Other Networks
  60 
  41 
  60 
  105 
  120 
  -50.1%
  46.5%
Total Direct Mktg. Exp.
 $1,433 
 $673 
 $1,230 
 $1,478 
 $5,038 
  -71.6%
  112.9%
 
    
    
    
    
    
    
    
Contribution
    
    
    
    
    
    
    
Jewish Networks
 $2,578 
 $2,820 
 $2,902 
 $3,256 
 $3,497 
  -26.3%
  -8.6%
Christian Networks
  3,009 
  3,946 
  3,923 
  4,043 
  985 
  205.5%
  -23.7%
Other Networks
  227 
  294 
  325 
  308 
  318 
  -28.8%
  -23.0%
Offline & Other Businesses
  17 
  10 
  11 
  13 
  20 
  -17.5%
  68.7%
Total Contribution
 $5,831 
 $7,070 
 $7,161 
 $7,620 
 $4,821 
  21.0%
  -17.5%
 
    
    
    
    
    
    
    
Period Ending Subs
    
    
    
    
    
    
    
Jewish Networks
  47,236 
  51,519 
  52,952 
  59,868 
  63,982 
  -26.2%
  -8.3%
Christian Networks
  65,146 
  82,163 
  95,047 
  112,895 
  122,935 
  -47.0%
  -20.7%
Other Networks
  7,158 
  8,690 
  10,234 
  10,915 
  11,321 
  -36.8%
  -17.6%
Total Period Ending Subs.
  119,540 
  142,372 
  158,233 
  183,678 
  198,238 
  -39.7%
  -16.0%
 
    
    
    
    
    
    
    
Average Paying Subs.
    
    
    
    
    
    
    
Jewish Networks
  48,823 
  52,493 
  57,684 
  61,732 
  63,930 
  -23.6%
  -7.0%
Christian Networks
  73,627 
  88,774 
  105,108 
  117,024 
  124,180 
  -40.7%
  -17.1%
Other Networks
  7,991 
  9,408 
  10,772 
  11,182 
  11,341 
  -29.5%
  -15.1%
Total Avg. Paying Subs.
  130,441 
  150,675 
  173,564 
  189,938 
  199,451 
  -34.6%
  -13.4%
 
    
    
    
    
    
    
    
ARPU
    
    
    
    
    
    
    
Jewish Networks
 $18.59 
 $18.58 
 $18.79 
 $19.33 
 $20.46 
  -9.2%
  0.1%
Christian Networks
  17.22 
  15.75 
  14.60 
  14.09 
  14.17 
  21.5%
  9.3%
Other Networks
  11.91 
  11.55 
  11.69 
  12.15 
  12.52 
  -4.9%
  3.1%
Total ARPU5
 $18.38 
 $16.89 
 $15.81 
 $15.70 
 $16.12 
  14.0%
  8.9%
 
 
 
 
Distribution of New Subscription Purchases6
 
 
 
Q1 2017
 
 
Q4 2016
 
 
Q3 2016
 
 
Q2 2016
 
 
Q1 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Jewish Networks
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 1 month plans
  51.6%
  45.7%
  32.6%
  28.2%
  26.4%
 3 month plans
  19.2%
  20.4%
  18.4%
  19.2%
  17.0%
 6 month plans
  29.2%
  33.9%
  49.0%
  52.6%
  56.6%
 
  100.0%
  100.0%
  100.0%
  100.0%
  100.0%
 
    
    
    
    
    
Christian Networks
    
    
    
    
    
 1 month plans
  55.1%
  52.7%
  36.5%
  39.2%
  32.9%
 3 month plans
  25.0%
  27.0%
  22.4%
  25.7%
  20.5%
 6 month plans
  19.9%
  20.3%
  41.1%
  35.1%
  46.7%
 
  100.0%
  100.0%
  100.0%
  100.0%
  100.0%
 
    
    
    
    
    
Other Networks
    
    
    
    
    
 1 month plans
  55.0%
  60.1%
  51.1%
  52.2%
  55.8%
 3 month plans
  12.2%
  10.5%
  9.5%
  10.8%
  11.6%
 6 month plans
  32.8%
  29.4%
  39.4%
  37.1%
  32.6%
 
  100.0%
  100.0%
  100.0%
  100.0%
  100.0%
 
Composition of Average Paying Subscriber Base7
 
 
 
