Brian Harvey – VP, Capital Markets and IR
John Abbott – CEO
Geoff Cook – COO and President, Consumer Internet
Mike Matte – CFO
Steve Alan – Private Investor
MeetMe, Inc. (MEET) Q3 2012 Earnings Call November 7, 2012 4:30 PM ET
Good day, ladies and gentlemen, and thank you for standing by. Welcome to the MeetMe, Incorporated Third Quarter 2012 Earnings Conference Call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions) This conference is also being recorded today, Wednesday, November 7 of 2012.
I would now like to turn the conference over to our host for today, Mr. Brian Harvey, VP of Capital Markets and Investor Relations. Please go ahead, sir.
Thank you, Patricia. Good afternoon and welcome to MeetMe, Incorporated third-quarter 2012 financial results conference call. I’m joined this afternoon by Chief Executive Officer, John Abbott; Chief Financial Officer, Mike Matte; and Chief Operating Officer, Geoff Cook.
Before we begin, I would like to take this opportunity to remind you that during the course of this call, management will make forward-looking statements, which are subject to various risks and uncertainties. These include statements relating to continued growth, including growth in mobile traffic, mobile monetization, including expectations from virtual currency, expectations from our rebrand, opportunities from internationalization, including accelerating mobile and virtual currency usage, expected number of languages on our platform and revenue and adjusted EBITDA growth.
Actual results may differ materially from the results predicted and reported results should not be considered as an indication of future performance. A discussion of risks and uncertainties related to our business is contained in our filings with the Securities and Exchange Commission, particularly the section titled Risk Factors in our quarterly and annual reports and we refer you to these filings.
Also, I’d like to remind you that during the course of this conference call, we will discuss combined revenues of Quepasa and myYearbook pre-merger and adjusted EBITDA, which are non-GAAP measures and talking about the company’s performance.
Reconciliation to the most directly comparable GAAP financial measure are provided in the tables in the press release issued by the company today in the Investor Relations section of the MeetMe corporate website at www.meetmecorp.com/investors/non-GAAP. A replay of this conference call will be available for one year at the Investor Relations section of the MeetMe corporate website at www.meetmecorp.com. Finally, for additional information and news, you can follow us on Twitter @MeetMeCorp.
I will now turn the call over to MeetMe’s Chief Executive Officer, John Abbott.
Thanks, Brian, good afternoon, and thank you for joining MeetMe’s third-quarter earnings call. In the third quarter, we saw strong growth across our key financial and traffic metrics. From a financial perspective, revenue in Q3 was $11.6 million, up 30% over the $8.9 million in revenue generated by the combined Quepasa and myYearbook in Q3 of 2011.
Adjusted EBITDA from our continuing operations in Q3 was $95,000 compared to non-GAAP loss of $852,000 in Q3 of 2011. In all three quarters of 2012, we have been adjusted EBITDA positive from our continuing operations.
Our growth has improved by increasing adoption of our mobile product in the successful internationalization of the MeetMe platform, as reflected by sequential mobile revenue growth of 34% to $1.8 million and an increase of 147% in international monthly active user between June and September of this year.
The final integration of the legacy Quepasa and myYearbook operations represented the most significant event in the third quarter. Specifically, our core MeetMe platform initiates expansion of Portuguese language support for both web and mobile and we subsequently transitioned the Quepasa user base over to MeetMe. The migration of the Quepasa user base was a final milestone of a year-long integration effort, which also included the consolidation of our operations in New Hope, Pennsylvania and our rebranding to MeetMe.
As Geoff will discuss on today’s call, we have seen record traffic fall in the rebranding internationalization of the platform. New user registrations in Q3 were up 80% over Q2, while monthly active users or MAUs were up 24% over Q2.
In addition to discussing our Q3 results, we’d also like to spend some time on today’s call, presenting our strategic priorities going forward, including our plan to increase mobile monetization and our plans for continued international growth.
Having completed rebranding internationalization projects, our team is now entirely focused on rolling out new products in an accelerating active user growth and revenues.
I’d now turn the call over to Geoff, so that he can provide more details on our operating results and next steps.
Thanks, John. I’m very happy to report that the internationalization of MeetMe, the most significant event in the quarter, was successful and a huge step forward as we work to build the leading social network for meeting new people worldwide.
In the third quarter, all the key measuring sticks for the business increased. MeetMe daily active users, DAU, increased 8% over the Q2 average to $1.107 million, while mobile DAU increased 12% to just over 677,000. Monthly active users, MAU, increased 24% versus the Q2 average, while increasing 17% on mobile.
