Q4 2023 Grindr Inc Earnings Call

Participants

Tolu Adeofe; IR; Grindr, Inc.

George Arison; CEO; Grindr, Inc.

Vanna Krantz; CFO; Grindr, Inc.

Andrew Merrick; Analyst; Raymond James Financial, Inc.

Rohit Kulkarni; Analyst; ROTH Capital Partners

John Blackledge; Analyst; TD Cowen

Emily Stykes; Analyst; New Street Research LLP

Presentation

Operator

Good afternoon, everyone. My name is Bo, and I will be your conference operator. Today. At this time, I would like to welcome everyone to the Grainger Fourth Quarter 2023 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. (Operator Instructions) I would now like to turn the conference over to Mr. Tolu Adeofe, Grindr's Head of Investor Relations. Please go ahead.

Tolu Adeofe

Thank you, moderator. Hello, and welcome to the Grindr's earnings Call for the Fourth Quarter and Full Year 2023. Today's call will be led by grinder CEO. George Arison and CFO, Van Krantz will make a few brief remarks and then we'll open it up for questions. Please note grind to release the shareholder letter this afternoon, and this is available on the SEC's website and grinders Investor page at investors dot primerica.com. Before we begin, I will remind everyone that during this call we may discuss our outlook and future. 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 grinders website and in grinders filings with the SEC. With that, I'll turn it over to George.

George Arison

Thank you, Tolou and thank you, everyone, for joining us today. 2023, our 1st year as a public company for the success. By every measure, we made significant improvements in our product, decreased monetizations for a weekly subscription and boost our card and exceeded our financial guidance. We continue to work on mortgages to grinder with average amount of 8% for the year, the engagement has remained best in class with more than 121 billion checks. And between users, these strong results due to the hard work of our team and also to blenders enduring relationship with the gating and we help users all over the world find connect with one another.
We also embrace a deep commitment to service in the global community, most notably through our wonderful quality initiative, including connecting users to more than 235,000 HIV test kits in the U.S., and that's what we are striving to bring to many more conference in 2023. We also laid a strong foundation for long-term growth, such as developing a robust product roadmap, which includes some great work we are doing on AI and adding outstanding, highly accomplished leaders to our team. In November, we completed a landmark step for blender with the refinancing of our debt closing a new $300 million facility with some of the world's leading financial institutions that we're finding through the Cortina business water.
So when the first public company serving the LGBTQ community can execute this type of transaction pardon with A-List institutions in a tough interest rate environment highlights then only the strengthened, but I believe our business, it also signals that we can help drive a more open and welcoming financial ecosystem. This is very important to our mission, and I want to thank banner 13 banking partners for their work and support in making it happen. Further details about our performance and 2023 focus areas can be found in our shareholder letter, which I encourage you to read.
Next, I'd like to outline our three key priorities for 2024. Given the robust nature of our free offering to increase monetization over the long term, we need to provide new value added features to our users that they're willing to pay for to do this feat to build features and products with a better understanding of our users. We know that the vast majority of Quanta's users use it for casual dating. So we often have the same users use it for much more as a primary place to find long-term relationships, a source for networking for finding information about what's going on in the community for the safe places article in different countries and much more. So the features that better serve users specific intent will allow us to cater to the needs of our customers, creating value for them and opportunities for monetization for Brineura.
Our second priority focuses on our brand and ensuring that we proudly tell the story of Warner's great legacy of serving and positively impacting millions of people use their community around the world. Negative perception, grinder rooted in societal, cultural and historical prejudice sensationalism chain reinforced by long suit. Resolved issues and inaccuracies about our product are still present all around us and living our audiences left unaddressed. These inaccurate perceptions can have a negative long-term effect on our business we recognize that creating value for our users and shareholders and is taking these issues head-on in 2024, but have focused on amplifying the crucial and impactful work that is at our core by telling the true story of Cornerstone culture and the real relevance and success of our product, both within and outside of the community.
And our third priority is to build a performance driven culture of excellence and innovation to start out with our return to office initiative last summer. We believe strongly that the combination of an important social mission with a workforce playing to win will create great companies. We're focused on building out our team in key functions with high performance. And we believe that the strong performance driven culture will help drive strong long-term growth for Brenda, starting with the 2024 guidance we are providing today. I'm excited to share more on all of these initiatives and much more about Quanta at our first Investor Day, which will be held on June 26th, 2020 for New York City.
The event will be a fantastic opportunity to gain deeper insight into our Company and engage with leadership registration details will be shared soon. With that, I'll hand it over to Werner to discuss our financial performance.

