Spark Networks SE Reports Second Half and Full Year 2020 Financial Results

Key Metrics – Half Year

(Amounts in $ millions, except Total Registrations, Avg. Paying Subs, and Monthly ARPU)

Six Months Ended

Growth Rates %

12/31/2020

6/30/2020

12/31/2019

2nd Half 2020 vs.

2nd Half 2020

1st Half 2020

2nd Half 2019

1st Half 2020

2nd Half 2019

Revenue

$

118.9

$

114.2

$

115.0

4.1

%

3.4

%

Contribution¹

$

60.6

$

57.4

$

52.0

5.5

%

16.5

%

Net loss

$

(45.9)

$

(0.7)

$

(29.0)

6,022.7

%

58.3

%

Adjusted EBITDA²

$

20.1

$

17.6

$

6.8

14.3

%

197.1

%

Cash Balance

$

19.3

$

13.2

$

17.2

45.5

%

12.0

%

Total Registrations³

7,140,802

7,668,580

8,229,976

(6.9)

%

(13.2)

%

Avg. Paying Subs⁴

941,104

914,798

1,017,321

2.9

%

(7.5)

%

Monthly ARPU⁵

$

21.05

$

20.80

$

18.83

1.2

%

11.8

%

Key Metrics – Full Year

(Amounts in $ millions, except Total Registrations, Avg. Paying Subs, and Monthly ARPU)

Years Ended December 31,

Growth Rates %

2020

2019

2020

2019

Revenue

$

233.0

$

170.9

36.4

%

44.2

%

Contribution¹

$

118.0

$

75.3

56.7

%

45.9

%

Net loss

$

(46.6)

$

(34.9)

33.5

%

299.7

%

Adjusted EBITDA²

$

37.7

$

10.3

264.3

%

129.2

%

Cash Balance

$

19.3

$

17.2

12.0

%

39.3

%

Total Registrations³

14,809,382

12,718,080

16.4

%

25.4

%

Avg. Paying Subs⁴

927,951

731,088

26.9

%

51.2

%

Monthly ARPU⁵

$

20.93

$

19.48

7.4

%

(4.7)

%

SPARK NETWORKS SE

UNAUDITED PRO FORMA FINANCIAL INFORMATION⁶ 

(in $ thousands)

Years Ended December 31,

2020

2019

(in $ thousands)

(actual)

(pro forma)

Revenue

233,036

$

250,655

Net loss

(46,608)

(26,659)

Toll-Free (United States):

1-877-705-6003

Toll-Free (Germany): 

0-800-182-0040

International: 

1-201-493-6725

Replay

Toll-Free (United States): 

1-844-512-2921

International: 

1-412-317-6671

Passcode: 

13717580

¹ Contribution is defined as revenue, net of refunds and credit card chargebacks, less direct marketing. Direct Marketing is defined as online and offline advertising spend, and is included within Cost of Revenue within Spark Networks' Consolidated Statements of Operations and Comprehensive Loss.

² Adjusted EBITDA is one of the primary metrics by which we evaluate the performance of our business, 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 the ongoing operations and excludes the impact of items that we do not consider representative of our ongoing performance. This includes: depreciation and amortization, share-based compensation, asset impairments, gains or losses on foreign currency transactions and net interest expense, acquisition related costs and other costs. Adjusted EBITDA has inherent limitations in evaluating the performance of the Company, including, but not limited to the following:

•

Adjusted EBITDA does not reflect the cash capital expenditures during the measurement period;

•

Adjusted EBITDA does not reflect any changes in working capital requirements during the measurement period;

•

Adjusted EBITDA does not reflect the cash tax payments during the measurement period;

•

Adjusted EBITDA may be calculated differently by other companies in our industry, thus limiting its value as a comparative measure;

Because of these limitations, Adjusted EBITDA should be considered in addition to other financial performance measures, including net income and our other U.S. GAAP results.  A reconciliation of the Adjusted EBITDA for the six months ended December 31, 2020, June 30, 2020, and December 31, 2019 and the years ended December 31, 2020 and December 31, 2019 can be found in the table below.

Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization, share-based compensation, impairment of intangible assets and goodwill, and acquisition or other costs.

