Q3 2023 Grindr Inc Earnings Call
I was in China three earnings conference call.
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Kim Reinders: I would now like to turn the conference over to Kim <unk> Reinders head of Investor Relations. Please go ahead.
Speaker Change: Thank you moderator Hello, and welcome to the Grinder Q3 2023 earnings call.
George Harrison: Call will be led by grinder, CEO, George Harrison and CFO banner grants they.
George Harrison: They will make a few brief remarks, and then we'll open it up for questions.
George Harrison: Please note grinder released its Q3 2023 shareholder letter. This afternoon and this is available on the SEC website, and grinders investor page at investors <unk> Dot com.
George Harrison: Before we begin I will remind everyone that during this call we may discuss our outlook and future performance.
George Harrison: These forward looking statements.
George Harrison: May be preceded by words, such as we expect we believe we anticipate or similar such statements.
George Harrison: These statements are subject to risks and uncertainties.
George Harrison: And our actual results could differ materially from the views expressed today.
George Harrison: Some of these risks have been set forth in our earnings release, and our periodic reports filed with the SEC.
George Harrison: During today's call. We will also present, both GAAP and non-GAAP financial measures.
George Harrison: 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 <unk> website and in <unk> filings with the SEC.
George Harrison: With that I'll turn it over to George.
George Harrison: Thank you told before we get started I would just like to say I'm glad I am that had been on board.
George Harrison: <unk> added so many stronger leaders across departments, who will help us attract even more on talent.
Speaker Change: In Q3 that Cox joined US as General Counsel and head of Global Affairs Crystal to narrow as Vice President brand communication.
Speaker Change: And Tomas <unk> as director of artificial intelligence and machine learning.
Speaker Change: With more to come.
Speaker Change: Now for our results.
Speaker Change: <unk> delivered a strong quarter with revenue growth of 39% and adjusted EBITDA margin of 46%.
Speaker Change: It is clear from the results of our work this year on new products and features will be what it was.
Speaker Change: Quite useless.
Speaker Change: We're excited by the progress, we're making on our monetization strategy.
Speaker Change: Executing on these initiatives, while concurrently driving positive cultural change within the.
Speaker Change: Company change it is ongoing and will continue for much of 2024.
Speaker Change: Over the last year.
Speaker Change: For the executive team.
Speaker Change: With that I'll transition to an environment, where our employees can continually learn execute successfully and unleash the full potential.
Speaker Change: Returning to the office on a hybrid basis was crucial to this change in Q2, our leadership team decided Glenda would move to a hybrid work model involving a return to on and off.
Speaker Change: Work environment.
Speaker Change: And in August we announced the adoption of a multi phase which went to office plan.
Speaker Change: This plan is designed to capture the benefits of an office work.
Speaker Change: Preserving the flexibility that so many of us have come to them.
Speaker Change: Being back together in the office will enable us to deliver better results for our users and for our shareholders and I'm excited about the pipeline of projects, we're working to prioritize right now.
Speaker Change: Projects include innovation focused on building improved functionality to allow users to better find what they need within our app and new features that better unable behavior already taking place within the hour.
Speaker Change: This is all in addition to the AI capabilities, we're building to help us provide users with unique insights about each other and to better connect with each other.
Speaker Change: About the work that we're doing.
Speaker Change: Forward to telling you more about it in the coming quarters with that I'll hand, it over to Dana to discuss our financial performance.
Thank you George and Hello, everyone.
Dana: You just heard grinder achieved 39% year over year revenue growth to $70 3 million for the quarter with an operating margin of 24% and adjusted EBIT margin of 46%.
Dana: Our continued financial performance in the first three quarters has led us to update our full year outlook. We now expect revenue growth in 2023 to be at or above 31% up from 28%.
Dana: And our expected adjusted EBIT margin to remain at 41% or better.
Dana: The adjusted EBIT margin outlook reflects comparatively higher GAAP operating expenses in Q4 compared with Q3.
Dana: Q3 revenue of $70 3 million for the quarter was up 39% year over year from $50 4 million driven by strong sales of our subscription and Ela card products.
Dana: Direct revenue increased by 43% year over year to $61 6 million.
Dana: Indirect revenue was up 21% year over year to $8 7 million.
Dana: In the third quarter average monthly active users increased 8% over the prior year and 3% sequentially to $13 5 million.
Dana: Average paying users in the quarter increased 18% over the prior year to 962000.
Dana: Due to the increases in both average MAU and average paying users our average payer penetration rate was seven 1% for the third quarter.
Onto a more detailed results.
Dana: Our average revenue per paying user increased to $2 and 25% sequentially to $21 33.
Dana: This quarter.
Dana: Operating expenses, excluding cost of revenue was $35 4 million in Q3, 2023 up 5% year over year.
