Grindr Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 13, 2023

There are 5 speakers on the call.

Operator

Good afternoon. My name is Ludi, and I will be your conference operator today. At this time, I would like to welcome everyone to the Grindr Third Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

Followed by the number 1 on your telephone keypad. Thank you. I would now like to turn the conference over to Tolo Adiope, Grindr's Head of Investor Relations. Please go ahead.

Speaker 1

Thank you, moderator. Hello, and welcome to Grindr's Q3 2023 earnings call. Today's call will be led by Grindr's CEO, George Arison and CFO, Lana Kranz. They will make a few brief remarks and then we'll open it up for questions. Please note, Grindr released its Q3 2023 shareholder letter this afternoon, and this is available on the SEC's website site in Grindr's investor page at investors.grinder.com.

Speaker 1

Before we begin, I will remind everyone that during this call, we may discuss our outlook and future performance. These forward looking statements may be preceded by words such as we expect, we believe we anticipate for similar such statements. These statements are subject to risks and uncertainties and our actual results could differ materially from the views expressed today. Some of these risks have been set forth in our earnings release and our periodic reports filed with the SEC. During today's call, we will also present both GAAP and non GAAP financial measures.

Speaker 1

Additional disclosures regarding non GAAP measures, including a reconciliation of GAAP to non GAAP measures are included in the earnings release we issued today, which has been posted on the Investor Relations page of Grindr's website and in Grindr's filings with the SEC. With that, I'll turn it over to George.

Speaker 2

Thank you, Toh. Before we get started, I would just like to say how glad I am to have you on board. We have added so many stronger leaders across departments who will help us attract even more excellent talent. In Q3, Zach Katz joined us as General Counsel and Head of Global Affairs, Kristin Pinera as Vice President of Brand and Communication and Soumaz Thorpagan as Director of Artificial Intelligence and Machine Learning with more to come. Now for our results.

Speaker 2

Grindr delivered a strong quarter with revenue growth of 39% and adjusted EBITDA margin of 46%. It is clear from the results that our work this year on new products and features is being well received by users and we're excited by the progress we're making on our monetization strategy. Our team is executing on these initiatives while concurrently driving positive cultural change within company. Change that is ongoing and will continue for much of 2024. Over the last year, a big focus for the executive team has been to facilitate our transition environment where our employees can continually learn, execute successfully and unleash their full potential.

Speaker 2

Returning to the office on a hybrid basis was crucial to this change. In Q2, our leadership team decided Grindr would move to a hybrid work model involving the return to an in office work environment. And in August, we announced the adoption of a multi phase return to office plan. This plan is designed to capture the benefits of in office work of preserving the flexibility that so many of us have come to value. Being back together in the office will enable us to deliver better results for our users and for our shareholders.

Speaker 2

And I'm excited about the pipeline of projects we're working to prioritize right now. These projects include innovation focused on building improved functionality allow users to better find what they need within our app and new features that better enable behavior already taking place within the app. This is all in addition to the AI capabilities we're building to help us provide users with unique insights about each other and to better connect with each other. I'm excited about the work that we're doing and I look forward to telling you more about it in the coming quarters. With that, I'll hand it over to Vena to discuss our financial performance.

Speaker 3

Thank you, George, and hello, everyone. As you just heard, Grindr achieved 39% year over year revenue growth to CAD70,300,000 for the quarter, with an operating margin of 24% and an adjusted EBITDA margin of 46%. Our continued financial performance in the 1st three quarters has led us to update our full year outlook. We now expect revenue growth in 2023 to be at or above 31%, up from 28% and our expected adjusted EBITDA margin to remain at 41% or better. The adjusted EBITDA margin outlook reflects comparatively higher GAAP operating expenses in Q4 compared with Q3.

Speaker 3

Q3 revenue of $70,300,000 for the quarter was up 39% year over year from $50,400,000 driven by strong sales of our subscription and a la carte products. Direct revenue increased by 43% year over year to $61,600,000 Indirect revenue was up 21% year over year to $8,700,000 In the Q3, average monthly active users increased 8% over the prior year and 3% sequentially to $13,500,000 Average paying users in the quarter increased 18% over the prior year to 962,000. Due to the increases in both average MAO and average paying users. Our average payer penetration rate was 7.1% for the Q3. Onto our more detailed results.

