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Edited Transcript of MEET earnings conference call or presentation 31-Jul-19 12:30pm GMT

Q2 2019 Meet Group Inc Earnings Call

NEW HOPE Aug 2, 2019 (Thomson StreetEvents) -- Edited Transcript of Meet Group Inc earnings conference call or presentation Wednesday, July 31, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Geoffrey Cook

The Meet Group, Inc. - CEO & Director

* James E. Bugden

The Meet Group, Inc. - CFO

* Leslie Arena

The Meet Group, Inc. - VP of IR

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Conference Call Participants

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* Austin William Moldow

Canaccord Genuity Corp., Research Division - Associate

* Darren Aftahi

Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst

* Jed Kelly

Oppenheimer & Co. Inc., Research Division - Director and Senior Analyst

* Michael James Latimore

Northland Capital Markets, Research Division - MD & Senior Research Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Meet Group's Second Quarter 2019 Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference over to your host, Ms. Leslie Arena, Vice President, Investor Relations.

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Leslie Arena, The Meet Group, Inc. - VP of IR [2]

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Thank you. Good morning, and welcome to the Meet Group's Second 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 will 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 refer 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; nonrecurring 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.

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Geoffrey Cook, The Meet Group, Inc. - CEO & Director [3]

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Good morning, and thank you for joining us on the call. Our performance in the second quarter was strong, as we successfully executed on our product roadmap and continued to play a leading role in enhancing safety in the social and dating app landscape. We grew revenue 22% year-over-year to a new record high of $52 million, fueled by video revenue growth of 150% over the same period, also a new high. We increased adjusted EBITDA by 29% to $9.8 million, and we generated $10.2 million in free cash flow, the highest quarterly free cash flow in our history.

Having built and scaled our video platform over the past several years, our focus is on growing the number of video users across our apps, while driving engagement through our video products.

In the second quarter, we grew daily active video users or vDAU on our platform to 892,000 or roughly 21% of users on our apps where Live is available. That's an increase from 876,000 sequentially and up from 639,000 in the year ago quarter. We believe that the addition of a live video marquee featuring nearby streamers, which I mentioned on last quarter's call, contributed to the sequential improvement.

As a reminder, the marquee was added to the local section of MeetMe, Skout and Tag to raise awareness of video to the roughly 75% to 80% of users who are already in the app, but don't access Live in a given day.

Global average revenue per daily active video user for the quarter was $0.26, consistent with the first quarter of 2019 on higher vDAU, and up from $0.15 in the year ago quarter.

We continue to execute against the strategic party -- priorities I laid out at the beginning of the year. Those are, one, invest in the core business, which includes launching engaging features and improving the quality of our content; two, expand into adjacencies to attract new audiences; and three, grow margins.

In the second quarter, we completed the development of several new products, including streamer levels and 1x1 video chat, both of which we launched on our MeetMe app earlier this month. We also introduced a number of industry-first safety practices, which we believe will lay a strong foundation for the future growth of our upcoming livestreaming dating game, which I will talk about in a bit more detail shortly as well as the expansion of our video platform.

Now I'd like to update you on the initiatives we have taken around safety. As many of you know, we have always strived to maintain industry-best practices around safety. But as we have grown into one of the largest livestreaming apps in our category, we have made it a key objective to lead in this important area. I've challenged our team to develop ways that we can improve safety for our users while maintaining the experience they expect on our platforms. As a result, we've introduced a series of measures that we believe position us at the forefront when it comes to issues of content standards and user safety.

In the quarter, we introduced a number of industry-leading safety initiatives, including the most prominent buttons for reporting abuse we've seen, an ongoing safety education pledge and even higher standards of content moderation. We now require streamers to review and acknowledge our standards prior to initiating every new stream. And we are developing a comprehensive safety pledge system to educate users on staying safe while meeting new people, both online and offline.

What's more, since June of this year, we've expanded our safety and moderation headcount by more than 100 people. We now devote more than half of our total workforce to safety and moderation. Further pushing forward industry standards, just last week, we announced an agreement with Yoti, a digital identity company to trial their age verification and age estimation technologies to help keep minors from accessing our services in violation of our terms.