Vanna Krantz

Thank you, George, and hello, everyone. I'll start by summing up the year and then dive into the fourth quarter. Grinder delivered outstanding results in 2023 with revenue growing 33% to $260 million for the full year. And our adjusted EBITDA margin came in at 42% of revenue for a total of $110 million. Both revenue and adjusted EBITDA margin were well ahead of our original guidance for the year, and our revenue increased further from our guidance update in November. Overall, our performance was driven by a combination of paying user growth and increased average revenue per paying user as we benefited from the success of the launch of the extra weekly subscription and a full year contribution from our popular boost ala carte offerings.
In fact, our direct revenue grew by 38% in 2023. We continue to see strong engagement in our app throughout the year as average monthly active users increased 8% in 2023 over the prior year, and our average paying users increased 19% to a record 937,000 our average direct revenue per paying user grew 16% year over year to $20 and $0.05, primarily driven by the extra weekly subscriptions. Turning now to the fourth quarter revenue was $72 million, up 32% year over year from $55 million. This includes $62 million of direct revenue, which was up 39% year over year and $10 million of indirect revenue, which was up 1% year over year.
Operating expenses, excluding cost of revenue for the fourth quarter of 2023 were $37 million, down 0.3% versus last year. An increase in people costs was largely offset by a decline in depreciation and amortization. Operating expenses, excluding cost of revenue for the full year of 2023 were $137 million, up 5% year over year versus 2022 of $131 million. This $6 million year over year increase reflects higher people costs, which includes a $9 million severance expense driven by a return to office program. This was offset by lower depreciation and amortization costs. Net loss for the fourth quarter was $45 million compared with net income of 5 million in Q4 2022 for the full year and fourth quarter of 2023.
We incurred $61 million and $50 million, respectively, in expenses related to warrants and our debt refinancing. Adjusted EBITDA for the fourth quarter was $29 million, equating to a 40% adjusted EBITDA margin. Turning to our balance sheet, the headline for Q4 and the year was the new $350 million credit facility announced in November. The facility consists of a nearly $300 million term loan A. and a $50 million revolver. This new facility was a key objective for us in our 1st year as a public company as we focus on replacing the much higher cost of debt we carried for almost a year.
The new facility results in about $17 million in annual interest savings inclusive of the new term loan. Our net debt position was $341 million at December 31st, 2023 we ended the year with approximately $28 million in unrestricted cash and cash equivalent. Combined with our strong cash generation profile, we have ample liquidity to fund the business and execute on our growth priorities. Let me now turn to our outlook for 2024. We have set guidance for this year of revenue growth greater than 23% and adjusted EBITDA margin of at least 40%. Our guidance reflects our expectation of another year of strong growth and profitability driven by continued paying user growth.
A full year contribution from our weekly subscription offering, which was rolled out globally in May of 2023 and contributions from existing and new offerings expected later in the year. Our adjusted EBITDA margin guide reflects investments in our strategic priorities that George highlighted, including product roadmap, talent acquisition and modest brand spending. I also want to briefly touch on how we're thinking about international opportunities. We continue to see fairly consistent and healthy mall growth around the world. And we have been pleasantly surprised by the pace of monetization. International markets contribute more than 40% of total revenue in 2023, responding well to the weeklies and Boost product launches despite us not having yet focused on our end market localization and price optimization efforts.
As a result, we will be prioritizing go-to-market optimizations in key countries with the goal of further accelerating paying user growth over time. This effort is in the early stages, so we have not factored any uplift into our outlook for this year. With that, I'll ask the operator to open up the line for Q&A.

Question and Answer Session

Operator

(Operator Instructions) Andrew Merrick, Raymond James.

