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The Meet Group, Inc. (NASDAQ:MEET)
Q1 2019 Earnings Call
May. 8, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to The Meet Group's First Quarter 2019 Earnings Conference Call. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session, instruction will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded.

I'd now like to turn the conference over to your host Leslie Arena, Vice President of Investor Relations. You may begin.

Leslie Arena -- Vice President of Investor Relations

Thank you. Good morning and welcome to The Meet Group's first quarter 2019 earnings conference call. With me today are Geoff Cook, our CEO; and Jim Bugden our CFO. At the conclusion of our prepared remarks, we'll be happy to take your questions.

As a reminder, today's discussion will include statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially. More information about those risks and uncertainties is contained in our SEC filings. We caution you against placing undue reliance on these statements and disclaim any intent or obligation to update them.

In addition, as we referred to earnings, we also will refer to adjusted EBITDA, which we define as earnings or loss from operations before interest expense, benefit or provision for income taxes, depreciation and amortization, stock-based compensation, changes in warrant obligations, non-recurring acquisition, restructuring or other expenses, gain or loss on disposal of assets, gain or loss on foreign currency adjustment, and goodwill and long-lived asset impairment charges, if any. Adjusted EBITDA is a non-GAAP financial measure and you can find a reconciliation to GAAP in our earnings release, which is posted on the IR section of our website. We believe that the use of adjusted EBITDA provides additional insight for investors to use in evaluation of operating results and trends. However, it should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP.

I would now like to turn the call over to Geoff.

Geoffrey Cook -- Chief Executive Officer

Good morning, and thank you for joining us on the call. Q1 was strong as we generated record high video revenue for the quarter, while making good progress toward our strategic priorities for 2019. Total revenue for the quarter was $49.5 million, an increase of 32% from the year ago quarter. Adjusted EBITDA was $8.1 million, up from $5.2 million in the first quarter of 2018. Adjusted EBITDA margins were 16.3%, an increase of 250 basis points year-over-year as we continue to improve operating efficiency across our business.

Building on our momentum in 2018, video revenue in the first quarter of 2019 grew to $20 million, more than four-fold increase from a year ago, as each of our apps reached a record high. Contributing to these results were strong gains on MeetMe in March as the video revenue increase surrounding the Company's participation at a leading industry streamer event in the first weekend of the month.

Global average revenue per daily active video user or vARPDAU increased to $0.26, up from $0.18 in the fourth quarter of 2018, and up from $0.12 in the year ago quarter, which included only MeetMe and Skout. vDAU or the share of users that engage with video every day was approximately 20% or 876,000 in the first quarter of 2019. While down sequentially on an absolute basis, we expect the vDAU by the end of the second quarter to increase from the first quarter.

We believe our recent addition of a live marquee to the top of the MeetMe and Skout locals tab is helping to grow awareness and engagement in video. We plan to bring the same marquee placement to Tagged later this quarter. We made good progress in the first quarter executing against our strategic priorities for 2019. As a reminder, these are just: one, invest in the core business; two, expand into adjacencies to attract new audiences; and three, grow margins. These priorities align with our mission to be the best place to meet new people through video. As we invest in our core, we continue to invest in building out our talent team, which helps direct programming choices, manages contests, and manages streamer acquisition and retention. This team continues to break new ground and we believe drive key engagement metrics to new highs.

For example, in a recent contest this month, MeetMe set a new record for gifts given in a day. Meanwhile, the European talent team also breaks new ground, with one particular LOVOO streamer recently achieving a new record for the most diamond earned in the single stream across any of our apps. We currently have 5 to 10 recurring weekly featured shows, which are either in progress or planned on MeetMe. These include shows for painting, fitness and musical entertainment. With the support of our talent team, streamers develop and script these live shows, which occur at a set day and time. Each show is promoted during the month via personalized ribbon and the number one trending spot in the MeetMe app.

In addition to developing content, we continue to pursue many opportunities to drive video growth through product development. In the first quarter, we completed the roll out of Battles across our live platform with the launch on LOVOO in March. Battles brings together two live streamers in a real time competition ranging from answering questions, to dancing, to telling jokes, with viewers voting for the winner by sending virtual gifts. Across our apps, approximately 90,000 battles take place every day.

