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Spark Networks SE Reports First Half 2018 Results

BERLIN, Aug. 30, 2018 /PRNewswire/ -- Spark Networks SE (NYSE American: LOV), one of the world's leading online dating platforms, leveraging premium, complementary brands including EliteSingles, eDarling, Jdate, Christian Mingle, JSwipe, SilverSingles, and Attractive World reported its first half 2018 financial results today.

(PRNewsfoto/Spark Networks SE)

"We've had a very productive first half of the year and our growth initiatives are all working well," said Jeronimo Folgueira, Chief Executive Officer of Spark Networks SE.  "Our growth strategy remains focused on EliteSingles, our newly added Jdate, JSwipe and Christian Mingle brands, and the recently launched SilverSingles brand.  All three of these areas performed well in the first half of the year and we expect to carry our current momentum through the second half of 2018 and into 2019.

"Our largest brand, EliteSingles, continues to grow nicely.  For the last three years, expanding Elite's presence in North America has been a top company priority, and the first half of 2018 was no different.  On a constant currency basis Elite North America grew in excess of 16% year over year.  This growth was offset by a 12% F/X headwind as the Euro strengthened significantly versus the US Dollar in the first half of 2018, resulting in 4% year over year revenue growth for Elite North America on a reported basis. While we are pleased to see the continued growth of Elite in North America, we are even more excited about our ability to drive an acceleration in subscriber KPIs as Elite's North American brand recognition continues to grow.  We have seen a pattern in many of Elite's more mature European markets where increased brand awareness and network size have created a virtuous cycle of marketing efficiency and revenue growth.  Our experience in these markets gives us confidence that we are nearing a positive inflection point for the growth and profitability of EliteSingles North America.

"We are committed to driving stability, and ultimately growth within the Jdate, JSwipe and Christian Mingle brands following the close of the merger.  Our initial work has focused on increasing the monetization of these brands, and we have seen monthly Average Revenue Per User, or ARPU, increase by over 5% since the merger closed.  These ARPU improvements helped drive stable revenue in local currency throughout the first half of 2018.  Further, we remain confident that the improvement in ARPU, in combination with the other product, marketing and conversion improvements we have implemented will allow us to grow revenue for these brands in the fourth quarter of 2018 and into 2019.

"Our newest brand, SilverSingles, is off to a great start since launching in December 2017. SilverSingles is growing consistently each month, and exited the first half of 2018 with over 35,000 paying subscribers and 8% of our total revenue in the month of June.  Two thirds of SilverSingles' revenue is generated in North America.  We invested nearly €7 million in SilverSingles direct marketing in the first half of the year, resulting in a roughly €4 million net loss in the reported financials this period.  This significant investment was the result of the strong marketing KPIs SilverSingles has demonstrated since launch.  Going forward, we are confident that the brand will be at least cash flow break-even in the second half of 2018 and break-even on an Adjusted EBITDA basis in 2019.  With our biggest investment period now behind us and the brand continuing to perform, we are very optimistic about the long term revenue and profitability potential of SilverSingles, particularly within North America.

"In short, we continue to see opportunities to deploy growth capital with attractive returns.  While there is a lot of work left to do at Spark, it's encouraging to see results that confirm our growth initiatives are working.  We are very excited by our performance thus far in 2018 and are confident that we can continue to grow the business into 2019 and beyond."

Key Metrics - Half Year


Six months ended


Growth Rates %


6/30/2018


12/31/2017


6/30/2017


1st Half 2018 vs.


