Spark Networks(R) Reports Fourth Quarter and Full Year 2012 Financial Results

BEVERLY HILLS, CA--(Marketwire - Mar 7, 2013) - Spark Networks, Inc. (NYSE MKT: LOV)

• Company-wide 2012 revenue increased 27% to $61.7 million
• Christian Networks 2012 revenue increased 101% to $31.6 million
• Q4 company-wide average paying subscribers¹ grew 31% to 279,000
• Q4 Christian Networks average paying subscribers grew 80% to 168,000

Spark Networks, Inc. (NYSE MKT: LOV), a leader in creating niche-focused brands that build and strengthen the communities they serve, today reported financial results for the fourth quarter and full year ended December 31, 2012.

Financial Highlights

		Q4 2012				Full Year 2012
Revenue		$	16.3 Million			$	61.7 Million
Contribution Margin			23	%			26	%
Net Loss		$	(10.5) Million			$	(15.0) Million
Net Loss Per Share		$	(0.51	)		$	(0.72	)

Management Commentary

"I am proud of our 2012 performance, which was punctuated by a fourth quarter that marked our best of the year," said Greg Liberman, Spark Networks' President and Chief Executive Officer. "Revenue increased 27%, fueled by a 32% increase in average paying subscribers. That growth was driven by our category-leading Christian Networks segment, where we doubled both revenue and average paying subscribers. We also strengthened our leadership position in the Jewish Networks segment, anchored by the iconic JDate brand, where we exited 2012 with two consecutive quarters of sequential subscriber growth and our first sequential revenue increase since the fourth quarter of 2010. And, importantly, we did so while maintaining the segment's consistent, nearly 90%, contribution margin."

"Looking ahead, we will continue to focus on strengthening our brands and leadership positions in both the Christian and Jewish Networks segments. And, as pleased as we are with our accomplishments in 2011 and 2012, we are even more excited about the opportunities that lie ahead."

Financial Results

Revenue in the fourth quarter of 2012 was $16.3 million, an increase of 27% compared to the year ago period, and an increase of 3% compared to the prior quarter. Full year 2012 revenue was $61.7 million, also a 27% increase compared to 2011. The Christian Networks segment was the primary driver of that growth.

Contribution² in the fourth quarter of 2012 was $3.7 million, a decrease of 29% compared to the year ago period, and a decrease of 5% compared to the prior quarter. Full year 2012 contribution was $16.1 million, a 29% decrease compared to 2011. Our increased marketing investment in the Christian Networks segment was responsible for the declines in contribution.

Total cost and expenses in the fourth quarter of 2012 were $18.9 million, an increase of 40% compared to the year ago period, and an increase of 2% compared to the prior quarter. Full year 2012 total cost and expenses were $70.9 million, a 43% increase compared to 2011. Our increased marketing investment in the Christian Networks segment drove the majority of growth in total cost and expenses. 

Net loss in the fourth quarter of 2012 was $10.5 million, or $0.51 per share, compared to a net loss of $1.1 million, or $0.05 per share, in the year ago period, and a net loss of $1.7 million, or $0.08 per share, in the prior quarter. Full year 2012 net loss was $15.0 million, or $0.72 per share, compared to a net loss of $1.6 million, or $0.08 per share, in 2011. In the fourth quarter of 2012, the Company recorded an $8.9 million valuation allowance against its deferred tax assets in accordance with guidance described under ASC-740. 

Adjusted EBITDA³ in the fourth quarter of 2012 was a loss of $2.0 million, compared to a profit of $1.0 million in the year ago period and a loss of $2.0 million in the prior quarter. Full year 2012 Adjusted EBITDA was a loss of $6.7 million, compared to a profit of $2.6 million in 2011.

Total average paying subscribers in the fourth quarter of 2012 were 279,260, an increase of 31% compared to the year ago period and an increase of 5% compared to the prior quarter. Full year 2012 average paying subscribers were 259,244, a 32% increase compared to 2011. The growth in our Christian Networks average paying subscribers drove the total Company average paying subscriber increases.

