Grindr Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 15, 2023

There are 4 speakers on the call.

Operator

Good afternoon. My name is Ina, and I will be your conference operator today. At this time, I would like to welcome everyone to the KINDER First 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 Q1.

Operator

Thank you. I would now like to turn the conference over to Patrick Lennyhan, VP of Communications. Please go ahead.

Speaker 1

Thank you, operator, and good afternoon, everyone. Today's call will be led by Grindr's CEO, George Arison and CFO, Vanna Kranz. They will make a few brief remarks and then we'll open it up for questions. I'll also note that we released our shareholder letter this afternoon, and that is available on our website 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 or similar such statements. These statements are subject to risks and uncertainties that 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 our Investor Relations page of our website and in our filings with the SEC. With that, I'll turn it over to George Harrison.

Speaker 2

Hello, everyone, and welcome to our Q1 earnings call. The year is off to a strong start financially, which Dana will discuss in a moment. I will begin by providing an update on the Progress we've made against our 4 strategic priorities for 2020, which we shared on our March earnings call. These were improving user experience, 2. 1st, improving the user experience.

Speaker 2

In February, we enhanced our very popular albums product by enabling video uploads in addition to photos. We've seen strong adoption of this addition to albums with our 1,100,000 videos uploaded since we launched in beta in February. Additionally, over the last year, a small team has been working on exciting new product we call GrindrWeb, which we launched in alpha in Q1 And rolled out in beta globally last week for our extra and unlimited subscribers. While the feature set on Grindrweb is still limited, It helps us build the foundation for creating unique, web specific features in 2024 and beyond. 2nd, driving monetization for conversion and new offerings.

Speaker 2

We're focused on identifying ways to most effectively monetize different value models matching price points with levels of access to our compelling feature sets and testing weekly, monthly and multi month subscriptions. We are seeing some of this activity show up in our results as we delivered positive monetization metrics. As we said in March, these results may be uneven in the coming quarters as we test pricing and zero in on the optimal formula. While we continue to introduce new features and test new subscription tiers and paid offerings, remind some of the fact that our free product offers extensive functionality And we are evaluating the right dividing line between free and pay functionality. 3rd, planning for future growth.

Speaker 2

As we strengthen our foundation for long term growth, we We're paying close attention to the insights that we get from our users. A la carte offerings are a great example. We know that a la carte products are popular on other dating applications We see strong sustained success in Boost, our first Auto Card offering. Given the success, we're building a set of additional offerings that we will release 2nd strategy over the next couple of years. 4th, serving the LGBTQ community.

Speaker 2

We're committed to serving our users and supporting our community. In the Q1, we launched free HIV at home test kit ordering in the U. S. In partnership with Building Healthy Online Communities, Emerald University and the U. S.

Speaker 2

Center For Disease Control and Prevention. 54,000 at home HIV test kits were requested through this program in its 1st 4 weeks and that number has continued to grow every day with a prominently placed order button This is coded into the Grindr app. One reason this project is so powerful is that in early testing, over 30% of users who requested at home HIV test kits reported to have never had an HIV test before, which speaks to Grindr's ability to advance public health goals We will continue to serve as a resource for our community and provide support where we can be most effective. With that, I'd like to turn the call over to our CFO, Diana Klantz, to walk through our Q1 financial results.

Speaker 3

Thank you, George, and hello, everyone. As George said, we had a strong Q1, growing revenue 28% year over year to $55,800,000 while maintaining a very healthy adjusted EBITDA margin of 39%. Both revenue growth and EBITDA margin are slightly ahead of full year guidance of 25% or greater revenue growth with an adjusted EBITDA margin of 38% or greater. We reaffirm this earlier guidance. We are pleased to deliver results that demonstrate strong year over year growth even as we test new features and price points.

Speaker 3

In Q1, we averaged 866,000 paying users, up 20% from the Q1 of 2022. Our average paying user penetration was 6.7% this quarter a 9% increase. Average revenue per paying user was $18.53 this quarter compared with $16.77 in the Q1 of 2022. While ARPU is up both on a year over year end quarter over quarter basis. I'd like to remind you that this metric may fluctuate as we continue to test different subscription options across different price points and durations as we maximize opportunity in our overall ecosystem.

Speaker 3

Turning to the more detailed results. Q1 2023 revenue of $55,800,000 was up 28% year over year from $43,500,000 in Q1 of 2022. Direct revenue increased $11,700,000 to $48,100,000 up 32% year over year, 8% on a year over year basis to $7,700,000 Operating expenses increased by $12,500,000 in Q1 2023 This also reflects higher professional fees in connection with public company filings, audit and tax services, legal fees and D and O insurance. We swung to a reported net loss of $32,900,000 in Q1 from net income of $4,500,000 in the Q1 of 2022. As noted in our shareholder letter, there are 3 primary factors driving the change: a gain and Interest Expense.

Speaker 3

Adjusted EBITDA for the Q1 of 2023 was CAD22 1,000,000 or 39 percent of total revenue, up from €20,300,000 in the prior year period. The increase in adjusted EBITDA was driven by revenue growth, partially offset by higher operating expenses on a normalized basis. Turning to our balance sheet. Grindr ended the Q1 with $33,800,000 in cash and cash equivalents, up from $27,800,000 in the prior year period and $8,700,000 in the Q4 of 2022.

Speaker 2

2Q. Thank you.

Operator

Questions will be taken in the order received.

Speaker 1

Hi, everyone. Thank you for joining today. We are glad to have a number of questions come to us from retail investors by way of the SAVE platform over at Robinhood. First question comes from Mark R. I'm wondering if any of your board members use the app.