Meanwhile new registrations leaped 80% overall and by 46% on mobile. We signed up an average of $1.4 million new users a month in the third quarter or 32 people on average every single minute. Put another way, that’s enough people to fill Yankee Stadium 83 times, by far the fastest rate of registration we’ve seen on the MeetMe platform. We believe making new friends is a basic human need and that the market for our services is vast. As you can see on slide four of the presentation, over 1.5 billion people are aged 18 to 30 worldwide. However, North America represents only a fraction of the addressable market with its roughly 60 million users aged 18 to 30.
We view every one of these people as a potential user of our service and we believe that as we build the density in various regions, there we will be able to make connections and recommendations better than any other social discovery service in the world, creating powerful network effect. As such, we view active user growth as the core imperative of the company, as we seek to build the global mass market brand for meeting new people.
As you can see slide five, the company made good progress towards internationalization in the quarter. We launched the MeetMe service in Spanish and Portuguese across all platforms, including web, Android, iPhone, iPad and Mobile Web.
We also transitioned our audience from Quepasa.com to the MeetMe platform. As a result, our international MeetMe-platform audience increased by 147% from 543,000 in June to 1.34 million in September. International traffic now represents 29.5% of monthly active users, up from 16.7% at the end of Q2. Even more significantly, one out of every two new registrations to MeetMe is now international.
We are also seeing early signs of traction for the MeetMe mobile apps in certain markets as indicated in slide six. Since launching our MeetMe Android app in Spanish and Portuguese in August for example, we’ve broken into the top 40 social apps in Brazil, Mexico and Spain according to app analytics service, App Annie.
In fact, on a recent day this week, we reached as high as number 18 in the social category of the Google Play Store in Mexico. Despite no marketing spend on mobile platforms in the quarter.
With the merger integration now behind the company, the team is excited to continue to build out the core product. Just last month, we launched Photoboard, an interesting way to discover the people around you through photos, which you can see depicted here on slide seven.
The service is live on iPhone and Android and launching in more than 500 bars across the United States in 11 major cities. We believe Photoboard can help solve the fundamental chicken and egg problem in social discovery. How do you achieve hyper-local profile density to essentially view online with the bar and coffeehouse do so well in the off-line world? Connect me with people nearby, but while each bar or coffeehouse only needs profile density in one very specific place, social discovery apps lets you get in every place if they want to be successful.
Social discovery services must work both locally and hyper-locally. We consistently find that roughly 60% of our members have met up in person with someone they first met on the network whether they live in a city or in a rural area. The bottom line is that people in more suburban and rural areas have the same need for socialization as people in cities and willingness to travel further to seek it.
To reflect it, Photoboard displays the recent photos of the people around you, putting those in walking distance first and those in driving distance next. The feature launches not just on iPhone, and Android, but also on digital screens in more than 500 bars in 11 cities, in an effort to build up the elusive hyper-local scale in places where people are already accustomed to meeting, the bar.
In Photoboard, we look to continue the mobile engagement that is with our Android users to spend more than nine hours a month on the app and our iPhone users to spend more than five hours a month.
If you turn with me to the next two slides, I will provide a glimpse of where the product is going over the next two quarters as we execute against our two main goals, expanding mobile monetization and increasing our international reach. To us mobile is not just a screen, it is the payment platform, because it makes payment so frictionless. Our Android app is the top browsing application in the social category of the Google Play store, a position it has had for months. Nearly half of our mobile revenue comes from virtual currency products that just launched earlier this year.
A user who is holding an iOS device in their hand is five times more likely to pay us than someone using the web. @ell an Android user is three times more likely to pay us than a web user. Today, we’ve seen mobile traffic gains translate to strong gains in mobile revenue.
In Q4 of last year, only 5.8% of MeetMe platform revenue came from mobile. Today, nearly 20% of that revenue is mobile. Still we believe mobile is early in its monetization trajectory as the mobile average revenue per daily active user is $0.03 versus the $0.14 it currently stands at on the web. We intend to close that gap.
To close the gap, we will rely on the fact that our mobile users are much more likely to pay us than they are on the web. To that end, in Q1 of 2013, we’ve planned to launch a subscription based mobile product to take advantage of the higher propensity of mobile users to pay. We believe a low executed subscription service can be a main stay of our revenue composition for years to come, as the company continues to diversify its revenue streams across multiple categories.
