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Apr 29, 2020 (Thomson StreetEvents) — Edited Transcript of Spark Networks SE earnings conference call or presentation Wednesday, April 29, 2020 at 12:00:00pm GMT

B. Riley FBR, Inc., Research Division – Senior Analyst of Discovery Group

Good morning, ladies and gentlemen and thank you for waiting. Welcome to Spark Networks’ conference call to provide the company’s preliminary results for the second half and full year 2019. This call is being recorded and we are broadcasting live in a listen-only mode. I would now like to turn the conference over to Chris Camarra, Vice President of Investor Relations. Thank you, Mr. Camara.

Hello everyone, and welcome. I recently joined the company as VP of Investor Relations of Spark Networks SE. On today’s call with me is Eric Eichmann, Spark’s Chief Executive Officer; and Bert Althaus, Spark’s Chief Financial Officer.

Before we begin, there are a few items I would like to cover with you. This morning we issued a press release announcing our preliminary second half and full year 2019 financial results. This is available on the Investor Relations section of our company’s website at www.spark.net. In the press release and (inaudible) prepared remarks on this call, we refer to adjusted EBITDA, which is defined in our SEC filings. Although adjusted EBITDA is a non-IFRS financial measure, we believe it maybe useful to investors for evaluating the company’s current financial performance. However, investors should not consider adjusted EBITDA as an alternative to net income, cash flow from operations, or any other measure for determining the company’s operating performance calculated in accordance with IFRS.

Further, because (inaudible) adjusted EBITDA is not calculated in accordance with IFRS, it may not be comparable to similarly titled measures accorded by other companies. A reconciliation of adjusted EBITDA to net income can be found in the consolidated statements of operations included in our earnings release.

Additionally, global lockdown ordinances due to COVID-19 have disrupted some of our operations due to unprecedented restrictions and travel limitations. These obstacles impacted the ability of management to work with our independent accountants, professional (inaudible) and support staff in order to complete the company’s financial statements and related disclosures that will be included in the company’s Form 20-F.

The company expects to file it’s Form 20-F for the calendar year ended December 31, 2019 within 45 days after the Form 20-F’s original filing date deadline of April 30, 2020. Therefore, we are providing preliminary financial results today. As we have not yet completed our audit review process for the financial results and our final audited results for the second half and full year 2019 (inaudible) from the preliminary financial information provided during this conference call. As a result all 2019 numbers provided in our earnings release and discussed today are preliminary, subject to change upon successful completion of our audit review.

I would like to remind everyone, listening today that any comments made on this call may contain forward-looking information or projections regarding future results or events. We caution you that such statements are, in fact, predictions that are subject to risks and uncertainties and could cause actual events or results to differ materially from our statements or projections. Additionally; risks, uncertainties and factors that could cause actual events or results to differ materially from these forward-looking statements may be found in the company’s filings with the SEC.

Following our prepared remarks, Eric and Bert will conduct a question-and-answer session. This call is being recorded and will be available for playback on the Investor Relations section of our website.

With that being said, I would now like to turn the call over to Mr. Eric Eichmann, CEO, Spark Networks. Eric, please go ahead.

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Eric Eichmann, Spark Networks SE – MD, CEO & Director [3]

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Thank you, Chris. And many thanks to everyone for joining us on the call today. Given, this is my first opportunity to formally address Spark’s shareholders, since being appointed as CEO in November of last year, I want to take a moment and provide some background on myself, and then dive into our evolving strategy.

I have over 20 years of technology experience in both the advertising and consumer technology. Prior to joining Spark Networks, I served as chief executive officer at Criteo, a publicly traded technology company on the NASDAQ, where I was responsible for growing Criteo’s (inaudible) stock line from $320 million to $2.3 billion, and where I have established Criteo as a recognized leader in the global online advertising sector. I did this by aggressively expanding Criteo’s client base from about 3,000 to over 18,000 clients. Driving significant product innovation to rival offerings from Facebook and Google and completing 5 transformational acquisitions worth over $380 million. I also have an extensive consumer technology background having worked as COO of Living Social, COO of Rosetta Stone, and senior vice president at AOL.