1st Half 2018


2nd Half 2017


1st Half 2017


2nd Half 2017


1st Half 2017

Revenue

€53.0 Million


€43.5 Million


€42.1 Million


21.8%


25.9%

Contribution1

€20.4 Million


€17.5 Million


€14.6 Million


16.5%


39.7%

Net loss

€(1.1) Million


€(3.9) Million


€(1.7) Million


(70.4)%


(32.7)%

Adjusted EBITDA2

€2.4 Million


€4.2 Million


€2.4 Million


(42.6)%


2.6%

Cash Balance

€8.1 Million


€8.2 Million


€6.7 Million


(2.0)%


19.8%

Total Registrations3

5,352,521


4,329,541


4,122,092


23.6%


29.8%

Avg. Paying Subs4

489,024


393,979


364,825


24.1%


34.0%

Monthly ARPU5

€ 18.07


€ 18.41


€ 19.24


(1.8)%


(6.1)%

Six Months Ended June 30, 2018 Financial Results

Revenue:  For the six months ended June 30, 2018, total revenue was €53.0 million, an increase of 25.9% compared to the six months ended June 30, 2017, and a 21.8% increase from the six months ended December 31, 2017. The year over year growth was attributable to the 34.0% increase in the number of average paying subscribers offset by the 6.1% decrease in Monthly ARPU. Spark contributed 91.3% of the year over year revenue increase through the addition of Jdate, JSwipe and Christian Mingle following the close of the Affinitas / Spark Merger in November 2017.

Revenue in the six months ended June 30, 2018 includes €9.9 million of post-merger revenue from Spark, net of a €289 thousand write-off of contract liabilities relating to the Affinitas / Spark Merger.

Contribution:  Contribution was €20.4 million for the six months ended June 30, 2018, an increase of 39.7% compared to the six months ended June 30, 2017, and a 16.5% increase from the six months ended December 31, 2017. Our contribution margin increased to 38.5% from 34.7% in the six months ended June 30, 2017, and decreased from 40.3% in the six months ended December 31, 2017. The margin expansion year over year was primarily driven by revenue growth in North America.  North America contribution margin increased to 36.4% from 15.8% in the six months ended June 30, 2017 and from 36.0% in the six months ended December 31, 2017.

Contribution in the six months ended June 30, 2018 includes €8.2 million of post-merger contribution from Spark, net of a €289 thousand write-off of contract liabilities relating to the Affinitas / Spark Merger.

Net Loss:  Net Loss was €(1.1) million in the six months ended June 30, 2018, a €557 thousand reduction from the Net Loss in the six months ended June 30, 2017 and a €2.7 million reduction from the Net Loss in the six months ended December 31, 2017. The reduction in Net Loss was primarily due to year over year and sequential increases in revenue and contribution driven by the addition of Jdate and Christian Mingle following the Affinitas / Spark Merger in November 2017.

Adjusted EBITDA:  For the six months ended June 30, 2018, Adjusted EBITDA was €2.4 million, an increase of €62 thousand versus the six months ended June 30, 2017, and a decrease of €1.8 million from the six months ended December 31, 2017.

Cash:  On June 30, 2018, the Company had €8.1 million in cash and cash equivalents, compared to €6.7 million at June 30, 2017. On June 30, 2018, the Company had €14.0 million of debt outstanding.

Financial Outlook

The Company is transitioning from US Dollar denominated guidance to Euro denominated guidance to better align with its Euro denominated financial reporting.

In our last earnings call in late April, we shared US Dollar denominated Revenue and Adj. EBITDA ranges for 2018 of $127 to $133 million and $13 to $18 million, respectively.  These ranges assumed the US Dollar to Euro exchange rate at the time of the announcement of $1.23 per Euro.  The implied Euro denominated 2018 guidance ranges would therefore have been:

  • Revenue of approximately €103 to €108 million
  • Adjusted EBITDA of approximately €10.5 to €14.5 million

With current exchange rates now at $1.17 dollars per Euro, or 5% lower than when we last provided guidance, we think it is important to reflect these lower exchange rates into our expectations.

New Second Half 2018

  • Revenue of €53.5 to €56.5 million
  • Adjusted EBITDA of €6.5 to €9.5 million

The second half 2018 outlook implies year over year revenue growth of 6% at the mid-point of the range and nearly five percentage points of Adjusted EBITDA margin expansion when compared to second half 2017 pro forma combined Revenue and Adjusted EBITDA of €51.9 million and €5.1 million, respectively.