This summer, we expect to add one-on-one video capabilities to the MeetMe app, by enabling video chat within existing text based chat conversations. Approximately 50% of our DAU on MeetMe engage in chats without visiting Live. We believe that providing more live video hooks for these users, we can grow vDAU and ultimately in video revenue.

We are also in the process of creating a polls mini-game, which will enable streamers to engage their audience by asking a question of their choice and allowing the viewer to vote on a multiple choice option. For example, the streamer may pose a question like, what should I eat or which juice do you like better, and audience members can vote by spending a small amount of credits. We expect that streamers will find this tool useful for both expanding their set of pairs and also for engaging their audience. We expect to launch polls for some of you by the end of this quarter.

We also are hard at work on Levels which we expect to begin to launch on MeetMe and Skout later this summer. Levels adds a gamification element to live. On the streamer side, we believe Levels will encourage earning diamonds, engaging viewers and streaming consistently. While on the viewer side, it will encourage giving gifts and following discovering new streamers. By achieving a level, the user will unlock certain content like masks, background gifts and/or bonuses. By establishing targets and competitive milestones for users to track against, we believe Levels can be a driver of vARPDAU.

Among the many optimizations we have planned, we are hard at work at driving first time buyers and winning back buyers who have not purchased recently, as well as enabling gifting everywhere. So that not only the streamer can receive a gift, but also the guest or any viewer of live. We expect significant progress in all of these points by the end of the second quarter.

In the second half of the year, we expect to launch a nightly dating game, which we believe will drive vDAU by appealing to the primary reason people use our apps. As we look further out, we are considering additional video formats, including group video, which enables and fosters community among like minded people. Taken together, our product pipeline is expected to contribute to further growth in vARPDAU and vDAU.

With the integration of Growler progressing well, we are also executing on our second priority to expand into adjacencies to attract new audiences. Growler is the same sex dating and social media app that we acquired in March. We see opportunities to optimize and grow the business, by both adding video and growing advertising revenue on the app, and we are on track to bring live streaming video to Growler by end of this year.

Beyond Growler, we have begun to develop a stand-alone app intended to attract potential users who may not download what they perceive to be a dating or meeting app. The stand-alone app will likely have many of the same features as our current apps, but have a broader intended audience, namely users looking to engage in community, but not necessarily date. We believe the stand-alone app may offer expansion opportunities to new audiences, as well as provide a framework for rapid future iteration of additional video stand-alone apps.

While the vast majority of our resources remain focused on live streaming, we also see the importance of exploring new blue sky ideas as we have done throughout our history. Audio is a clear adjacency to video and podcasting is one of the fastest growing segments of audio. We see podcast as an untapped interest graph and ultimately a relevant signal for meeting new people. As such and as we announced recently, we have begun experimenting in this market with our new app Podcoin.

Our third-priority is to grow margins. We made good progress in the first quarter and we continue to see opportunities for leverage as the business continues to grow, which Jim will discuss in more detail.

In summary, we are off to a good start. We are executing on our priorities to drive growth. In 2018, we drove growth by rolling out live streaming video to new communities. In 2019, we expect to drive growth by executing on our product roadmap and by enabling community and connection for our users. With 80% of our users still to reach with our video features and with innovative monetization and engagement projects on horizon, we look forward to delivering meaningful connections for our users and increase value for our shareholders.

With that, I'll now pass the call to Jim.

Jim Bugden -- Chief Financial Officer

Thanks, Geoff. Before reviewing our results, I'll note that with the exception of Growler, which we acquired on March 5th of this year and began consolidating as of that date, our results for the quarter are comparable are on apples-to-apples basis versus a year ago quarter. Total revenue for the first quarter of 2019 was $49.5 million, an increase of 32% from $37.6 million a year ago. This includes a negative $1.2 million foreign currency impact from LOVOO, impacting primarily non-video user pay revenue.

