Grindr Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 7, 2024

Key Takeaways

  • Raised full-year guidance: Q3 revenue grew 27% year-over-year to $89 million, driving an increase in 2024 revenue growth guidance to 29%+ and delivering a 45% adjusted EBITDA margin.
  • Product innovation boosts engagement: New features like the weekly unlimited subscription, interest tab and expanded testing of RightNow lifted payer conversion and drove over 150% engagement growth with the Viewed Me feature.
  • Advertising outperformance: Indirect revenue rose 43% year-over-year to $12 million, fueled by new ad formats, higher-CPM interstitials and expanded third-party partnerships.
  • User base expansion: Average monthly active users reached 14.6 million (+8% YoY) and paying users rose 15% to 1.11 million, lifting payer penetration to 7.6% and ARPPU by 8%.
  • Strong liquidity and cash flow: Ended Q3 with $39.1 million in cash, a 2.1x gross leverage ratio, and generated $27.9 million of free cash flow, converting 69% of adjusted EBITDA.
AI Generated. May Contain Errors.
Earnings Conference Call
Grindr Q3 2024
00:00 / 00:00

There are 7 speakers on the call.

Operator

Good afternoon. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the Grindr Third Quarter 2024 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

Thank you. I would now like to turn the conference over to Cholu Adiafah, Grindr's Head of Investor Relations. Please go ahead.

Speaker 1

Thank you, moderator. Hello, and welcome to the Grindr earnings call for the Q3 2024. 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. Please note, Grindr released its shareholder letter this afternoon this is available on the SEC's website and Grindr's Investor page at investors.

Speaker 1

Grinder.com. 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, 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.

Speaker 1

During today's call, we will also present both GAAP and non GAAP financial measures. 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

Thanks, Tolo, and hello, everyone. With strength across all of our financial and user metrics, we delivered an exceptional Q3, enabling us to again increase our revenue growth guidance for the year to 29% or greater. Our outperformance reflects the success of our weekly unlimited subscription offering as well as effective merchandising and payroll optimizations. Advertising revenue also exceeded our expectations this quarter, fueled by increased demand from our 3rd party advertising partners. Vanna will cover a few highlights shortly, and as always, you can find a more detailed review of the quarter in our shareholder letter.

Speaker 2

I will focus the remainder of my remarks on our team's continued focus on building and launching innovative features and products focused on the user. In Q3, we expanded testing of RightNow to the Washington, D. C. Metro area. We also launched RightNow's Feed feature that allows users who are in the RightNow mode to post their intent to a group of nearby users and then chat directly with each other.

Speaker 2

We will continue expanding RightNow with more features and across more geographies with a goal of scaling the product by the end of 2025. Our focus is on user engagement, so there is significant potential for monetization as well. We also launched the interest tab, centralizing inbound interest across viewed. Me and TAPS, which increased payer conversion and led to an over 150% increase in user engagement with a View. Me feature.

Speaker 2

In the future, we will add additional inbound related features to this tab. In addition, Roam is now live globally, allowing users to move their profile to a different location before arriving, serving the 1 in 4 Grindr users who are traveling in any given week. We're making good progress in other product areas as well, including early testing of our AI powered Wingman, which we highlighted in the shareholder letter. Additionally, I'm very proud of our team's work in resolving legacy bugs and improvements to app stability that took place in Q3, an important part of our user experience focus. This indirectly also supports conversion as over time we expect users to recognize the improved quality and increased value we are delivering.

Speaker 2

Overall, we remain on track or ahead on all items on the product roadmap we shared at Investor Day, and we're bullish about our portfolio approach to product development, which is key to our plan for long term success. Our product work starts with users, their needs, their behaviors, their preferences. We build features that drive their engagement before implementing steps that drive revenue. This allows us to make sure that our unique connection with our community remains strong. Worth noting, however, that inherent to this approach is also the likelihood that some products and features will be bigger than others.

Speaker 2

With strong execution this year, we are setting Grindr up for another great year of growth in 2025, as we continue to execute on effective monetization strategies. In the near term, our bigger performance drivers will likely be our existing products as well as payroll optimization and merchandising. I expect that next year, our team will not only continue to deliver strong financial results, but also achieve good progress in both launching new initiatives as well as scaling products that are already launched or in test, all targeted at creating an exceptional user experience. As a result, we have potential upside in our results from these new products as adoption grows. Thank you all for your support and a big thanks to our team for their great work in Q3.

Speaker 2

Now here is Vanna to discuss the results.