As I have had the chance to follow the online dating industry since its inception to its current mainstream adoption across the world, I recognized the CEO role at Spark Networks was a unique opportunity to lead the number 2 publicly traded online dating company in the world, with a strong portfolio of recognized brands, in a growing sector driven by scale and innovation. I am excited to guide Spark alongside a collection of bright and talented people.

Our vision is to become the world leader in quality and community based dating. Spark’s potential for growth is significant in a $3 billion market, growing at a high single digits year-over-year. We have a strong portfolio of brands including Zoosk, SilverSingles, EliteSingles, Christian Mingle and JDate centered on the 40 plus demographic and on religious communities. We are focused on resolving the (inaudible) pain points of the various communities we serve, with the marketing muscle and liquidity to drive sustained growth.

Our top 4 priorities are; (inaudible) 1, driving product innovation; 2 improving and scaling our marketing; 3, running cost effective operations across the company; and 4, enhancing our capital structure to allow for further acquisitions in the future. In my short time with the company we have already made significant strides in bolstering our business, while identifying key drivers for future development.

Let me turn now to our progress in fiscal year 2019. 2019 served as a pivotal year for the company. We have on-boarded a new, talented senior management team, and completed the transformational acquisition of Zoosk, our largest single asset today.

As a reminder, the second half of 2019 was the first full reporting period to include Zoosk’s financials. Our preliminary 2019 revenue increased 44% to EUR 149 million as compared to 2018. Preliminary 2019 adjusted EBITDA doubled to EUR 23 million. The anticipated growth in revenues and EBITDA in 2019 is largely attributable to Zoosk’s numbers being included in our second half numbers. Zoosk now represents over 50% of our top line. Zoosk’s large, mass market appeal is highly complementary to Spark’s portfolio of niche focused dating brands. One of the key acquisition synergies is the cost savings resulting from managing Zoosk from the existing team in Berlin.

We have now largely integrated Zoosk’s operations into Spark. This has resulted in significant cost reductions in marketing, product, (inaudible) tax and G&A. We expect to finalize the integration of the tech team by mid 2020.

Additionally, we have (inaudible) studied 16 areas of the Zoosk products that were previously inadequately addressed. The consumer and financial benefit of these changes will start in the second half of 2020. One Zoosk issue that required (inaudible) was the charge factor (inaudible). Upon integration we learned that Zoosk had previously charge backs (inaudible) traded on 1% for 10 consecutive months. Because of this it was placed on a monitoring program, which threatened the ability to accept credit card charges. We identified and addressed this matter immediately and implemented controls and oversight, which removed Zoosk from the monitoring program during Q1 2020, eliminating the risk to credit card payment capabilities.

Overall, we have been focused on growing throughout North America, which is the largest geographic market for dating revenue and now represents over (inaudible) two thirds of Spark’s total revenue. SilverSingles, EliteSingles and Christian Mingle, our the next 3 largest brands, collectively grew revenues in these regions and we expect to see continued sequential gains going forward.

Let me turn to product innovation, starting with an update on our technology platform, loveOS. After a deep review of the transition of Spark brands in Spain to loveOS, we have modified our approach, from what I would refer to as a big bang platform flip, to a more flexible and less risky transition to a single platform consolidation. Under this approach, we will be relying on global service modules such as CRM, billing, data warehouse and matchmaking to provide a set of services that our brands, the front-end consumer technologies, will call upon to complete critical shared functions.

This allows tailored brands and consumer experiences, while still getting to reduced maintenance and cost benefits of a single platform. The modules will be largely based on code that was developed for loveOS. We expect to roll out these services incrementally in the next couple of years, as we have done already, for marketing tracking services across all brands.

Beyond the efficiencies that we will experience through consolidation, we will be implementing a comprehensive aesthetic refresh on Zoosk, followed by other portfolio brands. Modernizing the experience with contemporary responsive design, while protecting the integrity of the features our users know and love.

Our product team is exploring the introduction of freemium elements to our core, historically subscription based legacy brands. Meanwhile, the team continues to consistently enhance core functionality and performance.

In addition to our existing brands, we have also been building a new offering targeted to a younger audience, the Spark App. The Spark App makes self expression fun and effortless. We expect to start testing the Spark App in North America in Q2.

