Grindr Inc

NYSE:GRND

Earnings Call Analysis

Grindr's Strong Q2 2024 with Raised Full-Year Guidance

Grindr reported an impressive second quarter for 2024, showcasing a 34% rise in revenue to $82.3 million and an adjusted EBITDA margin of 45%. Enhanced conversion strategies and premium feature merchandising played key roles. Average monthly active users grew by 7%, and average paying users rose by 14%. The company also raised its full-year guidance, predicting revenue growth of at least 27% and an adjusted EBITDA margin of no less than 42%. Grindr's ongoing innovation, including AI-first features and geographic expansion, is driving strong user engagement and financial performance.

Outstanding Q2 Performance

Grindr recorded an impressive 34% year-over-year revenue growth in the second quarter of 2024, reaching a total revenue of $82.3 million. Adjusted EBITDA margins stood at 45%, showcasing the company’s operational efficiency. The growth exceeded expectations set at the recent Investor Day, driven largely by enhancements in Grindr's paid tiers and premium features.

User Growth and Engagement Strategies

The average monthly active users (MAUs) grew by 7% year-over-year to 14.1 million, with average paying users increasing by 14% to 1.1 million. This uptick brought payer penetration to 7.5%. To boost user engagement, Grindr refined its conversion strategies, launching user-friendly modifications such as the redesigned Explore Chat feature and an advertising opt-out via paid tiers. The focus on enhancing user experience continued to support user growth, as evidenced by a 16% increase in average direct revenue per paying user.

Strong Revenue Segments

Direct revenue, constituting a significant portion of total income, rose by 31% year-over-year to $70 million due to improved merchandising practices. Additionally, indirect revenue jumped nearly 50% to $12 million, fueled by increased partnerships in third-party advertising. The company is on track to maintain strong revenue momentum throughout the year as demand for these services continues to grow.

Raising Full-Year Guidance

Based on strong first-half performance, Grindr raised its full-year revenue growth guidance to 27% or greater and adjusted EBITDA margin forecast to 42% or higher, reflecting the increasing effectiveness of its monetization strategies coupled with operational efficiencies.

Future Product Roadmap and Innovations

Grindr is actively working on exciting new features, like the 'Right Now' suite, aimed at enhancing user journey and engagement, and 'Roam'—a feature targeted at travelers to display user profiles in new locations. While monetization from these features may not be expected immediately, they are critical to user engagement and growth. In the longer term, Grindr plans to explore AI integrations to assist users in finding connections more effectively.

Balancing Growth with Community Orientation

Grindr’s community-driven approach is evident in its ongoing development of features tailored to the unique needs of its user base. They aim not just to retain current users but to engage those who may have drifted away, particularly by offering features that cater to users seeking long-term relationships. The strategy reflects a deep understanding of user demographics and changing user preferences, which is critical for sustained growth.

Comprehensive Financial Health

Grindr’s financial standing remains solid, having reduced its debt by $17.6 million to $298 million. The company ended the quarter with $16.3 million in cash and generated a positive free cash flow of $14.2 million, representing a 38% free cash flow conversion. Maintaining a leverage ratio of 2.2x based on the last 12 months of adjusted EBITDA further solidifies its financial position, allowing continued investments in growth initiatives.

Expanding Brand Recognition

Grindr’s brand awareness is significantly higher in the U.S., at approximately 90%, but is working toward expanding its recognition in international markets. Notably, the recent launch of social media channels in Spanish reflects a strategic approach to engage a growing user base in Latin America. The long-term goal is to replicate this success in other languages, which could drive substantial user growth.

Earnings Call Transcript 2024-Q2

[Operator]

Good afternoon. My name is [ Stephanie ], and I will be your conference operator today. At this time, I would like to welcome everyone to the Grindr's Second Quarter 2024 Earnings Conference Call. [Operator Instructions]

Thank you. I would like to now turn the conference over to Tolu Adeofe, Grindr's Head of Investor Relations. Please go ahead.