User pay revenue in the first quarter of 2019 was $35.8 million, an increase of approximately 60% from the $22.4 million in the first quarter of 2018, due predominately to growth in video revenue. Video revenue in the first quarter of 2019 was $20.2 million, an increased from $4.7 million in the first quarter of 2018. Advertising revenue was $13.7 million, down 10% year-over-year as expected from $15.2 million in the first quarter of 2018, with a significant portion of decline -- of the decline coming from our lower margin cross-platform ad product.

While mobile ad revenue decline, we believe mobile advertising trends are improving as we continue to focus on -- on the overall quality of our ad inventory with advertiser performance in mind. This includes improvements to viewability and post click KPI, which we believe will increase the attractiveness of our traffic to advertisers. We have also improved the efficiency of our programmatic strategy through key partnerships and process improvements, which we expect will have a long-term positive impact to our advertising model. Consistent with these improvements and the normal seasonality we have seen in prior years in advertising, we expect total ad revenue to increase in absolute dollars on a quarterly basis throughout 2019.

Adjusted EBITDA for the quarter was $8.1 million, an increased from $5.2 million in the first quarter of 2018. Adjusted EBITDA margin increased to 16.3% from 13.8% in the first quarter of 2018, due to top line growth and expense efficiencies largely in G&A which I will discuss shortly. Longer-term, we continue to expect to achieve adjusted EBITDA margins of more than 20%. GAAP net income for the first quarter of 2019 was $1.3 million or $0.02 per diluted share, compared to a GAAP net loss of $4.2 million or a loss per share of $0.06 in the first quarter of 2018.

Moving on to expenses. Sales and marketing expense for the quarter was $7.8 million, an increase of 11% from $7 million in the year ago period and down from $8.5 million sequentially. User acquisition spend as a percent of revenue of approximately 13% was roughly flat compared to the fourth quarter of 2018.

Mobile DAU in the first quarter of 2019 was $4.35 million, up from $4.27 million in the fourth quarter of 2018. Mobile MAU was $15.2 million, flat sequentially.

Product development and content expenses for the quarter were $31.1 million, up from $22.1 million in the year ago quarter, due largely to an increase in costs attributable to increase adoption of live video. As we record both video-related app store fees to Apple and Google as well as rewards that we pay to streamers in this expense line, we expect this expense to increase as we grow live video revenue.

General and administrative expenses for the quarter were $4.9 million, a decline from $5.5 million a year ago, largely due to savings from the reduction in size of our San Francisco office at the end of the first quarter of 2018. We incurred $300,000 of transaction costs associated with the Growler acquisition, which was recorded in acquisition and restructuring expense, and netted out of adjusted EBITDA.

Moving to the balance sheet and cash flow. We ended the quarter with $19.8 million in cash and cash equivalents, a decline from $28.4 million sequentially. There were several key items in the quarter that contributed to this change. First, we acquired Growler for $11.8 million. This acquisition was funded by using $4.8 million in cash on hand and drawing $7 million from our revolving credit facility.

Additionally in the first quarter, we made an excess cash flow payment of approximately $3.6 million under our credit facility. This contractual payment occurs once per year based on certain cash generation thresholds and we also paid our scheduled quarterly debt payment of $3.8 million. Our cash from operations was $3.4 million in the first quarter and we generated $3.1 million in free cash flow for the quarter. We expect to grow operating cash in the second quarter.

I'll now move on to our outlook for the second quarter and full year 2019. For the second quarter of 2019, we expect revenue to be in the range of $50.3 million to $51.3 million, and adjusted EBITDA to be in the range of $8.6 million to $9.1 million. We expect the split between user pay and advertising revenue to be approximately 72% and 28% respectively. We expect video revenues to grow sequentially to approximately $21 million, up from the first quarter, which included a spike in revenue from -- in March, which we attribute largely to the Company's participation at a leading streamer event.

For the full year 2019, we are reiterating our previously issued guidance for revenue in the range of $210 million to $215 million, and adjusted EBITDA in the range of $39 million to $42 million. We continue to expect video revenue to grow to approximately $88 million for the full year, more than doubling from the $39 million we generated in 2018. Longer-term, we expect video revenue to double again in 2021 from 2019. Revenue expectations for the full year include an expected negative $3.2 million foreign currency impact from LOVOO compared to the prior year as the euro has continued to fall into 2019. We are pleased with our progress in the first quarter and look forward to continuing to execute on our product pipeline and drive video revenue in 2019.