Additionally, we joined the Online Dating Association, or the ODA, and agreed to sit on its Board. We are now in active discussions with the ODA to open source our moderation standards in consultation with them as a model of industry-best practice. Working with the ODA and fellow operators will look to further develop and promote standards on service moderation, user education and reporting of unacceptable behaviors. Taking together, we believe these enhancements will set the foundation for the successful launch of our first livestreaming dating game, which we expect to launch in the fourth quarter of this year. We believe that continuous improvements in our safety practices will provide a solid foundation on which we can grow video revenue over the long term, although we note that in the short run, we expect some pressure to video revenue as we educate our community on our updated processes.

Earlier this month, we launched what has long been our top requested feature, 1x1 live video. 1x1 video adds an option for users to get to know someone safely without exchanging phone numbers. Short of meeting in real life, we believe nothing provides a better sense of who a person is and whether or not chemistry exists in a 1x1 video chat. Like the launch of broadcast video originally, we launched 1x1 without a gifting component, which we may experiment with adding in the future. We believe 1x1 video chat has the potential to introduce more users to our interactive video platform to make meaningful connections and it is also an important aspect of our upcoming dating game feature. We look forward to expanding 1x1 video chat to Skout next.

We also continued to launch features aimed at driving growth in broadcast video. Our newly launched streamer levels product brings a fun, rewarding and aspirational component to Live and it is expected to drive the ARPDAU and streamer retention into the future as streamer seek to level up and unlock exclusive rewards. Rewards can include masks, fun or interesting backgrounds, bonuses and status. While early, we've seen levels spark a level of competition among streamers, as viewers look to assist the favorite streamers in achieving the next level.

We expect to launch a similar progression system for viewers in the coming months. And over time, we expect to expand both systems with new rewards and mechanics such as daily street bonuses. We have also added a host of other new features to our MeetMe app, including tier VIP badges, which expanded the previous VIP gifter programs to better reward and incentivize top gifters, gifting from the mini profile, which allows livestreaming users to receive gifts, a benefit previously only available to streamers, and a designation to highlight each streamers top gifters every week, thereby creating a potential competition among gifters.

As we look to the future, we are excited to launch a dating game product that we believe will drive meaningful engagement and monetization by allowing every one of our users to be the star of their own dating show. Our dating game, the name of which we will announce when the feature launches, is an interactive video dating game aimed at attracting to videos, what is by far our biggest user segment, users interested in dating. We believe the product will be popular. In fact, it will be the first use of our live video platform explicitly for dating. And we believe its novel nature will also have the potential to spark virality and user growth.

Internal survey data suggests a high level of interest in a dating show. When asked whether The Meet Group should build a live dating game, a large majority of our users say, yes, including more than half the users who today don't use video at all. The majority of our live video viewers have always wanted to date streamer. With a dating game, they'll have their chance.

We expect the game to launch on MeetMe in October and to contribute to a 20-plus percent increase in vDAU on MeetMe within the first few months. We expect to bring the game to our other apps in Q1. We believe it is the most compelling and innovative new feature since the launch of the live video platform itself in 2017.

Executing on our second priority, we are focused on expanding into adjacencies to attract new audiences and bring more users to our platform. Having acquired our first gay app, Growlr, in March, we continue to take steps to integrate video with Growlr. We have also begun to bring our advertising processes to Growlr and are generating increasing programmatic ad revenue from the Growlr Android app with more growth expected from improvements included in the next iPhone release.

We embarked on an acquisition strategy in 2016 that resulted in our acquiring 4 properties within 3 years so that we could video-enable each one. In the course of integrating these properties, we've become quicker and more proficient at video-enabling apps we did not build ourselves. As we consider additional opportunities to expand into adjacencies to attract new audiences, we believe there are opportunities to video-enabled third-party apps in ways other than acquiring them by building a video platform-as-a-service product, in which we provide the audience scale, talent management, moderation capabilities and proven technology. We are presently making the necessary engineering enhancements to enable this platform approach with the goal of capturing video platform-as-a-service revenue opportunities in 2020 and beyond.