[Tolu Adeofe, executive]

Thank you, moderator. Hello, and welcome to Grindr's earnings call for the second 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 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 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, executive]

Thanks, Tolu, and hello, everyone. Grindr delivered outstanding Q2 results, achieving 34% year-over-year revenue growth and adjusted EBITDA margin of 45%. Our Q2 growth was even better than we had expected at our Investor Day in June.

Throughout Q2, we fine-tuned our conversion strategies by launching several enhancements to Grindr's [ paid tiers ], while improving the merchandising of premium features. We modified our Explore Chat feature and made it easier for you to utilize our Boost add-on and opt-out from ads by transitioning to a paid tier. The cumulative impact of these enhancements became clear exiting the quarter. These factors, plus the success of our Unlimited Weekly option combined to drive our performance.

Excellent performance in H1, strong growth in MAU and the strength of our advertising business is allowing us to raise our full year guidance to revenue growth of 27% or greater and adjusted EBITDA margin of 42% or greater. Our continued excellent adjusted EBITDA results demonstrate what a highly efficient and lean team can do when it is focused on delivering value to users and shareholders.

It was great to see so many of you at Investor Day and to share our story and our plans for the future. If you haven't done so already, I encourage you to spend time with materials from Investor Day to get a full sense of our mission, vision, strategy and product roadmap. Grindr is unique because it was built by gay people for gay people, and our long-term vision builds on this uniqueness by focusing on user needs.

With our roadmap, we're building many features to enhance our core use case of connecting users with each other based on their intentions, while driving strong [ monetization ]. Making it easier for users to find fast, immediate connections will always be front and center at Grindr. To make this experience awesome, we're building the Right Now suite of features currently testing in Australia.

In addition, we're working on new features that address the desire of an increasing number of our users to find relationships. Lack of density in a given geography is a key impediment to gay people finding their partners, and with AI-first dating features, we can help our users break down these geographic constraints.

Our goal within our road map is to build early AI features that will provide us with a better understanding of how our users interact with AI and [ inform ] a longer-term integration of AI across the app. For example, we are creating the Grindr Wingman, an all-purpose assistant to help users navigate our app, which will be in testing with select users by the end of the year.

Our core product road map also includes 5 a-la-carte offerings that will roll out over the next 3 years. Roam caters to the [ quarter ] or weekly active users that are traveling during any given week. Future offerings in development will increase inbound interest, provide personalized recommendations and offer user insights about each other, among other things.

In addition to our core product, we also shared our plans for Gayborhood expansion opportunities, such as health and wellness as well as travel and local discovery. Via partnerships, we will help users access curated, relevant services and information that will improve their lives. While investments in these expansions are part of our financial plan, revenue from them is not included in our projections, presenting long-term upside opportunity.

As a team, we are building the Global Gayborhood in Your Pocket and to our success, strive to make a world where the lives of our global community are free, equal and just. With strong momentum in the rest of the year and beyond, we're excited about what fulfilling decision will mean for our users and our shareholders. I'm proud of the progress we've made so far and at the quality of execution from our performance-driven team.

With that, I'll turn it over to Vanna to review the results in [ more detail ].

[Vandana Mehta-Krantz, executive]

Thank you, George, and hello, everyone. Grindr delivered an exceptional second quarter, marked by outstanding performance across all of our key financial and user metrics. Total revenue for Q2 increased by 34% year-over-year to $82.3 million with an adjusted EBITDA margin of 45%. Direct revenue increased 31% year-over-year to $70 million as we improved the merchandising of our premium features and enhanced our paid tiers.

Specifically, average monthly active users increased 7% over the prior year to $14.1 million. Average paying users in the quarter increased 14% over the prior year to $1.1 million, which brings payer penetration to 7.5% for the quarter. And our average direct revenue per paying user increased 16% over the prior year to $22.08 this quarter. Indirect revenue for Q2 was up nearly 50% year-over-year to $12 million, fueled by momentum in third-party ads as we have expanded our network of ad partners.

