Grindr Inc. (GRND) Earnings Call Transcript & Summary

Good day, everyone. Welcome to the Grindr Update Call. [Operator Instructions] This call is being recorded. If you have any objections, please disconnect at this time. I would now like to turn the call over to Joe Hack. Please go ahead.

Thank you, moderator. Hello, and welcome to the Grindr Investor Call. Today's call will be led by Grindr's CEO, George Arison; and CFO, John North. They will make a few brief remarks, and then we'll open it up for questions. Please note, Grindr released a 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 will discuss a proposed acquisition, including its expected timing, anticipated benefits, integration and expected impact on our financial results. You should not rely on these or other 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 the shareholder letter and our periodic reports filed with the SEC. During today's call, we will also discuss both GAAP and non-GAAP financial measures. Additional disclosures regarding non-GAAP measures are included in the shareholder letter and press release we filed 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.

Thank you, Joe, and hello, everyone. Today, we announced an agreement to acquire PurposeMed Inc., the parent company of Freddie, the leading Canadian telehealth provider of HIV prophylactic PrEP, a business that is rapidly expanding in the U.S. Our place at the center of gay life gives us an opportunity a few companies have to build the global gayborhood into a platform of businesses that serve gay men and strengthen one another. Today, we're taking our first giant leap towards that future. We believe this combination can ultimately create a health care business as large as, if not larger, than core Grindr today and just as profitable. Three things matter here. First, this builds on the successful strategy we shared at Investor Day. Over the last 4 years, product improvements helped nearly double our paying user base. Premiumization is the next phase with clear success with high pricing and Edge, our AI native subscription tier launching next. Freddie accelerates the third phase, expanding the gayborhood into new businesses. Second, we're uniquely positioned to build this business. Approximately 400,000 U.S. Grindr users already indicate that they take PrEP, of the total 650,000 to 700,000 currently active U.S. PrEP prescriptions. We estimate more than 2 million additional U.S. Grindr users should be on PrEP for their health and the health of men they meet. We can bring testing, care and medication delivery into an app they already use for more than an hour a day. We can give existing PrEP patients more convenient access to medication and help others get started. Woodwork showed us that users trust Grindr with health care and that native experiences built into the app work best in driving user engagement. Freddie brings the medical expertise, pharmacies and operating infrastructure that would take years to build. Together, they become Grindr Health with PrEP as its foundation. Third, health care makes the core business stronger. Patients will be able to pair care with premium app benefits. As health care grows, we can reinvest in the app and the core experience. A better app improves engagement and retention, strengthens the network and brings more users into health care. Every Grindr user benefits, whether or not he uses Grindr Health. The Freddie team has built an extraordinary business with deep medical and operational know-how and very little outside capital. I want to congratulate them for their success today, and we at Grindr look forward to learning from them as we build together. Alongside Edge and future premium products, health care gives us multiple sources of strong profitable growth while helping more gay men stay healthy and advancing the goal of ending the HIV epidemic in the U.S. Thank you to the Grindr team for making this milestone possible for their exceptional execution and to our shareholders for your continued support. Now to John, who will walk through the transaction and economics.

Thank you, George. We have agreed to acquire Freddie and its parent, PurposeMed, for $250 million upfront, $190 million in cash and $60 million in stock. Up to $70 million in additional cash consideration is tied to performance targets. Both Boards have approved the transaction, and we expect to close in the fourth quarter, subject to applicable closing conditions. Freddie serves 25,000 active patients and expects more than $80 million of revenue and more than $10 million in adjusted EBITDA for 2026. Its current margins reflect investment in the infrastructure for U.S. expansion. Let me take a minute to explain the economics. In the U.S., Freddie works with federally qualified community health clinics, which allows eligible providers to buy medications at discounted prices and use reimbursement proceeds to support care for patients in need. The drug pricing program does not rely on government funding. It operates entirely among patients, health clinics, pharmacies and drug companies. Freddie earns fees for ongoing telehealth and pharmacy services, supporting recurring revenue as patients stay in care and fill prescriptions. Eligible patients can receive care with little to no out-of-pocket cost. The combined telehealth and pharmacy model in the U.S. generates more than $400 in monthly revenue per active patient, over $4,800 for a full year of care. We have shared some perspective on the potential for the business in George's shareholder letter, but this can be a significant driver of our revenue at scale. We expect most growth to come from the U.S., where the model when scaled produces approximately twice the adjusted EBITDA margin of the Canadian business. In terms of near-term financial impact, the acquisition will be immaterial to our 2026 results. We will provide our initial 2027 outlook for the combined company on our November earnings call with more detail on integration, rollout and incremental investment. What we can share today is that we anticipate another year of robust growth in 2027, including accretive EBITDA contribution from Freddie inclusive of growth investment and fixed infrastructure cost. Our priorities are integrating care into Grindr, reaching more patients and connecting the clinical and pharmacy operations with the app. While Freddie will be initially modestly dilutive to our EBITDA margin percentage as patient volume grows, we expect operating leverage to improve health care margins toward levels comparable to core Grindr above 40%. Longer term, we see Freddie as offering an attractive return profile and a strong growth engine for the company. And with that, we're ready to take your questions.

[Operator Instructions] Our first question comes from Eric Sheridan with Goldman Sachs.

