Brad Nelson - KCSA Strategic Communications, IR Alex Harrington - CEO and CFO Mark Brooks - CEO, Courtland Brooks.

Analysts:.

Good day everyone, welcome to the Snap Interactive Fourth Quarter and Full Year 2015 Earnings Conference Call. Today's call is being recorded. At this time, I would like to turn the conference over to Mr. Brad Nelson of KCSA Strategic Communications. Please go ahead, sir..

Thank you. Good afternoon, and welcome to the Snap Interactive 2015 fourth quarter and year-end earnings and business update call. Again, my name is Brad Nelson, and I am Strategic Investor Relations Counsel to KCSA. Earlier today, SNAP issued a presentation to accompany this call.

The presentation can be accessed on the company's IR website at snap-interactive.com under the Presentations & Events Page.

And also can be downloaded on the left hand side of the Company's Home Page and it's also available on the company's Quarterly Earnings Page Today's call will consist of a presentation by Alex Harrington, the Chief Executive Officer and Chief Financial Officer of Snap Interactive, followed by a presentation on the Internet Dating Industry by Mark Brooks, CEO at Courtland Brooks, a consulting firm exclusively working for companies in the Internet dating industry.

The views and opinions expressed in Mr. Brooks' presentation are his own and do not necessarily reflect those of the company or Mr. Harrington.

I'd also like to inform everyone in attendance that certain statements made during today’s conference call that are not statements of historical fact, including those concerning future plans, objectives, goals, strategies or performance, are forward-looking statements.

These statements reflect the good faith beliefs and judgments of the company or Mr. Brooks as applicable, based upon currently available information only as of the date of this conference call. These statements are subjects to risks, uncertainties and other factors that could cause our actual results to differ materially from current expectations.

With respect to remarks made on behalf of the company, these factors include those described in the Risks Factors section of the company's periodic reports that are filed with the Securities and Exchange Commission. Forward-looking statements are not guarantees of future performance in each of the company and Mr.

Brooks expressly disclaim any obligation to update earlier statements as a result of new information, except as required by law. Certain non-GAAP measures may be discussed during Mr. Harrington presentation, including adjusted EBITDA and bookings.

Adjusted EBITDA and bookings have been calculated consistent with the manner in which they are defined in the company's periodic reports filed with the Securities and Exchange Commission.

Each of these measures has been reconciled with the nearest applicable GAAP measure in the company's earnings release, which is available again on Snap Interactive's website. And with that, I’ll turn the call over to Alex..

I'm sorry I think we may have had some difficulty with the audio visual. I'm going to start back on Page 6. 2015 was a transformative year for SNAP with change in leadership, governance and strategy and other important milestones that we believe lay the groundwork for future success.

In September 2015, we undertook a strategic review, the result of which was Alex Harrington, I was appointed to the CEO role in October. We committed to appointing a second and third independent director to the board through which we appointed Neil Foster and Judy Krandel in December and March respectively.

And we adopted a new corporate growth strategy and finally we created a new brand for our core products and rebuild and re-launched its mobile apps. If you advance to Page 6, we'll talk in greater details about the strategy.

In a strategic review we determine that SNAP 30 million user data base which is one of the largest in the industry was an untapped engine for growth. The proven industry approach to monetize largely through data base is to develop a portfolio of products to address a fragmented consumer market with an array of strong brand.

Match Group for example has 45 plus brands.

This strategy puts - our strongest asset, our database asset that center because users can be cross-hold across products The key point here is we believe that monetizing a database will fuel growth in the capital-efficient way, leveraging assets that we already have as opposed to a capital intensive ramp in marketing budget; which we expect would be the fastest way to grow, but it's not an option at present giving capital constraints.

The new strategy also laid out clear short-term objectives, effective rebrand to reactivate dormant users, reserve cash by cutting expenses and reducing marketing investment in a soon-to-be retire AYI brand and put mobile app before of our future product plan.

I'm pleased that we've accomplished all of these short-term objectives since they were set in the fourth quarter, and I'll review each starting with the rebrand. Please advance to Page 7. The first major milestone of my CEO tenure is delivering on the rebranding of the core product AYI.

