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Spark Networks(R) Reports Fourth Quarter and Fiscal Year 2015 Financial Results
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LOS ANGELES, CA -- (Marketwired) -- 03/03/16 -- Spark Networks, Inc. (NYSE MKT: LOV)

Quarterly Highlights

  • Second consecutive quarter of growth in period ending subscribers; average subscribers grew for first time in over two years

  • 318,000+ mobile MAUs at period end

  • Record Christian Networks contribution margin of 48%

  • Strengthened mobile portfolio and extended reach into millennial demo through acquisition of JSwipe and launch of CrossPaths

  • Launched Church Partnership Program (Q1 2016); first two partners represent approximately 10,000 singles

  • Introducing three key growth initiatives for 2016

Spark Networks, Inc. (NYSE MKT: LOV), a leader in creating communities that help individuals form life-long relationships, today reported financial results for the fourth quarter and full year ended December 31, 2015.

Commentary and Outlook

"We are extremely proud of our accomplishments in 2015," commented Michael Egan, Chief Executive Officer. "Not only did we finish the year with the launch of the first re-designs of both JDate and ChristianMingle in over 8 years, but more importantly, we successfully executed on all of our core 2015 goals.

"We exited 2015 with an improved portfolio of assets including two new mobile applications, a growing subscriber base, improving unit economics, and a unique and advantaged position in the market.

"As we entered 2015, our focus was on maintaining profitability and returning our subscriber base to growth. We accomplished this. Q4 was our second consecutive quarter of subscriber growth and we ended the year with improving contribution margins and positive EBITDA.

"2015 represented our 11th consecutive year of exceptional unit economics for our JDate brand, with contribution margins in excess of 85%. More significantly, we have completely transformed the unit economics of our Christian Networks business, ending the year with a 48% contribution margin in Q4. We believe we have only scratched the surface of the profitability potential of our Christian Networks.

"We also fulfilled our goal of transforming our technology and product set from one-dimensional to multi-dimensional with a full suite of mobile applications. Through our own development initiatives and with the acquisition of JSwipe, our mobile monthly active users have grown to over 318,000 at year end, the majority of which are associated with our core JDate and ChristianMingle brands.

"Finally, we aggressively entered the millennial dating market in Q4. Our portfolio now includes the newly acquired JSwipe application and our recently launched CrossPaths application, which is targeted at younger Christian members.

"Though our subscriber base grew in Q4, ARPU was lower as we made the strategic decision to increase longer-duration, lower ARPU subscriptions heading into the relaunch of our core brands. We have consistently seen the highest lifetime values from customers in these longer duration plans. We anticipate seeing a stabilization in the proportion of longer-term subscriptions, and thus ARPU, through the early part of 2016, setting us up for revenue growth midway through the year. We are committed to driving the right balance between network size, subscription duration, customer lifetime value and ARPU.

"With our stabilized customer base, revamped product platform and our unique strategic position in the market, we are poised to grow revenue and we are aggressively pursuing this in 2016 through three key priorities.

"The first is our recently announced Church Program. Throughout the course of 2015 we worked with church leaders to help reshape ChristianMingle, enabling it to become the preferred, faith-based alternative to other platforms in the market. In January of this year we launched a partnership program whereby churches receive discounted ChristianMingle subscriptions as well as brand exposure amongst our broader community in exchange for marketing ChristianMingle as the preferred online dating community to their congregation. We have already partnered with two churches, representing over 10,000 single adults, and are deep in conversations with many others. We look forward to working with our church partners to develop programing that helps meet the needs of their congregants. We believe that these partnerships will simultaneously allow us to reach Christian singles cost efficiently, to offer a superior user experience to our members, and to fulfill our mission of strengthening the community we aim to serve.

"Our second focus is growing and monetizing our millennial audiences. With the acquisition of JSwipe and the launch of the CrossPaths mobile application, we have immediately become the leader for millennials within our two core communities and have significantly expanded our ecosystem. The integration of the JSwipe team has been seamless and they have launched their first premium feature in Q1. The largest growth in the dating market over the last two years has been in the under-30 demographic, and with our two brands, we are uniquely positioned to take advantage of this growth.