Q1 2017
 
 
Q4 2016
 
 
Q3 2016
 
 
Q2 2016
 
 
Q1 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Jewish Networks
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
First Time Subscribers
  21.7%
  22.0%
  23.7%
  24.6%
  24.7%
Winback Subscribers
  28.1%
  33.0%
  34.6%
  34.0%
  32.5%
Renewal Subscribers
  50.2%
  44.9%
  41.7%
  41.4%
  42.8%
Total
  100.0%
  100.0%
  100.0%
  100.0%
  100.0%
 
    
    
    
    
    
Christian Networks
    
    
    
    
    
First Time Subscribers
  35.2%
  37.2%
  39.9%
  42.0%
  43.1%
Winback Subscribers
  21.4%
  25.1%
  26.4%
  26.0%
  24.6%
Renewal Subscribers
  43.4%
  37.7%
  33.7%
  32.0%
  32.3%
Total
  100.0%
  100.0%
  100.0%
  100.0%
  100.0%
 
    
    
    
    
    
Other Networks
    
    
    
    
    
First Time Subscribers
  28.0%
  29.8%
  32.7%
  33.0%
  31.9%
Winback Subscribers
  21.6%
  22.2%
  22.9%
  22.4%
  21.7%
Renewal Subscribers
  50.4%
  48.0%
  44.4%
  44.6%
  46.4%
Total
  100.0%
  100.0%
  100.0%
  100.0%
  100.0%
 
 
 
 
Investor Conference Call
 
The Company will discuss its transaction with EliteSingles during a live teleconference tomorrow at 7:30 a.m. Pacific time.
 
Toll-Free (United States):   1-877-705-6003
 
International:                       1-201-493-6725
 
In addition, the Company will host a webcast of the call which will be accessible in the Investor Relations section of the Company’s website at http://investor.spark.net.
 
A replay will begin approximately three hours after completion of the call and run until May 17, 2017.
 
Replay
 
Toll-Free (United States):   1-844-512-2921
 
International:                       1-412-317-6671
 
Passcode:                             13660277
 
Forward-Looking Statements
 
This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause Spark’s or EliteSingles’ or the combined company’s performance or achievements to be materially different from those of any expected future results, performance, or achievements. Forward-looking statements speak only as of the date they are made, and neither Spark nor EliteSingles assumes any duty to update forward-looking statements. We caution readers that a number of important factors could cause actual results to differ materially from those expressed in, or implied or projected by, such forward-looking statements. Such forward-looking statements include, but are not limited to, statements about the benefits of the business combination transaction involving the Company and EliteSingles, including future financial and operating results, the combined company’s plans, objectives, expectations and intentions and other statements that are not historical facts. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: (i) the possibility that the proposed transaction does not close when expected or at all because required regulatory, shareholder or other approvals and other conditions to closing are not received or satisfied on a timely basis or at all. (ii) changes in Spark’s share price before closing, including as a result of the financial performance of EliteSingles prior to closing, or more generally due to broader stock market movements, and the performance of peer group companies. (iii) the risk that the benefits from the transaction may not be fully realized or may take longer to realize than expected, including as a result of changes in general economic and market conditions, interest and exchange rates, monetary policy, laws and regulations and their enforcement, and the degree of competition in the geographic and business areas in which Spark and EliteSingles operate. (iv) the ability to promptly and effectively integrate the businesses of Spark and EliteSingles. (v) the reaction to the transaction of the companies’ customers, employees and counterparties. (vi) diversion of management time on merger-related issues. (vii) lower-than-expected revenues, credit quality deterioration or a reduction in net earnings. and (viii) other risks that are described in Spark’s public filings with the SEC. For more information, see the risk factors described in Spark’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and other filings with the SEC.
 
 
 
 
How to Find Further Information
 
This communication does not constitute an offer to sell or a solicitation of an offer to sell or a solicitation of an offer to buy any securities or a solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended, and otherwise in accordance with applicable law. This communication is being made in respect of the proposed business combination transaction between the Company and EliteSingles. The proposed transaction will be submitted to the shareholders of the Company for their consideration. In connection with the proposed transaction, the new entity and EliteSingles will file with the SEC a registration statement on Form F-4 that will include the proxy statement of the Company that also constitutes a prospectus of the Company. After the registration statement has been declared effective by the SEC, a definitive proxy statement/prospectus will be mailed to each Company stockholder entitled to vote at the Company’s stockholder meeting. INVESTORS ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS AND ANY OTHER DOCUMENTS RELATING TO THE TRANSACTION FILED WITH THE SEC CAREFULLY AND IN THEIR ENTIRETY IF AND WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. Investors may obtain copies of the proxy statement/prospectus (when available) and all other documents filed with the SEC regarding the proposed transaction, free of charge, at the SEC’s website (http://www.sec.gov). Investors may also obtain these documents, free of charge, from the Company’s website (www.spark.net) under the link “Investor Relations” and then under the tab “SEC Filings” or by directing request to investor@spark.net.
 