FirstMet launched at the beginning of March and we've been pleased with the reception. Why did we undertake the rebranding? We wanted a stronger brand in which we can build equity in this segment of the market that we address, adults over 35. The longer term benefit of increased brand equity we hope will be lower cost of acquisition for new users.

But there are also immediate benefits that we'll see if you have advance to Page 8. The results of launching the rebranding and simply sending announcement emails have been very strong in terms of reinvigorating the database. In the week following the launch, we attracted nearly three times the normal amount of inactive users.

And with this in mind, we haven't even begun our win-back campaign there which we hope to reactivate millions of additional inactive users over the course of 2016. If you now move to Slide 9. In anticipation of the rebrand, we began to cut marketing investment in AYI to keep dry power for subsequent investment for FirstMet.

Q3 AYI advertising expense was down 50% compared to Q1 2015. We anticipated that this major cut was going to have a negative effect on revenue and we discussed that at our last earnings call. But we believe that subscription revenue which was down for the year 9.4% held up quite well in spite of that. Total revenue for the year came in at $12 million.

Another factor that weighed down revenues was currency exchange rates, which affected approximately 40% of our revenue base. Average exchange rates for 2015 was 13% worse than 2014, which reduced booking for 2015 by approximately 5.6%.

For these reasons we believe that the decline in revenues in 2015 was not driven by weakness in the business or in the market, but primarily by capital constraints and exogenous factors like currency. And there are exciting new developments related to revenue. If you flip to Page 10, we've already reversed the downward trend.

Following November, we've been optimizing marketing spend, shifting resources to AYI-leading into the rebrand, and improve recur rates for subscription. This resulted in two consecutive months of bookings growth plus a third month of preliminary February figures, which are up or confirmed.

Bookings are reconciled against GAAP revenues later in the presentation, but a simple way to think about booking are that they are the real time receipts from subscription sales. Note that this chart excludes advertising revenue, which we cover on Slide 11. In advertising revenues we have seen meaningful increases over the last three quarters.

Q4 2015 improved by 61% over the comparable period in 2014 and we saw sequential quarterly growth of 10%. These gains came simply from more ads and more advertisers. Let's move to Slide 12 to progress further down the ledger. In 2015 we continued our cost discipline with further reduction in expenses.

Total expenses were cut by approximately $1.9 million compared to 2014, which is how we improve profitability in the face of managed decline in revenues. 2015 was nearly breakeven on the adjusted EBITDA line and improvement over 2014 of over $450,000. On Slide 13, we discuss cash flow and balances for Q4. Q4 was approximately breakeven on cash.

We held the cash balance nearly steady with a decrease of $20,000 from the third quarter. And with continued lean operations, we believe cash resources are sufficient to support the growth initiatives we have outlined in 2016. Moving on to Slide 14. Along with the rebranding, we recently rebuilt and relaunched the FirstMet mobile app.

The underlying technology of the new app makes it much easier to make improvements going forward. This is key as we have an approach to product that requires constant experimentation and iteration. Now, mobile will be the place where we dedicate the bulk of that test-driven product innovation.

Our commitment to mobile continues on Slide 15 where we talk about The Grade, which is our mobile app targeted the Millennial, which had its best ever quarter in Q4 in terms of user activity. And recently we hit a milestone of approximately 53 million swiped at in March 2016.

That we believe the prospects for The Grade are bright, we are dedicating our resources right now on our FirstMet brand launch, which is the engine of revenue and cash flow for the company. As a result, The Grade may decelerate in terms of user activity because of the shift in resources. Moving on now, I'd like to cover the growth strategy.

So I'd like to share the plan for the next year and beyond, which lays the foundation for a longer term portfolio strategy. We think this plan with and due core the application of additional capital has a potential to grow the business dramatically. Let's move to Slide 17. First, there is a rebrand. There the FirstMet is already launched.

We are really at the very beginning of our plan to reactivate users in the database. And we intend to do this in the short term with aggressive win-back campaign. We expect this among other initiatives to be an affective catalyst for growth. But there are other long-term benefits to rebranding that we will expect to build on.

As mentioned earlier, we think FirstMet bankable brand, upon which we can build a large business in the attractive mature adult segment of the market. We're presenting as a dating service that is friendly, unintimidating and assist users in meeting each other.