In addition, we’ve planned to launch two new premium products on mobile platforms, one this quarter and another in Q1 as we look to build upon the success of the spotlight products that we launched earlier this year. While our main focus is on growing mobile app revenue, the fastest growing segment at mobile monetization according to Forrester, we are also focused on growing mobile ad revenue. In particular, we look forward to rolling out a feed advertising solution in Q1 to further monetize more than two million posts per day in our location based live feed product.
On slide nine, I refer to the other main goal of the company, expanding our international reach.
In June, MeetMe was available in one language, English. In September, it was available in three languages with the addition of Spanish and Portuguese. By April of next year, we intend to be available in 13 languages, dramatically expanding the addressable market for our service to Europe, Asia and the Middle East.
While the company has made strong progress expanding its international share of audience to 29.5% during the quarter, we believe this number can grow substantially. Matured social services like Facebook and Twitter see closer to 80% of their usage from outside the U.S. and Canada.
As we launched the MeetMe service in more regions, we believe our share of international audience will continue to increase and that we are only just now scratching the surface of the market opportunities.
With the Quepasa and myYearbook merger integration now behind us, our team is laser focused on driving rapid organic growth of the MeetMe platform. We are excited to continue to seize upon our great momentum in mobile and our global footprint to drive continued growth and long- term shareholder value.
I’ll now turn it over to Mike to provide the financial overview. Mike?
Thanks, Geoff. Our third-quarter results were reported in our press release issued this afternoon and we plan to file our Form 10-Q for the third-quarter of 2012 with the SEC by the following deadline. These documents will also be available on our corporate website.
Before discussing our results, I want to remind everyone that when comparing the 2012 Q3 results to the prior period that the results for 2011 do not reflect the results of myYearbook operations, which we merged with November of 2011.
As you can see on slide 10, revenues from continuing operations for the third quarter of 2012 were approximately $11.6 million, an increase of approximately $10.7 million or 1,149% compared to approximately $929,000 for the third quarter of 2011. This increase was primarily the result of a full quarter of combined operations since the acquisition of myYearbook.
When you compare revenues for Q3 2012 to Q3 2011 on a combined basis, the revenue increased $2.7 million or 30%. The increase on a combined basis is primarily due to the growth in the core platform revenues of 21% and cross platform revenues of 78% over the comparable period a year ago. Sequentially, revenues dropped by approximately $1.4 million from the prior quarter, which is primarily as a result of a decrease in cross platform revenues.
In the quarter ended June 30, 2012, we had a material contract (inaudible) which significantly impacted reported revenues in the quarter. As you can see from the chart on the right side, which reflects revenues, excluding affiliated transaction, the sequential core business revenue grew at a compounded quarterly rate of 166% for the last five quarters, excluding any affiliated revenues, and 27% sequentially when compared to Q2 2012 to Q3 2012.
For the nine-month period ended September 30, 2012, revenues were $35.1 million versus $4.8 million for the same period in 2011, an increase of $30.3 million or 631%.
Again the reported revenue increase is due to the inclusion of myYearbook in 2012 versus 2011. On a combined basis for the nine months ended September 30, 2012, revenue increased $8.9 million or 34% from $26.2 million in 2011. As mentioned above, the increase in combined revenues is due primarily to the growth in the core platform revenues and cross platform revenues of 20% and 81% respectively over the comparable period a year ago.
Slide 11, reflects revenues generated from the MeetMe-platform and excludes revenue generated from the cross platform, which are generated primarily from our Social Theater product and revenues from the Quepasa platform. We will discuss the cross platform revenues later in the presentation.
MeetMe revenues were approximately $9 million in the quarter ended September 30, 2012, versus revenues of $7.5 million for the same period in the prior year, representing an increase of 20% year-over-year.
Revenues increased $1.1 million or 14% when you look at the revenue growth sequentially for Q3 2012 versus the second quarter ended June 30, 2012.
The chart on the right side of this slide represents the mobile product revenues. Mobile revenues were $1.8 million for the quarter ended September 30, 2012, versus revenues of $593,000 for the same period in the prior year, an increase of approximately 200%. Mobile revenues increased by $500,000 or 39% when you look at the quarter sequential growth for Q3 versus Q2 of 2012. We continue to see strong growth in our mobile traffic and we are very pleased with the success we are having with our ability to monetize that traffic primarily through advertising and virtual currency.
Slide 12 reflects the MeetMe breakdown of revenue from advertising and virtual currency for both web and mobile. The chart on the left provides a breakdown of total revenue from MeetMe-platform by advertising and virtual currency for the web. For the quarter ended September 30, 2012, 68.5% of our total MeetMe web revenue we generated from advertising and 31.5% as a result of virtual currency transaction. Please keep in mind, as previously discussed, this does not include our cross-platform revenues.