Participants in Solicitation
 
The Company and its directors, executive officers and other members of management and employees may be deemed to be “participants” in the solicitation of proxies from the Company’s stockholders in connection with the proposed transaction. Information regarding the persons who may, under the rules of the SEC, be deemed participants in the solicitation of the Company’s stockholders in connection with the proposed transaction and a description of their direct and indirect interest, by security holdings or otherwise, will be set forth in the proxy statement/prospectus filed with the SEC in connection with the proposed transaction. You can find information about the Company’s executive officers and directors in its definitive proxy statement filed with the SEC on March 31, 2017 and in its Annual Report on Form 10-K filed with the SEC on March 22, 2017. You can also obtain free copies of these documents from the Company using the contact information above.
 
About Spark Networks, Inc.:
 
The Spark Networks portfolio of consumer Web sites includes, among others, JDate®.com (www.jdate.com), ChristianMingle®.com (www.christianmingle.com), JSwipe (www.jswipeapp.com), CROSSPATHS (www.crosspathsapp.com), Spark®.com (www.spark.com), BlackSingles.com® (www.blacksingles.com), and SilverSingles®.com (www.silversingles.com).
 
For More Information
 
Investors:
Robert O’Hare
rohare@spark.net
 
 
 
1 “Contribution” is defined as revenue, net of credits and credit card chargebacks, less direct marketing.
 
2 The Company reports Adjusted EBITDA as a supplemental measure to generally accepted accounting principles ("GAAP"). This non-GAAP measure is one of the primary metrics by which we evaluate the performance of our businesses, budget, forecast and compensate management. We believe this measure provides management and investors with a consistent view, period to period, of the core earnings generated from on-going operations and excludes the impact of: (i) non-cash items such as stock-based compensation, asset impairments, non-cash currency translation adjustments related to an inter-company loan and (ii) one-time items that have not occurred in the past two years and are not expected to recur in the next two years. Adjusted EBITDA should not be construed as a substitute for net income (loss) (as determined in accordance with GAAP) for the purpose of analyzing our operating performance or financial position, as Adjusted EBITDA is not defined by GAAP. A reconciliation of the Adjusted EBITDA for the three months ended March 31, 2017 can be found in the table below.
 
“Adjusted EBITDA” is defined as earnings before interest, taxes, depreciation, amortization, stock-based compensation, impairment of intangible and long-lived assets, non-cash currency translation adjustments for an inter-company loan and non-recurring legal and acquisition costs.
 
3 "Paying Subscribers" are defined as individuals who have paid a monthly fee for access to communication and website features beyond those provided to our members. Period ending subscribers for each quarter represent the paying subscriber count as of the last day of the period. Average paying subscribers for each month are calculated as the sum of the paying subscribers at the beginning and end of the month, divided by two. Average paying subscribers for periods longer than one month are calculated as the sum of the average paying subscribers for each month, divided by the number of months in such period. The calculation excludes results from the Company’s HurryDate business due to its relative size.
 
4 In accordance with Segment Reporting guidance, the Company’s financial reporting includes detailed data on four separate operating segments. The Jewish Networks segment consists of JDate, JDate.co.il, JDate.fr, JDate.co.uk, Cupid.co.il, and JSwipe. The Christian Networks segment consists of ChristianMingle, CrossPaths, ChristianMingle.co.uk, ChristianMingle.com.au, Believe.com, ChristianCards.net, ChristianDating.com, DailyBibleVerse.com and Faith.com. The Other Networks segment consists of Spark.com and related other general market websites as well as other properties which are primarily composed of sites targeted towards various religious, ethnic, geographic and special interest groups. The Offline & Other Businesses segment consists of revenue generated from offline activities and HurryDate events and subscriptions.
 
5 ARPU is defined as average revenue per user per month. Total ARPU excludes results from the Company’s HurryDate business due to its relative size.
 
6 One month plans may also include a small amount of two month plans. Three month plans may include a small amount of four month plans. Six month plans may include a small amount of twelve month plans.
 