Speaker 3

Our average revenue per paying user increased $2.25 sequentially to $21.33 this quarter. Operating expenses, excluding cost of revenue, was CAD 35,400,000 in Q3 2023, up 5% year over year. This reflects higher people costs comprising lower salary and benefit expenses in the latter weeks of the quarter following our implementation of our return to office initiative, offset by severance costs and higher legal and other professional services. Net loss for Q3 was 400,000 versus a loss of $4,700,000 in Q3 2022. Net loss margin for Q3 was 1% compared to 9% in Q3 2022 with the improvement due to lower sales and marketing, depreciation and tax expenses.

Speaker 3

Adjusted EBITDA for Q3 was $32,600,000 or 46 percent of total revenue, primarily reflecting our strong revenue growth as more Grindr users adopt our expanded subscription and a la carte offerings. Adjusted EBITDA results relative to GAAP operating expenses benefited from the add back of generally non recurring severance expenses related to implementation of our return to office initiative. Turning to our balance sheet. Our net debt position was $343,400,000 at September 30, 2023. We ended the quarter with $29,900,000 in cash and cash equivalents, up from $27,200,000 in the prior year and $22,100,000 in the Q2 of 2023.

Speaker 3

Finally, I'll recap our revised 2023 outlook as shared in our letter. Based on our performance year to date, we have increased our revenue growth guidance for the year to be at or above 31% and our adjusted EBITDA margin remains at at least 41% for the year. This outlook reflects our strong performance year to date. With that, I will pass it back to George to begin our Q and A.

Speaker 2

Thank you, Anna. At this time, I'll ask the operator to open up the line for questions.

Operator

And your questions will be pulled in the order they are received. And your first question comes from the line of Rohit Kulkarni from ROTH MKM. Your line is open.

Speaker 4

Hey, thanks. Thanks for taking my questions and great quarter guys. New to the story, just perhaps, George, just high level, Perhaps talk about how do you feel about the algorithm for growth over the next 18 to 24 months with regards to the top of funnel users, bottom of funnel paying users and monetization. Like in an ideal world, How do you feel these three drivers would trend in contribution of growth? Then I have a couple of follow ups on next year's investments.

Speaker 2

So I'm happy to start and then I'll ask Glynis to add as well. So when we got here about a year ago or so, we're coming on our 1 year public listed anniversary. We've said that the biggest opportunity in terms of revenue growth at Grindr is from driving great monetization of our current users. We are significantly under monetized compared to our peers. That's due primarily because a lot of features that users want to pay for, we don't currently offer.

Speaker 2

And so we've been very focused on launching features that people will want to pay for. Boost obviously is an example of that and it has done really well and we have many more a la carte and or features inside our subscriptions that we will building and launching in the coming quarters that will help with monetization. Historically, Grindr has been very much on the free side. It's kind of a licensing free and paid. We also add more features for free versus our peers in the dating ecosystem.

Speaker 2

And so the best way to drive people to become more paying customers would be to have more features people can pay for. On the top funnel side, obviously, we have great top of funnel growth and that's all organic because we want features that people are excited about or because people know that They should come to Grindr to meet members of the community and the community after the grinders are important, But we are not dependent on the top of funnel growth in order to have significant growth in our revenue and in petrification. Anything you want to add to that, Nena?

Speaker 3

I think that really George summed it up properly. We are really thinking about converting the users that we already have at 7.1% penetration. There's Plenty of room to go until we get to, what I would say Match and Bumbles numbers, and we are going to continue to do that through developing products and features and frankly product pricing that enables more of our users to convert and compels them to Want to convert to a paying user because there's just so much value in what we're here to offer. I know, Willett, you're a bit new to the story. And so in the past, we've said that we are really focused on a global strategy, but frankly thinking about domestic first and then rolling that out.

Speaker 3

So you could sort of see a little bit of wave of that coming into the future just to start to address your investment areas for the following years.

Speaker 4

Okay.

Speaker 2

No, go ahead with your follow-up question.

Speaker 4

Okay. Thank you. And I guess the other question was just around incremental investments. As you look ahead next year, You already have very healthy EBITDA margin. I can think of how quickly the EBITDA margin can go much higher based on your core business model itself.

Speaker 4

So perhaps talk about how are you thinking philosophically around investments for growth versus managing profitability in the next 12, maybe 18 months. Are there specific new chunky new investments that you wish to do or are that are there on the horizon that we need as investors want to keep an eye on.