Andrew Merrick

Hi. Thank you for taking my questions. I wanted to talk a little bit about younger users. So can you talk a bit about your level of satisfaction in the top of funnel with younger users can been hearing anecdotal reports of burnout with dating apps and some of the mass market comps. I guess how are you tuning your product and AI. to position grinder? Well for changing consumer taste to to the extent that you see them and maybe you don't.

George Arison

So thank you, Andrew. It's a great question. Really appreciate you joining the call. So we believe Equinor has a lot of room to grow ahead in terms of acquiring new users, both in the US and abroad, and we're seeing that happen in general in our product, we saw 8% number of last year, and we expect that to continue in the future. The reasons I think threefold and bear with me as I walk through that one is that gave people have been connecting digitally for a very long time. And that was actually true before the Internet dating took over.
A lot of people would use a phone dating services to connect and then it shifted on to the web. When I finish causing 2000 everybody I would need to do much in DC or New York was already on dating clarified data com and Manhunt and others. And so this has been part of the fabric of the of the user base for a very long time. And all the research that we see out there suggest that this is going to continue.
And secondly, the reason this is true is because our the community is not as big as the state population, likely a subset of the population and so you want to be around people who are more like you will have something in common with you. And the digital channels like Wrangler are a great way to connect 50 per quarter like you, especially with younger users who are still trying to figure themselves out, they just 2018, it became it out and they came out potentially or just finished college figuring out what life would be like asking someone who is no different than majority.
The population allows you to do that better. If you are around people like you and so that benefits will be in a product like vendor that has the full subset of the of the people in that community. And then lastly, even in real life people oftentimes moving to large cities and they go into neighborhoods and living gave a growth rate, every luxury, they have the capability and grind or is it a bit further on your digital device because they gave it on the phone. And so we are able to recreate that in real life experience for users already. And that's actually why our users use provider for so many other ways than just daily on all the other kind of ways in which they connect with each other. So that's kind of what we're seeing so far.
And what we think will continue to happen in the future as far as products are concerned, is very sure that to have a ton of room and opportunity to build new products to address the needs that you have to have. Our product development is done through understanding what users want and then trying to meet them in those needs through new features and products. We have built a really robust product strategy over the last year that we are really excited about. And I think a lot of it is addressing their needs. So we're pretty excited about giving you a chance to kind of see more of that and hear more about it at the June Investor Day.

Andrew Merrick

That will not great, really appreciate the color there. Very helpful. And then maybe one more, if I could. On it sounds like you're still working on scaling your team back up after the return to office mandate. How has the progress been against your goals to date, any significant learnings there? And maybe any specific areas that have been easier or harder to add headcount in than you had thought in total?

George Arison

Yes. I mean, as you can see from our financials that we had about 100 people at the end of last year, so the 18 much smaller than we had inherited when we joined, we peaked at about 25 or so. And it's very important for us to be able to hire the right talent that is really committed to both the mission of the business and to working the way we address business went to work and we are really committed to a performance-driven culture in which what matters we're doing really big thing. The goals are ambitious and we want people who want to go after those goals but wasn't working. And so I do not expect us to be able to get back to the numbers we're at in a year. Can you hire that many people in the year?
Absolutely. But you won't be able to maintain your bar as well. And you won't be able to integrate people into the company as well. And so we don't want to go there. We are fortunate that we can supplement any that we have in hiring contractors would have a really strong set of contracts supporting us in engineering and product and some of the other areas they're fully integrated with our team. So our pause in engineering for example, combined contractors and full-time employees together. And so it's a very integrated model of working, and that's been going really well.
And that said, we've had actually incredible success in hiring. I won't share any specific numbers, but I was really pleasantly surprised over the last three months, for example, at the speed of being able to hire engineers and bring folks on board has been really awesome. I think it speaks to the fact that we have over the music business, it's not common to find businesses that are growing as well as binder is growing and that have a higher EBITDA margin as we move to put a lot of people who want to be in a nimble environment where they can have with the big impact grinder that would be appealing place to work. And so we've seen really great progress in bringing on board a great engineering talent into vendor over the last year.