New Full Year 2018

  • Revenue of €106.5 to €109.5 million
  • Adjusted EBITDA of €8.9 to €11.9 million

Preliminary 2019 Outlook

  • Revenue growth rates in the mid- to high single digits
  • A one to three percentage point increase in Adjusted EBITDA margin versus 2018

 

SPARK NETWORKS SE

SEGMENT6 RESULTS FROM OPERATIONS

(Revenue, Direct Marketing and Contribution figures in € thousands)



Six months ended


Growth Rates %


6/30/2018


12/31/2017


6/30/2017


1st Half 2018 vs.


1st Half 2018


2nd Half 2017


1st Half 2017


2nd Half 2017


1st Half 2017

# of Registrations










North America

2,133,705


1,233,455


1,055,581


73.0

%


102.1

%

International

3,218,816


3,096,086


3,066,511


4.0

%


5.0

%

Total # of Registrations

5,352,521


4,329,541


4,122,092


23.6

%


29.8

%











Average Paying Subscribers










North America

178,101


97,786


69,953


82.1

%


154.6

%

International

310,923


296,193


294,872


5.0

%


5.4

%

Total Average Paying Subscribers

489,024


393,979


364,825


24.1

%


34.0

%











Monthly ARPU










North America

21.47


22.87


26.58


(6.1)

%


(19.2)

%

International

16.12


16.94


17.50


(4.8)

%


(7.9)

%

Total Monthly ARPU

18.07


18.41


19.24


(1.8)

%


(6.1)

%











Total Net Revenue










North America

22,939


13,419


11,155


70.9

%


105.6

%

International

30,075


30,102


30,961


(0.1)

%


(2.9)

%

Total Net Revenue

53,014


43,521


42,116


21.8

%


25.9

%











Direct Marketing










North America

14,585


8,585


9,395


69.9

%


55.2

%

International

18,000


17,394


18,095


3.5

%


(0.5)

%

Total Direct Marketing

32,585


25,979


27,490


25.4

%


18.5

%











Contribution










North America

8,354


4,834


1,760


72.8

%


374.7

%

International

12,075


12,708


12,866


(5.0)

%


(6.1)

%

Total Contribution

20,429


17,542


14,626


16.5

%


39.7

%

 

SPARK NETWORKS SE

UNAUDITED PRO FORMA FINANCIAL INFORMATION

(in € thousands)



Six months ended June 30,

(in € thousands)

2018
(actual)


2017
(pro forma)

Revenue(7)

53,014


54,915

Net loss(7)

(1,147)


(3,454)


The following table presents certain selected information and Adjusted EBITDA(2) for the unaudited pro forma periods presented:



Six months ended June 30,

(in € thousands)

2018
(actual)


2017
(pro forma)

Net loss

(1,147)


(3,454)

Net finance expenses

564


33

Income tax benefit

(1,240)


1,285

Depreciation and amortization

1,637


4,784

Impairment of intangibles


47

Share-based compensation

1,777


691

Non-recurring costs

841


103

Adjusted EBITDA(2)

2,432


3,489




Six months ended June 30,

Summary of non-recurring costs (in € thousands)

2018
(actual)


2017
(pro forma)

Contract liabilities write-offs

289


Transaction and advisory fees

264


Merger integration costs

14


Severance costs

274


103

Total adjustments

841


103

Investor Conference Call

The Group will discuss its financial results during a live teleconference today at 8:30 a.m. Eastern time.

Toll-Free (United States):

1-877-705-6003

Toll-Free (Germany):

0-800-182-0040

International:

1-201-493-6725

In addition, the Group will host a webcast of the call which will be accessible in the Investor Relations section of the Group's website at http://investor.spark.net.

A replay will begin approximately three hours after completion of the call and run until September 13, 2018.

Replay


Toll-Free (United States):

1-844-512-2921

International:

1-412-317-6671

Passcode:

13682333

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.

