GRND - NYSE

Good afternoon, everyone. My name is Bo and I will be your conference operator today. At this time, I would like to welcome everyone to the Grindr Fourth Quarter 2023 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Ms. Tolu Adeofe, Grindr's Head of Investor Relations. Please go ahead, ma'am.

Thank you, moderator. Hello, and welcome to the Grindr Earnings Call for the Fourth Quarter and Full Year 2023. Today's call will be led by Grindr CEO, George Arison and CFO, Vanna Krantz. 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, and this is available on the SEC's website in Grindr's Investor page at investors.grindr.com. Before we begin, I'll 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. 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.

Thank you, Tolu, and thank you, everyone, for joining us today. 2023, our first year as a public company, was a success by every measure. We made significant improvements in our product, increased monetization through our Weeklies subscription and Boost ala carte and exceeded our financial guidance. We continue to welcome more users to Grindr with average MAU growth of 8% for the year. The engagement has remained best-in-class with more than 121 billion chats sent between users. These strong results speak to the hard work of our team and also to Grindr's enduring relationship with the gay community as we help users all over the world to find and connect with one another. We also embrace a deep commitment to service in the global gay community, most notably through our Grindr product quality initiatives, including connecting users to more than 235,000 HIV test kits in the U.S., an effort we are striving to bring to many more countries. In 2023, we also laid a strong foundation for long-term growth, such as developing a robust product roadmap, which includes some great work we are doing on AI and adding outstanding, highly accomplished leaders to our team. In November, we completed a landmark step for Grindr with the refinancing of our debt. Closing a new $350 million facility with some of the world's leading financial institutions. Debt refinancing is a [ core theme ] in the business world. But when the first public company serving the LGBTQ community can execute this [ favorable ] transaction, partnering with ALS institutions in a tough interest rate environment, it highlights not only the strength and credibility of our business, but also signals that we can help drive a more open and welcoming financial ecosystem. This is very important to our mission, and I want to thank Vanna, our team and our banking partners for their work and support in making it happen. Further details about our performance and 2023 focus areas can be found in our shareholder letter which I encourage you to read. Next, I'd like to outline our 3 key priorities for 2024. Given the robust nature of our free offering, to increase monetization over the long term, we need to provide new value-added features to our users that they're willing to pay for. To do this, we need to build features and products with a better understanding of our user's intent. We know that the vast majority of Grindr users use it for casual dating, but we also know that the same users use it for much more, as a primary place to find long-term relationships, a source for networking, for finding information about what's going on in the community, where the safe places are to go in different countries and much more. Building features that better serve user-specific intent will allow us to cater to the needs of our customers, creating value for them and opportunities for monetization for Grindr. Our second priority focuses on our brand and ensuring that we proudly tell the story of Grindr's great legacy of serving and positively impacting millions of people in our user communities around the world. Legacy perception of Grindr rooted in societal, cultural and historical prejudice, sensationalism shame reinforced by [ long suits to resolve ] issues and inaccuracies about our products are still present all around us and live in our audiences' heads. Left unaddressed, these inaccurate perceptions can have negative long-term effects on our business. We recognize that creating value for our users and shareholders means taking these issues head on. In 2024, we focused on amplifying the crucial and impactful work that is at our core by telling the true story of Grindr's [ growing ] culture and the real relevance and success of our product both within and outside of the community. And our third priority is to build a performance-driven culture of excellence and innovation. We started out with our return to office initiative last summer. We believe strongly that the combination of an important social mission with a workforce playing to win is what creates great companies. We are focused on building out our team in key functions with high performance, and we believe that the strong performance-driven culture will help drive strong long-term growth for Grindr, starting with the 2024 guidance we are providing today. I'm excited to share more on all of these initiatives and much more about Grindr at our first Investor Day, which will be held on June 26, 2024, in New York City. The event will be a fantastic opportunity to gain deeper insight into our company and engage with leadership. The [ explicit ] details will be shared soon. With that, I'll hand it over to Vanna to discuss our financial performance.