Our third priority is to grow margins. Aided by a video-related true-up that Jim will discuss, we increased adjusted EBITDA margins to 18.8% from 17.8% in the year ago quarter. We see additional opportunities to improve long-term margins by providing users with more choices of payment methods. Relatedly, we expect to launch Web Live, a desktop version of our app on MeetMe in October. Near term, we expect increased moderation headcount and related expense to contribute to roughly flat margins year-over-year in Q3. Given our progress against these priorities, we reiterate our previously provided long-term outlook that we expect to grow video revenue to $200 million run rate by year-end 2021. As we've said before, we believe we'd get there by driving vARPDAU to $0.35 and vDAU share to 35% by year-end 2021.

By Q1 of next year, we believe the launch of our dating game can help propel vDAU share to 25% across the portfolio. Last month, we announced that our Board of Directors had approved a share repurchase program that enables the company to purchase up to $30 million of shares of our common stock through 2021. This repurchase program underscores our belief in the livestreaming video opportunity and the long-term outlook for our business. We have already been active in the market, and we expect to continue to be active in the upcoming weeks and throughout the rest of the year.

In summary, we accomplished a significant amount in the second quarter. We continue to deliver innovative video product like streamer levels and 1x1 video chat, while growing vDAU and vARPDAU year-over-year. We also made significant strides in strengthening our safety and moderation practices as we seek to achieve the strongest standards in the dating and livestreaming industries. We believe those changes will set the foundation for the launch of our dating game in Q4 and the resumption of rapid growth in video revenue. I am proud of all that our team has accomplished.

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

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James E. Bugden, The Meet Group, Inc. - CFO [4]

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Thank you, Geoff. Before reviewing our results, I'll note that with the exception of Growlr, which we acquired on March 5 of this year and began consolidating as of that date, our results for the second quarter are on a comparable basis to those reported in the year ago quarter. Total revenue for the second quarter of 2019 was $52 million, an increase of 22% from $42.8 million a year ago, fueled by strong growth in user pay revenue. User pay revenue in the second quarter of 2019 was $36.9 million, up 44% from $25.6 million in the second quarter of 2018, due largely to the rapid growth in video revenue. Video revenue was $21.3 million, an increase of 150% from $8.5 million in the second quarter of 2018.

Advertising revenue was $15.1 million, down an expected 12.5% year-over-year from $17.2 million in the second quarter of 2018 and up 10% sequentially from $13.7 million in the first quarter of 2019. Importantly, mobile ad revenue, which comprises nearly 90% of advertising revenue, only declined in the mid single-digit percentages from the year ago quarter, reflecting what we believe is ongoing stabilization in the mobile ad market.

We continue to see a year-over-year decline in revenue in our lower-margin nonstrategic cross-platform social theater product in the second quarter, and we expect that trend to continue in the third quarter and for the year. We continue to expect total ad revenue to increase in absolute dollars on a quarterly basis throughout 2019.

Adjusted EBITDA was $9.8 million in the second quarter of 2019, an increase from $7.6 million in the second quarter of 2018. Adjusted EBITDA margins increased to 18.8% from 17.8% in the second quarter of 2018. GAAP net income in the second quarter of 2019 was $2.2 million or $0.03 per diluted share compared to a GAAP net loss of $0.2 million or $0.00 per share in the second quarter of 2018.

Moving on to expenses. Sales and marketing expense for the second quarter was $9.1 million, an increase of 17% from $7.8 million in the year ago period. User acquisition spend as a percent of revenue was approximately 14%, up from 12% in the year ago quarter. Mobile DAU in the second quarter of 2019 was $4.6 million, up from $4.35 million in the first quarter of 2019, due in part to the full quarter inclusion of Growlr DAU. Mobile MAU was $16.2 million, an increase from $15.2 million sequentially, also aided by the inclusion of Growlr.

Product development and content expenses for the quarter were $30.1 million, up from $24.4 million in the year ago quarter, due largely to an increase in costs attributable to increased adoption of live video. The product and content line includes items -- includes app store fees to Apple and Google as well as rewards that we pay to streamers. And as such, we expect this expense to increase as we grow live video revenue.

