Grindr Inc. (GRND) Earnings Call Transcript & Summary

Good afternoon. My name is Krista, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Grindr First Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Tolu Adeofe, Grindr's Head of Investor Relations. Tolu, please go ahead.

Thank you, moderator. Hello, and welcome to the Grindr Earnings Call for the first quarter of 2025. Today's call will be led by Grindr's CEO, George Arison; and CFO, Vanna Krantz. They'll 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, future performance and future prospects. You should not rely on forward-looking statements as predictions of future events. These forward-looking statements are subject to risks and uncertainties, and our actual results could differ materially from the views expressed today. Some of the risks that could cause our actual results to differ from views expressed in our forward-looking statements have been set forth in our earnings release and our periodic reports filed with the SEC, including our annual report on Form 10-K for the year ended December 31, 2024. 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 these non-GAAP financial measures to their most closely comparable GAAP financial measure, 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.

Thanks, Tolu. Welcome, everyone. We're kicking off 2025 with exceptional Q1 results and strong momentum in product development. Early data from several initiatives and testing give us confidence to raise our full year outlook to 26% or greater revenue growth and at least 43% adjusted EBITDA margin. Our Q1 shareholder letter dives into why 2025 is such a pivotal year for Grindr. We're building one of the world's most advanced consumer tech platforms and the beloved community app that integrates AI throughout the experience. At last year's Investor Day, we outlined a bold road map centered on 3 pillars: first, deepening intent-based offerings in our core connections use case; second, creating an AI architecture layer to power the app for the long term; and third, building the digital neighborhood. Across all three, we're executing on or ahead of schedule. In the first, connections pillar, our single biggest current effort is Right Now, which significantly expands our apps surface area for all users and has performed strongly in testing. We've now rolled it out to 17 major cities, including New York, Miami, London, Paris and Rio. In these markets, 20% to 25% of our users engage with Right Now weekly, and we've begun monetizing it in select regions. The success is a key driver behind our updated guidance. We expect to expand right now to nearly 50% of our weekly active users over the next several weeks. Where it is live, all users, including free users, can take advantage of Right Now even with [ monetization ]. On AI, we're committed to making Grindr an AI native leader among consumer apps. Leveraging our distribution, user base and vast data, we are creating previously unimagined product experiences. In January, we announced a suite of AI native products, including now in testing with [ 1/4 of unlimited ] users. A-list applies our architecture layer to users chat activity over 130 billion chats annually or 50 per daily user, providing smarter, best fit priority connections to each user, coupled with thoughtful, rich insights from conversations that have already taken place. Sparing uses the effort to manually curate favorites or find other ways to track profiles they like, A-list automatically surfaces the connections that matter most based on chat history. I encourage everyone to take a look at the demo linked in our shareholder letter posted on our website. Even in this early version, it's an amazing product, giving us an early view into the incredible age of consumer products we will experience with Gen AI. Our letter also details the steps we're taking to prioritize user control and transparency since privacy remains nonnegotiable as we build AI products. For our third pillar, the Gayborhood, a soft beta launched Woodwork, a men's health subscription service designed by gay people for gay people. Partnering with a telehealth provider OpenLoop, Woodwork offers a compounded ED medication relevant to close to 30% of our users who have purchased ED medications in the last year and 60% who have considered using supplements or medicines for their sexual health. This capital-light, low execution-risk initiative is a 0 to 1 effort, a true [ seed ] stage start-up within Grindr. As a start-up, the Woodwork team is focused on learning, and it will be several quarters before we have meaningful updates to share. Today, thanks to our team's intense focus and discipline, the pace of product development at Grindr is relentless. Over our first 2 years as a public company, we've laid a strong foundation and provend we can deliver. Our next growth phase will come from the search in product [ in feature ] launches. To put this in perspective, in 2024, we launched 8 new products and initiatives. In 2025, we're targeting over 40 across core use cases, AI and the gayborhood. As these roll out, we'll be focused on optimizing our portfolio, balancing user experience with how we merchandise our growing set of offerings. I'm thrilled by our team's ability to execute on this ambitious strategy in such a nimble way. It is inspiring to watch. We are honored to be building these experiences for our fantastic community. Now over to Vanna.