With interactive dating on training wheels for middle age and older people and each cohort that is now turning to the category more than ever before. We are just getting started in building that brand and expect to reap the benefits from years to come. On Slide 18, we discussed the opportunity to launch yet another brand.

A new product launch is the next step in our portfolio strategy with two or more applications with revenue-generating property similar to FirstMet, there is an opportunity for step-changing revenue. This plan leverages SNAP's existing assets, all are required this time to execute.

For example, FirstMet has a highly scalable infrastructure that we can be clone to reskin and presented to the market as new brand addressing a different, but overlapping audience. And our product platform allows us to launch new brands on five mobile and desktop platforms at once, which we anticipate will be a competitive advantage.

New products descriptions would be fueled by cross-selling the user database from which most incremental revenue will drop to the bottom line. We expect the next new product in the portfolio to launch in Q3 2016. On the next page, international remains a big opportunity for us. Half the market for interactive dating is outside of the U.S.

FirstMet up to this point has been a global product with approximately 40% of revenue coming from outside the U. S. But until recently we have never localized through translation, it's only been available in English. As of the FirstMet launch, all mobile platforms are available in both English and Spanish.

We are also exploring other languages like Portuguese to build a revenue footprint in fast Latin American growing markets. Moving on to the next page. Next is the focus on mobile, which is in a big emphasis of my career today. My company was one of the first to bring online dating to mobile phones.

Now mobile represents more than 70% of user activity in the industry according to some sources. I mentioned how we relaunched our apps and I can't emphasize how important that will be in terms of allowing ultimate mobile the focal point for our product innovation.

The older users - though our users grew older and are less mobile than the general population, FirstMet has well north of 50% mobile usage and that share keeps growing. We have to think mobile first. And this new change to our product platform allows us to do that.

We also anticipate marketing resources to continue to be devoted more and more to mobile in 2016. Let's move now to brief overview of the industry. Please advance to the Slide 22. As you might imagine, I'm very bullish on the industry and 2015 was a watershed year. We had the first U.S.

multi-billion dollar public-market debut for a company dating space Match of course, one of the biggest private company exit ever in dating in plenty of fish.

And among the highest years for venture investment in the space, there are also rumors that Momo, the so-called Tinder of China has renewed plans to go private and not the multi-billion dollar public company. So dating as a category has arrived as we as part of the investment community concern. But consumers have also flocked to the industry.

According to a new research, user adoption climbs 36% between 2013 and 2015 to 15% of U. S. adults. Some subpopulations have grown even faster. Market penetration of older adults 55 to 64 has doubled in that period.

Why this growth now if the industry is more than 20 years old? I believe it's because with the stigma gone of online dating and the arrival of mobile as the ideal computing platform for personal activity like dating, the pace of adoption is accelerating. I see no reason why in spite of the next decade the U. S.

market penetration couldn't grow by multiples reaching a majority of the population. Events -- next page. I don't want to suggest that there have been no growing pains. The ascendancy of mobile in the meteoric rise of Tinder have changed the industry for sure.

The biggest change is then to expand the appeal of the category though to the Millennial generation. Within interactive dating having prior to that point been mystically popular, few research reported a four-fold increase in the adoption of mobile dating apps by the 18 to 24-year-old population between 2013 and 2015.

Tinder is also clearly popular among the 25 to 34 set, which have been the mainstream of the dating industry. And if your traditional dating site is targeting that audience, which most had besides AYI, the market got a lot more competitive. But the traditional subscription model is alive and well particularly in the older end of the market.

Premium dating sites have been coexisting with popular free alternatives like Plenty of Fish and OkCupid for over ten years. And we've seen the history that overtime free product restrict certain features, insert pay walls to enlarge their revenue opportunity, which is already happening with Tinder.

So certain segments of the market have been disrupted and the mainstream market has too many competitors to remain stable. The industry is abuzz with talk of consolidation and I think we will see some interesting M&A activity in the next 12 months.

But the key takeaway is the industry's adoption curve seems to be getting steeper, particularly in the older users' spectrum or SNAP players, but we feel good about the market conditions for success. That concludes my prepared remarks.

We've included GAAP reconciliations to your reference, but right now let's advance to Slide 27 for Mark Brooks's industry commentary. Mark if you are ready, take it away..