Moving to expenses and profitability. Operating expenses, excluding the cost of revenue was $36.8 million in Q2 2024, up 17% year-over-year, with the increase primarily driven by compensation-related expenses. Adjusted EBITDA for Q2 2024 was $36.9 million, equating to a 45% adjusted EBITDA margin, up from $26.9 million a year ago or 44% of revenue.

Turning to our balance sheet. We paid down $17.6 million of debt, bringing our debt position to $298 million as of June 30, 2024, and ended the quarter with $16.3 million in cash and cash equivalents. This equates to a leverage ratio of 2.2x based on the last 12 months of adjusted EBITDA. In the second quarter, we generated positive free cash flow of $14.2 million, which results in a 38% free cash flow conversion. As a reminder, our quarterly free cash flow conversion is subject to timing of changes in working capital.

Lastly, as George mentioned, we are raising our guidance for the full year based on our strong performance in the first half of 2024. We now anticipate revenue growth of 27% or greater and an adjusted EBITDA margin of 42% or greater. This revised outlook underscores the ongoing momentum across our business lines and our ability to drive enhanced monetization and operational efficiencies. We're focused on continuing to execute on our business plan and our product road map, and we are excited about the progress we are making.

With that, I'll ask the operator to open up the line for questions.

[Operator]

[Operator Instructions] And our first question will come from Nick Jones with Citizens JMP.

[Nicholas Jones, analyst]

I have a couple. Can you maybe elaborate a little bit more on the merchandising you did to improve conversion? You're performing kind of nicely ahead of kind of what we heard from the Analyst Day. So just curious as to kind of what you're learning as you're launching new merchandising techniques? And do you think you can maybe speed up ongoing conversion or ARPPU? Or kind of what are your learnings and maybe put a [ finer point ] on what it was?

And then the second question is on -- in the shareholder letter, you comment on the Spanish channel being launched in 2Q. What do you need to see to kind of invest more behind that? And then what do you need to see in the playbook to deploy that in other languages?

[George Arison, executive]

Thanks, Nick. That's a great question. So on merchandising, we -- I will kind of start a little bit historically. We historically have not done a very good job in product marketing. A lot of things that are in the app and available to users, whether it's as part of a paid tier or in just -- even in the free product users actually don't know about because we don't tell them about it in an active way.

And often times, people [ are ] like, "Oh, I just discovered XYZ feature" and then it kind of becomes popular because someone either wrote about it in social or virally kind of it takes off, which speaks to the power of the product, but probably is not the best approach when it comes to things where you expect to make money. And so we've been experimenting with product marketing for Boost in various ways over the last year.

One of the things we did is visible in the app, and we call it a Boost [ Fab ] where you can access Boost more easily from the main grid. And that was fairly helpful. It was just one of the things we did in terms of merchandising, and that's effective. So we generally, I think, have a lot of opportunity to do better in how we kind of sell the product and present it.

And another thing that we did in this past quarter is what we call no ads upsell, so basically informing users that if they are a paying customer, they don't see ads. That was really beneficial as well.

Again, you think that all users should know that, but because we don't do a lot of product marketing, people actually don't know what all the benefits of a paid tier are. So those are the types of things we will be doing a lot more of. And frankly, it's both kind of informing people about what's available, but also finding the right places to drop that inside the app where it's easily accessible. That's one of the learnings we've had over time that we need to make things pretty easily accessible to users.

On the Spanish channels, I guess, the way I tend to think about that is that international is a huge opportunity for us, but we tend to think of it as an opportunity in the mid and the long-term, not rather than in an immediate sense. We've done really well internationally already, having done virtually nothing to drive user growth. It's been all viral and word of mouth. And social for us is really powerful, both to engage with our users and also to kind of stay engaged with the broader community of people who could be our users or were our users in the past.

We view our channel as a place where people can come and [ seek ] fun and entertaining content that they can engage with and like. And we do get a lot of traction on social, and I think it's pretty evident. Even when we don't try to create traction, it tends to create a ton of traction just kind of organically, which is awesome.

