Grindr Inc. (NYSE:GRND) Q2 2023 Earnings Call Transcript August 17, 2023
Operator: Good afternoon. My name is Jenny, and I will be your conference operator today. At this time, I would like to welcome everyone to the Grindr Second Quarter 2023 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Patrick Lenihan, a representative for Grindr. Please go ahead.
Patrick Lenihan: Thank you, operator, and good afternoon, everyone. 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 Q2 2023 shareholder letter yesterday afternoon and this is available on the SEC’s website and 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 yesterday, 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 Arison.
George Arison: Hello, everyone, and thank you for joining us today. We appreciate your patience with us on rescheduling today’s call. We needed more time to add some additional processes before finalizing our financial results this quarter. We are pleased that we were able to file our 10-Q and letter yesterday and look forward to sharing additional perspectives on our progress today. We had an excellent quarter and continued to build momentum through the first half of the year. We’re delivering a better user experience with significant feature improvements, and we continue to improve monetization, highlighted by our new Weeklies subscription plan, which is performing well. I’m proud of what we have been able to achieve so far and there’s a lot more to come.
Our shareholder letter covers the key developments in the quarter, and I encourage you to read more there. For my remarks here, I will give a high-level review of the results and execution of our future priorities before turning it over to Vanna. We delivered revenue growth of 32% year-over-year with an operating income margin of 23% and an adjusted EBITDA margin of 44%. Given strong momentum in the first 2 quarters of this year, we are pleased to be able to raise our 2023 guidance to revenue growth of 28% or greater and an EBITDA margin of 41% or greater for 2023. Vanna will cover the details behind the guidance range, but let me just say that our confidence in our outlook is supported by the rapid progress we’re making on our strategic priorities.
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The first of these priorities is improving our user experience. During Q2, we rolled out and received positive user feedback on a newly redesigned home screen to help our users connect more efficiently. We also rolled out a redesigned profile that enables higher quality photo-sharing and features a clear and upfront About Me section among any other improvements. Our second priority is monetization for greater conversion and new offerings. Our global rollout of Weeklies, a lower-priced, shorter-duration subscription offering that gives you access to extra features and functionality for 1 week at an excellent adoption. Weeklies contributed to our growth in paying users and higher ARPPU. We continue to have additional lower pricing options as well as develop features for a premium tier, but we do not expect to launch either of these in 2023.
Our third priority is planning for future growth. In May, we rolled out Grindr Web to 100% of our paying users. It represents a long-term strategic opportunity to build NSFW features our users want, that we have not previously been able to provide on a mobile [indiscernible]. We’re also working on a broad set of paid features that our users have long wanted us to build, which are being tested in H2, and we expect will go live next year. We are in early stages of developing our AI products. We believe that AI will transform the ability to match users with each other and create new use cases for engagement, and we’re making investments across a broad range of AI and ML use cases and features that we expect to bring to market in the coming quarters.
Regarding the team, we are focused on accelerating our execution and we are bringing some terrific talent on board to help us in areas like product management, engineering, marketing, advertising, data science and more. We expect to see more from us on this front as the year progresses. Our shift to hybrid work structure has impacted hiring pace as we prioritize building a high-performing public company team. We expect to meet our headcount resource requirements in H2 ’23 and 2024. Our fourth priority is about serving our community. Something that continues to animate our business and team. We are pleased with the success of Together TakeMeHome from our long-time collaborators at Building Healthy Online Communities, working closely with Emory University and the U.S. Centers for Disease Control and Prevention.
Through a unique public-private partnership, we’ve made the program reachable with a single click from our app, providing our users around the country, access to free at-home HIV test kits. I’m proud of the strong results in the quarter and the progress we’ve made to improve the Grindr app in the first half of the year, and I look forward to sharing all the great things we are already working on in the second half with you in the coming quarters, including an update at our inaugural Investor Day event, stay tuned for more information on this in the coming weeks. With that, I’d like to turn the call over to our CFO, Vanna Krantz, to walk through our second quarter financial results.
Vanna Krantz: Thank you, George, and hello, everyone. We built upon our first quarter momentum to deliver an excellent second quarter financially, achieving 32% year-over-year revenue growth and operating income margin of 23% and an adjusted EBITDA margin of 44%. As you heard from George, our strong financial performance in the first 2 quarters and continued positive user engagement trends have led us to raise our full year outlook. We now expect full year revenue growth of 28% or greater, up from 25% or greater with an adjusted EBITDA margin of 41% or greater, up from 38% or greater. The improved outlook primarily reflects increased confidence in the performance of new subscription and a la carte products as we continue to improve monetization as well as operational efficiencies.