7 Represents the composition of average paying subscribers in the period. First Time Subscribers are defined as those subscribers that have never purchased a subscription from the Company for that reporting segment. Winback Subscribers are defined as those individuals who have purchased a subscription from the Company for that reporting segment, allowed their subscription to lapse, and subsequently purchased a subscription from the Company for that reporting segment. Renewal Subscribers are defined as those subscribers that have auto-renewed a subscription from the Company for that reporting segment. Figures exclude results from JSwipe and CrossPaths.
 
 
 
 
SPARK NETWORKS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
 
 
 
March 31,
 
 
December 31,
 
 
 
2017
 
 
2016
 
Assets
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
Cash and cash equivalents
 $10,806 
 $11,360 
Restricted cash
  415 
  454 
Accounts receivable
  406 
  525 
Prepaid expenses and other
  1,128 
  1,408 
Total current assets
  12,755 
  13,747 
Property and equipment, net
  3,356 
  4,494 
Goodwill
  10,883 
  10,523 
Intangible assets, net
  2,903 
  2,950 
Deposits and other assets
  95 
  103 
Total assets
 $29,992 
 $31,817 
Liabilities and Stockholders' Equity
    
    
Current liabilities:
    
    
Accounts payable
  1,156 
  819 
Accrued liabilities
  2,730 
  2,590 
Deferred revenue
  3,532 
  4,005 
Total current liabilities
  7,418 
  7,414 
Deferred tax liability - non-current
  2,202 
  2,092 
Other liabilities
  172 
  246 
Total liabilities
  9,792 
  9,752 
Commitments and Contingencies
    
    
Stockholders' equity:
    
    
10,000,000 shares of Preferred Stock authorized, $0.001 par value, 450,000 of which are designated as Series C Junior Participating Cumulative Preferred Stock, with no shares of Preferred Stock issued or outstanding
  - 
  - 
100,000,000 shares of Common Stock authorized, $0.001 par value, with 32,097,183 and 31,983,545 shares of Common Stock issued and outstanding at March 31, 2017 and December 31, 2016:
  32 
  32 
Additional paid-in-capital
  87,358 
  87,198 
Accumulated other comprehensive income
  813 
  713 
Accumulated deficit
  (68,003)
  (65,878)
Total stockholders' equity
  20,200 
  22,065 
Total liabilities and stockholders' equity
 $29,992 
 $31,817 
 
 
 
SPARK NETWORKS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
 
(unaudited, in thousands, except per share data)
 
 
 
Three Months Ended March 31,
 
 
 
2017
 
 
2016
 
Revenue
 $7,264 
 $9,859 
Cost and expenses:
    
    
Cost of revenue (exclusive of depreciation shown separately below)
  2,354 
  6,229 
Sales and marketing
  650 
  1,452 
Customer service
  635 
  993 
Technical operations
  219 
  297 
Development
  715 
  1,030 
General and administrative
  3,234 
  2,511 
Depreciation
  1,708 
  712 
Amortization of intangible assets
  49 
  78 
Impairment of intangible and long-lived assets
  9 
  39 
Total cost and expenses
  9,573 
  13,341 
Operating loss
  (2,309)
  (3,482)
Interest (income) expense and other, net
  (231)
  (141)
Loss before provision for income taxes
  (2,078)
  (3,341)
Income tax provision
  47 
  67 
Net loss
  (2,125)
  (3,408)
Net loss per share - basic and diluted
 $(0.07)
 $(0.13)
Weighted average shares outstanding - basic and diluted
  32,003 
  25,846 
 
    
    
Stock-based compensation:
    
    
 
    
    
Sales and marketing
  1 
  28 
Customer service
  3 
  1 
Technical operations
  2 
  21 
Development
  (4)
  5 
General and administrative
  158 
  267 
Total stock-based compensation
 $160 
 $322 
 
    
    
Reconciliation of Net Loss to Adjusted EBITDA:
    
    
 
    
    
Net loss
 $(2,125)
 $(3,408)
Interest expense
  22 
  13 
Income tax provision
  47 
  67 
Depreciation
  1,708 
  712 
Impairment of intangible and long-lived assets
  9 
  39 
Amortization of intangible assets
  49 
  78 
Non-cash currency translation adjustments
  (253)
  (154)
Stock-based compensation
  160 
  322 
Non-recurring legal and acquisition costs
  514 
  64 
Adjusted EBITDA
 $131 
 $(2,267)
 
 

SPARK NETWORKS INC Reports