Thank you, George, and hello, everyone. I'll start by summing up the year and then dive into the fourth quarter. Grindr delivered outstanding results in 2023, with revenue growing 33% to $260 million for the full year. And our adjusted EBITDA margin came in at 42% of revenue for a total of $110 million. Both revenue and adjusted EBITDA margin were well ahead of our original guidance for the year, and our revenue increased further from our guidance update in November. Overall, our performance was driven by a combination of paying user growth and increased average revenue per paying user as we benefited from the success of the launch of the XTRA weekly subscription and a full year contribution from our popular Boost ala carte offering. In fact, our direct revenue grew by 38% in 2023. We continue to see strong engagement in our app throughout the year as average monthly active users increased 8% in 2023 over the prior year, and our average paying users increased 19% to a record 937,000. Our average direct revenue per paying user grew 16% year-over-year to $20.05 primarily driven by the XTRA weekly subscription. Turning now to the fourth quarter. Revenue was $72 million, up 32% year-over-year from $55 million. This includes $62 million of direct revenue, which was up 39% year-over-year and $10 million of indirect revenue, which was up 1% year-over-year. Operating expenses, excluding cost of revenue for the fourth quarter of 2023 was $37 million, down 0.3% versus last year. An increase in people costs was largely offset by a decline in depreciation and amortization. Operating expenses, excluding cost of revenue for the full year of 2023 were $137 million, up 5% year-over-year versus 2022 of $131 million. This $6 million year-over-year increase reflects higher people cost, which includes a $9 million severance expense driven by our return to office program. This was offset by lower depreciation and amortization costs. Net loss for the fourth quarter was $45 million compared with net income of $5 million in Q4 of 2022. For the full year and fourth quarter of 2023, we incurred $61 million and $50 million, respectively, in expenses related to warrants and our debt refinancing. Adjusted EBITDA for the fourth quarter was $29 million, equating to a 40% adjusted EBITDA margin. Turning to our balance sheet. The headline for Q4 and the year was the new $350 million credit facility announced in November. The facility consists of a new $300 million Term Loan A and a $50 million revolver. This new facility was a key objective for us in our first year as a public company as we focus on replacing the much higher cost of debt we carried for almost a year. The new facility results in about $17 million in annual interest savings. Inclusive of the new term loan, our net debt position was $341 million at December 31, 2023. We ended the year with approximately $28 million in unrestricted cash and cash equivalents. Combined with our strong cash generation profile, we have ample liquidity to run the business and execute on our growth priorities. Let me now turn to our outlook for 2024. We have set guidance for this year of revenue growth greater than 23% and adjusted EBITDA margin of at least 40%. Our guidance reflects our expectation of another year of strong growth and profitability, driven by continued paying user growth, a full year contribution from our Weeklies subscription offering, which was rolled out globally in May of 2023 and contributions from existing and new offerings expected later in the year. Our adjusted EBITDA margin guide reflects investments in our strategic priorities that George highlighted, including product road map, talent acquisition and modest brand spending. I also want to briefly touch on how we're thinking about international opportunities. We continue to see fairly consistent and healthy MAU growth around the world, and we have been pleasantly surprised by the pace of monetization. International markets contribute more than 40% of total revenue in 2023, responding well to the Weeklies and Boost product launches, despite us not having yet focused on our end market localization and price optimization efforts. As a result, we will be prioritizing go-to-market optimizations in key countries with the goal of further accelerating paying user growth over time. This effort is in the early stages, so we have not factored any uplift into our outlook for this year. With that, I'll ask the operator to open up the line for questions.

[Operator Instructions] We'll go first this afternoon to Andrew Marok at Raymond James.

Wanted to talk a little bit about younger users. So can you talk a bit about your level of satisfaction in the top of funnel with younger users? Have been hearing anecdotal reports of burnout with dating apps in some of the mass market comps. I guess how are you tuning your product in AI to position Grindr well for changing consumer taste to the extent that you see them and maybe you don't?

Yes. Thank you, Andrew. Great question. Appreciate you joining the call. So we believe that Grindr has a lot of room to grow ahead in terms of acquiring users, both in the U.S. and abroad. And we are seeing that happen in general in our product. We saw 8% MAU growth last year, and we expect that to continue in the future. The reason is I think threefold, and bear with me as I walk through that. One is that gay people have been connecting digitally for a very long time. That was actually true before the Internet dating took over. A lot of people would use phone-dating services to connect, and then they shifted on to the web. When I finished college in 2000, everybody I would meet in Washington, D.C. or in New York was already on dating products like gay.com and manhunt and others. And so this has been part of the fabric of the user base for a very long time. And all the research that we see out there suggests that this is going to continue. Secondly, the reason this is true is because our -- the community is not as big as the straight population, right? We are a subset of the population. So you want to be around people who are more like you who have something in common with you. And the digital channels like Grindr are a great way to connect to people who are like you, especially with the younger users who are still trying to figure themselves out. They just turned 18, they became adults, they came out potentially or just finished college, figuring out what life would be like as someone who is -- the front-end majority of the population allows you to do that better if you're around people who are like you, and so that benefits you being in a product like Grindr that has the full subset of the people in that community. And then lastly, even in real life, people oftentimes move into large cities. They go into gayborhoods and live in gayborhoods, every large city has a gayborhood. And Grindr is a gayborhood on your digital device. It is the gayborhood on the phone. And so we are able to recreate that in real life experience for users already. And that's actually why our users use Grindr for so many other ways than just dating, on all the other kind of ways in which they connect with each other. So that's kind of what we're seeing so far and what we think will continue to happen in the future. As far as products are concerned, it's very true that Grindr has a ton of room and opportunity to build new products to address the needs that users have. Our product development is done through understanding what users want and then trying to meet them and those needs through new features and new products. We've built a really robust product strategy over the last year that we're really excited about. And I think a lot of it is addressing their needs. So we're pretty excited about being -- giving a chance to kind of see more of that and hear more about it at the June Investor Day that we'll be hosting.