Shifting to our marketing activities, our philosophy around marketing spend is to generate a positive ROI based on customer lifetime value for each brand and marketing channel. During the second half of 2019, we made a concerted effort to be more conservative in our marketing budget, as we fixed some of the Zoosk product issues and to ensure that we met our debt obligations.

In 2020, we are focusing on profitability of existing channels and successfully adding new marketing channels and tactics. For example, we are testing retargeting and (inaudible) [app] channels. We are already seeing margin improvements this year from our efforts.

In addition to product and marketing priorities, we are also focused on running cost effective operations and improving our capital structure. Beyond personnel cost efficiencies from managing all brands with one team, we are conducting a full review of external vendors to drive costs down. We’re also assessing the feasibility of alternative debt options.

A few words on COVID-19. We are committed to keeping our employees and users safe. Spark is fully operational today, with our workforce having successfully transitioned to working from home since March 13. From a consumer perspective, we have implemented features — improved features, on several applications that allow our users to stay engaged and promoted safe interactions at a distance. Just recently, we launched a video speed dating partnership on Zoosk, Christian Mingle and JSwipe.

In terms of business metrics, we are seeing a low double-digit negative impact from COVID-19 on our top line (inaudible) to-date. Thanks to a similar decrease in marketing cost, our contribution is equally impacted. We are seeing some positive signs in user engagement, but the effects of the — the effect of a prolonged lockdown and a potential recession are hard to predict.

The good news is that our business has a natural hedge, as marketing costs tend to go down as consumer spend decreases, effectively behaving as a variable cost. And while we are a discretionary spend; we believe that the human need for companionship comes before many other discretionary items, potentially providing some cushion from a recession.

Now turning to our 2020 guidance. We are revising down previous management adjusted EBITDA target of EUR 50 million, 3 reasons are driving this guidance. One, a cautious COVID-19 outlook as discussed earlier.

Two, Zoosk’s pro forma revenue decreased from 2018-2019, mostly due to product problems. The product fixes we are putting in place by Q2 should help reverse this trend, but their 2020 positive impact on our financials will only be felt in the second half of the year.

Three, as mentioned previously, we were more conservative in our 2019 second half marketing spend. This has a direct negative effect on 2020 revenues and profitability.

2020 is a transition year for Spark. We expect to stabilize the top line, deliver better profitability and set a strong foundation for future growth. I am pleased with the current trajectory of the company, and I am very excited by what the future holds for Spark.

We operate in an attractive industry and have built an established cash generating business with strong brands. And as online dating adoption continues to broaden and the market matures, we expect the offerings to further cater to specific audiences, increasing the importance of community based and niche offerings. We have a leadership position in the North American market and have a clear roadmap in place to capitalize on the assets that we own.

I would now like to turn the call over to Bert Althaus, CFO. Bert brings extensive financial and operational experience. And this is also Bert’s first earnings call with Spark.

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Bert Althaus, Spark Networks SE – MD & CFO [4]

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Thank you, Eric. As a reminder to everyone, the financial results that I will be addressing today are preliminary. Spark’s final audited results for the second half and full year 2019 could vary from the information provided during this conference call. At this time, Spark will also be restating its primarily issued consolidated financial statements for the financial year 2017 and 2018 due to a non-material error in prior year’s periods.

Starting with the top line, we anticipate second half 2019 total revenue of EUR 99.9 million, an increase of 94% compared to the same 6 month period ended December 31, 2018. Full year 2019 revenue is EUR 149.1 million, an increase of 44% as compared to EUR 103.4 million during 2018. For both the half year and the full year 2019, the increase in revenue is attributable to the Spark Networks’ Zoosk merger, which closed July 2019.

On a pro forma basis, 2019 revenue is at EUR 220 million with EUR 122.9 million attributable to Zoosk and EUR 97.2 million to existing Spark brands. Our average paid subscribers increased from 483,000 in 2018 to 731,000 in 2019. This represents an increase of 51% year-over-year growth.

For full year 2019, we (inaudible) a total number of registrations of 12.7 million compared to 10.1 million in 2018, reflecting growth of 25%. The monthly average net revenue per users, or ARPU, decreased from EUR 17.8 to EUR 17.0 due to a negative one time effect of EUR 14 million on Zoosk revenue from the purchase price allocation.