"Thirdly, towards the latter half of the year, we will grow our Christian subscriber base by moving beyond the United States into other countries with large Christian communities, specifically in Latin America. With our nimble mobile technology now in place, we are able to capture this opportunity with very little incremental investment.

"Lastly, as alluded to in November, we have retained a financial advisor to explore all options to maximize shareholder value given the tremendous transformation of Spark in 2015 and current industry dynamics.

"We accomplished a significant amount in 2015 and have re-solidified our position as the leader in our communities. We look forward to a strong 2016."

Summary Quarterly Metrics

Q4 2015 Q3 2015 Q4 2014
Revenue $10.7 Million $11.7 Million $14.3 Million
Contribution1 $6.8 Million $7.3 Million $9.1 Million
Net (Loss) Income $(1.2) Million $(822) Thousand $3.9 Million
Adjusted EBITDA2 $116 Thousand $309 Thousand $4.1 Million
Cash Balance $6.6 Million $14.4 Million $11.7 Million
Period Ending Subs3 200,023 197,832 215,517
Avg. Paying Subs3 199,781 197,109 227,874
ARPU $17.26 $19.04 $19.47

Fourth Quarter 2015 Financial Results

Revenue: For the fourth quarter of 2015, total revenue was $10.7 million, a decrease of 25% compared to the year ago period, and an 8% decrease from the prior quarter. The year over year decrease was primarily driven by a decrease in average paying subscribers as well as a decrease in our Q4 ARPU. The sequential decrease was driven exclusively by a quarterly decline in ARPU. The declines in ARPU were driven by a significant increase in the proportion of six month subscriptions sold during the third and fourth quarters of 2015 within the Jewish and Christian Networks, and increases in promotional activity during those periods.

Contribution: For the fourth quarter of 2015, contribution was $6.8 million, a decrease of 25% compared to the year ago period and a 6% decrease from the prior quarter. Our contribution margin increased to 64% from 62% in the previous quarter and 64% in the year ago period. The margin expansion was primarily driven by our Christian Networks, which increased contribution margin to 48% from 44% in the previous quarter and 47% in the year ago period. Christian Networks contribution margins benefitted from both efficiency gains within television marketing campaigns and our decision to reduce marketing spend given seasonally high advertising rates in the fourth quarter.

Adjusted EBITDA: For the fourth quarter of 2015, Adjusted EBITDA was $116 thousand, a decrease from $4.1 million in the year ago period and $309 thousand in the prior quarter. Excluding the operating impact of Smooch Labs, Adjusted EBITDA for the fourth quarter was $341 thousand. Current period Adjusted EBITDA does not include $79 thousand of expense related to executive severance payments and $275 thousand of expense related to transaction fees related to the acquisition of Smooch Labs, which closed early in the fourth quarter of 2015. Our fourth quarter 2015 operating expenses do include a $520,000 reserve for the settlement of two class action law suits, though we do not expect future expenses for this matter.

Liquidity: For the fourth quarter of 2015, the Company ended with $6.6 million in cash and cash equivalents, compared to $14.4 million at the end of the prior quarter. The Company paid $6.0 million for the Smooch Labs acquisition, which closed in October 2015. As of December 31, 2015, the Company had no outstanding debt.

Summary Annual Metrics

2015 2014
Revenue $48.1 Million $61.6 Million
Contribution1 $28.4 Million $31.2 Million
Net (Loss) Income $(1.4) Million $(1.1) Million
Adjusted EBITDA2 $2.8 Million $5.5 Million
Cash Balance $6.6 Million $11.7 Million
Period Ending Subs3 200,023 215,517
Avg. Paying Subs3 203,557 261,735
ARPU $18.92 $18.54

Full Year 2015 Financial Results

Revenue: For the full year 2015, total revenue was $48.1 million, a decrease of 22% compared to the year ago period. The year over year decrease was primarily driven by a 22% decrease in average paying subscribers, reflecting a 26% and 15% decrease in average paying subscribers for the Christian and Jewish Networks segments, respectively. 2015 ARPU increased 2% compared to the year ago period.

Contribution: For the full year 2015, contribution was $28.4 million, a decrease of 9% compared to the year ago period. Our contribution margin increased to 59% from 51% in the year ago period. The margin expansion was primarily driven by our Christian Networks, which increased contribution margin to 39% from 25% in the year ago period.