Statements regarding our expectations as to the first half and full-year 2021 Adjusted EBITDA do not include certain charges and costs. The adjustments to EBITDA in future periods are generally expected to be similar to the kinds of charges and costs excluded from Adjusted EBITDA in prior periods, including (i) items such as share-based compensation, asset impairments, gains or losses on foreign currency transactions and interest expense, and (ii) items related to acquisitions or other costs that are non-recurring, infrequent, or unusual in nature including transaction and advisory fees, merger integration costs, other employee payments, and severance.  The exclusion of these charges and costs in future periods will have a significant impact on our Adjusted EBITDA. We are not able to provide a reconciliation of our non-GAAP financial guidance to the corresponding GAAP measures without unreasonable effort because of the uncertainty and variability of the nature and amount of these future charges and 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 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 The unaudited pro forma financial information in the table below presents the combined results of the Company and Zoosk as if the Spark Networks / Zoosk Merger had occurred on January 1, 2019. The unaudited pro forma financial information includes adjustments required under the acquisition method of accounting but excludes certain costs and charges that are deemed to be non-recurring in nature. This presentation is for informational purposes only and is not necessarily indicative of the results that would have been achieved had the acquisition actually occurred on January 1, 2019 or in future periods.

Spark Networks SE

Consolidated Balance Sheets

(in thousands, except share data)

December 31, 2020

December 31, 2019

Assets

Current assets:

Cash and cash equivalents

$

19,267

$

17,207

Accounts receivable, net of allowance of $93 and $290, respectively

5,507

6,474

Prepaid expenses

4,366

3,563

Other current assets

2,140

1,466

Total current assets

31,280

28,710

Property and equipment, net

11,418

10,311

Goodwill

156,582

199,238

Intangible assets, net

58,999

74,780

Deferred tax assets

23,522

25,476

Other assets

8,642

10,356

Total assets

$

290,443

$

348,871

Liabilities and Shareholders' Equity

Current liabilities:

Current portion of long-term debt

$

19,037

$

15,336

Accounts payable

11,127

18,941

Deferred revenue

38,304

36,877

Accrued expenses and other current liabilities

28,429

34,980

Total current liabilities

96,897

106,134

Long-term debt, net of current portion

80,109

92,329

Deferred tax liabilities

993

276

Other liabilities

17,541

8,946

Total liabilities

195,540

207,685

Commitments and contingencies (Note 10)

Shareholders' Equity:

Common stock, €1.00 nominal value; 2,661,386 shares issued as of December 31, 2020 and 2019; 2,605,689 shares outstanding as of December 31, 2020 and 2019

3,064

3,064

Treasury stock, at nominal value; 55,697 shares as of December 31, 2020 and 2019

(61)

(61)

Additional paid-in capital

220,852

216,072

Accumulated deficit

(132,248)

(85,640)

Accumulated other comprehensive income

3,296

7,751

Total shareholders' equity

94,903

141,186

Total liabilities and shareholders' equity

$

290,443

$

348,871

Spark Networks SE

Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share data)

Six Months Ended

Years Ended December 31,

12/31/2020

6/30/2020

12/31/2019

2020

2019

Revenue

$

118,852

$

114,184

$

114,954

$

233,036

$

170,859

Operating costs and expenses:

Cost of revenue, exclusive of depreciation and amortization

72,484

69,975

77,643

142,459

115,253

Direct marketing costs

58,271

56,788

62,946

115,059

95,589

Data center expenses

4,151

3,212

3,949

7,363

5,596

Credit card fees

3,297

3,358

3,333

6,655

4,624

Mobile application processing fees

6,765

6,617

7,415

13,382

9,444

Sales and marketing expenses

2,084

2,109

2,983

4,193

5,741

Customer service expenses

3,556

3,800

4,961

7,356

7,475

Technical operations and development expenses

7,500

8,780

13,226

16,280

16,776

General and administrative expenses

19,072

16,235

14,503

35,307

27,790

Depreciation and amortization

4,731

4,653

5,046

9,384

6,584

Impairment of intangible assets and goodwill

51,236

—

20,301

51,236

20,301

Total operating costs and expenses

160,663

105,552

138,663

266,215

199,920

Operating income/(loss)

(41,811)

8,632

(23,709)

(33,179)

(29,061)

Other income (expense):

Interest income

34

40

175

74

175

Interest expense

(6,665)

(6,690)

(7,345)

(13,355)

(7,574)

Gain (loss) on foreign currency transactions

3,981

(210)

(2,512)

3,771

(2,400)

Other income (expense)

870

200

330

1,070

330

Total other expense

(1,780)

(6,660)

(9,352)

(8,440)

(9,469)

Income/(loss) before income taxes

(43,591)

1,972

(33,061)

(41,619)

(38,530)

Income tax (expense) benefit

(2,268)