Andrew Merrick

Appreciate the detail. Thank you.

Operator

Rohit Kulkarni, ROTH.

Rohit Kulkarni

Again, thank you and congrats on a great quarter and a good year 23 on first question to you, John, just on the first priority that you outlined on your the better understand user intent from speed, you can double-click on that and perhaps talk about how are you thinking about new products, incremental investments and the auto, why it seems as if auto is going to come in 25 and not in 24. So just maybe talk about them, what is it that you want to achieve when it comes to learning user intent?

George Arison

Yes, absolutely. So we believe that Grainger is used in a lot of different ways that's based on data. We may not even share some data publicly. Now 90% of people are using grinder for for casual dating, but about 50% to 60% of people want to use it for long-term relationships, for example. And then we also know that they use it for travel to kind of figure out what they should be doing when they travel to new places. And 20 was kind of a lot, I think a really quick one kind of thing to do for health information on public health, about inflammation in particular for social connections with each other, but French's. So there's a broad set of use cases that people already use the product for, which is really fantastic. We love that and that's the reason why we have as much engagement as video.
We paid $121 billion chat on shared last year. And so what we want to do with the product as we extend the product functionality to support all the different use cases right now, a lot of this happens to be chatting with each other, which is great we want to encourage that. But imagine a world where with a click of a button, you could go into a part of the product where everyone is engaged in a desire to have a long-term relationship with a subset of our users, but they all want to take maybe your profile. There is a little bit different, maybe slightly different type of profile than I am and you might have for your more tangible dating experience, maybe you say different things in it because people aren't in different inflation.
Maybe your photos are different as well. So that would actually be will be appealing to our users because we've heard that from them. They want that and we believe that that will create better engagement with users to be able to kind of understand what their desires are. And so the products that we are envisioning are all built around what the users need for do we hear from users and how can we satisfy those needs as far as the ROI on those things, we tend to think of the upfront development and where it kind of drives revenue and a very interconnected way, both along our cards and infrastructure, some of the products that we're building and testing such as teleport power conversion as ala carte products.
So those would be on a per use basis, people will pay for them. And then some of the other products like dating, which is a combination of many, many features, we probably envision as a new subscription tier where people will pay for that because it's a big value add in general, my experience in building technology now for nearly 20 years that when you create value for people, they are very excited to pay for it because they see a lot of benefit from that. And so as long as we build products that create value, I'm very confident that we'll be able to drive good financial performance.

Vanna Krantz

And Rohit, just to add a little bit to that. I mean, when we think about ROI, we're really thinking about just increasing number of paying users. And as you saw, we increased it by 19% in 2023. And so as we put out more use cases that we've already done research on to recognize that, yes, our users are looking for TellApart. They are looking for things like right now and dating. There's like a lot of research that we put into play before we design the product and make sure it's pretty successful.
That being said, usually our products take a V. one or a V. two to actually really hit perfection and that's what you saw with boost this year. Posted a very nice job in our ala carte is performing nicely for us. We did tweak it at the beginning of 2023 to really develop that kind of incremental again. So yes, we think about the ROI, but we recognize that it could be a V one or V. two. And before we do it. We certainly do user research to make sure we actually prioritize the products that they want.

Rohit Kulkarni

Okay. Thank you, guys. And one on 24 guidance, to the extent you can provide more color on the drivers behind the revenue growth, both on the paying users and kind of RPU as well, directionally even and also, obviously, margins, you're guiding to slight step down in margins, although when all's said and done, they may still be above 23 levels. Maybe just just a double-click on that to what's your hiring outlook as well as the on how should we think about the cadence of margins as the year progresses?