Adjusted EBITDA: For the full year 2015, Adjusted EBITDA was $2.8 million, a decrease from $5.5 million in the year ago period. Excluding the operating impact of Smooch Labs, Adjusted EBITDA for the full year 2015 was $3.1 million. Current period Adjusted EBITDA does not include $240 thousand of expense related to executive severance payments and $404 thousand of expense related to transaction fees related to the acquisition of Smooch Labs, which closed early in the fourth quarter of 2015. Our full year 2015 operating expenses do include the aforementioned reserve of approximately $520,000 for the settlement of two class action law suits, as well as legal expenses of approximately $1.2 million related to the defense of the Company's intellectual property, though we do not expect future expenses for either matter.

SPARK NETWORKS, INC.
SEGMENT4 RESULTS FROM OPERATIONS
(in thousands except subscriber and ARPU information)
Q4 2015 Q3 2015 Q2 2015 Q1 2015 Q4 2014 Q4 '15 v. Q4 '14 Q4 '15 v. Q3 '15
Revenue
Jewish Networks $ 4,299 $ 4,613 $ 4,846 $ 5,180 $ 5,502 -21.9 % -6.8 %
Christian Networks 5,940 6,581 6,921 7,792 8,215 -27.7 % -9.7 %
Other Networks 446 466 470 487 504 -11.6 % -4.4 %
Offline & Other Businesses 20 22 25 27 43 -53.6 % -9.3 %
Total Revenue $ 10,705 $ 11,682 $ 12,262 $ 13,486 $ 14,264 -25.0 % -8.4 %
Direct Mktg. Exp.
Jewish Networks $ 648 $ 619 $ 745 $ 599 $ 684 -5.3 % 4.6 %
Christian Networks 3,111 3,664 4,450 5,338 4,325 -28.1 % -15.1 %
Other Networks 129 141 133 115 116 11.6 % -8.2 %
Offline & Other Businesses - - - - 4 -100.0 % NM
Total Direct Mktg. Exp. $ 3,888 $ 4,424 $ 5,328 $ 6,052 $ 5,129 -24.2 % -12.1 %
Contribution
Jewish Networks $ 3,652 $ 3,994 $ 4,101 $ 4,581 $ 4,818 -24.2 % -8.6 %
Christian Networks 2,829 2,917 2,471 2,454 3,890 -27.3 % -3.0 %
Other Networks 316 325 337 372 388 -18.5 % -2.7 %
Offline & Other Businesses 20 22 25 27 39 -48.8 % -9.3 %
Total Contribution $ 6,817 $ 7,258 $ 6,934 $ 7,434 $ 9,135 -25.4 % -6.1 %
Period Ending Subs
Jewish Networks 65,004 64,144 62,991 67,703 71,251 -8.8 % 1.3 %
Christian Networks 123,800 122,068 121,561 129,964 131,479 -5.8 % 1.4 %
Other Networks 11,219 11,620 12,267 12,879 12,787 -12.3 % -3.5 %
Total Period Ending Subs. 200,023 197,832 196,819 210,546 215,517 -7.2 % 1.1 %
Average Paying Subs.
Jewish Networks 64,627 63,538 65,087 69,632 73,429 -12.0 % 1.7 %
Christian Networks 123,888 121,597 126,214 130,860 141,188 -12.3 % 1.9 %
Other Networks 11,266 11,974 12,594 12,953 13,257 -15.0 % -5.9 %
Total Avg. Paying Subs. 199,781 197,109 203,895 213,445 227,874 -12.3 % 1.4 %
ARPU
Jewish Networks $ 21.82 $ 23.80 $ 24.46 $ 24.48 $ 24.44 -10.7 % -8.3 %
Christian Networks 15.25 17.19 17.57 18.01 17.57 -13.2 % -11.3 %
Other Networks 12.72 12.58 12.08 12.22 12.27 3.7 % 1.2 %
Total ARPU5 $ 17.26 $ 19.04 $ 19.43 $ 19.77 $ 19.47 -11.3 % -9.3 %
Distribution of New Subscription Purchases6
Q4 2015 Q3 2015 Q2 2015 Q1 2015 Q4 2014
Jewish Networks
1 month plans 32.8 % 35.6 % 45.4 % 42.7 % 41.4 %
3 month plans 19.8 % 19.9 % 21.8 % 25.2 % 24.3 %
6 month plans 47.3 % 44.5 % 32.8 % 32.1 % 34.3 %
100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Christian Networks
1 month plans 38.5 % 39.6 % 54.4 % 50.5 % 53.7 %
3 month plans 21.6 % 18.4 % 19.4 % 17.8 % 20.7 %
6 month plans 39.9 % 42.0 % 26.2 % 31.7 % 25.6 %
100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Other Networks
1 month plans 59.9 % 62.0 % 58.3 % 56.0 % 59.2 %
3 month plans 10.6 % 11.4 % 11.9 % 12.2 % 11.0 %
6 month plans 29.6 % 26.6 % 29.8 % 31.8 % 29.8 %
100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Composition of Average Paying Subscriber Base7
Q4 2015 Q3 2015 Q2 2015 Q1 2015 Q4 2014
Jewish Networks
First Time Subscribers 23.1 % 21.7 % 21.5 % 22.4 % 22.4 %
Winback Subscribers 32.0 % 30.5 % 29.1 % 28.8 % 29.2 %
Renewal Subscribers 44.9 % 47.8 % 49.4 % 48.8 % 48.4 %
Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Christian Networks
First Time Subscribers 41.3 % 39.1 % 38.3 % 37.1 % 38.0 %
Winback Subscribers 23.7 % 23.3 % 22.6 % 20.3 % 19.7 %
Renewal Subscribers 35.0 % 37.6 % 39.1 % 42.6 % 42.3 %
Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Other Networks
First Time Subscribers 30.0 % 31.2 % 33.2 % 20.3 % 30.6 %
Winback Subscribers 21.0 % 22.0 % 21.9 % 26.9 % 21.8 %
Renewal Subscribers 49.1 % 46.8 % 44.9 % 52.8 % 47.6 %
Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %

Investor Conference Call
The Company will discuss its financial results during a live teleconference today at 1:30 p.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 www.spark.net or by clicking http://investor.spark.net.

A replay will begin approximately three hours after completion of the call and run until March 17, 2016.

Replay
Toll-Free (United States): 1-877-870-5176
International: 1-858-384-5517
Passcode: 13629849

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, including statements regarding improving Christian Networks unit economics, statements regarding the growth of our topline with minimal incremental investment and our expectation to aggressively pursue this in 2016 through three key priorities, and statements regarding working with church partners to development programing that helps the needs of their congregants and the benefits to our company of these partnerships. 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 "may," "will," "expect," "believe," "anticipate," "estimate," "intends," "goal," "objective," "seek," "attempt," or variations of these or similar words, 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 our ability to: successfully implement our strategy to stabilize our subscriber base and grow; avoid significant subscriber declines; attract and retain members; convert members into paying subscribers and retain our paying subscribers; retain and enhance the new marketing team; develop or acquire new product offerings and successfully implement and expand those offerings; keep pace with rapid technological changes, including making the technology stack more nimble; drive use of newly-updated mobile applications; maintain the strength of our existing brands and maintain and enhance those brands; continue to depend upon the telecommunications infrastructure and our networking hardware and software infrastructure; estimate on-going general and administrative costs, and obtain financing on acceptable terms. Additional factors that could cause actual results to differ are discussed under the heading "Risk Factors" and in other sections of the Company's filings with the Securities and Exchange Commission ("SEC"), and in the Company'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, Inc.:
The Spark Networks portfolio of consumer Web sites includes, among others, JDate®.com (www.jdate.com), ChristianMingle®.com (www.christianmingle.com), Spark®.com (www.spark.com), BlackSingles.com® (www.blacksingles.com), and SilverSingles®.com (www.silversingles.com).

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 and twelve months ended December 31, 2015 and December 31, 2014 can be found in the table below.

"Adjusted EBITDA" is defined as earnings before interest, taxes, depreciation, amortization, stock-based compensation, impairment of long-lived assets, non-cash currency translation adjustments for an inter-company loan and non-recurring proxy, executive severance 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 type of subscriber comprising the average paying subscribers in that 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.