Balance Sheet, Cash, Debt
As of December 31, 2012, the Company had cash and cash equivalents of $10.5 million, a decrease of 31% from $15.1 million at December 31, 2011. As of December 31, 2012, the Company had no outstanding debt.

Segment Reporting⁴
During the first quarter of 2012, the Company changed its financial reporting to include data on two newly-defined operating segments, leaving two of the previous operating segments intact. The two new segments are Christian Networks and Other Networks. Christian Networks consists of ChristianMingle.com, ChristianMingle.co.uk, ChristianMingle.com.au, Believe.com, ChristianCards.net, ChristianDating.com, DailyBibleVerse.com, and Faith.com. Other Networks consists of Spark.com and related other general market Web sites, as well as other properties, which are primarily composed of sites targeted towards various religious, ethnic, geographic and special interest groups. The composition of our Jewish Networks and Offline and Other Businesses segments remain unchanged.

SPARK NETWORKS, INC.
QUARTERLY SEGMENT RESULTS FROM OPERATIONS
(in thousands except subscriber information)
			Q4 2011				Q1 2012				Q2 2012				Q3 2012				Q4 2012				Q4 '12 vs. Q4 '11
Net Revenue
Jewish Networks			$	6,700			$	6,580			$	6,452			$	6,385			$	6,617			-1.2	%
Christian Networks				4,952				6,853				7,505				8,495				8,721			76.1	%
Other Networks				1,104				1,031				995				903				836			-24.3	%
Offline & Other Businesses				105				91				94				88				97			-7.6	%
	Total Net Revenue		$	12,861			$	14,555			$	15,046			$	15,871			$	16,271			26.5	%
Direct Marketing Expenses
Jewish Networks			$	929			$	801			$	647			$	829			$	834			-10.2	%
Christian Networks				6,303				9,795				9,205				10,920				11,480			82.1	%
Other Networks				354				312				251				213				201			-43.2	%
Offline & Other Businesses				49				30				37				29				69			40.8	%
	Total Direct Mktg. Expenses		$	7,635			$	10,938			$	10,140			$	11,991			$	12,584			64.8	%
Contribution
Jewish Networks			$	5,771			$	5,779			$	5,805			$	5,556			$	5,783			0.2	%
Christian Networks				(1,351	)			(2,942	)			(1,700	)			(2,425	)			(2,759	)		-104.2	%
Other Networks				750				719				744				690				635			-15.3	%
Offline & Other Businesses				56				61				57				59				28			-50.0	%
	Total Contribution		$	5,226			$	3,617			$	4,906			$	3,880			$	3,687			-29.4	%
Average Paying Subscribers
Jewish Networks				87,101				86,433				84,348				84,650				85,736			-1.6	%
Christian Networks				93,357				124,158				137,768				154,747				168,394			80.4	%
Other Networks				31,940				30,115				28,818				26,678				25,130			-21.3	%
	Total Avg. Paying Subscribers5			212,398				240,706				250,934				266,075				279,260			31.5	%
ARPU
Jewish Networks			$	25.12			$	24.99			$	24.77			$	24.61			$	24.93			-0.8	%
Christian Networks				16.44				17.35				17.13				17.26				16.43			-0.1	%
Other Networks				10.74				10.77				10.36				10.61				10.36			-3.6	%
	Total ARPU6		$	19.14			$	19.27			$	18.92			$	18.93			$	18.49			-3.4	%