George Arison

So and certainly, we're really excited about another strong year in 2024. And I would say that our guidance is still extremely Excellent. And certainly with respect to 2024, we're really thinking about the weeklies in the first half of the year as you know it really fully launched midyear in 2023. So we'll get the full year benefit of that.
We also have and a few new products that we've alluded to that will be rolling out that are already in test. Again, it could be the one kind of version. So right now you see our guidance at 23% for revenue growth remember, last year we showed 25% and we actually ended the year with 33. So there will be more to come as the year progresses. I think you probably recognize our philosophy is certainly to be more prudent at the beginning of the year as we're still continuing to test before the full rollout goes out.
With respect to our investments like George said, we have three real investments, PRODUCT brand headcount. I would suggest that really from a EBITDA perspective, you're not going to see too much movement there because a lot of our consultants that are onboard now we're going to flip into FTE. So I don't think you're seeing like any big bumps in terms of headcount spend, again, prudent in our guidance at the beginning of the year to confirm that we will absolutely hit our numbers. So they get a lot of growth at the onset of the roadside and thanks and congrats again.

Rohit Kulkarni

Thanks.

George Arison

Thank you.

Vanna Krantz

Thank you.

Operator

John Blackledge, TD Cowen.

Rohit Kulkarni

Great, thanks. I have two questions. First State, you mentioned that you plan to amplify the brand story as part of your 2024 priorities, do you have plan to adjust marketing efforts or launching a branding campaign to help with the story? Just kind of curious around color there. And then the second question would be around payer conversion to step up in 2023. I'm just curious about the drivers of the improvement there and then kind of can we expect further conversion uptick as part of the 24 outlook?

George Arison

Thank you. Great. Thank you very much for those questions. I'll take the first one and then I guess I will take the second one. So on marketing, just from a spend perspective, any increase in marketing spend is fairly limited. So its impact on margins is very small, but we do think that the work that we will be doing in marketing is still very important and critical for the future. So Grainger has done amazing things historically in the community and frankly, for the world and put it to work for for people who need our product. We are in 100 countries and about 60 of those utilities look at the game and kind of the only way to be able to connect in many of those places.
And but at the same time, there are a lot of assumptions about the product and keep in mind that are just even not true for maybe were true a decade ago and have long been addressed and are cautious there differently now and so what our objective with marketing is on the one hand is to correct some of the assumptions and to really amplify the awesome things that granted us to talk about the fact that, for example, last year 200,000, about 5,000 people in the U.S. ordered an HIV test provider. We're able to get that into home and about a third of those people had never had initially said before.
Those are the kinds of stories that we don't talk about a lot, but we need to so that people have a better appreciation of what Grainger is it does and the role that it plays in society. And then secondly, with our users themselves, you know, they come to our social media channels to enjoy really fun kind of content that can be really powerful in creating engagement with our users outside of the products as well as keeping us top of mind with new users in the future. And that's really a fact that we have really powerful social channels out there. And so investing in content in those sorts of social channel is really valuable for us.
And so we just recently brought on board a new leader for Progress brand marketing and actually moved him from the UK because we're so uniquely qualified to be effective for us. And already we are seeing really positive impact of the work that he and his team are doing. For example, recently, they launched a new podcast has just taken off in a really incredible way with hundreds of thousands of people engaging with that podcast content across different social media channels. We think that's really powerful and connected community that we will be done.
So nothing in terms of user acquisition, focus from cost perspective, but that's not something we need to do or would like to have. But in terms of telling our story better across broader channels as well as social channels. It can be very lumpy.

John Blackledge

And then on the second question of the 40 plus, I'm not sure it's Thank you for the question. So you saw that we grew our paying users by 19% in 2023. And really, we can attribute that to our new product offerings. Yes, we put out a weekly subscription tier, which was really the same as the extra, but a lower price point. We were extremely pleased with how little cannibalization we had, how we converted more and more users. And in fact, we have a double benefit because often the weeklies ended up renewing and therefore, that actually also impacted our ARPU.

George Arison

In terms of conversion, you're absolutely right we had a very nice lift in 2023. Our conversion, what I would suggest is we certainly see and continued now growth. And you should imagine that our conversion rates like there's no real no real expectation in our guidance so far of changes in conversion, we had a nice uplift in 2023.

John Blackledge

That's great. Thanks for the color. If I can. I could just do one quick follow-up. George, just curious about your or your view of the competitive environment and match launched Archer last last year last June. So just curious just a general competitive environment in the US and outside the US for granted?