Thank you. So for the last 11 years, I've been speaking on the Internet dating conference. I remember back in 2006 was the very first mobile dating conference. And back then a love life on SMS and web date on - Brew data may improve app was downloadable, one of the first.

And there was Match.com with WAP app and all of the expenses were very less back then mainly because the infrastructure wasn't there, the phones were - the number of phones that were being used was hugely fragmented and hard to design for and apps were there. But these days if you like - go to Slide 28.

These days if you look at the worldwide comparison of Internet traffic, this 2017 is going to be very interesting year, because its first year that mobile - worldwide mobile traffic will exceed desktop traffic. And it's according to stat count. We would like to proceed at Slide 29. Actually in India, the date has already come and gone.

Back in 2012 mobile Internet traffic exceed desktop. We'd like to go to Slide 30 and this is a picture for North America. We are at around a about quarter-third traffic as mobile at this stage. And we can likely go to Slide 31. A picture from mobile dating is antithesis.

And this is usually indicative of something very key to mobile dating, and that is that really uses on voting by going on mobile dating because I believe it's a superior experience. It's a superior experience, because it's closer to what people want, closer to what people experience in real world.

And the key to that is that when someone is communicating with someone they are interested in, they want to stay communicating with them and not wait until get they get home or in front of a computer. So it's far more natural fit. And I think that's a very - as indicated very clearly in this graph.

So what we see on this graph is that 73% November last year is more like three quarters of mobile traffic according to comp score is - on mobile dating traffic is mobile at this stage as compared to a pretty much the opposite numbers on just in general Internet traffic versus desktop traffic.

So I think if we look back in time, and the key reason why people have shifted from flat boring personals and newspapers. It was too cold. For the first time, [Make it Search] [ph] back in the mid 90s when internet dating started at first, they could search. And that was huge because everyone had to troll through pages of personals.

They could just say, hey, I'm interested in this and this, and that will pop a shortlist of people that met that criteria. So search was very key to that transition and media. Secondary to that was communication. And that is also very key to this new media transition that the industry had expressed through mobile.

So if we look at Tinder, I think Tinder had a moment of enlightenment a couple months back, consider after reading Daniel Kahneman book, thinking fast and slow.

If you really think Tinder is yes, it's shareable, its dignified, it's fun but more key to their success I think is - kind of the very system one, a very emotional if you think very interaction of swiping, less right, that is very simple and cool. But I think when we transition to larger screens, people will want more.

We'll be able to deliver more with technology is coming to fruition now, the people who won't that match, they’ll become more sophisticated new law. And well we'll have to stay tune if they can keep up with that pace. I think Tinder was key also to the acquisition of Tinder by Match Group was key to getting Plenty of Fish to sell.

And that again was very key for Match Group long term, but is now essentially they control its figure, of free to pay. Plenty of Fish was a free dating site. Now they all have some element of free in them for last two years. But now Matches has the control in that speculative free to pay. And I think that's very critical for the industry.

But I think it's actually becoming more difficult to - for free dating sites to scale anyway, as - especially with the mobile app marketplace is nurturing. Building to mass scale requires paid media. So free is less and less viable as we go along. So I think we'll see prices on mobile dating rise as the mobile segment matures in line with that.

And I think some dating sites have been rather slow to adopt - I'd want you to go to Slide 32. And some dating sites have been rather slow to adopt mobile and their consequence that's suffering. I think the best place in my humble opinion with dating issue right now is the innovative mobile dating technical services.

Just because that's where the user experience - having see from the prior growth, that's what people seem to be demanding and shifting towards. So I think we might see a base on who they tell us they are, and what they say they want. But they all can sit, and don’t really know what they want.

So we do hardly have to eventually observe behavior to not who we really are and what they really want. And key of that is nobody because nobody is that much closer to people and closer to be able to observe that behavior and I think that is going to be very exciting for the future. So we’d like to transition the Slide 33 that wraps up my commentary.

Thank you..

Great, thank you. And with that we’ll now open the call up to questions..

Operator:.

Great. Well thank you all for joining the call today. And any follow-on questions feel free to email IR at snap-interactive.com. And look forward to hearing from you and keeping you posted on our progress. Thank you..

That will conclude today's conference. Again we thank you all for joining us..