Analyst & Investor Day June 18, 2015

Transcription

1 Analyst & Investor Day June 18, 2015

2 Safe Harbor Except for statements of historical fact, the information presented herein may constitute forward looking statements within the meaning of and subject to the safe harbor created by the Private Securities Litigation Reform Act of In some cases, you can identify forward-looking statements by terminology such as "expect," "estimate," "anticipate," "intend," goal, strategy, "believe," and similar expressions and variations thereof. Such forward-looking statements include statements regarding the intent, belief, current expectations or projections about future events of Spark Networks, Inc. Readers are cautioned that these forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Spark Networks, Inc. to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include without limitation, general economic and business conditions, the loss of market share, changes in the competitive landscape, failure to keep up with technological advances and other factors over which Spark Networks, Inc. has little or no control. Spark Networks, Inc. undertakes no obligation to revise or update these forward-looking statements to reflect events or circumstances after the date hereof. Use of Non-GAAP Measures: The Company reports Adjusted EBITDA and Free Cash Flow as supplemental measures to generally accepted accounting principles ("GAAP"). These non-gaap measures are some of the primary metrics by which we evaluate the performance of our businesses, budget, forecast and compensate management. We believe these measures provide management and investors with a consistent view, period to period, of the core earnings generated from on-going operations. Adjusted EBITDA 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. Free Cash Flow reflects operating cash flow less capital expenditures and capitalized wages. Adjusted EBITDA and Free Cash Flow should not be construed as substitutes for net income (loss) (as determined in accordance with GAAP) for the purpose of analyzing our operating performance or financial position, as Adjusted EBITDA and Free Cash Flow are not defined by GAAP. 2

3 Spark Networks Senior Team Michael Egan Rob O Hare John Volturo Greg Franchina Ben Meyer Chief Executive Officer Chief Financial Officer Chief Marketing Officer Chief Information Officer Head of Product Joined: January 2015 Joined: March 2015 Joined: May 2015 Joined: June 2008 Joined: March 2015 Previous experience: Internet Brands, Yahoo!, Bain & Company Previous experience: Square, Pandora, Spectrum Equity Previous experience: Beachmint, Guthy-Renker, BMG Previous experience: Spot Runner, The Wedding Channel Previous experience: LA Times, Internet Brands, Best of Media 3

4 Agenda Introduction Michael Egan Chief Executive Officer Product Overview Ben Meyer Head of Product Marketing Overview John Volturo Chief Marketing Officer Financial Overview Rob O Hare Chief Financial Officer Q&A 4

5 Introduction Michael Egan Chief Executive Officer 5

6 Key Takeaways Spark Networks is poised to become a growth company again and we are focused on doing so profitably. We currently operate two strong brands (JDate and ChristianMingle) that occupy differentiated and defensible positions in a high-growth industry. The Company, the brands, and our underlying technology all require work before we begin to grow. We now have the team and a very clear set of priorities that will enable us to come out of the year healthy and ready to accelerate the business. 6

7 Spark s New Path With a new Board of Directors and new management, we ve committed to revitalizing our two core brands JDate and ChristianMingle with a focus on profitable growth. LTM ADJ. EBITDA ($ in MMs) LTM A DJ. EBITDA $10.0 $5.0 Q2'14: Shareholder campaign led by Osmium & 402 Capital Q3'14: New Board of Directors Executive Chairman put in place $5.5 $9.4 $0.0 1Q Q Q Q Q Q Q Q Q 2015 ($5.0) ($10.0) ($6.7) ($8.5) ($8.3) ($9.1) ($8.9) ($5.6) ($1.3) Q4'14: Rationalized cost structure Major reduction in ChristianMingle marketing spend Q1'15: New management team including CEO, CFO, CMO and Head of Product Launch of mobile applications for both brands Initiated core rebuilding efforts 7

8 Dating Industry Overview Spark is the largest niche-focused player in the +$2 billion dating industry U.S. DATING MARKET REVENUE - $2.4B U.S. DATING MARKET SHARE Matchmakers, 14.2% Other, Singles 4.2% Events, 6.7% InterActiveCorp eharmony 13.5% 21.8% Zoosk 5.0% Mobile & Online Dating Sites, 74.9% Plenty of Fish 4.9% Spark Networks 3.0% 0% 5% 10% 15% 20% 25% Source: Wall Street Journal & IBIS World. 8