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," 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, the risk that the benefits from the Affinitas / Spark Merger may not be fully realized or may take longer to realize than expected; risks related to the degree of competition in the markets in which Spark Networks operates; risks related to disruption of management's attention from Spark Networks' ongoing business operations due to the transaction; the ability of Spark Networks to retain and hire key personnel, operating results and business generally; Spark Networks' ability to continue to control costs and operating expenses; Spark Networks' ability to achieve the intended cost savings; the ability to promptly and effectively integrate the businesses of Spark Networks, Inc. and Affinitas GmbH; Spark Networks' ability to generate cash from operations, lower-than-expected revenues, credit quality deterioration or a reduction in net earnings; Spark Networks' ability to raise outside capital and to repay debt as it comes due; Spark Networks' ability to introduce new competitive products and the degree of market acceptance of such new products; the timing and market acceptance of new products introduced by Spark Networks' competitors; Spark Networks' ability to maintain strong relationships with branded channel partners; changes in Spark Networks' share price due to broader stock market movements and the performance of peer group companies; Spark Networks' ability to enforce intellectual property rights and protect their respective intellectual property; general competition and price measures in the market place; general economic conditions; and the other concerns. Additional factors that could cause actual results to differ are discussed under the heading "Risk Factors" and in other sections of the Group's filings with the Securities and Exchange Commission ("SEC"), and in the Group's 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.

About Spark Networks SE:

Spark Networks SE is a leading global dating company with a portfolio of premium brands designed for singles seeking serious relationships. These brands include EliteSingles, Jdate, Christian Mingle, SilverSingles, eDarling, JSwipe and Attractive World. Formed in 2017 through the merger of Affinitas GmbH and Spark Networks, Inc., the company has a presence in 29 countries worldwide and is publicly listed on the NYSE American exchange under the ticker symbol "LOV."

For More Information              

Investors:
Robert O'Hare
Chief Financial Officer
rohare@spark.net

1 Contribution is defined as revenue, net of credits, less direct marketing. Direct Marketing is defined as online and offline advertising spend, and is included within Cost of Revenue within the Group's Consolidated Statements of Operations and Comprehensive Loss.

2 Adjusted EBITDA is not a measure defined by IFRS. The most directly comparable IFRS measure for Adjusted EBITDA is our net (loss)/profit for the relevant period. This 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 ongoing operations and excludes the impact of items that we do not consider representative of our ongoing operating performance, including: (i) non-cash items such as share-based compensation, asset impairments, non-cash currency translation adjustments 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 including severance, transaction advisory fees, and merger integration costs, and (iii) discontinued operations. Adjusted EBITDA should not be construed as a substitute for net loss (as determined in accordance with IFRS) for the purpose of analyzing our operating performance or financial position, as Adjusted EBITDA is not defined by IFRS. A reconciliation of the Adjusted EBITDA for the six months ended June 30, 2018 and June 30, 2017 can be found in the table below.

Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization, share-based compensation, impairment of intangibles, and non-recurring costs.

3 Total registrations are defined as the total number of new members registering to the platforms with their email address. Those include members who enter into premium subscriptions and free memberships.

4 Paying subscribers are defined as individuals who have paid a monthly fee for access to premium services, which include, among others, unlimited communication with other registered users, access to user profile pictures and enhanced search functionality. Average paying subscribers for each month are calculated as the sum of the paying subscribers at the beginning and the 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.

5 Monthly Average Net Revenue Per User, or Monthly ARPU, represents the total net subscriber revenue for the period divided by the number of average paying subscribers for the period, divided by the number of months in the period.

6 In accordance with segment reporting guidance, the Group's financial reporting includes detailed data on two separate operating segments. The North America segment consists of operations in the United States and Canada, and the International segment consists of all other operations except for the United States and Canada.

7 The unaudited pro forma financial information presents the combined results of the Company and Spark as if these mergers and acquisitions had occurred on January 1, 2017. The unaudited pro forma financial information includes adjustments required under the acquisition method of accounting and is presented for informational purposes only. This presentation is not necessarily indicative of the results that would have been achieved had the acquisitions actually occurred on January 1, 2017.