Dana: This reflects higher people costs, comprising lower salary and benefit expenses in the latter weeks of the quarter. Following our implementation of a return to office initiative.
Dana: Offset by severance costs and higher legal and other professional services.
Dana: Net loss for Q3 was 400000 versus a loss of $4 7 million in Q3 2022.
Dana: Net loss margin for Q3 was 1% compared to 9% in Q3 2022 with the improvement due to lower sales and marketing depreciation and tax expenses.
Dana: Adjusted EBITDA for Q3 was $32 6 million or 46% of total revenue, primarily reflecting our strong revenue growth as more grindr users adopt expanded subscription and Ala carte offerings.
Speaker Change: Adjusted EBITDA results relative to GAAP operating expenses benefited from the add back of generally.
Speaker Change: Nonrecurring severance expenses related to implementation of our return to office initiatives.
Speaker Change: Turning to our balance sheet, our net debt position was $343 4 million at September 32023, we ended the quarter with $29 9 million in cash and cash equivalents up from $27 2 million in the prior year and $22 1 million in the second quarter of 2000.
Speaker Change: 'twenty three.
Speaker Change: Yeah.
Speaker Change: Finally, I'll recap, our revised 2023 outlook as shared in our letter.
Speaker Change: Based on our performance year to date, we have increased our revenue growth guidance for the year to be at or above 31% and our adjusted EBITDA margin remains at at least 41% for the year.
Speaker Change: This outlook reflects our strong performance year to date.
George Harrison: With that I will pass it back to George to begin our Q&A.
George Harrison: Thank you Anna at this time I'll ask the operator to open up the line for questions.
Speaker Change: Thank you and ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by the number one on your telephone keypad.
Speaker Change: You will hear at retail from acknowledging Eric West and your question is going to be pulled into order. They are received should you wish to declining from the falling process. You made practice star followed by the number two and if you're using a speaker phone. Please keep your handset before pressing any key one moment. Please for your first question.
Kim Reinders: And your first question comes from the line up well he scorecard need from rock and Kim Your line is open.
Speaker Change: Oh, Hey, thanks for taking my questions.
Kim Reinders: Great quarter guys.
Kim Reinders: <unk> just perhaps.
Speaker Change: Just high level, perhaps talk about how do you feel.
Kim Reinders: The algorithm for growth over the next.
Kim Reinders: For 24 months with regards to the top of funnel.
Kim Reinders: Users Baltimore for non paying users.
Kim Reinders: Monetization like.
Kim Reinders: Ideal world how do you see in these two drivers would trend in contribution of growth.
Kim Reinders: A couple of follow ups on.
Kim Reinders: Next year's investments.
Kim Reinders: Yeah.
Kim Reinders: So I'm happy to start and then I'll ask Renee to add as well so when we got here about a year ago. So.
Speaker Change: When our one year publicly say that im sure.
Speaker Change: We've said that the biggest opportunity in terms of revenue growth with binder is from driving greater monetization of our current users we are significantly under monetized compared to our peers.
Speaker Change: Do you primarily because a lot of features that you just want to before we don't economy.
Speaker Change: Are you focused on launching.
Speaker Change: That people will want to pay for.
Speaker Change: This is an example of that and that has done really well and we'll have many more.
Speaker Change: <unk> chosen inside of subscriptions that we will be building and launching in the coming quarters that will help with monetization historically, China has been very much on the free side.
Speaker Change: It kind of free and paid.
Speaker Change: We also added more features for free versus our peers in the dating ecosystem.
Speaker Change: So the best way to drive people to become more paying customers.
Speaker Change: Me too.
Speaker Change: It would be too.
Speaker Change: Have more features painful.
Speaker Change: On the funding side, obviously, we have great top of funnel growth and that's all organic.
Speaker Change: We launched features that you're quite excited about because people know that they should come through.
Brian: Brian It to meet members of the community and the community is very important but we are not dependent on the top of funnel growth in order to have significant.
Speaker Change: Okay.
Speaker Change: And in penetration.
Speaker Change: Oh.
Anything you want to add.
Speaker Change: I think that really.
Speaker Change: George summed it up properly we are really thinking about converting these are is that we already have at seven 1% penetration there's plenty of room to go until we get to.
Speaker Change: What I would say March and both of those numbers and we are going to continue to do that through developing products and features.
Speaker Change: And frankly product pricing that enables more of our users to convert and compel them to want to convert who are paying user because there's just so much value in what we're here to offer them.
Speaker Change: I know Robert you were a bit muted story and said in the past we've said there'll be her really focus on our global strategy, but frankly thinking about them.
Speaker Change: Domestic first and then rolling that out. So you can you can sort of see a little bit of wave is that coming in the future just to start to address your investment.
Speaker Change: Investment areas for the following year.
Speaker Change: Yes.