9 Uniquely Positioned Our two core brands are, by far, the largest players within the serious, niche-focused dating space. We believe this provides us a differentiated position and the opportunity for superior long-term economics. Niche Mass Casual Serious 9

10 A Cultural Icon Continuously serving the Jewish community for 18 years. Responsible for more Jewish marriages than all other dating sites combined. Ubiquitous awareness within its market. Continues to demonstrate strong network dynamics and resulting economics. 10

11 Re-invigoration in Progress No major technical or user experience improvements in ~7 years. Legacy system inhibits ability to innovate just as market competition has intensified. Customers have become frustrated with lack of investment in the brand. AAVERAGE S SUBSCRIBERS - J EWISH JEWISH N ETWORKS NETWORKS 100,000 75,000 85,200 84,487 83,732 83,175 80,395 78,856 76,481 73,429 69,632 50,000 25,000-1Q Q Q Q Q Q Q Q Q

12 Un-tapped Value +80% brand awareness - 3 rd behind eharmony and Match. Very large market - over 70 million Christian singles in the US. Uniquely positioned within the serious relationship space. 12

13 Requires Repositioning Highly dependent on paid marketing to maintain customer base until stronger, localized network effects are in place. Opportunity to more authentically position the brand and reach a broader audience. Like JDate, legacy technology inhibits our ability to innovate and test out new messaging and design. AAVERAGE S SUBSCRIBERS - C HRISTIAN CHRISTIAN N ETWORKS NETWORKS 200, , , , , , , , , , , ,000 50,000-1Q Q Q Q Q Q Q Q Q

14 Our Core Priorities We identified a set of very specific priorities for 2015 to drive fundamental change in the performance of the business. Team Product Marketing Services 14

15 Our Core Priorities We identified a set of very specific priorities for 2015 to drive fundamental change in the performance of the business. Team Product Marketing Services Build an experienced team that brings the skills needed to transform the business. COMPLETE 15

16 Our Core Priorities We identified a set of very specific priorities for 2015 to drive fundamental change in the performance of the business. Team Product Marketing Services Consolidate our platforms and re-architect our user experience to become more nimble and innovative. Q4 TARGET 16

17 Our Core Priorities We identified a set of very specific priorities for 2015 to drive fundamental change in the performance of the business. Team Product Marketing Services Reposition our brands and grow via profitable acquisition and retention programs. INITIATED 17

18 Our Core Priorities We identified a set of very specific priorities for 2015 to drive fundamental change in the performance of the business. Team Product Marketing Services Drive customer success and grow ARPU and retention through improved service. INITIATED 18

19 Product Overview Ben Meyer Head of Product 19

20 Our Product Priorities We are completely focused on reinvigorating our products by strengthening our underlying platforms and developing nimble, modern user experiences. Expand Mobile Continue to expand and improve our mobile presence and capabilities for both of our core brands. Consolidate Platforms Redesign Front-ends Consolidate our multiple platforms onto a single, common infrastructure to enable quicker product introduction and iteration. Redesign and re-architect CM and JD websites to improve user experience and enable easier optimization and development. Improve Core Features & Monetization Continuously improve our core search, matching, fraud management, analytics and communications capabilities. 20

21 Expand Mobile We had a significant amount of catch-up to do, but in the last 6+ months we ve introduced mobile applications for both key brands and have continued to improve the platforms. First mobile applications (JDate ios & ChristianMingle Android) launched in Q4 14. Q1 launched ChristianMingle ios application. Q2 launched JDate Israel application on ios. We expect an updated ChristianMingle mobile optimized site and a JDate Android application to be in market in Q3. 21

22 Infrastructure Consolidation We are consolidating our platforms in order to significantly reduce complexity and improve our time to market with features and improvements. Christian Mingle Platform Current Infrastructure A P I Desktop Site Mobile Site Apps We currently service our two core brands via two separate platforms. With the introduction of APIs and mobile applications we ve added complexity to our infrastructure in the short term. JDate Platform A P I Desktop Site Mobile Site Apps By end of year we expect to consolidate the back-end environments along with the API layer. This will significantly simplify all of our development, maintenance and security activities. 22

23 Redesign our Front-end Web Experiences We believe a major impetus for growth will be the introduction of new, modern user experiences for both of our core brands. Both core brands have websites that are built on legacy technology and have not been updated in years (last JDate design update was 2009). We are redesigning and re-architecting both website experiences along 3 clear principles: Nimble, API-driven technology Simple, modern, user-focused design Strong search engine optimization fundamentals Both brands will launch in Q4. 23