Speaker 2

I think the most kind of important thing on this is that right now our Our team is smaller than it had been historically, as is known publicly and as is in our financials that have been filed today. Our team has shrunk in size because of our return costs. So our focus from investments perspective is to rebuild on our team back at least to the level that we were at in the first half of the year. Obviously, we're going to be very deliberate in how we do that and in how we ensure that we attract talent that wants to go after audacious goals and achieve impossible things on behalf of users and the shareholders. But from that perspective, that's kind of the biggest investment we're going to make to kind of rebuild the team.

Speaker 2

We believe there is a lot of opportunity in the products to build new features and new things that our users really want us to build around how they use the product. And obviously for that, you need engineers and product managers to invest in technology. But we're generally confident that we can do that with a fairly lean team and to start with getting back to the size that we were No, earlier in the year, January, February timeline.

Speaker 3

And Mohit, just to add, really what these people are going to do is to continue to develop our product pipeline, which we have nicely filled for 2024, but of course that's a never ending project given that This company has really just started to think about the monetization levers and is evolving from just connection to connection and monetization. So that's what these folks will predominantly working on.

Speaker 4

Okay, awesome. Thanks, Josh. Thanks, Benoit. We'll go back in queue.

Speaker 1

We'll also be taking questions from the FEI platform, which is a platform that enables us take questions from retail investors. So one of the questions was from Gene T. Gene asked, what is the team doing to add value to the entry version of the app?

Speaker 2

I think you might be having some time, but can folks hear us right now?

Operator

Toulu, do you have any more questions?

Speaker 2

Thank you. Apologies for those technical difficulties. We somehow got dropped off the line. Can everyone hear us now?

Operator

Yes, George.

Speaker 2

Great. Thank you. So to the first question, I think what we'd say is ever since Grindr was sold from Chinese ownership to the current large shareholders, We've been laser focused on ensuring that our product is world class and obviously have been investing heavily in the product to make that happen. This year we launched the new home screen and a new profile page with large photos and click on navigation. That has really improved the speed of the app, which we're really excited about.

Speaker 2

The year prior, we launched albums. And since launch, albums have been used over a 1000000000 times. Over a 1000000000 albums have been shared, which is great. And this year we also added video to albums. So I think all of those things are making the and free product or the free product Better, even though historically we've actually had the most features you can find in any dating app in the free product.

Speaker 2

One of the biggest complaints historically has been that users lose all their chats when they switch phones and have to redownload the app. That's because we used to store chats natively on the app. We've moved away from that and now are selling chats on the web, which obviously has to remove the excuse that a lot of users use for why not they why they didn't get back to somebody. So I think that's a lot of great examples of improvement that we've made to the free product for the last 18 to 24 months, and we'll continue to do that in the coming quarters. We also introduced extra weekly subscription price at $12.99 earlier this year and that was in response to our users asking for a lower entry price point here.

Speaker 1

Thanks, George. Our next question will be from Aidan Kaye, who asked, will there be any perks for Grindr shareholders?

Speaker 3

Thanks, Aidan. Well, actually, we have had discussions on this topic, but we really have nothing to say on it at this time.

Speaker 2

Thanks for the question. As you know, this year we added our web product, which is only available to extra and unlimited subscribers. So Obviously, that was a very significant addition to the paying offering in the app. Generally speaking, historically, Grindr's approach has been to our own free product when compared to other dating applications. A lot of the functionality that we offer in the free product is far more significant than our peers.

Speaker 2

And now we're focused on expanding the product feature set and opportunities where people can actually pay for the product. And so you should expect more features to be launched on the paying side, but that will be a mix between things that we might launch in paying subscriptions or in a la carte.

Speaker 3

Thanks for that. From my perspective,

Speaker 1

I know users who tried Grindr and were unhappy with ads that basically froze the application and then it takes before they can return. They just left the option. Can something be done to make these ads less intrusive?

Speaker 3

Thanks, Mark, for the question. Well, actually, Grindr offers an incredible amount of value for free, more than all of our peers and users spend about 60 minutes a day on the app. So it's good engagement. Advertising allows us to offer a robust free product and it provides the investment dollars to improve the app. And it's really important to note that we offer very few ads in the app compared to other products that we have that have as heavy users usage like Grindr.

Speaker 3

Also, we actually did introduce a lower price subscription tier called Extra Weeklies for folks that want to enjoy the app without any advertising at all. And finally, we really are starting to embark on an effort to make the ads you see more relevant to you. It's the early days, but we hope that in the next year or 2, we can make meaningful improvements in this area since we know that we have a higher highly desirable demographic that advertisers want to reach.