Speaker Change: Okay go ahead, we can promote.
Speaker Change: Oh, sorry go ahead.
Speaker Change: No go ahead with your follow up questions.
Thank you.
Speaker Change: I guess so.
Speaker Change: The other question was just around incremental investments as you look ahead next year you already have very healthy EBITDA margin I can think of.
Speaker Change: Quickly the EBITDA margins can go.
Much higher based on your core business model itself. So perhaps talk about how are you thinking.
Speaker Change: Philosophically around investments for growth versus.
We're monitoring more profitability in the next 12, maybe 18 months are there specific new turnkey new investments that you wish to do.
Speaker Change: But are there on the horizon that we need.
Speaker Change: As investors to keep an eye on.
Speaker Change: But I think the most important thing on this is that right now our team is smaller than it had been historically.
Speaker Change: Okay.
Speaker Change: Luckily in as it is in our financials that have been found today our team has.
Speaker Change: Shrunk in size because of our return policy so our focus from investment.
Speaker Change: To rebuild.
Speaker Change: Our team is back at least at the levels that we're at.
In the first half of the year, obviously, we are going to be very deliberate in how we do that and in how we ensure that we attract talent that wants to go after audacious goals.
Speaker Change: Impossible things on behalf of <unk> holdings.
Speaker Change: Holders, but.
Speaker Change: From that perspective.
Speaker Change: And then we're going to make.
Speaker Change: Can you kind of rebuild the team.
Speaker Change: We believe there is a lot of opportunity in the products to the new features and new things that our users will be wanted us to build.
Speaker Change: Around how they use the product and obviously that you need engineers and product managers to invest in technology, but we generally.
Speaker Change: Confident that we can do that with a fairly lean team and to start with getting back to the size that we were.
Speaker Change: Earlier in the January February time line.
Speaker Change: And just to add really what these people are going to do is to continue to.
Speaker Change: Develop our product pipeline, which we have nicely filled for 'twenty before but of course, that's a never ending project given that the company has really just started to think about the monetization levers and is evolving from just connection to connection and monetization. So that would be so cool predominantly be working on.
Speaker Change: Okay Awesome. Thanks, George since then.
You go back in queue.
Speaker Change: And once again, if you'd like to ask a question simply press star followed by the number one on your telephone keypad.
We'll also be taking questions from the se platform, which is a platform that enables us to take questions from retail investors.
Speaker Change: So one other question from G&P Gina why does the team doing to add value to the entry version of the App. It seems to restricted at the moment. The premium versions are too expensive for our younger user base.
Speaker Change: Okay.
Speaker Change: I think we might be having some taxes and.
Speaker Change: <unk> right now.
Speaker Change: Yes, we can hear.
Speaker Change: Here you George.
Speaker Change: Okay.
Speaker Change: At Tilda do you have any more questions.
Speaker Change: Nope I think the team has re dialing in apologies just give us a moment.
Speaker Change: Sure.
Speaker Change: Okay.
Speaker Change: Goodbye.
Speaker Change: And ladies and gentlemen, please standby your conference will resume momentarily.
Speaker Change: Thank you apologies gone those technical difficulties, we somehow got dropped off the line can everyone hear us now.
George Harrison: Yes George.
George Harrison: Great. Thank you so to the to the first question.
George Harrison: When we pay as evidenced by nodes sold from Chinese ownership to the current letter to shareholders. We've been laser focused on ensuring that our product is one path.
George Harrison: And obviously you have been investing heavily in the product to make that happen. This year, we launched the new home screen and the new profile page with arch photos and quick on navigation.
George Harrison: That hasn't really improved the speed of the App, which we're really excited about the year. Prior we want watched albums and since launched Arby's has been.
George Harrison: Used over 1 billion times over 1 billion Alban says, we should have been shared which is great and this year we.
George Harrison: Also added video two album.
Speaker Change: I think all of those things are making there.
Speaker Change: Entry product or the free product better even though historically, we've actually had the most features you can find in any dating app in the free product.
Speaker Change: One of the biggest complaints historically has been that use it or lose all their chats.
Speaker Change: When they switch phones and have to re download the app and that's because we used to store chats natively on the App, we've moved away from that in our Stoney Chad.
Speaker Change: On the web, which obviously has to remove because you've made a lot of you that useful why not why they didn't get back or somebody.
So I think that's a lot of great. Examples of improvement that we've made it a free product for the last 18 to 24 months and we'll continue to do that in the coming quarters. We also introduced extra weekly subscription price at 12 99.
Speaker Change: Earlier this year and that was in response to our users asking for a lower entry price point.
Speaker Change: Thanks, George our next question will be from eight in Kay who asked will there be any patents for <unk> shareholders.
Speaker Change: Thanks, Adrian will actually we have had discussions on this topic, but we really have nothing to say on it at this time.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Adrian Am App, what are the plans for expansion of the extra subscription.
Speaker Change: Thanks for the question.
Speaker Change: As you know this year, we added our web product, which is only available to extra and unlimited subscribers. So obviously there was a very significant condition to be pain offering.
Speaker Change: Yeah.
Speaker Change: Generally speaking historically minded approach has been to err on the side of a free product when compared to other dating applications. The.
Speaker Change: The functional that we offered in three properties far more significant than our peers.
Speaker Change: And now we're focused on expanding the product feature set and opportunities where people can actually pay for the product.
Speaker Change: And so you should expect the mortgages will be launched on the tank side, but then it'll be a mix between things that we might launch in their paying subscriptions or an ala carte.
Speaker Change: Thanks for that.
Speaker Change: I know users, who tried grinder and one we're unhappy with add back basically froze the app.
Speaker Change: And then it takes.
Speaker Change: Before they can reach.
Speaker Change: They just love being your option can something be done to make these add less intrusive.
Marc: Thanks, Marc for the question.
Speaker Change: And Archie Greiner offers an incredible amount of values for free.
Speaker Change: More than all of our peers and users spent about 60 minutes a day on the App. So it's good engagement.
Speaker Change: Advertising allows us to offer a robust free product and it provides the investment dollars to improve the app.
Speaker Change: And it's really important to note that we offer very few ads in the app compared to other products that we have that have as heavy users usage like grinder.
Speaker Change: Also we actually did introduce a lower priced subscription tier called extra weeklies for folks that want to enjoy the app without any advertising at all.
Speaker Change: And finally, we really are starting to embark on an effort to make the ads you see more relevant to you. It's the early days, but we hope that in the next year or two we can make meaningful improvements in this area. Since we know that we have a higher highly desirable demographic that advertisers want to reach.
Speaker Change: Thank you Amanda from Sham H, one O grinder fix the issue, where a user block buy one and that block person enable to unblock themselves.
Speaker Change: I've got this issue up to I T, but nobody seems to know the answer how can the blocking feature be such an issue that is taking so long to address.
Speaker Change: Thanks for the question.
Speaker Change: <unk> Trust and safety are really important pirates question the company and we've said this many times privacy requirement for our users.
Speaker Change: The main reasons for that including the fact that we operated in many countries might be engaged legal and we are really focused on ensuring that people can protect the privacy to the fullest extent possible.
Speaker Change: Precisely for the reason of privacy.
Speaker Change: And most of the management completely removed from customer service issues related to specific users.
Speaker Change: We have a team of professionals managing that and we taught them to be able to focus on protecting our users' needs and we don't ever find out what might be happening with specific users.
Speaker Change: Without knowing the details of the account or a constant question, it's come in a little bit difficult to know exactly what that users experience might be.
Speaker Change: But users are not able to unblock themselves.
Speaker Change: So if you block somebody may Kent on block <unk>.
Speaker Change: And become visible to you again, what is most likely happening that somebody is a day, leading their old account and it is a re creating a new account with similar photos.
Speaker Change: Many of our users choose to purge their older come in and create new ones.
Speaker Change: This is not against the guideline and there are a lot of reasons why users, including for privacy reasons might choose to do that for example, if somebody might have need somebody that's a rich.
Speaker Change: In their account, but the upper user does not want to be the favorite and this might be one way in which they kind of eliminate their relationships with and I have built on the App and then talk to you on that.
Speaker Change: If someone is harassing others or breaking guidelines, obviously pleased with how the customer support and that can be addressed.
Speaker Change: But I do want to emphasize one more time that privacy and safety are a top concern for our team and will continue to be very focused on that.
Speaker Change: Built upon us in the future. We recently published a blog posts on this topic and and encourage everyone to take a look at that for more details.
George: Thanks, George from Louis fee.
Speaker Change: And we'll grind or add unclaimed shop option. This will enable us to buy potential grandeur merchandise or gaps in Santa users I think that's it.
Speaker Change: It would increase the value ambitions.
Speaker Change: Great question, and we are definitely very proud of the <unk> brand and recognize that it can be leveraged them in different ways. They have incredible brand awareness in the community and we recently brought on board a new leader for our brand and communications team join US just three months ago to make our brand be utilized in many different ways.
Speaker Change: We have in the past offered seasonally collection of Gartner magic merchandise, usually have done that about twice a year.
Speaker Change: And we tend to rotate that.
Speaker Change: A couple of times a year.
Speaker Change: As a matter of prioritization about whether we're going to do more with that but we do offer a merchandise every once in a while and so please stay tuned nexsan is launched.
Speaker Change: Thank you and our last question will come from.
Speaker Change: The scale and.
Speaker Change: What are some of the features or offerings being explored to compete with other chat our dating apps.
Speaker Change: Great question.
Speaker Change: I've said this on an earnings call before that we know that users.
Speaker Change: Minoring weighs more than just data Amit the dating is at the core of it but there's a lot more that's happening here.
Speaker Change: As a core part of the fabric of the gay community and people use it in many different ways socially as well so we're above a dating in itself.
Speaker Change: We also know that in the dating sphere users will use more than one application at the same time.
Speaker Change: For us what's important is that users have the best possible experience Scania.
Speaker Change: And spend time on the App and use it in the first half that they come to when they when they think about using a dating app.
Speaker Change: For a variety of reasons.
Speaker Change: Whatever they might want to use it for whether its casual beatty long term relationships and social engagement or chatting.
Speaker Change: To that end, we are working on a robust pipeline of features that serve our community in ways that are meaningful to them. Some of the examples of things that are in the pipeline for the future.
Speaker Change: We said this in our earnings today and have said this in the past as well that we are really kind of a teleport, it's a labor and a user to be able to show themselves in a different location from where they might be in any given time and that planning travel which allows them to then make connections prior to that are.
Speaker Change: We're ahead of it and then be able to engage with their users and that new location.
Speaker Change: We also don't want to use our research to understand that our users can be Cabot intent is the app has grown and attracted more users intend has become a little bit confusing different users have different intend for what they're looking for in the app and they are going be looking for us to help them express it in and more clearly it's something that we're working on the future.
Speaker Change: And then lastly, we talked a lot about how AI can be very helpful in helping us make better connections between people.
Speaker Change: Whether it's by what they're looking for or their interests.
Speaker Change: As well as from the generative perspective in terms of making conversations that.
Speaker Change: That's another area that we're focused on to make them better.
Speaker Change: Thank you George Thank you Anna and thank you everybody for joining our call today. Operator, you can go ahead and close it out.
Speaker Change: Thank you presenters and ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
Operator: To the Grindr Q3 2023 Earnings Conference Call. 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 Grindr's Q3 2023 Earnings Call. 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 Q3 2023 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.
Tolu Adeofe: 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.
George Arison: Thank you, Tolu. Before we get started, I would just like to say how glad I am to have you on board. We have added so many strong new leaders across departments who will help us attract even more excellent talent. In Q3, Zac Katz joined us as General Counsel and Head of Global Affairs, Tristan Pineiro as Vice President of Brand and Communication, and Solmaz Torbaghan as Director of Artificial Intelligence and Machine Learning, with more to come. Now for our results. Grindr delivered a strong quarter with revenue growth of 39% and Adjusted EBITDA margin of 46%. It is clear from the results that our work this year on new products and features is being well received by users, and we're excited by the progress we're making on our monetization strategy.
George Arison: Our team is executing on these initiatives while concurrently driving positive cultural change within the company. Change that is ongoing and will continue for much of 2024. Over the last year, a big focus for the executive team has been to facilitate a transition to an environment where our employees can continually learn, execute successfully, and unleash their full potential. Returning to the office on a hybrid basis was crucial to this change. In Q2, our leadership team decided Grindr would move to a hybrid work model involving a return to an in-office work environment. In August, we announced the adoption of a multi-phase return to office plan. This plan is designed to capture the benefits of in-office work while preserving the flexibility that so many of us have come to value.
George Arison: Being back together in the office will enable us to deliver better results for our users and for our shareholders. I'm excited about the pipeline of projects we're working to prioritize right now. These projects include innovation focused on building improved functionality to allow users to better find what they need within our app and new features that better enable behavior already taking place within the app. This is all in addition to the AI capabilities we're building to help us provide users with unique insights about each other and to better connect with each other. I'm excited about the work that we're doing. I look forward to telling you more about it in the coming quarters. With that, I'll hand it over to Vanna to discuss our financial performance.
Vandana Mehta-Krantz: Thank you, George, and hello, everyone. As you just heard, Grindr achieved 39% year-over-year revenue growth to $70.3 million for the quarter, with an operating margin of 24% and an Adjusted EBITDA margin of 46%. Our continued financial performance in the first three quarters has led us to update our full-year outlook. We now expect revenue growth in 2023 to be at or above 31%, up from 28%, and our expected Adjusted EBITDA margin to remain at 41% or better. The Adjusted EBITDA margin outlook reflects comparatively higher GAAP operating expenses in Q4 compared with Q3. Q3 revenue of $70.3 million for the quarter was up 39% year-over-year from $50.4 million, driven by strong sales of our subscription and à la carte products. Direct revenue increased by 43% year-over-year to $61.6 million.
Vandana Mehta-Krantz: Indirect revenue was up 21% year-over-year to $8.7 million. In Q3, average monthly active users increased 8% over the prior year and 3% sequentially to 13.5 million. Average paying users in the quarter increased 18% over the prior year to 962,000. Due to the increases in both average MAU and average paying users, our average payer penetration rate was 7.1% for Q3. On to our more detailed results. Our average revenue per paying user increased $2.25 sequentially to $21.33 this quarter. Operating expenses, excluding cost of revenue, was $35.4 million in Q3 2023, up 5% year over year.
Vandana Mehta-Krantz: This reflects higher people costs, comprising lower salary and benefit expenses in the latter weeks of the quarter, following our implementation of our return to office initiative, offset by severance costs and higher legal and other professional services. Net loss for Q3 was $400,000 versus a loss of $4.7 million in Q3 2022. Net loss margin for Q3 was 1% compared to 9% in Q3 2022, with the improvement due to lower sales and marketing, depreciation, and tax expenses. Adjusted EBITDA for Q3 was $32.6 million or 46% of total revenue, primarily reflecting our strong revenue growth as more Grindr users adopt our expanded subscription and à la carte offerings. Adjusted EBITDA results relative to GAAP operating expenses benefited from the add-back of generally non-recurring severance expenses related to implementation of our return-to-office initiative. Turning to our balance sheet. Our net debt position was $343.4 million on 30 September 2023.
Vandana Mehta-Krantz: We ended the quarter with $29.9 million in cash and cash equivalents, up from $27.2 million in the prior year and $22.1 million in Q2 2023. I'll recap our revised 2023 outlook as shared in our letter. Based on our performance year-to-date, we have increased our revenue growth guidance for the year to be at or above 31%, and our Adjusted EBITDA margin remains at least 41% for the year. This outlook reflects our strong performance year-to-date. With that, I will pass it back to George to begin our Q&A.
George Arison: Thank you, Vandana. At this time, I'll ask the operator to open up the line for questions.
Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press the star followed by the number one on your telephone keypad. You will hear a three-tone prompt acknowledging your request, your questions will be polled in the order they are received. Should you wish to decline from the polling process, you may press star followed by the number two. If you're using a speakerphone, please click the handset before pressing any keys. One moment, please, for your first question. Your first question comes from the line of Rohit Kulkarni from Roth MKM. Your line is open.
Rohit Kulkarni: Hey, thanks. Thanks for taking my questions. Great call, you guys. I'm new to the story. Just perhaps, George, just high level, perhaps talk about how do you feel about the algorithm for growth over the next 18 to 24 months with regards to the top-of-funnel users, bottom-of-funnel paying users, and monetization. In an ideal world, how do you feel these three drivers would trend in contribution of growth? I have a couple of follow-ups on next year's investments.
George Arison: I'm happy to start and then I'll ask Vandana to add as well. When we got here about a year ago or so, we're coming up on our one-year public listed anniversary. We've said that the biggest opportunity in terms of revenue growth at Grindr is from driving great monetization of our current users. We are significantly under-monetized compared to our peers. That's due primarily because a lot of features that users want to pay for, we don't currently offer. We've been very focused on launching features that people will want to pay for. Boost, obviously, is an example of that, and that has done really well, and we have many more à la cartes and/or features inside our subscriptions that we will be building and launching in the coming quarters that will help with monetization. Historically, Grindr has been very much on the free side.
George Arison: If you think of a kind of a line between free and paid, we offer a lot of more features for free versus our peers in the dating ecosystem. The best way to drive people to become more paying customers would be to have more features people can pay for. On the top-funnel side, obviously, we have great top-of-funnel growth, and that's all organic, either because we launch features that people are excited about or because people know that they should come to Grindr to meet members of the community. The community aspect of Grindr is very important, but we are not dependent on the top-of-funnel growth in order to have significant growth in our revenue and in paid penetration. Anything you want to add to that, Vandana?
Vandana Mehta-Krantz: I think that really George summed it up properly. We are really thinking about converting the users that we already have at 7.1% paid penetration. There's plenty of room to go until we get to, what I would say, Match and Bumble's numbers. We are going to continue to do that through developing products and features and frankly, product pricing that enables more of our users to convert and compels them to want to convert to a paying user because there's just so much value in what we're here to offer. I know, Rohit, you're a bit new to the story, and so in the past, we've said that we are really focused on a global strategy, but frankly, thinking about domestic first and then rolling that out.
Vandana Mehta-Krantz: You could sort of see a little bit of wave of that coming into the future just to start to address your invest areas for the following years.
Rohit Kulkarni: Okay, fantastic.
George Arison: Go ahead with your follow-up.
Rohit Kulkarni: Sorry, go ahead.
George Arison: No, go ahead with your follow-up question.
Rohit Kulkarni: Oh, okay. Thank you. I guess the other question was just around incremental investments. As you look ahead next year, you already have very healthy EBITDA margin. I can think of how quickly the EBITDA margin can go much higher based on your core business model itself. Perhaps talk about how are you thinking philosophically around investments for growth versus managing profitability in the next 12, maybe 18 months. Are there specific new chunky, new investments that you wish to do or that are there on the horizon that we need, as investors, to keep an eye on?
George Arison: I think the most kind of important thing on this is that right now our team is smaller than it had been historically, as is known publicly and as is in our financials that have been filed today. Our focus from investment perspective is to rebuild our team back at least to the levels that we were at in H1 of the year. Obviously, we're going to be very deliberate in how we do that and in how we ensure that we attract talent that wants to go after audacious goals and achieve impossible things on behalf of users and shareholders. From that perspective, that's kind of the biggest investment we're going to make to kind of rebuild the team.
George Arison: We believe there is a lot of opportunity in the products to build new features and new things that our users really want us to build around how they use the product. Obviously for that, you need engineers and product managers to invest in technology. We're generally confident that we can do that with a fairly lean team, and to start with getting back to the size that we were earlier in the year, kind of January, February timeline.
Vandana Mehta-Krantz: Rohit, just to add, really what these people are going to do is to continue to develop our product pipeline, which we have nicely filled for 2024. Of course, that's a never-ending project given that this company has really just started to think about the monetization levers and is evolving from just connection to connection and monetization. That's what these folks will predominantly be working on.
Rohit Kulkarni: Okay. Awesome. Thanks, George. Thanks, Vandana. We'll go back in queue.
Operator: Once again, if you would like to ask a question, simply press star followed by the number one on your telephone keypad.
Tolu Adeofe: We'll also be taking questions from the SAY platform, which is a platform that enables us to take questions from retail investors. One of the questions was from Gene T. Gene asks, What is the team doing to add value to the entry version of the app? It seems too restricted at the moment. The premium versions are too expensive for a younger user base.
George Arison: I think we might be having some. Can folks hear us right now?
Operator: Yes, we can still hear you, George. Tolu, do you have any more questions?
Tolu Adeofe: Nope. I think the team is redialing in. Apologies. Just give us a moment.
Operator: Sure. Goodbye.
George Arison: Thank you. Apologies for those technical difficulties. We somehow got dropped off the line. Can everyone hear us now?
Operator: Yes, George.
George Arison: Great. Thank you. To the first question, I think what we'd say is ever since Grindr was sold from Chinese ownership to the current large shareholders, we've been laser-focused on ensuring that our product is world-class. Obviously have been investing heavily in the product to make that happen. This year, we launched the new home screen and a new profile page with larger photos and quicker navigation. That has really improved the speed of the app, which we're really excited about. The year prior, we launched Albums, since launch, Albums has been used over 1 billion times. Over 1 billion Albums have been shared, which is great. This year, we also added video to Albums.
George Arison: I think all of those things are making the entry product or the free product better, even though historically, we've actually had the most features you can find in any dating app in the free product. One of the biggest complaints historically has been that users lose all their chats when they switch phones and have to redownload the app. That's because we used to store chats natively on the app. We've moved away from that and now are storing chats on the web, which obviously has removed the excuse that a lot of users use for why they didn't get back to somebody. I think that's a lot of great examples of improvements that we've made to the free product over the last 18 to 24 months, and we'll continue to do that in the coming quarters.
George Arison: We also introduced Extra Weekly subscription price at $12.99 earlier this year, and that was in response to our users asking for a lower entry price point tier.
Tolu Adeofe: Thanks, George. Our next question will be from Aidan K., who asks, Will there be any perks for Grindr shareholders?
Vandana Mehta-Krantz: Thanks, Aidan. Well, actually, we have had discussions on this topic, but we really have nothing to say on it at this time.
Tolu Adeofe: Yeah. Sabian M. asks, What are the plans for expansion of the Extra subscription?
George Arison: Thanks for the question. As you know, this year we added our Grindr Web product, which is only available to XTRA and Unlimited subscribers. Obviously, that was a very significant addition to the paying offering in the app. Generally speaking, historically, Grindr's approach has been to err on the side of a free product when compared to other dating applications. The functionality we offer in the free product is far more significant than our peers. Now we're focused on expanding the product feature set and opportunities where people can actually pay for the product. You should expect more features to be launched on the paying side, but that'll be a mix between things that we might launch in the paying subscriptions or in à la carte.
Tolu Adeofe: Thanks for that. From Mark. I know users who tried Grindr and were unhappy with ads that basically froze the app on weekends, and then it takes days before they can return. They just left the app altogether. Can something be done to make these ads less intrusive?
Vandana Mehta-Krantz: Thanks, Mark, for the question. Well, actually, Grindr offers an incredible amount of value for free, more than all of our peers, and users spend about 60 minutes a day on the app, so it's good engagement. Advertising allows us to offer a robust free product, it provides the investment dollars to improve the app. It's really important to note that we offer very few ads in the app compared to other products that have as heavy usage like Grindr. Also, we actually did introduce a lower price subscription tier called Extra Weeklies for folks that want to enjoy the app without any advertising at all. Finally, we really are starting to embark on an effort to make the ads you see more relevant to you.
Vandana Mehta-Krantz: It's the early days, but we hope that in the next year or two, we can make meaningful improvements in this area since we know that we have a highly desirable demographic that advertisers want to reach.
Tolu Adeofe: Thank you, Vana. From Sean H.: When will Grindr fix the issue where a user blocks someone and that blocked person is able to unblock themselves? I've brought this issue up to IT, but nobody seems to know the answer. How can the blocking feature be such an issue that is taking so long to address?
George Arison: Thanks for the question. Privacy, trust, and safety are really important priorities for us as a company, and we've said this many times, privacy is paramount for our users. There are many reasons for that, including the fact that we operate in many countries where being gay is illegal, and we are really focused on ensuring that people can protect their privacy to the fullest extent possible. Precisely for this reason of privacy, I and most of the management is completely removed from customer service issues related to specific users. We have a team of professionals managing that, and we trust them to be able to focus on protecting our users' needs, and we don't ever find out what might be happening with specific users.
George Arison: Without knowing the details of the account or accounts in question, it's a little bit difficult to know exactly what that user's experience might be, but users are not able to unblock themselves in the app. If you block somebody, they can't unblock and become visible to you again. What is most likely happening is that somebody is deleting their old account and then is recreating a new account with similar photos. Many of our users choose to purge their old accounts and then create new ones. This is not against the guidelines, and there are a lot of reasons why users, including for privacy reasons, might choose to do that.
George Arison: For example, somebody might have made somebody a favorite in their account, but the other user does not want to be the favorite. This might be one way in which they eliminate their relationships that they might have built in the app and then build new ones. If someone is harassing others or breaking guidelines, obviously, please reach out to customer support. That can be addressed. I do want to emphasize one more time that privacy and safety are a top concern for our team. We'll continue to be very focused on that as we build the product for the future. We recently published a blog post on this topic. I'd encourage everyone to take a look at that for more details.
Tolu Adeofe: Thanks, George. From Lewis C. When will Grindr add a Grindr shop option? This will enable users to buy potential Grindr merchandise or gifts and send to users. I think this would increase the value of the shares.
George Arison: Great question. We are definitely very proud of the Grindr brand and recognize that it can be leveraged in many different ways. We have incredible brand awareness in the community, and we recently brought on board a new leader for our brand and communications team, who joined us just three months ago to make our brand be utilized in many different ways. We have in the past offered seasonally, collection of Grindr merchandise. We usually have done that about twice a year, and we tend to rotate that a couple times a year. It's just a matter of prioritization about whether we want to do more with that, but we do offer our merchandise every once in a while, please stay tuned next time that's launched.
Tolu Adeofe: Thank you. Our last question will come from Francisco M. What are some of the features or offerings being explored to compete with other chat or dating apps?
George Arison: Great question. I've said this on an earnings call before, is that we know that users use Grindr in ways more than just dating. Obviously, dating is at the core of it, but there's a lot more that's happening here. This is a core part of the fabric of the gay community, and people use it in many different ways socially as well. We're both a dating and a social app. We also know that in the dating sphere, users will use more than one application at the same time. For us, what's important is that users have the best possible experience in the app and spend time in the app and use it as the first app that they come to, when they think about using a dating app.
George Arison: For a variety of reasons, whatever reasons they might want to use it for, whether it's casual dating, long-term relationships, social engagement, or chatting. To that end, we are working on a robust pipeline of features that serve our community in ways that are meaningful to them. Some of the examples of things that are in the pipeline for the future. We said this in our earnings intro today and have said this in the past as well, that we are really excited about Roam. It's a way for a user to be able to show themselves in a different location from where they might be at any given time as they're planning travel, which allows them to then make connections prior to their trip or ahead of the trip, and then be able to engage with our users in that new location.
George Arison: We've also done a lot of user research to understand that our users really care about intent. As the app has grown and attracted more users, intent has become a little bit confusing. Different users have different intent for what they're looking for in the app, and they're really looking for us to help them express that intent more clearly. That's something that we're working on for the future. Lastly, we've talked a lot about how AI can be very helpful in helping us make better connections between people, whether it's by what they're looking for or their interests, as well as from the generative perspective in terms of making conversations better. It's another area that we're focused on to make the app better.
Tolu Adeofe: Thank you, George. Thank you, Vana. Thank you everybody for joining our call today. Operator, you can go ahead and close us out.
Operator: Thank you, presenters and ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.