George Arison

Absolutely. So we know that our users are going to be using more than one out. That's very common in the dating space for people to have more than one hour, and that's perfectly, okay. What we do want to make sure is that our users are looking at plan or it has been a first in wallet product. If you think of the credit card analysis, meaning they want to come to us often. And for all the things that they want to accomplish in the product. And it's really important for us to be serving them correctly through the right features and services to meet their needs.
I think if you look at our engagement numbers that they're kind of speak for themselves in terms of how active users are with the funds. And so that's going really well. And we haven't seen any concerns on that front in the last year and don't expect to see anything in the future. And so from that perspective of competition, we obviously are we welcome competition and keep us on our toes, but it's not something that we are in any way concerned about.
As far as our just specifically, no, I think there has not been a lot of conversation about that in the community because it hasn't really taken off. And so on that one specifically, we're not in any way concerned, but obviously, we're always looking at competition and ensuring that we are focused in the right thing in Napa. But I think in general, for a business like ours, the best we can do is listen to the user and tried to follow either direction that either wants to go to them that we can probably pick products, et cetera.

John Blackledge

Thank you.

George Arison

Thank you so much.

Operator

(Operator Instructions) Emily Stykes, New Street Research.

Emily Stykes

Hey, yes, thanks for taking the question. So a theme across a lot of ATMs right now is that they seem to be struggling to provide again the audience specifically with an experience that meets their expectations to feel grinder faces similar challenge? And if so, what is the plan to help cater to the specific audience, Peter?

George Arison

So actually, we are not finding that at all, in fact, and we continue to enjoy an influx of users beginning at the age of 18. It really is a place where they discovered themselves and they become part of the community and a chat with other folks in the community and really, I think Lincoln Connect. And so we haven't seen any of those trends. In fact, you can see from our results, the paying users continue to go up, our now continues to grow by 8%, and this is a very, very healthy environment.
Remember that grinder and was launched 15 years ago with the primary goal of connecting the community and it has done so in 190 countries were number one in over 180 of those. And our metrics in terms of chat remember time spent is 60 minutes on the app that has not dropped at all. It really suggests to us that we remain a vital fabric of the community.

Emily Stykes

Great. Thank you.

Vanna Krantz

(Operator Instructions) It appears we have no further questions this afternoon, Mr. Arison, I'd like to turn things back to you, sir, for any closing comments.

George Arison

Quite well, thank you very much for everyone who joined the call and for taking the time. It had been a way to go. I always thought our 1st year as a public company and done really well. And so we are excited to be sharing these results. I'd just like to close out by emphasizing a few points. First, we are obviously very proud of the performance and the finance team delivered in 2023. It was, in some respects, a challenging year and from the perspective of our some departures and whatnot. And so given that in that environment, the team performance was it did it is really exciting. And we're also really excited about what we can do in 2024.
As we have spoken to our guidance, we have really great momentum in the business for both users and the products that we have today. As well as really great momentum, both domestically and internationally and for the things that we want to do over the near and medium term. And there's a lot of potential to offer new offerings to our users, some of which are already in test for us and some are being built this year to go into test late this year or next year. And I think that's going to have it will be fantastic impact on the business, both from a user engagement perspective and a financial perspective, as we've seen many times, we're really early or as we've said many times, we're really early in our journey as a company that's focused on financial growth in addition to user engagement.
And so that really has positioned us really well to show great growth in the future. Quanta has built a really incredible asset over the last 15 years, and we're just coming up on our 15-year anniversary in Q1 exciting and our team realizes how important it is to nurture that asset in the future and to grow it at a durable, profitable and highly cash-generating business. We also recognize that we have work to do to help investors understand our story even better and appreciate that great business and product refineries and to help make it easier for you to invest and so we are excited for investors to come on the journey.
We look forward to sharing a lot more about our story and what we intend to do in the future. At our Investor Day in June and really look forward to seeing you there and introducing you to more members of our team. So thank you for joining us today and hope everybody has a great day.

Operator

Thank you, Mr. Ayers. And again, ladies and gentlemen, that will conclude the grinder Fourth Quarter 2023 earnings conference call. Again, we'd like to thank you all so much for joining us and wish you all a great day.