Speaker 3

Thank you, George, and hello, everyone. Grindr delivered an exceptional 3rd quarter, marked by solid performance across all of our financial end user metrics. Total revenue for Q3 increased by 27% year over year to $89,000,000 with an adjusted EBITDA margin of 45%. Direct revenue increased 25% year over year to $77,000,000 driven by the continued adoption of the unlimited weekly tier as well as better merchandising and paywall optimizations, which resulted in higher conversion of free to paid users. To share a few key user metrics.

Speaker 3

Our average monthly active users increased 8% over the prior year to 14,600,000. Average paying users in the quarter increased 15% over the prior year to 1,110,000, bringing payer penetration to 7.6% for the quarter. And our average direct revenue per paying user increased 8% over the prior year to CAD 23.07 this quarter. Indirect revenue for Q3 grew 43% year over year to CAD 12,000,000 with the outperformance in our advertising business being driven by strong demand growth. Moving to expenses and profitability.

Speaker 3

Operating expenses, excluding cost of revenue, were CAD38 1,000,000 in Q3 of 2024, up 7% year over year. Adjusted EBITDA for Q3 2024 was CAD40 1,000,000 equating to a 45% adjusted EBITDA margin versus CAD33 1,000,000 a year ago or 46 percent of revenue. Turning to our balance sheet. We ended the quarter with CAD39.1 million in cash and cash equivalents. Our gross leverage ratio was 2.1x based on the last 12 months of adjusted EBITDA.

Speaker 3

In the Q3, we generated positive free cash flow of CAD 27,900,000 a conversion rate of 69% from our adjusted EBITDA. As a reminder, our quarterly free cash flow conversion is subject to timing of changes in working capital. Lastly, I'll recap our revised 2024 outlook that we shared in our letter. Based on our outperformance year to date, we've raised our revenue guidance for the year. We now anticipate revenue growth of 29% or greater, and we continue to expect adjusted EBITDA margin of 42% or greater.

Speaker 3

Our updated outlook implies relatively consistent revenue on an absolute basis quarter over quarter and the timing of planned Q4 investments. Overall, we are pleased with the continued strong growth in our business as we set the stage for 2025. With that, I'll ask the operator to open up the line for questions.

Operator

Thank you. We will now begin the question and answer Your first question comes from the line of Nick Jones from Citizens JMP. Your line is open.

Speaker 4

Great. Thank you for taking the questions. As we think about the roadmap you laid out at the Analyst Day and we kind of consider the performance over the last couple of quarters and in this quarter. Are there opportunities to potentially accelerate investment and maybe accelerate those timelines? How should we think about kind of philosophically as kind of ARPU, ARPU performs, the average subscribers kind of increase for paying users accelerated this quarter.

Speaker 4

I mean, as you kind of deliver these maybe better than expected results, are there opportunities to potentially accelerate timelines?

Speaker 2

Thanks for the question, Ekin. Good to talk to you. So obviously, we always want everyone to deliver as much as possible on our team, right? We don't just accept the minimum or the target that we might set. We want to always exceed.

Speaker 2

That's generally my management philosophy. We have a plan and then we have a stretch plan and the stretch plan is a lot more aggressive than the plan. We are really happy with where the product map is today as far as the things we've laid out and this by which we're working on those. As we discussed in the shareholder right now is now in 2 markets. Rome is now live globally.

Speaker 2

We also have a bunch of the features that are there kind of under add ons in the works, and we would expect 1 to 2 of them to launch next year. And then we're also working on a bunch of things that are not on the public road map that we'll be releasing in the future, which I'm quite excited about. The interest tab is an example of that where we didn't talk about it prior to it being launched, but the impact of it has been really positive both in terms of how the users are perceiving the feature as well as the impact on actual conversion to paying customers. So I think what you will see from us is that we'll be either on track or ahead of schedule on everything we publicly said, and we'll be launching more things beyond that, which we think are important to have. In general, my kind of learning about our space is that once people have product market fit on the product, they tend to monetize it really as aggressively as possible and underinvest in building new products.

Speaker 2

And that is one of the reasons why then those products have trouble with users because users get frustrated with the amount of maximization of profitability and not new product development. And so I want to make sure that we do things differently and invest in the product, try to scale the product to a lot of users, make sure users are happy with their experience and then start thinking about how to monetize it. I think that's setting Grindr up for success not just for a year or 2, but over the longer term.

Speaker 4

Great. And then maybe just 2 kind of quick follow ups. 1, I guess George, what as you kind of roll out right now and what are kind of the most exciting things you're learning about the product as users start using it to get you excited about the opportunity there? And then, Vanna, could you maybe speak to some of the new ad formats and monetization within indirect revenue and any progress updates there? Thank you.

