Grindr Inc. (NYSE:GRND) Q1 2024 Earnings Call Transcript

Grindr Inc. (NYSE:GRND) Q1 2024 Earnings Call Transcript May 10, 2024

Grindr Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon. My name is Clouie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Grindr Q1 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the conference over to Tolu Adeofe, Grindr’s Head of Investor Relations. Please go ahead.

Tolu Adeofe: Thank you, moderator. Hello, and welcome to the Grindr Earnings Call for the first quarter 2024. Today’s call will be led by Grindr’s 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 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. 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 then Grindr’s filings with the SEC. With that, I’ll turn it over to George.

George Arison: Thanks, Tolu, and hello, everyone. We reported outstanding revenue growth and strong adjusted EBITDA in the first quarter. User metrics and engagement were all healthy. Our overall Q1 performance reinforces our confidence in our full year outlook. I’m grateful to our team for their hard work in the significant product launches and to our users for engaging with the launches and providing us important feedback quickly to allow us to make improvements. In addition to the terrific results, we have hit the ground running on our 2024 strategic priorities. Those priorities are focused not only on driving continued growth this year, but also positioning Grindr for the long-term success of the Global Gayborhood in Your Pocket.

We are pursuing that vision by focusing on: one, a robust set of products and features to focus on serving users bearing intent; two, a lean and nimble team with an exceptional performance-driven culture; and three, at brand narrative that is true to the important role we play in the community. Looking further product development, we currently have two usages in test Right Now and Roam, both which are built with user intent in mind. Right Now is a multi-phased product we’re building in response to strong user demand that makes it faster and easier for users to connect. Phase 1 features our crowning tests with more expected to be launched later this and next year. Right Now will ultimately have additional robust features facility in better user engagement and capabilities for more seamless, easy communication if we use both one-on-one and in groups.

Roam referred to as Teleport in the past, targets to travel intention. This feature enable users to transport their profile into a different location that they will be traveling to making the proof of discoverable by users and application. We are currently planning to start rolling it out more broadly in the second half of the year. During Q1, we also rolled out our new chat system built with an entirely architecture, which encompasses step change improvements in its critical user feature. This was a complex testing we’re taking and when you’re in the finish line in addressing bugs that have popped up in the initial launch period. The new chat storage of chat server side eliminating loss chat as a result of device changes. Fixing this was a top request we uses for years.

We are very excited to offer the significant US upgrade to all users. New chat architecture will be a foundational to several new intentionality focused based features we plan to roll out in the coming quarters. Turning to our team. We continue to build out our talent base, and we increased the number of engineers on board by more than 50% in Q1. As we think about long-term growth, we are centering on a vision of trying to find the Global Gayborhood in Your Pocket. Physical Gayborhoods are hubs for the gay community long established in large cities where we look to interact safely and comfortably with businesses, resources, bars, restaurants and shops specifically catered to us. Over our 15-year history, Grindr has come to represent this concept in a digital way.

We see this today and how the app is used for things like travel accommodation, health information, and making professional connections. We know our users want other types of actions, information and services that will enhance their lives. Our vision of Grindr as a Global Gayborhood is about tapping into these designs. It will be a multiyear journey to achieve this vision, and we’re excited about the potential of Grindr to find an even more internal part of the community and to build an even greater business in the process. I’m excited about sharing the long-term product road map that underlines the Gayborhood vision with you at our Investor Day in June. Thank you again for joining. And now, I’ll turn it over to Vanna to discuss the quarterly results in greater details.

Vanna Krantz: Thank you, George, and hello, everyone. Grindr is firing on all cylinders as we start-off the year. Q1 revenue grew 35% year-over-year to $75.3 million and adjusted EBITDA margin came in at 42%. Q1 revenue was driven by strong sales across all products including the XTRA Weekly subscription which launched in mid-2023. Direct revenue increased 34% year-over-year to $64.4 million and indirect revenue was up 43% year-over-year to $11 million, as we benefit from reinstated banner advertising from Q2 of 2023. To share a few key user metrics. Average monthly active users increased 7% over the prior year to $13.7 million. Average paying users in the quarter increased 17% over the prior year to $1 million which brings payer penetration to 7.4% for the quarter.

And our Average Direct Revenue per paying user increased 15% over the prior year to $21.25 this quarter. Moving to expenses and profitability. Operating expenses excluding the cost of revenue were $36.5 million in Q1 of 2024, up 13% year-over-year. This reflects higher people costs driven by stock-based compensation and contractors, which was offset by lower depreciation. Adjusted EBITDA for Q1 of 2024 was $31.6 million, equating to a 42% adjusted EBITDA margin, up from $22 million a year ago or 39% of revenue. Turning to our balance sheet. We paid down $25.8 million of debt, bringing our debt position to $315 million as of March 31, 2024 and ended the quarter with $21.5 million in cash and cash equivalents. Lastly, I’ll touch on how we’re thinking about our 2024 outlook.