Great. Really appreciate the color there. Very helpful. And then maybe one more, if I could. It sounds like you're still working on scaling your team back up after the return to office mandate. How has the progress been against your goals to date? Any significant learnings there? And maybe any specific areas that have been easier or harder to add head count in than you had thought?

Totally, yes. I mean as you can see from our financials, we had about 100 people at the end of last year, so definitely much smaller than we had inherited when we joined, and we peaked that at about 225 or so. It's really important for us to be able to hire really right talent that is really committed to both the mission of the business and to working the way we as a business want to work. We are really committed to a performance-driven culture in which work matters. We're doing really big things, the goals are audacious. And we want people who want to go after those goals by working really hard. And so I do not expect us to be able to get back to the numbers we're at in a year. Can you hire that many people in the year? Absolutely, but you won't be able to maintain your bar as well and you won't be able to integrate people into the company as well, and so we don't want to go that route. We are fortunate that we can supplement any need that we have in hiring contractors. We have a really strong set of contractors supporting us in engineering and product and in some of the other areas. They are fully integrated with our team. So our [ paths ] in engineering, for example, combined contractors and all kinds of employees together. And so it's a very integrated model of working, and that's been going really well. And that said, we had actually incredible success in hiring. I won't share any specific numbers, but I was really pleasantly surprised over the last 3 months, for example, at the speed of being able to hire engineers and bringing folks on board. It's been really awesome. I think it speaks to the fact that we have a really amazing business. It's not common to find businesses that are growing as well as Grindr is growing and that have as high of an EBITDA margin as we do. So for a lot of people who want to be in a nimble environment where they can have a really big impact, Grindr is a really [ great ] place to work. And so we've seen really great progress in bringing onboard a great engineering talent into Grindr over the last few months.

We go next now to Rohit Kulkarni at ROTH MKM.

Congrats on a great quarter. First question to you, George. On this first priority that you outlined, you want to better understand the user intent. If you could double-click on that. Perhaps talk about how are you thinking about new products, incremental investments and the ROI. It seems as if ROI is going to come in '25 and not in '24. So just maybe talk about what is it that you want to achieve when it comes to learning user intent?

Yes, absolutely. So we believe that Grindr is used in a lot of different ways. That's based on data. We even shared some data publicly. 90% of people are using Grindr for casual dating. But about 50% to 60% of people want to use it for long-term relationships, for example. And then we also know that they use it for travel, to kind of figure out what they should be doing when they travel to new places. And Grindr used travel a lot. It's a really frequent kind of thing to do. For health information and public health information in particular, for social connections with each other, for friendship, so there's a broad set of use cases that people already use the product for, which is really fantastic. We love that. And that's the reason why we have as much engagement as we do with, say, 121 billion chat shared last year. And so what we want to do with the product is to extend the product functionality to support all these different use cases. Right now, a lot of this happens through chatting with each other, which is great. We want to encourage that. But imagine a world where with a click of a button, you could go into a part of the product where everyone is engaged in a desire to have a long-term relationship, right? So it's a subset of our users, but they all want to date. Maybe your profile there is a little bit different, maybe it's slightly a different type of profile than you might have for your more casual dating experience. Maybe you say different things in it because people are interested in different information. Maybe your photos are different as well. So that would actually be really appealing to our users because we've heard that from them. They want that. And we believe that it will create actually better engagement with users to be able to kind of understand what the desires are. And so the products that we are envisioning are all built around what the users need, what do we hear from users and how can we satisfy those needs. As far as ROI on those things, we tend to think of our product development and where it kind of drives revenue in a very interconnected way, both along a la carte and in subscription. Some of the products that we're building and are testing such as Teleport are envisioned as a la carte products. So those will be on a per use basis, people will pay for them. And then some of the other products like dating, which is a combination of many, many big features, we probably envision as a new subscription tier, where people will pay for that because it's a big value add. In general, my experience in building technology now for nearly 20 years, is when you create value for people, they are very excited to pay for it because they see a lot of benefit from that. And so as long as we build products that create value, I'm very confident that we'll be able to drive good financial results from that.