SPARK NETWORKS, INC.
ANNUAL SEGMENT RESULTS FROM OPERATIONS
(in thousands except subscriber information)
			12 Mos. 2011				12 Mos. 2012				2012 v. 2011
Net Revenue
Jewish Networks			$	27,054			$	26,034			-3.8	%
Christian Networks				15,742				31,574			100.6	%
Other Networks				4,925				3,765			-23.6	%
Offline & Other Businesses				772				370			-52.1	%
	Total Net Revenue		$	48,493			$	61,743			27.3	%
Direct Marketing Expenses
Jewish Networks			$	3,389			$	3,111			-8.2	%
Christian Networks				19,356				41,400			113.9	%
Other Networks				2,467				977			-60.4	%
Offline & Other Businesses				512				165			-67.8	%
	Total Direct Mktg. Expenses		$	25,724			$	45,653			77.5	%
Contribution
Jewish Networks			$	23,665			$	22,923			-3.1	%
Christian Networks				(3,614	)			(9,826	)		-171.9	%
Other Networks				2,458				2,788			13.4	%
Offline & Other Businesses				260				205			-21.2	%
	Total Contribution		$	22,769			$	16,090			-29.3	%
Average Paying Subscribers
Jewish Networks				89,429				85,292			-4.6	%
Christian Networks				71,311				146,267			105.1	%
Other Networks				35,595				27,685			-22.2	%
	Total Avg. Paying Subscribers			196,335				259,244			32.0	%
ARPU
Jewish Networks			$	24.72			$	24.83			0.4	%
Christian Networks				17.38				17.01			-2.1	%
Other Networks				10.96				10.53			-3.9	%
	Total ARPU		$	19.89			$	19.01			-4.4	%

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): 1-877-407-0789
International: 1-201-689-8562 

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 21, 2013.

Replay 
Toll-Free (United States): 1-877-870-5176 
International: 1-858-384-5517
Passcode: 409224

Safe Harbor Statement:
This press release contains forward-looking statements. Any statements in this news 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: attract members; convert members into paying subscribers and retain our paying subscribers; develop or acquire new product offerings and successfully implement and expand those offerings; keep pace with rapid technological changes; maintain the strength of our existing brands and maintain and enhance those brands and our dependence upon the telecommunications infrastructure and our networking hardware and software infrastructure; and obtain financing on acceptable terms. For a discussion of these and further risks and uncertainties, please see our filings with the Securities and Exchange Commission. We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any reports, statements or other information that we file at the SEC's public reference room at 100 F Street, N.E., Washington, D.C., 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Our public filings with the SEC also are available from commercial document retrieval services and at the Web site maintained by the SEC at http://www.sec.gov.

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 "Average paying subscribers" are defined as individuals who have paid a monthly fee for access to communication and Web site features beyond those provided to our members. 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.

² "Contribution" is defined as revenue, net of credits and credit card chargebacks, less direct marketing. "Contribution Margin" is defined as Contribution divided by revenue, net of credits and credit card chargebacks.

³ The Company reports Adjusted EBITDA as a supplemental measure to generally accepted accounting principles ("GAAP"). This measure is one of the primary metrics by which we evaluate the performance of our businesses, budget, forecast and compensate management. We believe this measure provides management and investors with a consistent view, period to period, of the core earnings generated from 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, such as the Scheme of Arrangement. 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.

"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 inter-company loans and the income (loss) recognized from non-cash assets received in connection with a legal judgment.

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 the Company's JDate.com, JDate.co.il, JDate.fr, JDate.co.uk and Cupid.co.il Web sites and their respective co-branded Web sites. The Christian Networks segment consists of the Company's ChristianMingle.com, ChristianMingle.co.uk, ChristianMingle.com.au, Believe.com, ChristianCards.net, ChristianDating.com, DailyBibleVerse.com and Faith.com Web sites. The Other Networks segment consists of Spark.com and related other general market Web sites 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 Total Average Paying Subscribers excludes results from the Company's HurryDate business due to its relative size.

⁶ ARPU is defined as average revenue per user. Total ARPU excludes results from the Company's HurryDate business due to its relative size.

 (Consolidated financial statements to follow)