So given that Spanish is our second dominant language, we have a lot of users in Spanish-speaking countries, and those are growing really nicely, obviously, in particular, in Latin America. We thought that Spanish made a ton of sense as the next language to start doing social media in. And so far, so good, but this is a very early kind of phase of what we do.

Could I envision that one day we do something, for example, in Portuguese? It's certainly possible, but it's not something we are actively kind of thinking about right now. Spanish is a very significant part of our user base, and so it made sense to kind of do that, and we'll make a decision on something else later on. But broadly speaking, as we think about the midterm and the long-term, international is going to become more of a focus. It's just not something we're counting on and expect a lot of results in this year or next year.

[Nicholas Jones, analyst]

If I could ask one more question. How are you measuring kind of the brand efforts, particularly the Grindr Rides America tour that you highlighted? Just curious on how that's progressing in the U.S. and how you're measuring kind of these kind of upper funnel brand efforts?

[George Arison, executive]

Yes. I mean the reality is that we have incredible brand recognition in the U.S. We also have an extremely strong brand recognition internationally, but not as strong as in the U.S., so it's 90-plus percent in the U.S. and 60% in select international regions where we've measured it, which is -- 60%, obviously, is like great for probably a lot of companies. It's just not as great as what we have in the U.S.

When we did something in the U.S. like the bus tour, that's just basically trying to stay top of mind with our users and also to give back to users a little bit as well, right? Because we are a very important part of their lives and being engaged with us in real life has benefits. And that's kind of how we think about that. It's not around, hey, take that 90% brand recognition to 92% because like, we're not going to be able to effectively measure that.

But we saw really great engagement both in terms of people coming to the bus, but also the content that we created from that had incredible engagement in social channels. And so a lot of our strategy is around create content that people like, whether it's for in real life events or podcast or videos and then see -- drive [ traction ] with that socially and then eventually in the app as well. But we're going to do some things in the app that allow us to engage with users with that content as well.

So we were really happy with how the bus worked out. It was frankly beyond any expectations that we had. It was really, really positive. I went to the launch in San Francisco and literally like -- the line to get into the bus didn't stop until it was very late at night and everyone was going home. So engagement will be positive and I certainly would expect that we will do more things like that in the future.

But again, I don't think it's like one thing accomplishes XYZ results. It's a broader approach of really owning our brand and telling our story a lot better so that people have the positive associations that we believe they should with Grindr versus some of the negative associations that come out of [indiscernible] stories that are available in Google that people look up, that maybe happened 10 years ago and probably the article written about it was not fully true in the first place. So that's the goal of kind of our brand strategy. I think it's going really well.

[Operator]

Our next question comes from John Blackledge with TD Cowen.

[Logan Whalley, analyst]

It's Logan on for John. I have 2 questions. First one, just focus around the monthly active user growth, continues to grow nicely. Could you talk about what's driving the strength there while some other players face challenges? And also, just as you look to the back half of the year, what were the biggest drivers in you guys raising that full year outlook? And then I just have one follow-up.

[Vandana Mehta-Krantz, executive]

So with respect to -- thanks for the question. With respect to the MAU growth, it's actually been really strong without us having to pull the traditional levers like performance marketing.

As George said, our brand awareness is really strong in the States at about 90%, but really there's an opportunity internationally. With respect to the MAU growth through the back half of the year, obviously, we're at 7% year-to-date. But with the back half of the year, we're really still thinking about it from a perspective of having more users coming into our platform with, frankly, the products that they're interested in seeing. And so right now, we expect it to be similar to what we're seeing now.

[George Arison, executive]

Yes. I mean, I think the one thing I would add on MAU, and this is not kind of -- that's going to drive a result this year per se, but we believe that there are a lot of users who have used Grindr a lot in the past and might not be using it as much now as they did in the past. There's a bunch of reasons for that, right? People as they become older, in our user base, start thinking about being in a long-term relationship and they try to look for places where they can find the long-term partnership.