Thank you, George, and hello, everyone. Grindr is off to a strong start this year. In the first quarter, total revenue grew 25% year-over-year to $94 million, and the adjusted EBITDA margin reached 43% to $41 million. Direct revenue increased 24% year-over-year to $80 million, driven by the continued demand for Unlimited Weekly, which launched late in Q1 of 2024; and Extra Weekly, which benefited this quarter from the international rollout of our recommendations feature, which shows more quality profiles. This machine learning-based enhancement shows profiles to our users based on relevancy, in addition to geolocation, which helps improve discovery. Summarizing our key user metrics, average monthly active users increased 7% over the prior year to 14.6 million. Average paying users in the quarter increased 16% over the prior year to 1.2 million, which brings paid penetration to 8% for the quarter. And our average direct revenue per paying user increased 8% over the prior year to $22.86 this quarter. Indirect revenue for Q1 grew 26% year-over-year to $14 million. In Q1, we introduced both native and rewarded ad formats, expanded our network of third-party ad partners and further optimized our ad tech. We are encouraged by the early results and expect these initiatives to continue to ramp in 2025. Moving to expenses and profitability, our operating expenses in Q1 of 2025, excluding $25 million in cost of revenue, was $44 million, up 21% year-over-year, primarily driven by compensation-related expenses. Adjusted EBITDA for the quarter was $41 million or 43% of revenue compared to $32 million or 42% of revenue a year ago. And net income was $27 million for the first quarter, representing 29% of revenue compared to a net loss of $9 million in the same period last year. As we noted in our Q4 shareholder letter, on February 24, we completed the redemption of all outstanding unexercised warrants. As a result, beginning in Q2 2025, there will no longer be a revaluation of the warrant liability. Hence, we expect to report positive GAAP EPS going forward. Turning to cash flow and the balance sheet, in the first quarter, Grindr generated free cash flow of just over $23 million and ended the quarter with approximately $256 million in cash and cash equivalents. Our gross leverage was 1.9x the last 12 months adjusted EBITDA. During the first quarter, Grindr repurchased $141 million in common stock. At the end of Q1, we had $359 million remaining under the repurchase program. Finally, as George mentioned, we are raising our guidance for the full year. We now expect revenue growth of 26% or greater and an adjusted EBITDA margin of at least 43%. This updated outlook reflects the strength of our business model and the expectations of our ability to drive enhanced monetization and operational efficiency. We remain focused on executing against our product road map. And with that, operator, we'll now take questions.

[Operator Instructions] Your first question comes from John Blackledge with TD Cowen.

It's Logan on for John. Maybe on the higher '25 guidance, could you tell us what changed since the initial forecast? And maybe what the biggest drivers were of the higher revenue growth and EBITDA growth targets? And then longer term, should we think any differently about your 2027 revenue and EBITDA targets? And then I just have one follow-up as well.

Sure. Thanks, Logan. Thanks for the question. As we said in March, in the first half of the year, we have a few ongoing tests of initiatives, which, if successful, could have a positive impact on 2025 revenue and on EBITDA. And some of those tests have come in positive over the last few weeks. That, coupled with right now, early monetization are really impacting our guidance in a positive way. We move pretty fast at Grindr. So 9 weeks is a pretty long time since March earnings. And as we said often, we guide to what we have line of sight to, and our raise today is a reflection of our increased confidence. We also saw the FX tailwind benefit us in the latter half of March. And this really dovetails into our EBITDA guide. And now that we're midway through Q2, we anticipate Q2 looking a lot like Q1 with respect to EBITDA. I'd just add a couple of thoughts on this. In the letter, we talked significantly about the product work that we have underway, 40 new initiatives this year. And several of those are AI related. We're investing in becoming an AI-first company, and with that can come some elevated costs with respect to cloud. So in the past, we've also talked about managing discretionary spend in the second half based on how we see the year coming together. That's still the case. George, do you want to add a little bit about the Apple Store policy?

Yes, I'm happy to talk about that. So obviously, we know that a lot of users want to have direct pay. And assuming that the court ruling stays in place, that will be a big benefit for users of Grindr and our products. For us to be able to enable direct payment, we have to integrate with a provider and we also need to build some capabilities internally to handle that process, both from [ charges ] point of view, customer service, et cetera. But it is something that's on our road map, and we will probably do it to enable our users to be able to have direct pay abilities.

Does that answer your question?

Yes, definitely. And then the Woodwork announcement is super exciting. Could you maybe just -- I'm just curious as to how you maybe plan to integrate it into the Grindr ecosystem over time? And then how it might open up Grindr to other kind of health care-related offerings potentially in the future?