SPARK NETWORKS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
					December 31,				December 31,
					2011				2012
Assets
Current assets:
	Cash and cash equivalents				$	15,106			$	10,458
	Restricted cash					958				1,232
	Accounts receivable					1,146				1,510
	Deferred tax asset - current					44				8
	Prepaid expenses and other					1,164				861
		Total current assets				18,418				14,069
Property and equipment, net						2,839				3,133
Goodwill						8,683				8,861
Intangible assets, net						1,900				2,143
Deferred tax asset - non-current						5,641				5
Deposits and other assets						455				153
		Total assets			$	37,936			$	28,364
Liabilities and Stockholders' Equity
Current liabilities:
	Accounts payable				$	952			$	1,093
	Accrued liabilities					4,046				5,339
	Deferred revenue					5,723				8,128
	Deferred tax liability - current					203				257
		Total current liabilities				10,924				14,817
Deferred tax liability						1,219				1,413
Other liabilities non-current						1,141				588
		Total liabilities				13,284				16,818
Commitments and contingencies
Stockholders' equity:
Authorized capital stock consists of 100,000,000 shares of Common Stock, $0.001 par value; issued and outstanding: 20,945,364 shares at December 31, 2012 and 20,594,670 shares at December 31, 2011:						21				21
		Additional paid-in-capital				53,014				54,857
		Accumulated other comprehensive income				672				712
		Accumulated deficit				(29,055	)			(44,044	)
		Total stockholders' equity				24,652				11,546
			Total liabilities and stockholders' equity		$	37,936			$	28,364

SPARK NETWORKS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share data)
			Three Months Ended December 31,								Years Ended December 31,
			2011				2012				2010				2011				2012
Revenue			$	12,861			$	16,271			$	40,851			$	48,493			$	61,743
Cost and expenses:
	Cost of revenue (exclusive of depreciation shown separately below)			8,420				13,491				13,749				28,955				49,216
	Sales and marketing			1,062				1,015				3,496				3,722				3,991
	Customer service			539				647				1,601				1,980				2,534
	Technical operations			281				296				1,232				1,367				1,363
	Development			643				797				3,092				2,710				3,346
	General and administrative			1,071				2,237				9,782				8,068				8,787
	Depreciation			343				431				962				1,320				1,673
	Amortization of intangible assets			89				-				421				370				13
	Impairment of long-lived assets and other assets			1,100				-				308				1,145				-
Total cost and expenses				13,548				18,914				34,643				49,637				70,923
Operating (loss) income				(687	)			(2,643	)			6,208				(1,144	)			(9,180	)
Interest (income) expense and other, net				144				(188	)			(54	)			162				(238	)
(Loss) income before income taxes				(831	)			(2,455	)			6,262				(1,306	)			(8,942	)
Provision (benefit) for income taxes				277				8,083				2,558				305				6,047
Net (loss) income			$	(1,108	)		$	(10,538	)		$	3,704			$	(1,611	)		$	(14,989	)
Net (loss) income per share--basic and diluted			$	(0.05	)		$	(0.51	)		$	0.18			$	(0.08	)		$	(0.72	)
Weighted average shares outstanding - basic				20,595				20,816				20,586				20,591				20,781
Weighted average shares outstanding -diluted				20,595				20,816				20,590				20,591				20,781

Stock-based compensation:
(in thousands)
		Three Months Ended December 31,						Year Ended December 31,
		2011			2012			2010			2011			2012
Cost of revenue		$	2		$	2		$	11		$	8		$	8
Sales and marketing			15			21			233			80			76
Customer service			-			1			1			-			2
Technical operations			31			29			167			119			118
Development			10			11			54			42			42
General and administrative			125			150			1,044			657			567

Reconciliation of Net Loss (Income) to Adjusted EBITDA: (in thousands)		Three Months Ended December 31,								Years Ended December 31,
		2011				2012				2010				2011				2012
Net (loss) income		$	(1,108	)		$	(10,538	)		$	3,704			$	(1,611	)		$	(14,989	)
Interest			13				16				207				102				59
Taxes			277				8,083				2,558				305				6,047
Depreciation			343				431				962				1,320				1,673
Amortization			89				-				421				370				13
EBITDA			(386	)			(2,008	)			7,852				486				(7,197	)
Stock-based compensation			183				214				1,510				906				813
Impairment of long-lived assets and other assets			1,100				-				308				1,145				-
Non-cash currency translation adjustments			132				(201	)			(269	)			337				(124	)
Non-repetitive property possession			-				-				-				(247	)			(151	)
Adjusted EBITDA		$	1,029			$	(1,995	)		$	9,401			$	2,627			$	(6,659	)