Congrats on the transaction. When you think about accelerating this market opportunity, how would you frame the 2 or 3 most important priorities for incremental investments in the business to capitalize on owning this asset as opposed to building it yourself when you think out over the next 2 to 3 years?

Thanks for the question. I'll take the first half, and then I'll let John speak about the second half. So the big opportunity here is the fact that more than 60% of people who are on PrEP today are self-reporting on Grindr that they are on PrEP and then have many millions of Grindr users who should be on PrEP that are not. The reason many people are not on PrEP is because it's fairly complex to get. You have to do blood work 4 times a year while you're on it. You have to go in to see a doctor 4 times a year as well. Sometimes that means 2 different trips to a clinic. And that makes it a lot harder for a patient to get on the medication and stay on the medication, even though it can be free for users out of pocket. And so what we can do with telehealth is simplify that process dramatically, make it all be a seamless digital experience, which is what Freddie offers patients today with the blood work being done in the privacy of their own home. And by taking Freddie's product and integrating it deeply into Grindr, we can tie all that to the Grindr experience, which we believe can significantly increase the amount of traffic that will be going to that experience and the number of users that would want to get the medications, both from people who are not on PrEP yet and people who might go on PrEP -- or who are on PrEP already, but are not doing it through a telehealth solution. 85% of all the patients that are on PrEP today are doing so with a primary care physician, not a telehealth product. So that's the really big unlock for us is integrating the Freddie product into the Grindr app really deeply, creating a lot of native experiences for people that make a lot of sense for why they are there. We try to give some examples in the shareholder letter of what that could look like. And through that, dramatically increasing the amount of people who are interested in PrEP. The cool thing is that we actually have worked with the Freddie team quite a bit over the last year. They were our only partner on the Madonna sponsorship that we did this summer. And through that, we've had opportunities to test how much traffic Grindr can drive to Freddie and the numbers are really powerful and very strong, and that's what we're really excited about. So that's on the kind of traffic and user engagement side. And I think hopefully, that answers the question.

Our next question comes from Andrew Marok with Raymond James.

You mentioned that the $10 million EBITDA consideration takes into account some of the U.S. build-out costs. I guess at what stage is that process? How long do you think those start-up costs maybe persist? And what do margins look like once the build-out costs have rolled off, but before you get to that 40% maturity margin mentioned in the shareholder letter?

Great to hear from you. This is John. Obviously, the company is relatively young. I think it was founded in 2020. It just entered the U.S. a couple of years ago. But it's been basically entirely funded internally. As we mentioned, it's EBITDA positive this year without the collaboration and partnership with Grindr. It will be de minimis to our results for the year. So it's not going to change where I think we're going to land. But as you can appreciate, when you're scaling a telehealth business like this, there's fixed costs that you need to put into the business and lever. And this has been the same thing we've been talking about as we've done our expansion internally where there's SG&A investment without necessarily as much revenue or any revenue in certain circumstances, which we've talked about for the last number of quarters. We think that despite that, it will be a positive contributor to EBITDA next year. As we've mentioned, we're going to talk more about what it means for '27 in November after we've had a bit more time together and an opportunity to do some more work on that front. So I'd ask you to bear with us and be a little bit patient. And as you can imagine, this all has come together quickly, and we'll need a little bit of time to really position what it means in the near term. But I think the more important thing to make sure we touch on is that this business can be at or above a 40% EBITDA margin stand-alone. And we've obviously done significant work on this space. We've looked at a lot of alternatives, including building something like this ourselves, and we're very comfortable with the longer-term view. But the path to get there, it's just probably a little too early to talk about, and we'll speak more about it here in 4 or 5 weeks when we do our Q3 update for you and introduce our '27 guidance. So you've got a really clear picture of what that looks like and probably beyond, we'll be able to speak a bit too as well.

Got you. And if I could sneak maybe one more in. Obviously, PrEP is the cornerstone here. And George, I think you highlighted the outstanding opportunity there. But when we think well down the road for Grindr Health, are there opportunities for Freddie to get into other health care treatments and things like that? And are there maybe any special approvals that would be required along the way? Or could Freddie and Grindr Health just start to offer them?

We're going to bring together Woodwork products and offerings with Freddie offerings into one experience. So you will be able to get your PrEP medications, your ED medications, your GLP-1s, if you are on those, Woodwork also offers peptides. That won't happen right away, but that's the vision over time that all the things that we now offer, both in the performance drugs and the STD management and care are going to be available to the user and the patient. And we think there's a lot of alignment in those things. And we certainly can envision many more drugs being available here that are related to what our users want, right? For example, hair growth could be one example or skin care could be another. So those certainly are all in the pipeline and things that we could envision doing. As far as really down the line, not in the next couple of years, I do believe that there's a lot more that Grindr can do in health and wellness. I believe that longevity is a huge opportunity with our user base. This is a very nascent area of medicine in as much as not as many people are thinking about that. It's not as well built out. But knowing gay men as well as I do, and I think our company does, this is an area that our users will probably be significant early adopters in. And having a platform like this with clinicians, pharmacies and all the relevant operations, I can imagine that we could take a role in really leading in that and giving our users experiences on longevity, for example, that otherwise might be harder to obtain and I think could be really powerful.