Speaker 1

Thank you, Vanna. From Sean H, When will Grindr fix the issue where a user blocks someone and that blocked person is able to unblock themselves? I brought this issue up to IT, but nobody seems to know the answer. How can the blocking feature be such an issue that is taking so long to address?

Speaker 2

Thanks for the question. So privacy and trust and safety are really important priorities for us as a company. And we've said this many times, privacy is paramount for our users. There's many reasons for that, including the fact that we operate in many countries where being gay is legal, and we are really focused on ensuring that people can protect their privacy to the fullest extent possible. Precisely for this reason of privacy, I and most of the management is completely removed from customer service issues related to specific users.

Speaker 2

We have a team of professionals managing that and we trust them to be able to focus on protecting our users' needs and we don't ever find out what might be happening with specific users. Without knowing the details of the account or accounts in question, it's a little bit difficult to know exactly what that user's experience might be. But users are not able to unblock themselves in the app. So if you block somebody, they can't unblock and become visible to you again. What is most likely happening is that somebody is deleting their old account and then is recreating a new account with similar photos.

Speaker 2

Many of our users choose to purge their old accounts and then create new ones. This is not against the guidelines and there are a lot of reasons why users, including for privacy reasons, might choose to do that. For example, somebody might have made somebody a favorite in their account, But the other user does not want to be the favorite and this might be one way in which they kind of eliminate their relationships that they might have built in the app and then build new ones. If someone is harassing others or breaking guidelines, obviously, please reach out to customer support and that can be addressed. But I do want to emphasize one more time that privacy and safety are a top concern for our team and we'll continue to be very focused on that as we build the product to come in the future.

Speaker 2

We recently published a blog post in this topic and I'd encourage everyone to take a look at that for more details.

Speaker 1

Thanks, George. From Louis C. When will Grindr add a Grindr shop option? This will enable users to buy potential Grindr merchandise or gifts and send to users. I think that this would increase the value of the shares.

Speaker 2

Great question. And we are definitely very proud of the Grindr brand and recognize that it can be leveraged in different ways. We have incredible brand awareness in the community. And we recently brought on board a new leader for our brand and communications team who joined us just 3 months ago to make our brand be utilized in many different ways. We have in the past offered seasonally collection of Grindr merchandise.

Speaker 2

We really have done that about twice a year and we tend to rotate that a couple of the year. So it's just a matter of prioritization about whether we want to do more with that, but we do offer merchandise every once in a while. And so, please stay tuned next time it's launched.

Speaker 1

Thank you. And our last question will come from Francisco M. What are some of the features or offerings being explored to compete with other chat or dating apps.

Speaker 2

Great question. I've said this on an earnings call before We know that users use Grindr in ways more than just dating. Obviously, dating is at the core of it, but there's a lot more that's happening here. This is a core part of the fabric of the gay community and people use it in many different ways socially as well. So we're both a dating and a social app.

Speaker 2

We also know that in the dating sphere, users will use more than one application at the same time. For us, what's is that users have the best possible experience in the app and spend time in the app and use it as the first app that they come to when they think about using a dating app. For a variety of reasons, whatever reason they might want to use it for, whether it's casual dating, long term relationships, social engagement or chatting. To that end, we are working on a robust pipeline of features that serve our community in ways that are meaningful to them. Some of the examples of things that are in the pipeline for the future, We said this in our earnings release today and have said this in the past as well that we are really excited about Teleport.

Speaker 2

It's a way for a user to be able to show themselves in a different location from where they might be in any given time as they're planning travel, which allows them to then make connections prior to their trip or ahead of their trip and then be able to engage with our users in that new location. We also done a lot of user research to understand that our users really care about intent. As the app has grown and attracted more users, intent has become a little bit confusing. Different users have different intent for what they're looking for in the app and they will be looking for us to help them express their intent more clearly. That's something that we're working on for the future.

Speaker 2

And then lastly, we've talked a lot about how AI can be very helpful in helping us make better connections between people, whether it's by what they're looking for or their interests, as well as from the generative perspective in terms of making conversations better. So it's another area that we'll focus on to make the app better.

Speaker 1

Thank you, George. Thank you, Vanna, and thank you, everybody, for joining our call today. Operator, you can go ahead and close us out.

Operator

Thank you, presenters. And ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.

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