We are pleased with the strong start to the year which increases our confidence in the outlook for revenue growth of at least 23% and adjusted EBITDA margin of at least 40% for the year. We set and update our annual guidance based on our most current views of the business and what we know to be achievable. Q1 year-over-year revenue growth was largely driven by user adoption of the XTRA Weekly subscription, which was introduced in mid-2023. We are currently testing new products and are encouraged by their potential and are still accumulating data that will inform the timing of global launch and revenue forecasting. With that, I’ll ask the operator to open up the line for questions.

Operator: [Operator Instructions] And we’ll take our first question from Nick Jones with Citizens JMP. Your line is open.

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Q&A Session

Nick Jones: Great. Thanks for taking the question. Maybe first, increasing the engineer head count by 50% sequentially, and with Right Now and Roam products rolling out, can you speak to how you think about I guess return on investment? When you add engineers, you guys are a very product-driven company with a lot of enhancements to come. How do you think about kind of ratcheting up those hires and how we should be thinking about I guess the time line or return on investment to those hires?

George Arison: Thanks for being here Nick and great to talk to you. So, I’ll start and then I’ll hand over to Vanna. First, we had way more engineers than we have on board today at our peak in January of 2023. We’re close to 225 people in total and the big portion of nearly half of that was product and engineering team. As everyone knows, a lot of folks chose not to stay on Grindr. I think with the culture change and some commutations that we wanted to make, which included coming back to the office and so they chose to depart. And so we are a 129 people in total at the end of Q3 and so far from where we were at our peak. So the engineers that we’re adding are not even bringing us close to where we were in the past. When I came to Grindr, my takeaway and this is not just mine I think a lot of folks who are here in leadership both had the same feeling that we had opportunity to significantly increase productivity.

We were not shipping as many things as we could have been shipping. And we — I think it should have been in a pretty significant way, both last year and I continue to see pretty significant productivity improvements this year. Obviously, some of that has to do with kind of a clarity on what you want to achieve, because I think engineers do really well the clarity on the product vision and specifications. And some of us do with better management which we’re implementing across the whole work, right? That’s something that you have to do as a company matures. As far as how we tend to think about product development, we are a very product-driven company, no question. And the way I think that product is built is through user perspective. So, if you go to our operating principles on our website, you’ll see that the first principle is user number one.

And there’s a very clear reason why, right? We try to learn from user what they want and then try to build that for them. Does not mean you don’t come into the product with a hypothesis, you definitely do, but you start with the user in mind. And we are fortunate that I usually have told us a lot in terms of what they want. They’ve been saying this for years that they want certain things built and when are you guys going to do that. And we’ve been I think very deliberate in ensuring that we build those before them. What we normally do is kind of get that initial user perspective in terms of what they want, mark things up and design prototypes and put those in front of the user and collect data on that as well, make changes, basically use the feedback and on events that are actually building up the product.

At which point we have a reasonably high confidence that something will work well. We try to build the most minimum viable product you can to address the user need that’s in question, put that out to the market as quickly as possible because the best test for something exactly having users work with or play with a product that you have out there and start collecting feedback. That’s something we did for example last year was room, right? We put the first personal room out in the fall in a couple of countries with selected users. Collected feedback, took that feedback in from the real product being live in market and then make changes to it and then put it out there again last quarter. So that’s the general approach that we gave for the product development.

We definitely have more to do than we have resources to deal with in a pretty significant way. And that’s why we said that we would expect that over a two-year period, we would build back up to at least the levels of the total number of hires that we had also number of team members that we had in the beginning of 2020.

Vanna Krantz: And just to address it. Hey, Nick, how are you. So we are thinking about our investments with respect to the overall envelope that we’ve set in terms of our guidance of 40%. So everything that we are talking about you should expect that is already factored into the guidance that we’ve shared with you and that really is the investment that we need to put into our business to continue to grow in the short and medium-term. And so yes, it sounds like a big change with respect to 50% increase in engineering headcount. But as you know, we were at 104 total FTEs at Q4 and now we’re at 129. So still a relatively lean company for the amount of product that we have out there and our goals.

Nick Jones: Great. And maybe still staying on the theme of product rollout, there’s Unlimited Weekly pullout globally in Q1. You mentioned the extra that was rolled out in 3Q last year. Payer penetration as a percent of MAUs ticked up nicely in 1Q. Can you speak to kind of the final rollout obviously, help attract more payers but to the extent that users are having a better experience is that also showing up and just maybe MAUs who are quite ready to pay? I guess could you kind of walk through as you roll these out what is kind of the impact on payers and I guess even further up the funnel on just overall usage of the platform?

Vanna Krantz: Hey, Nick maybe I could just start. So we actually did not roll out the Unlimited Weekly. It’s only in test. And so it’s not fully rolled out globally, it’s still in test. And so what you can imagine is that it hasn’t – it only went out in April. And so this was the Q1 results that you’re looking at and the cash part was still in March. And so I would say that we’re very pleased with our growth rate in average paying users, which was 17% or pleased with the ARPU changes, which is really an output of getting more and more paying users. And now continues to grow. I think you could see that we’re up by 7% in terms of year-over-year. So we are having a steady drumbeat of bringing more and more monthly active users globally into the platform and increasing our average paying users through our build-out of the product road map.