Totally, I just want to make sure on the Apple question. That is not in any way represented in our guidance. And so it's not -- it would be completely additive to that if that happened. But since we have not done it, we can't really speak to what will happen with it since we tend to only guide to what we have a very clear line of sight to. With regards to Woodwork, yes, we're really excited about Woodwork. I think it's a really great brand that the team has created. I think it really speaks to the Grindr user base. It was built by gay men for gay men. And I think it's really good from that point of view. I want to really emphasize that Woodwork is in the earliest stages of a start-up on getting going, right? It's very much a [ series ] seed, maybe even an angel-stage company inside Grindr with a tiny team working on this full time and very limited amount of resources being allocated to it at this stage. That's done on purpose because I want the team to be very much operating in a start-up learning mode, like a very early stage set of wood, where literally every day is critical for their survival, and they want to work as hard as possible to achieve success. I think grit is really critical to new things being started, and that's what we're trying to have here. Obviously, we can definitely see opportunities to integrate with what Grindr does as well. Simple things like subscribe to Woodwork and then you also get a discount on the Grindr subscription, could be one opportunity. Integration of payments between Woodwork subscription and Grindr is another possibility. And there are other things like that, that we can do. And then more broadly, Woodwork is our health care and wellness brand. It is not just an erectile dysfunction medication brand. We will be adding other treatments to Woodwork. And so we will be putting a broad spectrum of things. We know that a fairly large number of users have already used [ BD ] medication in the past that's detailed in the shareholder letter. Another very large portion has thought about or considered using it in the future. And so there -- that's a strong kind of advantage to us. But again, Woodwork is a very early-stage business for us, very much a kind of 0 to 1 proposition. And I would not expect any updates on Woodwork for the next several quarters, nor is it in any way assumed in our guidance for this year.

Your next question comes from the line of Andrew Marok with Raymond James.

Raj calling in here for Andrew Marok at Raymond James. Congrats on the quarter. I just wanted to ask a couple of questions. First, so one of your competitors this morning talked about increasing investment into initiatives and features addressed at the gay male community. How do you see Grindr's defensibility of its position? And to the extent that Grindr may have not served a specific need, how is your product lineup addressing that?

Thanks for the question. I've spoken many times in the past that we know people are going to use many different products, and we're totally fine with them doing it. And if someone wants to challenge Grindr, you should challenge Grindr from the position of weakness rather than a position of strength, where Grindr is very strong. I've not really seen any one of our larger competitors do that. And so I think we really need to understand what gay men want and understand gay culture in an intimate way to be able to do that, and that's not been something that we've been seeing from our peers. What we do know is that our users very much want and gay men in the country really want -- or sorry, around the world really want, features in Grindr that address their specific needs and intentions. And that's why our entire product strategy for the core of Grindr has built around intent. Right Now is the first major launch of ours that is very intent focused, which is for people who want an immediate connection with somebody, whether it's today or tomorrow or in the very near term. Right Now is a way to get that more easily than previously was possible. The response from users to that has been amazing. We know that 20% to 25% of our users are using Right Now on a weekly basis, at least once a week. Shares of location are about twice what they are in normal conversations, which indicates the likelihood of meeting between people is much higher, and that's really positive. And so we're really happy with that launch and how that's gone. But that's just one piece of our intention-based road map. Helping people do a better job identifying people who would be good partners for them for the long term from the relationship perspective is the other one that we need to launch as well, and that's something we're working on. It's also on the road map from what we spoke about at Investor Day. Again, we know that among gay men 35 and under, half of them want to be in a long-term monogamous relationship. That's a really big change from how gay men thought about things even 10 years ago and certainly 20 years ago when I was younger, and we need to serve them really well in that regard. Grindr is by far the primary place where gay relationships today in America are formed. About between 3 to 4 game relations in the U.S. are formed on Grindr like right now, so it's a huge percentage. But I think we can do a better job at that than we do, and that's part of what we're trying to do. So I think our product road map is really robust from both the intentions perspective and a bunch of other pieces. Happy to talk about those. And so I think our users will be quite happy with what they're seeing coming down the pipe.

Awesome. Really appreciate the color. For a follow-up, if I may. So I heard a bit from some of your peers that there's a little bit of macro weakness in certain segments of the audiences. How is that picture from your seat? And how are you thinking about potential impact from a broader economic slowdown?

Yes. Thanks for the question. We are very fortunate that we've not seen any consumer ecosystem weakness that peers have discussed. Obviously, we are tracking that to make sure that it's not impactful. But so far, we've not seen anything, and we feel really good about things. That's probably part of why we feel confident raising guidance on revenue and on EBITDA as much as we have. We've talked before that gay men tend to have higher education levels than the straight counterparts, by about 2x in the number of JDs, PhDs, MBAs, MDs in the population. They also have much higher disposable income, both because they earn a lot more and then a lot of them don't have children, which gives them more disposable income. And so I think even if we were to have an economic kind of negative economic trends for our user base, they're going to be able to withstand that a lot better than an average kind of set of the population. And so I think that's really important to kind of remember. And then lastly, we are not a place for politics and economics. We're a place where people come to escape that. People come to Grindr for fun, adventurous, sexy experiences. And that's why in part, they spend as much time as they do every day on Grindr. And so in a situation of economic weakness, if there's a lot of promotion going on, you could very well envision a world where people are spending more time on Grindr because they are dealing with all those things kind of off Grindr and they come here to escape that and be dealing with something else. So, so far, we feel really good about what's happening with Grindr while whatever might be happening in the economy, and I do not really anticipate any impact from that to us this year.