Speaker 2

Sure. I'll take the right now and then I will take the asked question. So right now, again, it's for people who are in the right now mode and want to try to be able to meet up right now, as the name implies, it is a pretty broad suite of it's a suite of broad features that we need to offer. Not all of them are yet built, right? So some of them are already built, but not all of them are built.

Speaker 2

What people can do today is, number 1, say that they're in the right now mode. They can then sort the grid for just people who are in the right now mode. And then there's a chat feature where people can post chat messages that are available openly to everybody, and from there initiate 1 on 1 discussions. One of the things we'll be adding to right now experience is being able to send photos in the group chat. That's something that's going to come in the future and we think they're going to be quite popular with users from everything we can gather.

Speaker 2

Right now, with chat being available and photos not being available, we get a lot of feedback saying we want photos to be added to that as well. So that should be on the come. The things we've seen is, as kind of we expected, right now is not for everybody. There's a percentage of our users, and I don't think I'm in a position to give a number publicly right now, but not 100% that are using it and are using it often. And that's exactly what we wanted to see, right?

Speaker 2

We want to see active engagement from a portion of the user base that we think will benefit from an user experience like this by speaking to their intent and then enabling them to have features that address that intent. And that's been really positive. The other thing we're tracking is reengagement, meaning it's one thing for people to try product once or an experience once, then do they come back to it again. And we're seeing really good reengagement on right now, both in Australia and in the D. C.

Speaker 2

Metro area, where we are running tests. So I think overall, the learnings so far are pretty good. We do need to add more features to the suite of right now as we had planned on doing, and that's in the works. And then we probably will slowly launch it in a few more markets to kind of parallel test and get user feedback in those as we work on scaling this product through the end of next year. And next year is not going to be focused on monetization with right now.

Speaker 2

It's going to be very much focused on scaling engagement and getting as much as good of a product experience as possible set up for the user. And then I'll turn over to Vanna for the last question.

Speaker 3

Hi, Nick. Just to follow-up on the ads. So yes, we've had a strong quarter across really all of our business lines, including indirect revenue, which grew at 43% year over year. As you know, ads are a differentiator for us because of our robust premium offering and our ability to really monetize here. We also have fairly nice margins on this because there's really no third party payments to the App Store or Google.

Speaker 3

And so when we joined, I'd say the ad business had been a little under invested both from a tech perspective and from a sales talent perspective. Both of those have been addressed and are in the process of being addressed. We've opened up more 3rd party ad partners that demand has been able to be filled by us. And we've also enhanced our ad formats. And what I mean by that is really native ads.

Speaker 3

We're starting to think about rewarded video and we're also having more interstitials and those interstitials are slightly more complicated and therefore drive a little bit higher CPM. So we're still really early in our journey, I'd say for ads, but we feel pretty confident that we'll be able to continue to show some real returns here.

Speaker 2

I mean even little things like the ordering of what would appear in the ad. So our order had been set up where a house ad would appear 1st and then an external ad would appear 2nd, which obviously does not make sense from the perspective of making money on the ad. And so we switched that, which is obviously not a major thing, but actually had a very positive impact. So it's just an area where huge opportunity and not a lot of attention has been paid. And so we did a lot of work last year to set up the business well for this year and a lot more work is being done this year to move us into a successful growth year for ads into 2025.

Speaker 4

Thanks, George. Thanks, Bhana.

Operator

Your next question comes from the line of Andrew Maroc from Raymond James. Your line is open.

Speaker 5

Hi. Thanks for taking my question. You mentioned pricing and merchandising being key contributors to direct revenue growth this quarter. And I think you touched a little bit on it in your last response, but just want to be maybe a bit more explicit, I guess. How are you kind of balancing that move forward in pricing and merchandising versus I think you've mentioned in the past that historically given an under monetized service, your user base might be a little bit more sensitive to monetization changes in the early stages as they start to take hold.

Speaker 5

So I guess how are you philosophically balancing that? And how much room do you think there still is to run on pricing and merchandising optimizations and improvements? Thanks.

Speaker 2

Totally. So thanks for the question. We definitely have a very robust free offering and that's something that's different about Grindr versus really anybody else in the space. You can use Grindr fully and have very few limitations and never pay for the product. That obviously comes with a significant benefit, which is that people join Grindr when they turn 18 as their primary product and we don't have trouble attracting new users as they kind of mature and become adults.