(2,721)

4,086

(4,989)

3,617

Net loss

(45,859)

(749)

(28,975)

(46,608)

(34,913)

Other comprehensive income (loss):

Foreign currency translation adjustment

(4,572)

117

2,251

(4,455)

2,163

Comprehensive loss

$

(50,431)

$

(632)

$

(26,724)

$

(51,063)

$

(32,750)

Loss per share:

Basic earnings (loss) per share

$

(17.60)

$

(0.29)

$

(10.97)

$

(17.89)

$

(17.67)

Diluted earnings (loss) per share

$

(17.60)

$

(0.29)

$

(10.97)

$

(17.89)

$

(17.67)

Weighted average shares outstanding:

Basic

2,605,689

2,605,689

2,640,249

2,605,689

1,975,548

Diluted

2,605,689

2,605,689

2,640,249

2,605,689

1,975,548

Reconciliation of Net Loss to Adjusted EBITDA:

Six Months Ended

Years Ended December 31,

(in thousands)

12/31/2020

6/30/2020

12/31/2019

2020

2019

Net loss

$

(45,859)

$

(749)

$

(28,975)

$

(46,608)

$

(34,913)

Net interest expense

6,631

6,650

7,170

13,281

7,399

(Gain) loss on foreign currency transactions

(3,981)

210

2,512

(3,771)

2,400

Income tax expense (benefit)

2,268

2,721

(4,086)

4,989

(3,617)

Depreciation and amortization

4,731

4,653

5,046

9,384

6,584

Impairment of intangible assets and goodwill

51,236

—

20,301

51,236

20,301

Stock-based compensation expense

2,436

2,344

287

4,780

2,629

Acquisition related costs⁽¹⁾

81

1,464

3,373

1,545

8,369

Long-term debt transaction and advisory fees

1,308

—

—

1,308

—

Other costs⁽²⁾

1,231

277

1,131

1,508

1,183

Adjusted EBITDA

$

20,082

$

17,570

$

6,759

$

37,652

$

10,335

⁽¹⁾ Acquisition related costs primarily consist of transaction costs, including legal, consulting, advisory fees, and severance and retention costs.

⁽²⁾ Includes primarily consulting and advisory fees related to special projects, as well as non-compete compensation, post-merger integration activities and executive search costs.

Spark Networks SE

Consolidated Statements of Cash Flows

(in thousands)

Years Ended December 31,

2020

2019

Net loss

$

(46,608)

$

(34,913)

Adjustments to reconcile net income (loss) to cash (used in) provided by operating activities:

Depreciation and amortization

9,384

6,584

Impairment of goodwill and intangible assets

51,236

20,301

Loss on tangible and intangible assets

341

—

Unrealized (gain) loss on foreign currency transactions

(2,921)

1,402

Stock-based compensation expense

4,780

2,629

Amortization of debt issuance costs and accretion of debt discounts

3,874

1,818

Deferred tax expense (benefit)

3,530

(5,351)

Provision for credit losses

307

130

Non-cash lease expense

1,936

1,194

Change in operating assets and liabilities:

Accounts receivable

855

3,915

Prepaid expenses and other current assets

192

2,213

Other assets

(138)

33

Accounts payable, accrued expenses, and other current liabilities

(5,755)

1,375

Other liabilities

(1,743)

98

Deferred revenue

(320)

7,121

Net cash provided by operating activities

18,950

8,549

Capital expenditures

(2,734)

(4,448)

Acquisitions of businesses, net of cash acquired

(513)

(89,976)

Net cash used in investing activities

(3,247)

(94,424)

Proceeds from stock option exercises

—

428

Proceeds from bank loans, net of issuance costs

4,634

110,398

Repayment of bank loans

(15,311)

(19,511)

Payments directly related to loan facility

—

(62)

Cash paid for settlement of stock-based compensation

—

(504)

Repurchase of options

—

(3)

Net cash (used in) provided by financing activities

(10,677)

90,746

Net change in cash and cash equivalents

5,026

4,871

Effects of exchange rate fluctuations on cash and cash equivalents and restricted cash

(1,366)

(117)

Net increase in cash and cash equivalents and restricted cash

3,660

4,754

Cash and cash equivalents and restricted cash at beginning of period

17,457

12,703

Cash and cash equivalents and restricted cash at end of period

$

21,117

$

17,457

Supplemental disclosure of cash flow information:

Cash paid for interest

$

10,572

$

6,367

Cash paid for income taxes

$

779

$

780