FriendFinder Networks' CEO Discusses Q2 2012 Results - Earnings Call Transcript

FriendFinder Networks, Inc. (FFN)

Q2 2012 Earnings Call

August 14, 2012, 4:30 p.m. ET

Executives

Jeffery Goldberger – KCSA Strategic Communications

Anthony Previte – President – COO

Ezra Shashoua – CFO

Analysts

Wayne Teetsel – Stonehill Capital Management

Sam Sakain – ALJ Capital

Steve Lemur – Volt Capital

Presentation

Operator

Good day, everyone, and welcome to the FriendFinder Networks Incorporated second quarter 2012 earnings conference call. Today’s conference is being recorded. At this time, I’d like to turn the conference over to Mr. Jeffrey Goldberger. Please go ahead, sir.

Jeffrey Goldberger

Thank you, Talari, and thank you everyone for joining us today for the FriendFinder Networks second quarter 2012 earnings conference call. Before I turn the call over to the company’s newly appointed chief executive officer, Anthony Previte, I would like to read the following Safe Harbor statement.

Certain statements made on this conference call regarding FriendFinder Networks and statements related to future expectations, beliefs, goals or prospects constitute forward-looking statements made within the meaning of section 21-E of the Securities Exchange Act of 1934 and section 27-A of the Securities Act of 1933. Any statements that are not statements of historical fact, including statements containing the words “believes,” “plans,” “anticipates,” “expects,” “estimates” and similar expressions indicating future performance results or objectives should be considered forward-looking statements. A number of important factors could cause actual results or events to differ materially from those indicated by such forward-looking statements. FriendFinder Networks assumes no obligation to update the forward-looking statements in this communication, except as otherwise required by law. Participants are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Today, we will also discuss certain non-GAAP disclosures, and a reconciliation to GAAP information is included in the press release issued earlier today. Investing in the common stock to FriendFinder Networks involves a substantial risk. Please read the risk factor section of form 10-K for the year ended December 31, 2011, filed with the SEC on March 29 th, 2012. The company does not undertake to revise any forward-looking statements to reflect future events or circumstances. With that, I will turn the call over to CEO Tony Previte. The call is all yours.

Anthony Previte

Thank you and welcome to the FriendFinder Networks second quarter 2012 earnings conference call, and my first as CEO. Before we get started, I would like to thank Marc Bell for his continued support and guidance, which has ensured a smooth transition into my new role as CEO. During today’s call, I will provide a high-level overview of the second quarter, discuss operational updates and review our strategic plans. I will then turn the call over to Ezra, our Chief Financial Officer, to review our financial results for the second quarter before opening up for questions.

During the first half of 2012, we undertook additional actions to further optimize our business, maximize our brand equity and retain greater control of our cost structure. Simply put, we have redirected our efforts to support the 100 primary brands that contribute approximately 90% of our total subscription-based services revenue. The consequence of the shift was to begin the process of closing nearly 5,000 co-brand sites during the quarter. Even though our affiliate network attracted thousands of new registrants per day to these sites, it became too cumbersome and is cost-prohibitive to continue to support them.

To further develop our primary brand, we continue to focus on improving our three core metrics. The first is member conversion, which is the percentage of our members who subscribe to our services. The second is renewals, which is the percentage of our subscribers who renew their subscription. This is a byproduct of our return metric. And the third is cost per gross addition, which is the customer acquisition cost we have discussed in detail on previous calls, and a direct indicator of our marketing efficiency. Member conversions and renewals are primarily driven by the products, which is why we are focusing our efforts on our core brands and we feel that is so important.

You’ll hear on today’s call some of our recent improvements to our sites, which we believe help support our long-term success. Although we’ve seen a decline in overall traffic from the closure of our co-brands, our member conversions improved 50 basis points to 4.2%. Additionally, the lower traffic and resulting subscriber loss has mainly come from brands that generate minimal revenue, thus making these [inaudible] extremely cost-effective relative to the subscriber loss.

Marketing efficiency is being driven mostly by an increase in analytics and has provided us with the ability to assess our marketing, granular real-time basis. During Q2, for example, we were able to quickly shut down campaigns that didn’t meet with our expectations, which allowed us to greatly, efficiently redirect spending elsewhere. While our overall strategy remains ROI-positive, we continue to refine our advertising spend in an effort to increase retention rates, boost subscriber growth as efficiently as possible. We will be opportunistic in our customer acquisition efforts in the second half of the year, and expect our revenues to benefit accordingly.

In keeping with our strategy to contain costs and focus on the parts of our business that have the greatest potential to drive shareholder value, earlier this month we sold JigoCity operations back to one of its original owners. While we have been making these operational changes and refocusing our efforts, there’ve been many successes along the way.

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