Of note, product development expenses declined sequentially by about $1 million in the second quarter due to an adjustment of approximately $1.9 million for reward breakage, which occurs when streamers churn or stop using their account and leave a balance of outstanding rewards, offset by increased app store fees as video revenue has grown.

We expect breakage to continue to positively contribute to video margins. It is worth noting that the second quarter is the first period that breakage was recorded as an offset to video expense, thereby representing a true-up from the time we first launched video monetization in October 2017. Future breakage adjustments will cover only the most recent quarter.

General and administrative expenses for the quarter were $5.9 million, an increase from $5.2 million a year ago on higher bad debt expense related to collection uncertainties with a single customer in our cross-platform business and higher stock-based compensation.

Moving to the balance sheet and cash flow. We ended the quarter with $26.1 million in cash and cash equivalents, an increase from $19.8 million, sequentially. Our cash from operations was $10.6 million in the second quarter, and we generated $10.2 million in free cash flow for the quarter.

I'll now turn to our outlook for the third quarter and full year 2019. Reflecting the safety and moderation-related actions Geoff noted, we expect revenue for the third quarter of 2019 to be in the range of $50.5 million to $51 million. We expect adjusted EBITDA to be in the range of $9.3 million to $9.5 million. Our adjusted EBITDA assumptions include the addition of approximately $375,000 in moderation, headcount and safety-related expenses for the quarter. We expect video revenue to be approximately $19 million, and we expect the split between user pay and advertising revenue to be approximately 67% and 33%, respectively.

For the full year, we expect revenue to be within the lower end of our previously provided range of $210 million to $215 million. Our previously provided range for adjusted EBITDA of $39 million to $42 million remains unchanged. We expect accelerating video revenue growth in the fourth quarter from our dating game and levels, along with holiday seasonality to contribute to full year video revenue of at least $84 million. Revenue expectations for the full year include an expected negative $3.1 million foreign currency impact from LOVOO compared to the prior year as the euro has continued to fall into 2019.

Overall, it was a good quarter. We look forward to bringing new products to the market in the coming quarters and executing on our objectives.

And with that, we'll move to Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) First question comes from Jed Kelly.

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Jed Kelly, Oppenheimer & Co. Inc., Research Division - Director and Senior Analyst [2]

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Just on the video revenue, you are taking it down a tad, I guess, by $4 million. Is that all related to safety issues? And can you sort of dig into the puts and takes of that guide?

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James E. Bugden, The Meet Group, Inc. - CFO [3]

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Yes. So the updated guidance on video revenue is to be at, at least $84 million. That reflects the safety and moderation-related actions and the resulting impact that, that will have. We do continue to see a return to growth we mentioned in Q4 based on levels and holiday seasonality, the launch of the next date among other things, and we still believe that we'll achieve the $200 million annualized run rate by the end of 2021. As we've said before, we will get there by driving vARPDAU to $0.35 and vDAU share to $0.35, up from the levels of Q2. But there will be a bit of pressure in Q3 because of the moderation impact.

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Jed Kelly, Oppenheimer & Co. Inc., Research Division - Director and Senior Analyst [4]

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And is there anything -- any external competitive factors that you're seeing?

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Geoffrey Cook, The Meet Group, Inc. - CEO & Director [5]

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I'm sorry, can you repeat that question?

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Jed Kelly, Oppenheimer & Co. Inc., Research Division - Director and Senior Analyst [6]

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Are there any external competitive factors you're seeing like anything, any other platforms driving users? Or is there anything from competition-related that's causing some of the pressure on video?

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Geoffrey Cook, The Meet Group, Inc. - CEO & Director [7]

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No. I think if we look at where that pressure might be coming from, we have -- and I kind of talked through this on the call, but a number of industry-for-the-safety practices we put out, which has taken a lot of the focus of the team, prominent abuse reporting and ongoing safety education pledge. We implemented some logic to prevent certain international streamers from misrepresenting their location to pure English-speaking streamers.