Speaker 2

And I think that's going to be important and acknowledging that is crucial. One of the things I think you'll learn about this space as you start working in it is that free users are just as important as paid users because paid users want to meet with free users. And so having a very robust free user base is crucial. That said, there is always a discussion here around where should the line be between a free user experience and a paid user experience. And some of the things that we are tightening frankly are things that some people call them backdoors, meaning like no one has to be playing on them being that way, but they just kind of happened.

Speaker 2

And then others are where we actually are having a discussion is this value that is being offered so significant that that should be part of our paid tier. So one of the things we did this year is move, change how many messages a user, a free user, could send to other users that they found through the Explore feature. So we have a feature where you can go on a map, put that map in a different location from where you are and see who is on the grid in that particular location. And that can be either I'm in Palo Alto and I can look up people in San Francisco or I'm in Palo Alto and I can look up people in New York. You can, if you're not a paying customer, historically, you were allowed to send 3 messages per day, to users through Xplore.

Speaker 2

We've now limited that to just one. And the reason is that we think that that has an incredible amount of value and we believe that that value should sit with our paid tiers. And the benefits there were pretty significant. And obviously, we did see an improvement in conversion from that change. So we believe there is a fairly long list of things we can do that are like that that result in the value in pay tiers increasing, while maintaining a really robust free product offering.

Speaker 2

At the same time, we do continuously invest in making the free user experience a lot better. Building the interest tab is not limited to a paying user. That's something that free users have as well. And we've seen a really significant jump in Viewed. Me, right?

Speaker 2

That's a feature that existed, but by changing where it's located and how users engage with it, we saw a big jump in usage, which is fantastic. Us moving to a different chat architecture, obviously, was something that was offered to everybody and that significantly improved the user experience as well. Us addressing bugs in the product, obviously, solves everyone's problems and makes the free user experience a lot better. And there's a lot of stuff on the road map, both things that we publicly talked about and things that we are working on that will be going to come in the future that we've not discussed that is built in a way that free users can enjoy as well. That's really important.

Speaker 2

And to me, it's really important to the product team that the free experience will remain very, very robust. But we do think there are ways in which we can deliberately think about should a specific feature set or a value that exists in the product sit on the paid side and shifting those makes sense. And we think there's plenty more opportunity there for us to continue doing that. We're not going to be so progressive with it. We're going to do it in a very thoughtful manner.

Speaker 2

I guess I'll add one last thing is this is something that people who look at Reddit know. We did experiment with changing how TAPs worked in the product where you could only see TAPs from a certain number of hours and otherwise you'd have to be a paying customer. And that's an area where we did run a test and then we decided that at this time it did not make sense to make that change and we rolled it back and did not go global with it, right? So there will be things that we will test in terms of changing the line between free and paid that we might not decide to pursue fully based on, testing that we've done.

Speaker 3

Just one last thing to add, Andrew, and that is just one last thing to add, Andrew, and that would be a simple merchandising change of suggesting what you saw an ad and if you wanted to get a no ads upsell, we saw nice conversion into extra weekly just with that simple pop up message.

Speaker 5

Thank you for all the color there, really thorough. And then just maybe a very, very quick one. There was a competitor out today who had noticed some changes or potential disruptions in App Store rankings around what they believe to be the iOS 18 launch. Is that anything that you had seen or any evidence that the new iOS may have thrown a wrench into things?

Speaker 2

I don't have anything to add to that yet. Obviously, we do track our ratings quite closely. But with the new iOS launching, we've not noticed anything.

Speaker 3

Yes. We saw that in the transcript as well and it didn't bubble up to us, but we'll definitely take another look.

Speaker 5

Got you. Appreciate it. Thank you.

Operator

Your next question comes from the line of John Blackledge from TD Cowen. Your line is open.

Speaker 6

Great. Thanks. A couple of questions. First on the weekly unlimited tier, do you see that driving higher payer conversion? Or is it more so driving existing payers to switch to the tier?

Speaker 6

Or is it a mix of both? And then

Speaker 4

I have two follow ups.

Speaker 3

Sure. Thanks for the question. We have seen conversion rates continuing to increase and we do track cannibalization very closely. And so what I think you're asking is how was the cannibalization as you brought out this new duration for unlimited weekly. And I would suggest that we were pleasantly surprised that the cannibalization was very low.

Speaker 3

And so it is helping drive conversion rates.