SPARK NETWORKS SE

CONSOLIDATED BALANCE SHEETS

(unaudited, in € thousands)



June 30, 2018


December 31, 2017

ASSETS




Non-current assets

49,163


47,148

Intangible assets

35,772


35,136

Internally generated software

3,083


3,503

Licenses and domains

138


128

Brands and trademarks

4,918


4,917

Intangible assets under development

2,291


1,090

Other intangible assets

1,586


2,314

Goodwill

23,756


23,184

Property, plant and equipment

2,194


2,082

Leasehold improvements

157


186

Other and office equipment

346


373

Property, plant and equipment under construction

1,691


1,523

Other non-current financial assets

94


23

Other non-current non-financial assets

41


Non-current tax receivable

440


Deferred tax assets

10,622


9,907

Current assets

22,119


22,034

Current trade and other receivables

13,683


13,820

Trade receivables

6,589


6,814

Other current financial assets

2,725


3,156

Other assets

4,369


3,850

Current tax receivable

383


Cash and cash equivalents

8,053


8,214

TOTAL ASSETS

71,282


69,182

SHAREHOLDER'S EQUITY AND LIABILITIES




Shareholder's equity

21,076


19,477

Subscribed capital

1,317


1,317

Capital reserves

49,019


48,877

Share-based payment reserve

4,524


2,747

Accumulated deficit

(33,728)


(32,581)

Accumulated other comprehensive income

(56)


(883)

Non-current liabilities

10,927


765

Non-current borrowings

10,129


Other non-current provisions

17


17

Other non-current financial liabilities

25


Deferred tax liabilities

745


725

Non-current contract liabilities

11


23

Current liabilities

39,279


48,940

Current borrowings

3,873


5,850

Other current provisions

1,126


1,159

Current trade and other payables

12,568


21,291

Trade payables

10,177


11,489

Other current financial liabilities

442


6,515

Other liabilities

1,949


3,287

Current income tax liabilities

409


286

Current contract liabilities

21,303


20,354

TOTAL SHAREHOLDER'S EQUITY AND LIABILITIES

71,282


69,182

 

SPARK NETWORKS SE

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in € thousands, except per share data)



Six months ended June 30,


2018


2017





Revenue

53,014


42,116

Cost of revenue

(37,350)


(29,039)

Gross profit

15,664


13,077

Other income

24


49

Other operating expenses

(17,511)


(15,100)

Sales and marketing expenses

(2,457)


(2,765)

Customer service expenses

(2,348)


(2,195)

Technical operations and development expenses

(3,374)


(2,764)

General and administrative expenses

(9,332)


(7,376)

Operating loss

(1,823)


(1,974)

Interest income and similar income

214


73

Interest expense and similar charges

(778)


(419)

Net finance expenses

(564)


(346)

Loss before taxes

(2,387)


(2,320)

Income tax benefit

1,240


616

Net loss

(1,147)


(1,704)

Other comprehensive income

827


Total comprehensive loss

(320)


(1,704)

Net (loss) earnings per share




Basic (loss) earnings per share (€)

(0.89)


(68.16)

Diluted (loss) earnings per share (€)

(0.89)


(68.16)





Reconciliation of Net (Loss)/Profit to Adjusted EBITDA:




Net loss

(1,147)


(1,704)

Net finance expenses

564


346

Income tax benefit

(1,240)


(616)

Depreciation and amortization

1,637


1,505

Impairment of intangibles


25

Share-based compensation

1,777


376

Non-recurring costs

841


2,438

Adjusted EBITDA

2,432


2,370





Summary of non-recurring costs:




Contract liabilities write-offs

289


Transaction and advisory fees

264


2,335

Merger integration costs

14


Severance costs

274


103

Total adjustments

841


2,438

 

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SOURCE Spark Networks SE