24 Marketing Overview John Volturo Chief Marketing Officer 24

25 Our Marketing Priorities We are re-architecting how we market our brands and communicate with prospects and customers. We are building engagement and focusing on profitable subscriber growth. Build Networks Focus acquisition programs on building local networks in key markets in order to drive significant improvement in economics. Reposition ChristianMingle Expand the addressable market for ChristianMingle by repositioning along faith & values. Improve Customer Success Expand Lifetime Value (LTV) Implement world-class lifecycle marketing programs aimed at improving conversions, retention and customer success. Through our customer service organization, provide additional products and services to increase each customers value. 25

26 Our Subscriber Networks JDate s strong economics are a result of its continued network effects in a couple of key markets. On ChristianMingle, our aim is to replicate this by concentrating more of our acquisition marketing efforts on particular geographic areas. TTOP M MARKETS - J EWISH JEWISH N ETWORKS NETWORKS TTOP M MARKETS - C HRISTIAN CHRISTIAN N ETWORKS NETWORKS Within the Jewish Networks, our primary DMAs hold significant scale. There is no single DMA within the Christian Network with comparable scale to our top Jewish markets. Network Effect Target Network Effect Target Q Q Q Q

27 Repositioning ChristianMingle to Expand Addressable Market Research suggests our current messaging has resonated with only a minority of the single Christian population. ~70 Million Religion Less Central With more authentic and modern messaging we will be able to broaden our potential market. In Q4 2015, we will re-launch ChristianMingle with a new look, inclusive messaging and unified voice across all channels. Religion Most Central U.S. Christian Singles years old Potential CM Customers Current CM Customers Source: Pew Research Center (May 2015), US Census & Company estimates 27

28 Building Best-In-Class Lifecycle Marketing We are moving from a one-size fits all lifecycle marketing program to one that will rely on relevancy to drive performance. Previous Near Future Set of messages sent to all registrants and subscribers regardless of demographic or event triggers Set of customized marketing messages sent to the right consumer at the right time on the right device, amplifying our ability to drive desired behaviors and generate incremental transactions 28

29 Growing LTV by Providing Education & Support We will be leveraging our support team and partners to build valuable products and services that help customers succeed in forming life-long relationships. Product / Service C Product / Service D LTV Product / Service B Product / Service A Dating Subscribers Dating Experience Post Dating 29

30 Financial Overview Rob O Hare Chief Financial Officer 30

31 Drivers of Revenue ~95% of our Revenue comes from Subscriptions, driving a predictable and recurring business model. SUBSCRIPTION REVENUE SUBSCRIBERS X AVERAGE REVENUE PER USER (ARPU) FIRST TIME SUBS. (FTS) + W IN BACKS + RENEW ALS PROMOTIONS & PLAN MIX Marketing PAID Marketing + ORGANIC Product 31

32 Platform Potential Spark has multiple vectors for growth within its existing offerings and focus areas. REVENUE POTENTIAL ARPU $30 - EXPAND PRODUCT OFFERINGS - IMPROVE VALUE PROPOSITION TO CUSTOMERS - BROADEN MOBILE OFFERINGS ~$100M $20 $10 ~$55M - ENGAGE WITH CHRISTIAN & JEWISH ORGS - IMPROVE CUSTOMER RETENTION - BUILD NETWORKS IN PRIORITY MARKETS 0 70K 140K 210K 280K SUBSCRIBERS 32

33 Monthly ARPU by Platform ARPUs have remained consistent within the Christian and Jewish Networks. ARPU ARPU $30.00 $25.00 $24.83 $25.16 $24.57 $24.47 $20.00 $18.91 $18.55 $18.54 $18.88 $17.04 $16.40 $16.35 $16.81 $15.00 $10.00 Jewish Networks Christian Networks Total LTM 33

34 Jewish Networks Detail The strength of the JDate brand is evidenced by the high proportion of organic subscribers and the resulting ~90% Contribution Margin. JJEWISH N ETWORKS NETWORKS ($ in MMs) $ % 88.0% 87.2% 84.6% 81.8% 88.2% 89.0% 87.6% 88.4% $6.0 $4.0 $6.5 $6.5 $6.4 $6.4 $5.7 $5.7 $5.6 $5.5 $6.1 $5.0 $5.9 $5.7 $5.2 $5.1 $5.5 $4.8 $5.2 $4.6 75% 50% $2.0 25% $0.0 1Q Q Q Q Q Q Q Q Q 2015 Revenue Contribution Contribution Margin % 0% 34