Speaker 6

Okay. That's helpful. And George, kind of just touched on this a little bit, but the top of the funnel user growth remained pretty strong, up 8%. Just kind of clicking back on some of the key drivers of that sustained MAU growth and then any geos that stood out in terms of the MAU growth? And then the final question for me is, and you mentioned it kind of in the release is addressing the technical debt and just if you can just talk where Grindr is in terms of addressing that technical debt that accrued from prior management teams and kind of how much has the team, the current team achieved in fixing the technical infrastructure?

Speaker 3

I'll start with MAU. And so from a MAU perspective, as you noted, yes, we are at 8% growth and that we're happy with that number. A couple of things that are working in our favor and one of them is the from the macro level, we continue to see more and more countries being more open at a micro level. We see more and more people identifying as fluid. And so that's helpful.

Speaker 3

As well, we're actually happy with a couple of things with respect to focusing on a great user experience. And so that focusing on a great user experience helps keep people in the app, bring people in the app. And so I would suggest that the bug fixes, for instance, are a great user experience and therefore, helping our MAU. Secondly, I'd like to just mention that all the features on our product road map also help, bring people in and keep our MAU at good numbers. And so all those things are working in our favor for MAU growth.

Speaker 2

Yes. I think one thing I'll add on Mau is we do know that there are users kind of on a mid stage of their lives and later that might have had a Grindr account, might still have a Grindr account but don't use Grindr as much as they used to. One of the reasons is that they want to they move into a stage of that and they want to settle down and find a long term partner. And the fact that we don't have a lot of the features for long term relationships, may come less excited by using Grindr for that purpose, even though we also know that Grindr is the primary way in which people find, long term partners in the gay community around the world. And so we do believe that there is a way to better engage those users as we build the relationship use case, which obviously is something that we're working on and that's on our product road map.

Speaker 2

So I think while that's not being built with the idea that, hey, it's going to help MAU, we think that inevitably it will have an impact on MAU as well because of the ability to reengage that kind of older cohort. And when I use older, I do that a little bit in my age cohort. So it's not necessarily very old, but older versus what you'd expect on a product like us. And then with regards to technical debt, Grindr is a product that's been around for a long time now. It's significantly going to be turning 16 years old in March.

Speaker 2

And while that in the totality of the year, that's not very long in the world of mobile technology, that's actually a very long time, right, because the mobile transition only happened in the last 20 years. And so as a foundation, Grindr was built with technology that made a lot of sense to use when it was built, but it's not necessarily how you build technology today. We have done a lot of work over the last, really 4 plus years, right, since 2020 to address the technical debt that was inherited. For example, on the back end, the technology that underlines the product today is fundamentally different from what was there when the folks who bought Grindr out from Chinese ownership and remain very large shareholders today, kind of completed that purchase. And so that's in a really strong place.

Speaker 2

Moving to a new architecture was another really big transition that we needed to make. In the mobile code base, right, so this is the Android and iOS code base, there are still things that if you were building the app from scratch today, you would do differently. And that causes challenges because, for example, the architecture is much more monolithic in nature. And so sometimes you're working on a new feature in one part of the code base and you run tests related to that part of the code base based on that new feature and you don't find any bugs. But then you discover after you release the feature that it's impacting something in a totally different part of the code base, and causing a bug, right?

Speaker 2

And modern apps like once built recently wouldn't be built that way. And so you wouldn't have that kind of a bug situation. So we are working through that. And the decision that was made 4 years ago, and I think the right decision was to say that we will address these changes in the code base as we work through them, meaning as we make changes and add features, we then also rewrite parts of the code base for mobile. And so that will kind of come along on its own and will take some time.

Speaker 2

We did have a lot of bugs in the product that kind of had been accumulated over time. And what we did is run a 2 week bug bash. As a technology builder, I actually don't love that because bugs should be bashed all the time. But there had been this accumulation of bugs. And so, I felt like it made sense to stop product development for 2 weeks and just work on bugs.

Speaker 2

As you can imagine, it's a pretty expensive process when you have, you know, 80 plus people working just on a back bash. But, the results will be positive. We bashed more than 75% of all the bugs out there. And that I think will have a very direct and positive impact on the user experience in the product. And so I think it was very much worth doing and frankly speaks to the commitment that we have in ensuring that the product is of very high quality and also that we need to build product with an eye towards having high quality, right?

Speaker 2

We should not ship things that are potentially problematic and cause more bugs. And so I think having that bug latch was a very positive thing for us. And we'll continue investing in ensuring that the product is of a high quality as time goes on.

Speaker 5

Thank you.

Speaker 1

And we have reached the end of our

Operator

question and answer session. This concludes today's conference call. We thank you for your participation.

Speaker 6

You

Operator

may now disconnect.

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