With that, we'll move to Q&A.

Questions and Answers:

Operator

Thank you. (Operator Instructions). And our first question comes from Darren Aftahi From ROTH Capital Partners. Your line is open.

Darren Aftahi -- ROTH Capital Partners -- Analyst

Hey guys, thanks for taking my questions. Just a couple If I may. One, Jim, on the foreign currency with LOVOO, is that something that sort of has changed versus the last time you guys had a call. I guess in another way, did your revenue guidance contemplate that impact or is that kind of a new phenomenon if you will?

Jim Bugden -- Chief Financial Officer

No, we guide based on the rate that's in place at the current time and that rates continue to fall, Darren. So across the rest of the year from the guidance we gave last quarter, we've seen another $1 million in degradation from money we're bringing back in from LOVOO.

Darren Aftahi -- ROTH Capital Partners -- Analyst

Got it. And then the streaming event, can you kind of quantify how much of an impact that had on either video revenue or vARPDAU in the quarter?

Geoffrey Cook -- Chief Executive Officer

Yeah, so we think it had a significant impact really in the beginning of March. We were at Playlist, this was the first time we kind of assembled this significant number of our top streamers, as well as some of our top gifters. And not only the event itself with kind of the impacted that across the community, I think was very positive for revenue in really the first week or two of March.

Darren Aftahi -- ROTH Capital Partners -- Analyst

Got it. And then just last one for me. I noticed cash flow from ops was down pretty materially year-on-year, is there anything kind of on the working capital side that was kind of unique in the quarter?

Geoffrey Cook -- Chief Executive Officer

No, there's some general quarterly year-end items that were larger this year just because of the size of the business. The biggest drains on cash were the debt -- two debt payments essentially we made. We have that excess cash flow payments that gifts made is on the operating side, but that was -- and Grinder -- or Growler, excuse me, were the two large items that really impacted total cash, but nothing unusual on the operating side either.

Darren Aftahi -- ROTH Capital Partners -- Analyst

Great. Thank you.

Operator

Thank you. And our next question comes from Mike Latimore from Northland Capital Markets. Your lines are open.

Pawan -- Northland Capital Markets -- Analyst

Hi. Good morning. This is Pawan (ph) on for Mike Latimore. Was the video revenue growth in line with your expectations with the growth across all the apps?

Jim Bugden -- Chief Financial Officer

Yeah, video revenue growth was slightly ahead of our expectations in Q1, and I think part of that came down from a very -- a very strong Valentines Day period, and then a very strong Playlist period -- I mentioned Playlist in the streamer events in March in the remarks. We do plan to do more of these events. We will be doing another one at VidCon later this summer. But I think we saw some strong -- some strong video growth in Q1 and I think even stronger than we had expected.

Pawan -- Northland Capital Markets -- Analyst

Got it. And how about the monetization trends at Battle across all the three apps?

Jim Bugden -- Chief Financial Officer

So the -- it's hard to monetization trends across the apps, they're all very good. Monetization was at peak levels for video in March across all of the apps. All four of the apps MeetMe, Tagged, Skout and LOVOO. So we are seeing strong monetization and we continue to see strong monetization as we obviously just enter May. We're seeing continued strong video growth in May and outstripping April, for example.

Pawan -- Northland Capital Markets -- Analyst

Got it. Thank you.

Operator

Thank you. And our last question comes from Austin Moldow from Canaccord. Your line is open.

Austin Moldow -- Canaccord Genuity -- Analyst

Hi. Thanks for taking my questions and congrats on the nice quarter. It seems like a lot of gifting, at least, just sort of looking anecdotally is happening between the top streamers, keeping more of that money in the ecosystem rather than cashing it out. Would you be able to quantify this impact at all or at least just comment on whether it's having a positive impact on margins or something?