Speaker 1

If so, it should be obvious that there are fake profiles, scammers and others soliciting services. Can something be done about this?

Speaker 2

2. Thank you, Patrick, and thank you, Mark, for the question. Well, to start with, the Grindr ownership and Board prior to the to strongly prioritize ensuring that the Grindr management and Board have a lot of representation from folks in the community that we serve. And so the answer is yes. There are many people on the board who use the app and there are also many employees at Grindr in leadership roles that also use the app and have for many years.

Speaker 2

Since the transition to new ownership in 2020, Rhino has actually invested in customer service and content moderation. 2. And I think we've made some really great strides in that regard on the platform. For example, since January 2021, overall, we've reduced user reports more than 50%, even as a user base has grown. A few other concrete statistics on that front in the last 2 years.

Speaker 2

We reduced spam reports by 86%. We've seen a 22% reduction in illegal activity reports from users And a 39% reduction in bans for sexual solicitation. So I think we've made some really great strides in ensuring that the product is serving you as well And we are reducing spam and bad behavior as much as possible. I do want to note that privacy is really important to many of our users And they rely on us to protect their identity and many of them have to be discreet. So we take that trust very seriously and we'll continue to sell in the future.

Speaker 1

Next question comes from Austin F. Will your app consider a verification feature?

Speaker 2

Thank you for that question, Austin, and it's obviously very connected to the first question we just answered. We've certainly thought about this and there are many divergent views in our community on this point. Some folks very much want it and others don't want it just as strongly for private citizens. So as we've said before, trust is really paramount and we have to balance the needs from verification perspective and with the need from privacy perspective And we'll continue to do that in the quarters to come.

Speaker 1

2. Our next question comes from Hanif W. Are you concerned about users moving to web based competitors? And What is your plan to address that?

Speaker 2

It's a great question. I think it probably came before we announced the launch of the web Last week. So, obviously, we know that users use many different applications, and this is not a zero sum game. People can be using different apps for different things. Our job at Grindr is to deliver the best user experience that we can and ensure that our users can access Grindr when and where they want.

Speaker 2

As everyone probably knows, we launched web beta just last week. This offers several key benefits including bigger photos, Easy and chatting and increased accessibility to users and obviously an opportunity to use the product to find a desktop which you couldn't do before. We're really excited about what this means for Grindr in the future, including our ability to build certain types of functionality that you can only do on the web and can't do

Speaker 1

Next question comes from Orel F. What's the plan to update the app's look and functionalities?

Speaker 2

I very much appreciate the question. I and the whole team agree that making these experiences better is a huge priority for us. And we're building for a world where Grindr has a world class app experience for our users. Until this end, we obviously invested significant resources to ensure that we have a good experience. As we discussed in March, historically, Grindr has underinvested in technology and the company has done a lot of work over the last couple of years to address the technical debt That was inherited from previous ownership.

Speaker 2

The results have been fairly positive. Availability is up. Fresh time is down significantly. And in the last year, we've launched many features that we think are really beneficial to users and are with us indeed boost albums and most recently our home screeners design, which we'll discuss in a future call. And now obviously the launch of Grindr on the web in beta.

Speaker 2

All of these actually are really great things for our users and there's a lot more to come. As I've said before, these are multi quarter investments Since we operated a fairly lean, but very efficient team. And I do want to say some of these investments that we're making today

Speaker 1

Thank you, George. Next question comes from Paul Oh. What is the percentage of paid subscribers versus users?

Speaker 3

Thanks for the question. So we disclose our payer penetration and that's defined as payer users, which is both customers who buy our subscription products As well as people who buy our a la carte products like Boost. And our average paying users for the quarter was 866,000. Our monthly active users for the quarter was 12,800,000 and that's a healthy 9% growth rate year over year. So that brings us to our 6.7% payer penetration that we disclosed in our shareholder letter.

Speaker 3

We're really focus on increasing our payer penetration and that's why we're experimenting with our new subscription and a la carte offerings.

Speaker 1

Thank you, Vanna. Next question is from Frankiano C. What is the company's plan to increase profits?

Speaker 3

Thank you. I love that question. 2. We have a great business and we are generating double digit revenue growth with profit margins that are among the best in the industry. As you may have seen, we have laid out our plans to grow revenue for the future years by offering our users different features end products that meet their needs at their price points.

Speaker 3

Also, we are carefully managing our costs, 2, we are focused on both levers of profitability. Finally, given we are early in our monetization journey,

Speaker 1

Our next and final question from the SAVE platform comes from Curtis Jay. Will the price of premium services drop a bit?

Speaker 2

2. Thanks for the question, Curtis. Today, we have a relatively high entry point price for Extra and a very robust free service, which we know our users very much appreciate. What we've heard from users is They would like us to have an entry price point, an entry point price that is a little bit lower. We've tested a couple of ways to achieve this and look I'm sorry to tell you more about that towards the end of the year, early next year once the testing is further along.

Speaker 2

But it's something that we're actively working on and we believe we'll be able to meet We do believe that Extra and Unlimited offerings offer great value to subscribers, and we are always focused on adding more functionality each of these segments. Indeed what we've heard from users is that for certain types of features, they're actually willing to pay more As long as we're able to provide them, which we are working on and making sure that we can. As an example, we just recently launched Web, Which is obviously a huge launch for us because it's a totally new innovation and it's only available for external limited subscribers only. Great. I think well with that, we can we're at the end of the questions, so we can end the call and thank you everybody for joining us.

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Grindr Q1 2023
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