The chart on the right side of slide 12 reflects the percentage of mobile revenues currently generated by virtual currency and advertising. For the quarter ended September 30, 2012, advertising represents 54.9% and virtual currency was 45.1% of total mobile revenue. It is important to note that both advertising and virtual currency revenue increased in Q3 over Q2.
In Q3, mobile advertising revenue increased by $331,000, which is over a 50% increase and mobile virtual currency revenue increased by $100,000 or 17% from Q2. The increase in mobile advertising revenue is a function of both 27% more impressions and 22% higher CPMs. Mobile revenue, as a percentage of MeetMe platform revenue, is in all time high and now experienced sharp 20%.
Slide 13 represents MeetMe cross-platform revenues. Revenues were $2.6 million in the third quarter of 2012 compared to $1.4 million in the third quarter of 2011, an increase of $1.2 million or 85%. For the nine months ended September 30, 2012, revenues were $10.7 million versus $5.9 million for the same period 2011, representing an increase of $4.8 million or 81%. We’re extremely pleased with the growth and continued demand we see in the market and by our pipeline of business as we head into the last quarter of the year.
If you look at the chart in the right side of the slide, we have excluded all affiliated revenues, but had been generated through Social Theater products in order to reflect the actual growth of the business without the influence of affiliated transaction.
As you can see, the growth in revenues for the quarter ended September 30, 2012, was approximately $1.9 million or 248% when compared to the same period in the prior year. Sequentially the revenues grew at a 117% when compared – comparing Q3 2012 to Q2 2012.
Turning to slide 14, adjusted EBITDA from continuing operations is approximately $95,000 or $0.00 per share for the three months ended September 30, 2012, compared to a loss of $852,000 or $0.05 per share in the comparable period in 2011.
On a combined basis adjusted EBITDA from continuing operations decreased $670,000 or 88% for the quarter ended September 30, 2012 from $768,000 for the quarter ended September 30, 2011. The decrease was due primarily to increase cost of rebranding promotions and increased service center cost for additional user traffic.
Adjusted EBITDA from continuing operations excludes approximately $1 million of stock-based compensation, $1 million of depreciation and amortization, $281,000 of interest expense and $354,000 of restructuring cost for the quarter ended September 30, 2012.
Slide 15 reflects our cash and accounts receivable as of September 30 was totaled $20 million -$20.3 million.
With respect to guidance, we will not be giving guidance at this time. We continue to make significant progress since the completion of the integration and with our expansion into the international markets.
We are very excited about the growth and progress we’ve made since the merger of the two companies, almost one year ago today. We will continue to evaluate our progress and consider providing guidance in the future.
I will now turn the call back over to John for closing comments.
Thanks, Mike. Before we turn the call over to Q&A, I’d like to conclude by saying that we’re extremely pleased with the results of the Quepasa myYearbook integration and are now in a position to leverage what’s going to be a very compelling brand in MeetMe.
We’ll now turn the call for questions, operator?
Thank you, sir. (Operator Instructions)
All right, sounds like there are no questions, well, is there a question? One second.
And our first question comes from the line of Steve Alan whom is the Private Investor. Please go ahead.
Steve Alan – Private Investor
Yes, Geoff, I had a question, on software Facebook was making a big ad push with feed advertising, how does that compare with your plans for mobile monetization to the virtual currency and can we do both?
Sure. So, we think the larger opportunity is mobile app revenue just in terms of the size of that market, but we think mobile ad revenue is interesting as well. And so the Facebook feed advertising, which they recently reported I think doing quite a bit of feed advertising with – and 75% of all their feed advertising actually mobile. We think it’s interesting, in particular the aspect of it which is built in line into the app as opposed to on the side of or at the top of. And so building the ads into the content has proven at least on Facebook to be quite successful and we think that’s certainly worth trying with respect to MeetMe.
Steve Alan – Private Investor
Okay. One other; is it too early for any metrics on Photoboard or is it too early to have anything yet?
It is pretty early. We are live now on iPhone, Android. We are starting the rollout to the 500 plus bars, we’re currently in a pilot program, less than a dozen we intend to be rolled out to all 500 within the next couple of weeks.
Steve Alan – Private Investor
Okay, thank you.
Thank you and there are no further questions in the queue. Please continue.
E. Brian Harvey, VP-Capital Markets & Investor Relations
All right, thanks, everyone for dialing in. Thank you very much.
Ladies and gentlemen that does conclude our conference for today. Thank you for your participation and you may now disconnect.
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