We have elevated even further, relatively strict content moderation standards and then further expanded the moderation team based on those standards. I think previous content standards, typically revolved around what you might see in public. We've tightened that further to avoid users from walking our lines too closely. And I think what we're looking to moderate the platform for is to be a leading livestreaming dating platform. We believe the dating game has the ability to significantly enhance the size of our existing audience, and that it will enable people to feel comfortable meeting each other. And so we're really moderating with that in mind. We do expect some short-term period of flock as these moderation standards are implemented, but we expect the work will ultimately yield meaningful vDAU growth in Q4 with the launch of the dating game. We mentioned up 20% we expect vDAU on MeetMe in Q4 and also beyond, as we position the platform to capture additional revenue opportunities.

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Jed Kelly, Oppenheimer & Co. Inc., Research Division - Director and Senior Analyst [8]

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And then on the buybacks, you do have some debt payments due, and can you talk about your ability to execute on your buyback authorization? And then you're -- and combined with your ability to continue to do acquisitions? And then can you provide any guidance for shares outstanding in year-end?

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James E. Bugden, The Meet Group, Inc. - CFO [9]

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Yes. We have the $30 million authorization for the buyback, and we've started to buy this quarter. We aren't disclosing the exact details of the program other than that we did respect that 30-day cooling-off period between the announcement and the first trade. Our expectations, as we noted, free cash flow was strong this past quarter. I'd expect that we'd aggressively be buying shares back, and we have continued to do so. There are some limits from our banks at the current time, but we're looking at those limits and discussing. Given our low leverage today and short of an acquisition that we have at the moment, although we're still actively looking there too, but we'll continue to be active in buying back.

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Jed Kelly, Oppenheimer & Co. Inc., Research Division - Director and Senior Analyst [10]

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And then one last...

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James E. Bugden, The Meet Group, Inc. - CFO [11]

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And give me one moment to give you a shares -- a forecast for shares outstanding at the end of the year. I mean it will obviously be impacted by the levels of the buyback.

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Jed Kelly, Oppenheimer & Co. Inc., Research Division - Director and Senior Analyst [12]

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Okay. And then, I guess, while you're looking for that, Jim, one more from me, Geoff. I guess the Meet video as a service, it seems like an interesting opportunity given a lot of the scale you've already built up. I mean could you talk about the market opportunity or the amount of apps you actually think you could power under this opportunity?

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Geoffrey Cook, The Meet Group, Inc. - CEO & Director [13]

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Sure. I think speaking to the market opportunity, I think the -- when we think about what it takes to video-enable a property, it's a significant task. It requires sophisticated moderation capabilities, a large team, relatively complex technology, a sizable talent team and know-how audience, we bring to bear on this problem. Having viewers is obviously critical. And frankly, we've also -- have 15-plus engineering teams working on video and have had a substantial commitment to video over the last 3 years, ultimately spending tens of millions of R&D on our video platform.

When we are looking at acquiring companies, we've obviously acquired 4 properties over the last 3 years, most recently, Growlr in March. And we have a pipeline of -- as you might imagine, we have a pipeline of apps and companies that we've looked at in order to make those 3 acquisitions. It occurs to us and has really throughout, essentially the last 24 months that we should be able to video-enable an app without necessarily acquiring every property we evaluate.

We will continue to look at M&A opportunities where they make sense. But we believe there's opportunities to power video on apps that we don't acquire and essentially leverage the substantial multiyear investment in the live video, tech and infrastructure we've already made. And so that's what we're making these engineering enhancements to enable. If not something in the near term, we do see it as a potential meaningful revenue opportunity over the next few years and consistent with our stated objective of expanding into adjacencies.

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James E. Bugden, The Meet Group, Inc. - CFO [14]

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Yes. And then following up on your share number, there's about 76.3 million outstanding today. If you assume no buyback, that number will remain relatively flat for the rest of the year. We're not providing a number now, but we'll update the buyback levels in the next report. We are active in the quarter -- in the market this quarter.

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Leslie Arena, The Meet Group, Inc. - VP of IR [15]

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Next question, operator?