We expect revenue growth to outpace increases in operating expenses over the second half of the year. Turning to our user metrics. In the second quarter, average monthly active users increased 8% over the prior year and 2% sequentially to 13.1 million. Average paying users in the quarter increased 22% over the prior year to 929,000. As a result of the increases in average MAU and average paying users, our average payer penetration grew to 7.1% for the second quarter. Improved monetization was primarily driven by the global rollout of our new Weeklies subscription offering, which we’ve been testing since late last year. Our average revenue per paying user increased $0.56 sequentially to $19.08 this quarter. As we continue testing subscription options with our goal of increasing total paying users, we expect this metric may fluctuate quarter-to-quarter.
Turning to the more detailed results, beginning with revenue. Second quarter revenue of $61.5 million was up 32% year-over-year from $46.6 million. Direct revenue for the second quarter increased 37% year-over-year to $53.2 million, driven by the new Weeklies subscription offerings and continued adoption of the Boost a la carte product. Advertising or indirect revenue for the second quarter grew 7% year-over-year to $8.3 million. Operating expenses decreased by $1 million year-over-year. We incurred higher expenses related to distribution fees driven by subscription growth and increased headcount-related expenses in support of product development. These costs were offset by lower stock-based compensation expense and lower depreciation and amortization.
Net income for the second quarter was $22.3 million, up from a net loss of $4.3 million in Q2 of 2022. Basic and diluted earnings per share was $0.13. Adjusted EBITDA for the quarter was $26.9 million or 44% of total revenue. These results were primarily driven by revenue growth and strong operating margins inherent in the Grindr business model. Approximately 1 percentage point of our adjusted EBITDA resulted from certain onetime adjustments, but regardless, our performance was stronger than anticipated. Turning to our balance sheet. Grindr made principal debt repayments of $17.6 million in the quarter, resulting in reduced net debt of $342.9 million at June 30, 2023. We ended the quarter with $22.1 million in cash and cash equivalents, down from $25.5 million in the prior year and $33.8 million in the first quarter of 2023.
With that, I will pass it back to George, who will open it up for Q&A.
George Arison: Thank you, Vanna. We’re excited about the progress we made so far this year and look forward to continuing to delight our users, to serve our community and generate value for our shareholders. At this time, I’ll ask the operator to open up the line for questions.
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Q&A Session
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Operator: [Operator Instructions]
Patrick Lenihan : We’ll begin by taking a couple of questions from the Say platform, which is a platform that enables us to take questions from retail investors. First question is from Manuel C. Will you consider making your premium subscriptions more affordable to increased sales? Or how about adding a cheaper plan that only removes ads?
Vanna Krantz : Thank you for the question. Absolutely, we are focused on meeting our users with price points and features that they want. So we have launched what’s called, the Weeklies. The Weeklies allow our users to take our products for a shorter period of time, perhaps when they’re traveling to a new city and just use the product for that duration. That gives them more flexibility and it is a cheaper option. Also, we have recently launched Grindr Plus, and that allows you to have the product without ads. So that also is a cheaper option.
Patrick Lenihan : All right, next question is from Kelly R. Can you explain why you hired little Littler Mendelson, while your employees are attempting to unionize?
George Arison : Thanks for the question. At this time, we are not in a position to comment on a matter pending before the NLRB. We have said and we’ll continue to say that we respect and support our team members rights to make their own decisions about union representation.
Patrick Lenihan : Thank you very much. I believe we have a question in the queue, operator?
Operator: Your question is from Emily Stykes from New Street Research.
Emily Stykes : So the LGBTQ+ community’s dating app landscape has gone a little bit more competitively with the introduction of a new app from another major player in the space that was released a little bit over 2 months ago. How do you see this impacting Grindr and its future base?
George Arison : Our experience from looking at the space for quite some time now is that users generally use more than one app for dating. So we know that some of our users are using other apps that already exist, and we would expect them to continue to do that. What’s really important for us is for our users to have Grindr as the primary app and then for them to log into the app frequently and use it for a long time so that they’re enjoying their experience and have a lot of engagement. I think from that perspective, we are in a very strong position. We know the things that our users want from Grindr in terms of improvements. Specifically, users want more NSFW features, and they want more dating features. And the cohort of users that want those things differ, right?
The younger users want NSFW features, the older users want more dating features, and we are doing a lot to build the functionality for those features. I don’t see anybody out there at this time who is really thinking about it from that perspective between where the user need is and where we think kind of demand for the functionality is as well.
Patrick Lenihan : Great, we’re turning back to our Say questions. From Daniel D, does the leadership team have plans for how to improve market value in the next quarter?