SPARK NETWORKS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
December 31, December 31,
2015 2014
Assets
Current assets:
Cash and cash equivalents $ 6,565 $ 11,696
Restricted cash 747 1,056
Accounts receivable (net of allowance for doubtful accounts of $99 and $0 at December 31, 2015 and 2014, respectively) 790 1,308
Deferred tax asset - current - 11
Prepaid expenses and other 1,341 1,516
Total current assets 9,443 15,587
Property and equipment, net 5,584 4,072
Goodwill 14,450 8,575
Intangible assets, net 3,451 2,469
Deferred tax asset - non-current - 68
Deposits and other assets 148 234
Total assets $ 33,076 $ 31,005
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable 1,749 1,300
Accrued liabilities 3,854 3,948
Deferred revenue 5,834 7,092
Deferred tax liability - current - 496
Total current liabilities 11,437 12,836
Deferred tax liability - non-current 2,136 1,607
Other liabilities 537 807
Total liabilities 14,110 15,250
Commitments and Contingencies
Stockholders' equity:
10,000,000 shares of Preferred Stock, $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, $0.001 par value, with 25,845,879 and 24,556,182 shares of Common Stock issued and outstanding at December 31, 2015 and 2014, respectively: 27 25
Additional paid-in-capital 77,188 72,522
Accumulated other comprehensive income 739 759
Accumulated deficit (58,988 ) (57,551 )
Total stockholders' equity 18,966 15,755
Total liabilities and stockholders' equity $ 33,076 $ 31,005
SPARK NETWORKS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share data)
Three Months Ended
December 31, Years Ended December 31,
2015 2014 2015 2014
Revenue $ 10,705 $ 14,264 $ 48,135 $ 61,645
Cost and expenses: - -
Cost of revenue (exclusive of depreciation shown separately below) 5,017 6,087 24,075 34,321
Sales and marketing 1,242 828 4,137 5,127
Customer service 826 749 3,065 3,038
Technical operations 388 213 1,024 1,130
Development 1,059 801 4,037 3,446
General and administrative 2,675 1,828 10,379 13,300
Depreciation 604 495 2,211 2,053
Amortization of intangible assets 78 10 108 40
Impairment of long-lived assets 65 25 197 128
Total cost and expenses 11,954 11,036 49,233 62,583
Operating loss (1,249 ) 3,228 (1,098 ) (938 )
Interest expense (income) and other, net 16 241 96 564
Loss before provision for income taxes (1,265 ) 2,987 (1,194 ) (1,502 )
Income tax (benefit) provision (23 ) (882 ) 243 (375 )
Net loss (1,242 ) 3,869 (1,437 ) (1,127 )
Net loss per share - basic and diluted $ (0.05 ) $ 0.16 $ (0.06 ) $ (0.05 )
Weighted average shares outstanding - basic 25,675 24,425 25,170 24,064
Weighted average shares outstanding - diluted 25,675 24,634 25,170 24,064
Stock-based compensation:
Three Months Ended
December 31, Years Ended December 31,
(in thousands) 2015 2014 2015 2014
Cost of revenue - - - 3
Sales and marketing 28 11 47 110
Technical operations - - - -
Development 4 - 12 -
General and administrative 238 322 723 833
Reconciliation of Net (Loss) Income to Adjusted EBITDA:
Three Months Ended
December 31, Years Ended December 31,
(in thousands) 2015 2014 2015 2014
Net (loss) income $ (1,242 ) $ 3,869 $ (1,437 ) $ (1,127 )
Interest expense 33 12 68 48
Income tax (benefit) provision (23 ) (882 ) 243 (375 )
Depreciation 605 495 2,211 2,053
Impairment of long-lived assets 65 25 197 128
Amortization of intangible assets 78 10 108 40
Non-cash currency translation adjustments (24 ) 234 15 518
Stock-based compensation 270 333 782 946
Non-recurring proxy, executive severance, and acquisition costs 354 - 644 3,308
Adjusted EBITDA $ 116 $ 4,096 $ 2,831 $ 5,539

Source: Spark Networks, Inc.