35 Christian Networks Detail We are committed to maintaining positive Contribution Margins within the Christian Network. CCHRISTIAN N ETWORKS NETWORKS ($ in MMs) $ % 50% $7.5 $9.9 $10.3 $10.1 $10.0 $9.8 $ % 39.0% $8.7 $ % $7.8 25% $2.1 $3.4 $3.9 $2.5 $0.0 1Q Q Q Q Q Q Q Q Q 2015 ($0.3) ($1.8) ($1.6) ($1.8) (3.2%) ($2.6) (15.6%) (18.3%) (17.8%) ($7.5) (25.4%) Revenue Contribution Contribution Margin % (0%) (25%) 35

36 Revenue & Contribution Detail The recent improvements in Contribution are the result of operating profitably within the Christian Network. RREVENUE & C& ONTRIBUTION CONTRIBUTION ($ in MMs) $ % $17.3 $17.6 $17.4 $17.2 $16.6 $ % $ % $ % $ % $ % $ % $ % $ % $ % $5.2 $7.8 $9.0 $9.1 $7.4 35% $0.0 1Q Q Q Q Q Q Q Q Q 2015 Revenue Contribution Contribution Margin % 0% 36

37 Adj. EBITDA & Free Cash Flow Our focus on Christian Network profitability has resulted in cash flow generation and we are dedicated to continuing this trend. Committed to deploying Free Cash Flow against high- ROI opportunities. ADJ. EBITDA & FREE CASH FLOW ($ in MMs) A DJ. EBITDA & F REE C ASH F LOW $5.0 $4.1 $2.5 $2.5 $1.8 $1.8 $1.1 $0.6 $0.0 1Q Q Q Q Q Q Q Q Q 2015 ($2.5) ($2.2) ($2.3) ($2.7) ($3.3) ($1.8) ($2.0) ($2.8) ($2.9) ($2.1) ($2.5) ($1.2) ($2.0) ($5.0) Adj. EBITDA Free Cash Flow Note: Adj. EBITDA excludes executive severance and 2014 Proxy Contest costs. 37

38 Current & Long Term Business Model If we are successful with our growth strategies we expect to demonstrate considerable margin expansion. (% OF REVENUE) LTM TARGET CONTRIBUTION MARGIN 47% 26% 25% 51% 57% 65% - 70% COST OF REVENUE* 7% 6% 6% 6% 7% 5% - 7% SALES & MARKETING 8% 6% 8% 8% 7% 5% - 7% CUSTOMER SERVICE 4% 4% 4% 5% 5% 3% - 5% TECHNICAL OPERATIONS 3% 2% 2% 2% 2% 2% - 3% DEVELOPMENT 6% 5% 4% 6% 6% 6% - 8% GENERAL & ADMINISTRATIVE** 15% 13% 14% 20% 20% 15% - 17% TOTAL OPERATING EXPENSES** 42% 37% 38% 47% 47% 35% - 45% ADJ. EBITDA** 6% (11%) (13%) 9% 16% 20% - 35% NON-GAAP NET INCOME** (1%) (23%) (17%) 5% 12% 15% - 25% 38 Note: All figures exclude the impact of Stock Based Compensation expense. * Excludes Direct Marketing Expenses. ** Excludes executive severance and 2014 Proxy Contest costs.

39 Balance Sheet Spark is well capitalized today, with $13.5M of Cash and no Debt. SUMMARY BALANCE SHEET ($ in MMs) Assets: 3/ 31/ 14 12/ 31/ 14 3/ 31/ 15 Cash and cash equivalents Restricted cash Accounts receivable Deferred tax asset, net current Prepaid expenses and other Total current assets $15.3 $15.6 $17.0 Property and equipment, net Goodwill & Intangible assets Other assets Total assets $31.1 $31.0 $32.3 Liabilities & Equity: Accounts payable Accrued liabilities Deferred revenue Deferred tax liability - current Total current liabilities $16.5 $12.8 $12.2 Other non-current liabilities Total liabilities $20.0 $15.3 $14.6 Total stockholders equity $11.1 $15.8 $17.8 Total liabilities and stockholders equity $31.1 $31.0 $

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