And Rohit, just to add a little bit to that. I mean when you think about ROI, we're really thinking about just increasing the number of paying users. And as you saw, we increased it by 19% in 2023. And so as we put out more use cases that we've already done research on to recognize that, yes, our users are looking for Teleport, they are looking for things like right now and dating. There's like a lot of research that we put into play before we design the product and make sure it's pretty successful. That being said, usually our products take a V1 or V2 to actually really hit perfection. And that's what you saw with Boost this year. Boost did a very nice job in our a la carte performing nicely for us. We did tweak it at the beginning of 2023 to really develop that kind of incremental gain. So yes, we think about the ROI, but we recognize that it could be a V1 or a V2. And before we do it, we certainly do user research to make sure we actually prioritize the products that they want.

Okay. And one on '24 guidance. To the extent you can provide more color on the drivers behind the revenue growth, both on paying users and kind of ARPU as well directionally even. And also, obviously, margins, you're guiding to a slight step down in margins, although when all's said and done, they may still be about '23 levels. Maybe just double click on that too. What's your hiring outlook as well as how you should think about the cadence of margins as the year progresses?

Certainly, we're really excited about another strong year in 2024. And I would say that our guidance is still extremely excellent. Certainly, with respect to 2024, we're really thinking about the Weeklies in the first half of the year. As you know, it really fully launched midyear in 2023. So we'll get the full year benefit of that. We also have a few new products that we've alluded to that we'll be rolling out that are already in test. Again, it could be a V1 kind of version. So right now, you see our guidance at 23% for revenue growth. Remember, last year, we said 25% and we actually ended the year with 33%. So there'll be more to come as the year progresses. I think you probably have recognized our philosophy is certainly to be more prudent at the beginning of the year as we still continue to test before the full rollout goes out. With respect to our investments, like George said, we have 3 real investments, product, brand, headcount. I would suggest that really from an EBITDA perspective, you're not going to see too much movement there because a lot of our consultants that are on board now were going to flip into FTEs. So I don't think you're seeing like any big bumps in terms of head count spend. Again, prudent on our guidance at the beginning of the year to confirm that we will absolutely hit our numbers. Did I get all those questions, Rohit?

Yes, absolutely. Well said and congrats again.

We go next now to John Blackledge at TD Cowen.

Great, two questions. First, you mentioned that you plan to amplify the brand story as part of your 2024 priorities. Do you plan to adjust marketing efforts or launch a branded campaign to help with the story? Just kind of curious around color there. And then the second question would be around payer conversion. It took a step up in 2023. Just curious about the drivers of the improvement there. And then kind of can we expect further conversion uptick as part of the '24 outlook?

Great. Thank you very much for those questions. I'll take the first one and then Vanna will take the second one. So on marketing, just from a spend perspective, any increase in marketing spend is fairly limited, so its impact on margin is very small. But we do think that the work that we will be doing in marketing is very important and critical for the future. So Grindr has done amazing things historically in the community and, frankly, for the world and for people who need our product. We're in 190 countries and about 60 of those, it's illegal to be gay, and Grindr is the only way that we will be able to connect in many of those places. But at the same time, there are a lot of assumptions about the product in people's mind that are just even not true or maybe were true a decade ago and have long been addressed. We approach this very differently now. And so what our objective with marketing is, on the one hand, is to correct some of the assumptions and to really amplify the awesome things that Grindr does, to talk about the fact that, for example, last year, 235,000 people in the U.S. ordered an HIV test through Grindr, were able to get that at their homes and about 1/3 of those have never had an HIV test before. Those are the kind of stories that we don't talk about a lot but we need to so that people have a better appreciation of what Grindr does and the role that it plays in the society. And then secondly, with our users themselves, they come to our social media channels to enjoy really fun kind of content. That can be really powerful in creating engagement with our users outside of the product as well as keeping us top of mind with new users in the future. And that's really effective. We have really powerful social channels out there. And so investing in content at those social channels is really valuable for us. And so we just recently brought on board a new leader for brand marketing. We actually moved him from the U.K. because he's so uniquely qualified to be effective for us. And already, we are seeing really positive impact of the work that he and his team are doing. For example, recently, they launched a new podcast, and it's just taken off in a really incredible way with hundreds of thousands of people engaging with that podcast content across different social media channels. We think that's really powerful and to continue to do that will be really valuable. So nothing in terms of user acquisition focus from cost perspective because that's not something we need to do or we'd like to do. But in terms of telling our story better across broader channels as well as social channels, it can be really valuable. Vanna, for the second question, I'll defer to you.