Your next question comes from the line of Eric Sheridan with Goldman Sachs.

Hope all is well with the team. As you look at the business right now, what -- how you would characterize the scope for growth on users, engagement and monetization, if you were to break the business down geographically between the international opportunity and what you're seeing in the U.S., as you look out over the next 12 to 18 months?

Sure. Happy to do that. So from the perspective of kind of user growth everywhere, obviously, it's a big focus for us all the time. Grindr is by far the best known gay brand in the world and we have a lot of users in lots and lots of places, but there is a lot of opportunity to drive more people to use Grindr. The way we tend to think about that is product-led growth, right? So we create new products, and then those products are what brings people who want to use Grindr. We -- that's partly why we launched Right Now, where that is a significant kind of user growth expansion opportunity for people who previously might have been using Grindr more for those kind of immediate connections. And over time, they have started to use it less because there are other -- too many other things that are going on in Grindr at the same time. This intentions-based kind of solution with Right Now gives them a chance to be on Grindr just for right now and nothing else, which we think is great. Same thing with relationships. That's, again, a user growth kind of opportunity that we think is significant because we do know from our users that yes, they know that Grindr has the critical mass of users, but we don't have features for relationships, so they consider oftentimes to go to a different product, but then frequently come back to Grindr because we have the critical mass. And so we don't want them going through that. We want them to actually stay with us in our ecosystem, looking for whatever relationship they might be looking for. So I think that's all kind of -- a lot of things that we're doing in product are very much driven with the idea towards creating more user growth. And then with regards to international and domestic, we think there's plenty of opportunity to grow our domestic user base. Obviously, we have an incredible brand in the U.S., 95% brand awareness unaided, but not everybody who is in the community is using Grindr. And so we do believe that there is opportunity to grow MAU here. But obviously, there's a lot more opportunity internationally. For one, we are less known abroad, right? We only have -- based on the countries we have tested, we're not tested everywhere, roughly about 60% awareness in a lot of those countries. Now people who know us use us all the time. But people who don't know us, they can't use us because they don't know us. And so we need to do more work on that front. There's also opportunity to localize the app a lot better, starting with kind of what we do in the App Store and localizing that for given locations as well as what we do with the product itself. There's been very little localization of the product ever in any way. That's not something that we are kind of necessarily working on in 2025. But those are the kinds of things that we are thinking about for the future. At Investor Day, we said that international growth is a long-term opportunity for us, and we still very much believe that. And it's something that we're going to invest in over time because we do think it's a big opportunity.

Just to add, our conversion rates have been having a steady cadence up in every region. So the product road map is definitely resonating with our users, and you're seeing that in our payer growth.

Your next question comes from the line of Nick Jones with Citizens.

This is Luke on for Nick. Can you just expand a bit on the AI native product suite powered by A-list and the early progress you're seeing there and maybe what you're most excited about?

Yes. I mean I'm super excited about A-list. I tell everybody that I've not yet seen another consumer product launch something like A-list, where they're identifying a very clear user need and then using the most innovative Gen AI that's out there to create a previously unimaginable solution. This was not possible before. I, frankly, use numerous products where I wish there was an A-list. Like, for example, I'd love an A-list in my personal Gmail. It will be really fantastic because contacts kind of information in Gmail is nowhere near as helpful as it could be and should be. And so I think there's a ton of opportunity with that. So we are really, really proud of what we've built and how quickly we built it and how we believe useful it will be for users. Really would strongly encourage everybody to go and check it out at grindrproduct.com/A-list. It's about a 1-minute video, but really gives you a kind of good deep dive into how A-list works. There are a bunch of other AI-based products that are coming out this year. We've already put Discover into test. I think of Discover as a new page inside Grindr, where you can see people based on your interest and their interest, where there's congruence from all over the world, right? So it breaks down the geographic barriers that usually exist inside dating products, including on Grindr, which our main grid is very local based, and that's very beneficial. But we also do know that people want to find people everywhere. And this way kind of gives them a view into people all over the world that might be appealing to them. And there's many other things that are with AI kind of coming along as well. We believe that these AI products are turning Grindr into an AI native product overall. So the same way that we basically invented location-based products in 2009. We are now doing the same thing with AI and are very much at the forefront of what is possible. And I believe that's going to be really, really valuable to users. The value that we're creating for them through A-list, through Discover, through insights and other things that are on the come are going to be pretty significant. And whenever you create a large amount of value for users, there's always an opportunity to significantly monetize that. We have some plans for how we will do that, but not ready to speak about that yet. That will be something we'll discuss probably a few quarters down the road.

And ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect.