Q3 2023 Grindr Inc Earnings Call
I was in China three earnings conference call.
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After the Speakers' remarks, there will be a question and answer session.
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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.