Thank you for the question. So you saw that we grew our paying users by 19% in 2023. And really, we can attribute that to our new product offerings. So yes, we put out the Weeklies subscriptions here, which was really the same as the XTRA but a lower price point. We were extremely pleased with how little cannibalization we had, how we converted more and more users. And in fact, we had a double benefit because often the Weeklies ended up renewing, and therefore, that actually also impacted our ARPU. In terms of conversion, you're absolutely right. We had a very nice lift in 2023 for conversion. What I would suggest is, we certainly see continued MAU growth, and you should imagine that our conversion rates -- like there's no real expectation in our guidance so far of changes in conversion. We had a nice uplift in 2023.

That's great. If I could just do one quick follow-up. George, just curious about your view of the competitive environment. Match launched Archer last year, last June. So just curious, just general competitive environment in the U.S. and outside the U.S. for Grindr.

Absolutely. So we know that our users are going to be using more than one app. That's very common in the dating space for people who have more than one app, and that's perfectly okay. What we do want to make sure is that our users are looking at Grindr as kind of first in wallet product. If you think of the credit card [ analysis ], meaning they want to come to us often and for all the things that they want to accomplish in the product. And it's really important for us to be serving them correctly through the right features and services to meet their needs. I think if you look at our engagement numbers, they kind of speak for themselves in terms of how active users are with the product. So that's going really well, and we haven't seen any concerns on that front in the last year and don't expect to see any in the future. So from the perspective of competition, we obviously are -- we welcome competition and it keeps us on our toes, but it's not something that we are in any way concerned about. As far as Archer specifically, no, I think there has not been a lot of conversation about that in the community because it hasn't really taken off. So on that one specifically, we're not in any way concerned. But obviously, we're always looking at competition and ensuring that we are focused on the right things in our product. But I think, in general, for a business like ours, the best thing you can do is look into the user and try to follow the direction that the user wants to go to and that's where you can build really great products that satisfy them.

[Operator Instructions] We'll go next now to Emily Stykes at New Street Research.

So a theme across a lot of dating apps right now is that they seem to be struggling to provide the Gen

So actually, we are not finding that at all. In fact, we continue to enjoy an influx of users beginning at the age of 18. It really is a place where they discover themselves and they become part of the community and they chat with other folks in the community, and really, I think, link and connect. And so we aren't seeing any of those trends. In fact, you can see from our results, the paying users continue to go up. Our MAU continues to grow by 8%. I mean this is a very, very healthy environment. Remember that Grindr was launched 15 years ago with the primary goal of connecting the community and it has done so in 190 countries. We're #1 in over 180 of those. And our metrics in terms of chat -- remember, time spent is 60 minutes on the app, that has not dropped at all, really suggests to us that we remain a vital fabric of the community.

[Operator Instructions] And it appears we have no further questions this afternoon, Mr. Arison. I'd like to turn things back to you, sir, for any closing comments.

Great. Well, thank you very much to everyone who joined the call and for taking the time. It has been great to do this earnings call. It's our first year as a public company, and it's done really well, and so we're excited to be sharing these results. I'd just like to close out by amplifying a few points. First, we are obviously very proud of the performance that Grindr team delivered in 2023. It was, in some respects, a challenging year from the perspective of our -- some departures and whatnot. And so given that in that environment, the team performed as well as it did is really exciting. And we're also really excited about what we can do in 2024 as we have spoken to through our guidance. We have a really great momentum in the business, with both users and the products that we have today, as well as really great momentum both domestically and internationally and with the things that we want to do over the near and medium term. There's a lot of potential to offer new offerings to our users, some of which are already in test for us and some are being built this year to go into test late this year or next year. And I think that's going to have a really fantastic impact on the business, both from the user engagement perspective and the financial perspective. As we've seen many times, we are really early -- as we've said many times, we're really early in our journey as a company that's focused on financial growth in addition to user engagement. And so that really has positioned us really well to show great growth in the future. Grindr has built a really incredible asset over the last 15 years. We are just coming up on our 15-year anniversary, and so it's quite exciting. Our team realizes how important it is to nurture this asset in the future and to grow it as a durable, profitable and highly cash-generating business. We also recognize that we have work to do to help investors understand our storyline better and appreciate the great business and product that Grindr is and to help make it easier for you to invest. And so we are excited for investors to come on the journey. We look forward to sharing a lot more about our story and what we intend to do in the future at our Investor Day in June and really look forward to seeing you there and introducing you to more members of our team. So thank you for joining us today, and I hope everybody has a great day.