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Operator [16]

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The next question comes from Darren Aftahi of Roth Capital.

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Darren Aftahi, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [17]

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Can you just talk a little bit more -- so we're 30 days into Q3 with some of your new safety initiatives. What are you actually seeing from user behavior as it relates to why you're kind of guiding to a little bit of pressure in video? And then I'm curious, as you look beyond Q3, say for holiday effects and the dating game impact, do you expect that headwind to continue? And then, Jim, maybe one for you. I know you don't guide to free cash flow, but if we look at the relationship to EBITDA, free cash flow was pretty strong this quarter. How can we kind of think about maybe annual free cash flow yield relative to your $39 million to $42 million EBITDA guidance here?

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Geoffrey Cook, The Meet Group, Inc. - CEO & Director [18]

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Yes, sure. As far as what we're actually seeing in the quarter leading to the guide, we saw a relatively low tick down in vDAU, vARPDAU in July versus Q2, roughly mid- to -- or low to mid single-digit percent on those. And so what we're -- and what we attributed to is some of the things I talked about logic prevents certain streamers from misrepresenting location, just the tightening of content standards generally. We're actually quite pleased with where we are with respect to that. We think that our content standards are now quite inarguably in excess of others that we do see in the market, and we think we'll set the right tone for the community going into the rollout of our dating game in Q4.

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James E. Bugden, The Meet Group, Inc. - CFO [19]

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And on the free cash flow, the quarter was very strong. If you look at year-to-date, we've done $13.2 million of free cash flow on $17.9 million of adjusted EBITDA, that's about 70%. We've generally said that EBITDA minus a few items is a fair proxy to look at cash flow. So I think that number, looking at it more year-to-date versus the quarter, is a fair way to look at the year.

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Leslie Arena, The Meet Group, Inc. - VP of IR [20]

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Next question operator?

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Operator [21]

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And your next question comes from Austin Moldow, Canaccord.

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Austin William Moldow, Canaccord Genuity Corp., Research Division - Associate [22]

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I'd love to hear more about the dating game and just how it works. I mean is it like a game show that's run by your talent team, that's like one stream for the entire user base? Or is it multiple dating games for all the streams going on? And sort of the follow-up question is, how can that be monetized? And what kind of margins can come with that game?

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Geoffrey Cook, The Meet Group, Inc. - CEO & Director [23]

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Sure. And so obviously for competitive reasons, there's only so much we can share until we launch it, but as far as the -- the goal of the game is to allow every member to essentially be the star of their own dating show. And as far as how -- it is monetized via gifting, so it's a familiar model to our users. We do believe it will broaden the interest in video on the app, just given the primary user segment for users of our app is users interested in dating. We do think it's novel. It has a number of concepts we've not seen before in any other app. And that novelty, we believe, will have some possibility of sparking virality. But in any event, we believe, based on the surveys we've done of users, that it will be popular with our existing user base.

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Austin William Moldow, Canaccord Genuity Corp., Research Division - Associate [24]

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Great. And on that note of sort of broadening to a wider user base, can you talk about how maybe with specific numbers, if possible, the kind of impact the launch of your 1x1 video products has had on maybe the uptake of users who previously were not using video, some sort of percent conversion, if possible?

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Geoffrey Cook, The Meet Group, Inc. - CEO & Director [25]

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Yes, sure. So on the 1x1 side, it is still pretty early. 1x1's recently rolled out, it's not on -- not available on the Skout users. And as you know, the Skout users intermingling with Meet users on the Meet platform. We are in the process of rolling that out. Once we do, we will be activating much more around awareness campaigns. I can say that in the early data, we are seeing that about half of the users in 1x1 are not users of the broadcast video product, but it's still very early as far as the total number of users in 1x1. I will further say that the upcoming dating game does have a component that involves the 1x1. And that's part of the reason we felt the need to get the 1x1 out prior to the dating game.

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Austin William Moldow, Canaccord Genuity Corp., Research Division - Associate [26]

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Got it. And my last question is on breakage. How should we think about forecasting breakage in the future? Is it -- should we look at this total $1.9 million divided by the number of quarters you've had since the launch and kind of look at what that quarterly amount was? Or how should we extrapolate this?

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James E. Bugden, The Meet Group, Inc. - CFO [27]

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No. The $1.9 million is a bit unique because it started since launch, and its video revenue has ramped kind of the ongoing breakage number will have changed. So don't think of the $1.9 million. We expect ongoing breakage to add about 200 basis points to the margin or about $400,000 a quarter or so going forward. And then, obviously, as video revenue would grow, that would grow too, but on a lagging basis because we don't take that breakage until users have -- we've got experience data that says their balance that they left behind is able to be broken and they likely won't be back. So going forward, it'll impact about $400,000 a quarter.

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Leslie Arena, The Meet Group, Inc. - VP of IR [28]

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Next question, operator?

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Operator [29]

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Your last question comes from the line of Mike Latimore of Northland Capital.

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Michael James Latimore, Northland Capital Markets, Research Division - MD & Senior Research Analyst [30]

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I guess just on the advertising business, are you -- is there any change there? Is that kind of the as expected for the year?

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James E. Bugden, The Meet Group, Inc. - CFO [31]

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As expected. We'd still be about -- down about 9% -- 9% to 10% in total.

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Michael James Latimore, Northland Capital Markets, Research Division - MD & Senior Research Analyst [32]

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All right, got it. And then you said that the 1x1 feature, I think, was the top requested feature. I guess how do you gauge the relative benefit of that versus sort of this dating game? Is there one that's clearly going to be a bigger driver here? Or is it hard to say at this point?

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Geoffrey Cook, The Meet Group, Inc. - CEO & Director [33]

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I think we expect the dating game to have a bigger impact on vDAU than the 1x1, just given the hooks into the product of the game, is a fairly significant integration with the core product beyond just adding an icon into the chat thread. And so I think those hooks lead to that expectation, it'll be likely a far bigger opportunities on the vDAU side anyway than 1x1. But like I said, there is a 1x1 component of the game that we felt was foundational.

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Michael James Latimore, Northland Capital Markets, Research Division - MD & Senior Research Analyst [34]

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And then in terms of standards and monitoring, I mean, you guys have always been sort of focused there. So can you talk a little bit about where there -- was there a big step-up like required at the start of the third quarter? Or is it sort of -- when was there a material change, I guess, in your standards and monitoring instruments?

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Geoffrey Cook, The Meet Group, Inc. - CEO & Director [35]

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I think in July, we felt the impact of the change. I think we've been -- it's not -- it's kind of an evolving tightening as we kind of staffed up the moderation team as well. And so I think we are happy. In the recent weeks, I'd say, I think the level of change in evolution has died down. I think we're quite confident in our practices. And I wouldn't expect much flux coming from changes there going forward, and we're starting to see some upticks on the apps as users have just educated on these standards.

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Michael James Latimore, Northland Capital Markets, Research Division - MD & Senior Research Analyst [36]

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Got it. And then just last on the video platform as a service opportunity as longer term. I guess, can you elaborate a little bit on the type of applications that could use that? Would it be kind of some of your competitors? Or is it a much broader opportunity there?

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Geoffrey Cook, The Meet Group, Inc. - CEO & Director [37]

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We think it's a broad opportunity. I think just given the nature of our M&A pipeline over the years, we've made a lot of obvious connections, and we have reasonably strong relationships in this space. We've been told that there's been some interest in this from kind of the -- these players that we've talked to you on the M&A front over the years. And we now think that, that -- in the long run that is a very interesting opportunity that allows us to leverage a lot of what we feel we do well and a lot of what we think constitutes our competitive distinction, which is our audience, our talent team, our moderation capabilities.

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Operator [38]

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I'm showing no further questions at this time. I would now like to turn the conference back to Leslie Arena.

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Leslie Arena, The Meet Group, Inc. - VP of IR [39]

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Thank you. With no further questions, we'll conclude the call today. Thanks, everyone, for joining us. Have a good day.

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Operator [40]

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Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day. You may all disconnect.