Contribution for the 6 month period ended December 31, 2019 is anticipated to be EUR 43.2 million. This represents an increase of EUR 19 million or 78%, when compared to the same 6 month period 2018.

Contribution for the year ended December 31, 2019 is expected to increase to EUR 63.6 million, a 46% improvement when compared to EUR 43.6 million during the same 12 month period 2018.

For the second half of 2019 adjusted EBITDA, excluding acquisition and other expenses, is EUR 18.7 million with adjusted EBITDA margin of 19%. This represents an anticipated increase from EUR 8.5 million in the prior year period at an anticipated adjusted EBITDA margin (inaudible) of 17%.

For the 2019 adjusted EBITDA is EUR 22.5 million, an increase from EUR 9.8 million in 2018. Our 2019 adjusted EBITDA margin is 15% compared to 10% during the same period 2018.

A few words on the balance sheet. Spark has an asset light business model. More than 80% of the total assets are represented by intangible assets and goodwill. We’re also reporting that Spark ended 2019 with EUR 15.5 million in cash and cash equivalents compared to EUR 11.1 million at the year-end 2018.

As of December 31, 2019 we are reporting equity of over EUR 140 million compared to about (inaudible) EUR 16 million as of December 31, 2018.

At year-end we are reporting, in our results, the company’s debt position of EUR 95.8 million.

Cash flow generation from operating activities is anticipated to be EUR 15 million in 2019 compared to EUR 8.9 million in 2018, an increase of 68%.

Turning now to our 2020 financial outlook. We expect 2020 annual revenue of (inaudible) USD 212 million to USD 220 million or EUR 193 million to EUR 200 million. And the adjusted EBITDA of USD 30 million to USD 34 million or EUR 27 million or EUR 31 million.

For the first half of 2020, we are guiding to revenue of USD 110 million to USD 112 million or EUR 100 million to EUR 102 million.

And the adjusted EBITDA of USD 15 million to USD 17 million or EUR 13.5 million to EUR 15.5 million.

I’m pleased to announce that starting in Q1 of 2021 Spark Networks will be transitioning to U.S. filing status. This means we will be reporting our financial results on a quarterly basis consistent with other U.S. publicly traded companies. We hope this will help provide investors with more transparency on our business and our execution.

Now, let me turn the call over to the operator to take your questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line Kara Anderson with B. Riley & Co.

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Kara Lyn Anderson, B. Riley FBR, Inc., Research Division – Senior Analyst of Discovery Group [2]

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If I may start with one housekeeping question just for modeling purposes. Can you tell us what period ending subscribers were for both North America and international ARPU at year-end?

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Eric Eichmann, Spark Networks SE – MD, CEO & Director [3]

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Kara can you — we couldn’t hear that well. You’re saying what were the subscribers at year-end?

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Kara Lyn Anderson, B. Riley FBR, Inc., Research Division – Senior Analyst of Discovery Group [4]

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Yes. At year-end for North America and international, if I may?

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Eric Eichmann, Spark Networks SE – MD, CEO & Director [5]

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Yes. I think what we provided, if you look, and then I’ll turn over to Bert to see if we have more specifics. Remind me to come back to you on that. What we provided in second half 2019 for paying subscribers and those numbers are 665,000 for North America and 352,000 for international for a total (inaudible) 1.17 million. And so those are the numbers. I believe those numbers are a half, every time we provide our subscribers numbers we provide to the half or average for the period. Bert I don’t know, do we also have final number —

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Bert Althaus, Spark Networks SE – MD & CFO [6]

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No, we don’t.

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Eric Eichmann, Spark Networks SE – MD, CEO & Director [7]

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— provided? Okay.

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Bert Althaus, Spark Networks SE – MD & CFO [8]

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No, we don’t publish — no, we don’t publish them on a (inaudible).

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Kara Lyn Anderson, B. Riley FBR, Inc., Research Division – Senior Analyst of Discovery Group [9]

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All right. Yes, I need to —

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Eric Eichmann, Spark Networks SE – MD, CEO & Director [10]

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But Kara, those are the numbers and you have those numbers in the press release, yes.

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Kara Lyn Anderson, B. Riley FBR, Inc., Research Division – Senior Analyst of Discovery Group [11]

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Yes. I have those numbers to start (inaudible) in a period and kind of rough estimate, which really helps for modeling purposes. So, perhaps in the future you all can consider providing that.

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Eric Eichmann, Spark Networks SE – MD, CEO & Director [12]

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Okay.

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Kara Lyn Anderson, B. Riley FBR, Inc., Research Division – Senior Analyst of Discovery Group [13]

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So, I guess, I’ll just move on. And with respect to the guide, I am just wondering if you’re getting the (inaudible) 15 million in synergies from these — in that guide?

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Eric Eichmann, Spark Networks SE – MD, CEO & Director [14]

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Yes. So, let me talk a little bit about the synergies. I appreciate the question. As we mentioned on the prepared remarks, we have been working on integrating the teams. We’ve seen a lot of the synergies coming from that. We’re managing this now from Berlin, and we’ve closed the San Francisco office. We just still have some people on the technology side that are helping us on the (inaudible) Zoosk side, but that integration should be done by the mid of the year, this year 2020. And so we’re getting a lot of the synergies, the majority of the synergies associated with the cost savings that we expected there.

The second part that we hope to get in terms of synergies with marketing efficiencies from managing a larger budget and also, bringing in the ability to manage several brands under one budget that sort of provides the ability to spend more in areas that might be higher ROI, depending on the brand. And we’re starting to see some efficiencies coming out of that. So by and large, the synergies that we have for the Zoosk integration or the Zoosk acquisition are coming into the 2020 guidance.

I wouldn’t say that the total (inaudible) 15 million are included in it, but it’s a majority of that you see in 2020 guidance, yes.

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Kara Lyn Anderson, B. Riley FBR, Inc., Research Division – Senior Analyst of Discovery Group [15]

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And then, sorry, if I missed this more specifics on the COVID-19 impact, but if at all, how has engagement or registrations or subscriptions by brands or geography varied?

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Eric Eichmann, Spark Networks SE – MD, CEO & Director [16]

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Yes. So, I think the most important one, obviously, the most important geography, for us now, is North America. We mentioned that, that was (inaudible) two-thirds of our revenue now or over two-thirds of our revenues. And so, that’s the one that has impacted us the most. We obviously, I think March 12 was the moment where sort of the national consciousness woke to COVID-19 and we have been tracking since then. Interestingly enough, I guess, in the first few days of the crisis, if you will, there was sort of a drop in (inaudible) engagement and subscription, engagement then sort of started to recovering and we’ve seen engagement at levels that were — or similar to what we’ve seen prior to COVID-19. And as we’ve mentioned on the call, we’ve seen a sort of low double-digit decrease on the top line, which because we’ve seen the same on the marketing costs has resulted in a similar decrease on the contribution side.

Having said that, I mean, I think we’re quite optimistic that higher engagement, higher engagement will translate into ultimately into subscribers. I don’t think we — we’re obviously, not providing brand specific information. But I don’t think there’s a very big difference between the different brands. We’ve sort of track it — tracked it and have not really seen a big difference between them.

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Kara Lyn Anderson, B. Riley FBR, Inc., Research Division – Senior Analyst of Discovery Group [17]

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Right. And then, can you expand on the video partnerships, that you, I guess, rolled out to several brands?

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Eric Eichmann, Spark Networks SE – MD, CEO & Director [18]

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Yes, so let me just provide a little bit maybe of context for video because this is obviously something that’s being talked about quite a bit out there. And it makes sense from a press perspective to cover that as a narrative since we’re all sort of at home, hunkered down, and people wonder how the (inaudible) when they’re home. And so, for us, it’s really about addressing the topic more holistically and thinking more broadly about how we help our users’ dates from home, rather than a specific use for video.

Remember, like even before COVID-19 users could always use FaceTime, or I guess now Zoom is a lot more prevalent, but they could always use that as a mechanism to sort of meet the person before they get face-to-face. But ultimately, for us, obviously, the metric of success is people meeting face-to-face than creating successful sort of long-term relationships. And that continues to be the case that will not change. And I don’t think video will always — will ever replace, sort of, meeting face-to-face with somebody. And I don’t know that we’ll see (inaudible) marriages over video in the near-term, at least.

However, any feature obviously that helps us get closer to that metric of success, which is the face-to-face meeting, is good. A couple of initiatives to date from our perspective. And, you know, one, we referenced, I think, in our call, is this past weekend, we rolled out a video speed dating initiative on 3 of our U.S. brands. Interestingly enough, I mean, I think we’ve seen, it’s well received in terms of the narrative, but the interest hasn’t been as high as we expected from that. However, and interestingly enough, we have launched a number of sort of based-from-home seminars or webinars, and we have one actually tomorrow, and we’ve had more than 15,000 users from Zoosk sign up for it. So, what we’re seeing is — and that obviously, that webinar includes a discussion on video dating — but what we’ve seen is that people are really interested in figuring out how do we do this dating from home thing and video is part of it. And we expect that there’s going to be, obviously, more usage of video. And we’re experimenting this and seeing what happens. But all-in-all, I would say there’s not the sort of great transition to video dating that some of the stories (inaudible) town telling you. But I think we’re ready for it. And our users are certainly interested in learning more about, “Hey, how do I — because I’m staying home, how do I meet people and how do I sort of date people make sure that I provide companionship?” So that’s what it is.

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Kara Lyn Anderson, B. Riley FBR, Inc., Research Division – Senior Analyst of Discovery Group [19]

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And then, one more from me and I apologize if I missed it. Bert, did you talk about how the business did from an organic perspective or what Zoosk contributed in the second half of 2019?

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Bert Althaus, Spark Networks SE – MD & CFO [20]

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I did. In fact, it was from Zoosk’s perspective, it was (inaudible) 122 million, and from a Spark perspective exactly (inaudible) 122.9 million attributed to Zoosk, and idc 97.2 million of revenue attributed to the existing Spark brand.

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Operator [21]

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Our next question comes from the line of Austin Moldow with Canaccord Genuity.

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Austin William Moldow, Canaccord Genuity Corp., Research Division – Associate [22]

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I wanted to ask about the general trajectory as each year brand — out of EliteSingles, eDarling, Jdate, Christian Mingle, SilverSingles — not, I guess, not Zoosk, which ones grew or did any of them grow year-over-year in 2019?

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Eric Eichmann, Spark Networks SE – MD, CEO & Director [23]

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Yes, a great question. Thank you, Austin. As we mentioned, out of this combination of Silver — of the next 3 largest brands, of Silver, Elite and Christian Mingle grew year-on-year in North America. SilverSingle is the one that’s showing the highest growth. But interestingly enough, as we look at those brands, we see a lot of potential in them, probably the largest potential in Christian Mingle, which is a brand that I think has a lot of resonance is quite — when you ask folks, there’s a lot of brand awareness around Christian Mingle. And we have to, sort of, fully take advantage of the position that brand has in the market. So, we’re going to be investing in that.

Zoosk had a decrease year-on-year 2018 to 2019. And so, we’re working hard to sort of change that trajectory. And we think we’ll be able to stabilize that. We mentioned product fixes that we’re putting in place that will have an effect in the second half in 2020. And it will also allow us to be more aggressive from a marketing perspective.

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Austin William Moldow, Canaccord Genuity Corp., Research Division – Associate [24]

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I think one of perhaps the main strengths of this portfolio is the brand recognition and awareness of really most if not all of them. But it seems to me that sometimes the product innovation in the industry comes from lesser known brands, and you put sort of that at the top of your list, as one of the priorities, is product innovation. You mentioned some of these video things, and spoke more broadly about changes to Zoosk. But can you talk about specifically, what products you think are — have most interest in that, maybe we could see in 2020. And can you also just speak about, more generally, how you think about, what product innovation will do for you as a company? And specifically, because you’re sort of a new management team, what that means for the company going forward?

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Eric Eichmann, Spark Networks SE – MD, CEO & Director [25]

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Yes, I mean, so thank you for the question, Austin. A couple of things on maybe innovation and just looking at the industry over the last 3, 4 years, you look at the brands that were there 4 years ago, and you need, you didn’t have some of the biggest brands that we see today in the industry, like Tinder or Hinge or Grindr; these brands that, sort of, came up and developed pretty quickly. And so, the other thing I think it’s important in the industry, it’s hard to really build brands with just innovation alone. So marketing at scale, and being able to generate liquidity in these platforms is an important element of being successful. So I believe innovation is a driver of shareholder value in this market, I think of it in three ways.

Probably (inaudible) #1 is making sure your products are keeping up with what consumers need. And we talked about the pain points (inaudible) for more communities. And so, we think we have the right feature today — the right features today, but we need to evolve, to be more contemporary in terms of look and feel, and address some of the key aspects that makes success (inaudible) and the dates true. And some of the things that we’re seeing now is there’s consolidation the marketplace and brands are becoming (inaudible) clear in consumers’ mind. If there’s a need to address things like, the swipe, the ghosting, safety and security and those are all things that we’re working on. And those are, sort of, think of them as incremental, but important innovations that need to be brought forward. So that’s one aspect.

The second aspect is really from time-to-time as a company, sort of, taking a bet on step changes in innovation, and that’s one of the things we’re doing this year is, we are testing the completely new product (inaudible), which is, sort of, targeted to a younger demographic, right? And as we said in our script, in our prepared remarks, Spark App is all about making self-expression effortless and more fun, which again, is one of the pain points in particular for new generations that come into the dating world.

And then finally, I would say it’s very important to us because if you look out there in the marketplace, there’s a lot of innovative companies that are coming up with great apps, with new ways to (inaudible) today we talked about, for example, this video. Speed dating is one example of many of companies trying new things to address pain points and making dating easier. And so our philosophy around this is, we should always be looking for innovation that’s not coming within our walls. It’s coming from outside our walls, and I think in the past, Spark has been focusing on acquisitions that gain size and scale, which was — because I think that’s kind of key elements of success in the industry. And we think, going forward that we will also focus on product innovation and finding companies that have great products that we can then help scale. So that’s how we think about innovation overall.

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Austin William Moldow, Canaccord Genuity Corp., Research Division – Associate [26]

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And I just wanted to follow-up with one last question. Could you share any more details on that, that you were more experimental app focused at the younger demo? Maybe some things that you’re doing differently in it, or some features that you anticipate? And also as it maybe relates to mobile dating, can you talk about, what mobile means for the company at large? How important it is? And some things you’ll be doing to maybe take advantage of the increasing usage of mobile, when online dating?

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Eric Eichmann, Spark Networks SE – MD, CEO & Director [27]

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Yes, great question. Thank you, Austin. So a couple things on Spark App, it’s a mobile app in mobile only, for mobile first and mobile only at this point. And I won’t go into a lot of the details, obviously because there’s competitive sort of insights that have come from our research. What I would say on this is that we are testing this in the North American market in Q2 and we’re hoping for a great reception from consumers and only time will tell. So hopefully, in the next few earnings calls, we can talk a little bit more about some of the early results. And it is, sort of, think of this as, sort of, innovation, a bit out there in the sense that we’re testing some completely new concepts. So, there’s more risk associated with their success. But obviously, we feel good about sort of what we’ve created from that perspective.

In terms of more overall for our brands, mobile usage is high, and people use mobile quite a bit. Today, we still have a majority of subscriptions coming from — or web presence and desktop presence. And so that reflects in part the demographics we’re going after. But obviously, we’re pushing hard and that’s one of the key efforts in the company to make sure that we have a stronger capability, from a marketing perspective for app, because obviously that’s where people are spending most of their time. And even the older demographics are starting to see a clear shift there so. So that’s an area that we’re spending time on. But from the usage perspective, it follows very much the usage that you see out there, which is mobile is the highest usage for our brands.

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Operator [28]

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Thank you. Our next question comes from the line of John Lewis with Osmium.

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John Hartnett Lewis, Osmium Partners, LLC – Managing Partner, CIO and Co-Founder [29]

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My questions were answered. Thank you.

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Eric Eichmann, Spark Networks SE – MD, CEO & Director [30]

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All right. Thank you, John.

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Operator [31]

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Thank you. We have reached the end of our question-and-answer session and the conclusion of today’s call. Thank you all for your participation. You may now disconnect your lines and have a wonderful day.

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Eric Eichmann, Spark Networks SE – MD, CEO & Director [32]

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Thank you, everybody.



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