Geoffrey Cook -- Chief Executive Officer

Yeah, that does happen and there's various reasons why streamers promote each other. It can drive other streamers and other fans to find your stream for example. What that does do is, yeah, it has a positive impact on margin in order to get those diamonds back into credits. In order to give gifts, you have to convert them and when that conversion happens, some of those credits and diamonds leave the economy. So there's a market improvement and that's part of what we've talked about driving up video margin over time. That's one of the things that is kind of help to benefit margin. So, yes, we do see that and it doesn't impact margins positively.

Austin Moldow -- Canaccord Genuity -- Analyst

Got it. And this might be somewhat related, but I want to ask on the broadcast fees. So for the main product, it's 40% of video revenue. Given that you have some new products out there, can you give us what the all-in blended broadcaster share is across the Company?

Jim Bugden -- Chief Financial Officer

Yeah, the listed price rate is 40, you know after some of these other conversions and things takes place, it's more like 35%.

Austin Moldow -- Canaccord Genuity -- Analyst

Got it. And on vDAU share, it looked like it was a slight decline from some past comments. I think MeetMe was at 25% in Q3 2018 and it looks like it may be on an overall basis was just down a little bit. Is there -- is that mainly attributable to just the total user base growing faster or is there something else going on there and can it move back up and get closer to, I think, the 25% target that is out there?

Geoffrey Cook -- Chief Executive Officer

Yeah, sure. So I think, for one, we do expect vDAU by the end the second quarter to increase from the first quarter. And so I think even just recently we're now seeing, for example, in May MeetMe, Skout vDAU in that 24%, 25% range as a result of some product optimizations we've made. I think we're kind of always tweaking certain hooks into the product. One of the things that seemed to have made a meaningful impact is probably like high single digit sort of impact on vDAU. It's been live marquee at the top of the apps local and chat tabs, and you'll be able to see that if you look at the Skout or MeetMe app. That's been actually pretty successful at driving vDAU, you expect that to come to Tagged later this quarter, actually quite soon. And we continue to believe that we can get vDAU from the blended 20% we're at in Q1 to closer to the 35% as we kind of indicated and when we talked about 2021 and our belief that we get video -- double video revenue from 2019 levels by 2021 by growing vDAU share, as well as by growing vARPDAU.

And we do know and I don't know if you've noticed this as well, you know we've kind of been following the Momo yardstick on vDAU share, really from the very beginning. They had gone the number of quarters without updating that share and they recently updated that share of 30%. We think that's quite achievable when you consider the various additional hosts who will be building into live streaming video. Most -- soon of course will be the one-on-one video launch, but also the nightly dating games and things of that nature.

Austin Moldow -- Canaccord Genuity -- Analyst

Got it. And then my last question is on video revenue seasonality. Do you anticipate any sort of normal seasonality to occur outside of just what happens with certain one-time events in sort of the summer months. I know Q1 video revenue was quite strong. You're guiding to continued strength, but how do you think through seasonality impacts and then sort of the summer months for mobile usage overall?

Jim Bugden -- Chief Financial Officer

Yeah, I think the reality is, we have relatively -- just as to get the newness of the product, we have relatively little insight into maybe smaller seasonal trends given the nature of the product and how quick it grew as we were launching it across the portfolio. That being said, we do believe there's seasonal effects around Christmas, around Valentine's Day and around events, whether or not they're seasonal effects around weather and other things that nature remain to be determined.

Austin Moldow -- Canaccord Genuity -- Analyst

Got it. Thanks for taking all my questions.

Geoffrey Cook -- Chief Executive Officer

Thanks.

Operator

Thank you. There are no further questions at this time. I will now turn the call back to Leslie Arena, Vice President of Investor Relations to conclude the call.

Unidentified Speaker

Thank you. With no further questions, we will end the call today. Thanks everyone for joining us.

Operator

Ladies and gentlemen, thank you for your participation in today's conference -- today's program. You may all disconnect. Everyone have a great day.

Duration: 29 minutes

Call participants:

Leslie Arena -- Vice President of Investor Relations

Geoffrey Cook -- Chief Executive Officer

Jim Bugden -- Chief Financial Officer

Unidentified Speaker

Darren Aftahi -- ROTH Capital Partners -- Analyst

Pawan -- Northland Capital Markets -- Analyst

Austin Moldow -- Canaccord Genuity -- Analyst

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