We believe that by building features and products that cater to those types of needs that users might have, we can drive more MAU growth as well. And so we are -- that's one of the things we're doing, like at the Investor Day we talked about how the relationship use case and building a whole suite of features for that use case. It's something that we're going to work on and launch. And we believe that it not only has significant opportunity to drive revenue growth from the users that are in the app already, but also to reengage users who probably still use Grindr, but might not be using it on a monthly basis and going to give them another reason to engage with our product.

So we believe that product-driven MAU growth can be very effective, and it has an impact on word-of-mouth. It has an impact on virality, and that all really benefits us. And we are making those investments. Additionally, as I mentioned a minute ago, we do have higher brand recognition in the U.S. than we do internationally. And we know from the work we've done on some of the international countries in terms of learning about them that when people know us in a given country, they use us a lot and they really like the product.

And so we believe that by driving that brand awareness to be higher, kind of getting it closer to where we are in the U.S. over, obviously, many years, that's not going to be accomplished in 1 or 2 years, we will drive more user growth in those countries as well. And that's a significant opportunity for us over the mid and long-term. That's why we think international is such an opportunity. So hopefully, that's helpful kind of as we enter that.

[Logan Whalley, analyst]

Yes. Super helpful. And then just one more question. As you test the Right Now feature and as you kind of gradually roll out the Roam feature, could you talk about any early learnings there? Are you seeing uptake more from current subscribers maybe? Or are you seeing new payers come on board through those features? Really just any kind of reception from users of the app would be helpful.

[George Arison, executive]

So Right Now and Roam are very different products and how we think about them is very, very different. Right Now is a fairly significant user journey enhancement in our product. It's creating a solution for a use case that Grindr is really good at. But as we became bigger and have more and more users that have different intentions, the ease of that immediate connection is not there anymore on Grindr as it was, say, 1 decade ago. And so by creating the Right Now use case and feature set, we are solving that need for users. We had heard about this very loudly and clearly from our users.

The focus Right Now, and all the work we're doing on Right Now and to be explicit again, only some of the features that will be in that suite of features have been launched and tested so far, but there's more to come, is user engagement, right? We are taking the same approach to Right Now as we did to Albums. It's -- Albums went viral and became very, very popular, very, very quickly. That's why so many hundreds of millions of albums get shared on a regular basis inside Grindr. And then over time, we were able to drive better monetization from that as well by seeing more people convert to paying customers, because to send many albums or to have many albums and view many albums, you need to be a paying customer.

So we think of Right Now in the same way. Right Now, it's about user engagement and creating a virality in users because it is a marketplace, and so you need people to be engaged with that. And only after we're successful at that will we think about monetization. So I would not expect significant monetization from Right Now in 2024 or in 2025, frankly. And that's not the objective. The objective is user engagement.

With Roam, that's a difference, right? Rome is an a-la-carte similar to Boost. We said at Investor Day that 1/4 of our users, slightly more, 27%, from the weekly active users are traveling any given week. So Roam is targeted at the user base that is traveling, right? Because it is about showing your profile in a different market from where you live.

So if you think about what successful Roam looks like, it's -- if it achieves 1/4 of what we generate from Boost, that would be like an exceptional outcome. And we believe that so far, we are well on track to do that over the next 1.5 years to 2 years. We've released Roam only to a limited amount of users in top countries, but that's a significant expansion of where that is now available. And our goal is to have it available in a much larger sense, not -- maybe not everywhere, but in most places by the end of the year, and we're very much on track to do that. And we expect that in 2025 we will see monetization benefits from Roam.

But again, when you think about the magnitude of it, 1/4 of our users are traveling any given week, and this is a traveling product, right? So if Boost is our best a-la-carte and the most successful one, not just for Grindr but actually for every other product like Grindr, the very successful outcome for Roam would be 1/4 of Boost.

[Operator]

[Operator Instructions] It looks like there's no additional questions at this time. We'd like to thank you for joining the Grindr’s Second Quarter 2024 Earnings Call. This does conclude today's presentation. You may now disconnect.