Conference Transcript - GRND 2026-09-30

Operator

Good day, everyone. Welcome to the Grindr update call. All participants are in a listen-only mode until the question and answer session begins. Following the presentation, we will conduct a question and answer session. 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.

Speaker 10

Thank you, moderator. Hello and welcome to the Grindr investor call. Today's call will be led by Grindr's CEO, George Harrison, 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.grinder.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.

Speaker 5

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 few companies have to build the global gaybehood 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 healthcare business as large as, if not larger, than Core Grinder today, and just as profitable. Three things matter here. First, this builds on the successful strategy we shared at Investor Day. Over the last four years, product improvements have nearly double our paying user base. Premization is the next phase, with clear success with high pricing and Edge, our AI-native subscription tier, launching next. Freddy accelerates the third phase, expanding the game hood 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 to 700,000 currently active U.S. PrEP prescriptions. We estimate more than 2 million additional U.S. PrEP 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 healthcare and that native experiences built into the app work best in driving user engagement. Freddy 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, healthcare makes the core business stronger. Patients will be able to pair care with premium app benefits. As healthcare 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 healthcare. 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, healthcare gives 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 muscle possible for their exceptional execution, and to our shareholders for your continued support. Now to John, who will walk through the transaction and economics.

John North, CFO

Thank you, George. We have agreed to acquire Freddie and its parent, PurposeMed, for $250 $50 million up front, $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 Georgia'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 a creative 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 diluted to our EBITDA margin percentage, as patient volume grows, we expect operating leverage to improve healthcare margins toward levels comparable to Core Grinder, above 40%. Longer term, we see Freddie is offering an attractive return profile and a strong growth engine for the company. And with that, we're ready to take your questions.

Operator

We will now begin the question and answer session. If you would like to ask a question, please use the raised hand icon, which can be found in the black bar at the bottom of the webinar application screen. When you hear your name called, you'll be prompted to unmute your line and ask your question. We will now take a moment to allow the queue to form. Our first question comes from Eric Sheridan with Goldman Sachs. Please unmute your audio and ask your question.

Eric Sheridan, Analyst — Goldman Sachs

Thanks so much for taking the questions and congrats on the transaction. When you think about accelerating this market opportunity, how would you frame the two or three 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 of the next two to three? years. Thanks so much.

Speaker 5

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 another 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 four times a year while you're on it. You have to go in to see a doctor four times a year as well. Sometimes that means two 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 Grinder app really deeply, creating a lot of native experiences for people that make a lot of sense for why they there we try to give some examples in the show a little what that could look like and through that dramatically increasing the amount of people who are interested in prep you know the cool thing is that we actually have worked with the freddy team quite a bit over the last year um they were our only partner on the madonna um 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.

Operator

Our next question comes from Andrew Maroff with Raymond James. Please unmute your audio and ask your question.

Andrew Maroff, Analyst — Raymond James

Hi, guys. Thanks for taking my questions. 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 startup 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 um obviously the company is relatively relatively young.

John North, CFO

You know, 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 even positive this year with, you know, without the collaboration and partnership with Grindr. It'll 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, you know, 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 expansions 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'll be, you know, a positive contributor to EBITDA next year. As we 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, you know, 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 percent EBITDA margin, standalone. And, you know, 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 four or five 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 to as well.

Andrew Maroff, Analyst — Raymond James

Yeah. Thank you for that. 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 of 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? Thank you.

Speaker 5

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. Moodwork 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 skincare 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, and 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.

Operator

Our next question comes from John Blackledge with TD Cohen. Please unmute your audio and ask your question.

John Blackledge, Analyst — TD Cowen

Oh, great. Thanks. Two questions. Who are the main competitors for Freddie in the U.S. and Canada? And then the 2 million, I guess, potential incremental U.S. users, should we think about, you know, that as kind of the incremental TAM for the company over the next several years? Thank you.

Speaker 5

So 85% of patients who are currently in PrEP, we estimate, don't get PrEP medications via a telehealth provider. They primarily do it through their general practitioner doctor by going into the office. So that's where most of the people who are on the medication today get their medications. There are two significant telehealth providers in the U.S. besides Freddie. One is called Mr. and the other one is called Qcare. It's a subsidiary of a larger company called Avida. So that's the current telehealth space. But again, vast majority of the users or patients are not getting their medication through a telehealth product. And our focus is on both the patients who are currently on PrEP as well as on patients who are not on PrEP, which is a much larger number, right? It's about 650,000, 700,000 people who are on PrEP today, but many millions more who should be on PrEP. PrEP is growing at roughly 10% a year rate currently. You know, my dream would be that as we do what we need to do over the next couple of years, we can get that number to double. If we did that over a five-year period, that would be 300,000 more people on PrEP. and you know we do a basic calculation on what that means for HIV prevention that would mean 5,000 people not getting HIV a year so the goal here isn't just to capture more of the share of people who are on PrEP it's to use the power of Grindr to really create a massive opportunity for more adoption of PrEP by people on the app and through that play a critical role in ending the HIV epidemic.

John North, CFO

In terms of the market sizing, John, good to hear from you. I think we're premature to talk about the longer term, but just to give you a sense of where things could go at 50,000 patients, which we think is a very achievable number over time, you know, that would be worth roughly 240 million in revenue. If you take Freddie's proportion of the Canadian market, it's about 30% of the prep that's prescribed in Canada is prescribed by Freddie. And, you know, in the US, that would equate to about 200,000 people, obviously, which is four times the number I just gave you. And at 2 million, you can certainly do the math, but it starts to be very, very significant in terms of the revenue and the ability to obviously have a significantly positive impact in terms of health outcomes and HIV prevention, which is an amazing outcome if we could get anywhere close. So I think it's early for us to give you any kind of a specific number. Those are going to be the things that George and I will think about and be prepared to talk more in specifics in November. So again, bear with us. We'll talk about 27 then, but we did want to at least give you a sense of what the size could be at what we think is a very achievable baseline at a percentage where Freddie is in Canada, extrapolated into the U.S. And then if we could get the number of, you know, people that we think are in Grindr that aren't on PrEP that should be prescriptions. So hope that helps.

John Blackledge, Analyst — TD Cowen

That's great. Thank you.

Operator

Our next question comes from Andrew Boone with Citizens. Please unmute your audio and ask your question.

Andrew Boone, Analyst — Citizens

Thanks so much for taking the question. I wanted to go back to Woodwork and the learnings you guys had on marketing via binder for Woodwork Medication. Can you guys just talk about that and then extend that to Freddie? What were the learnings and what should our expectations be around what you guys can do in terms of execution there. And then just stepping back and thinking about deal terms, you guys have $70 million that may be payouts for 2027 performance into 2028. Can you just speak to what our expectations should be around? What is that based on or any other details you can provide there?

Speaker 5

Let me take the first question and then we can go from there. So the biggest learnings from woodwork for us were several fold. First, that patients do trust us with healthcare. The engagement with the product was very positive. It made a lot of sense for people why we were offering what we were offering. Number two, that the closer the offerings were to the primary reason why people come to Grindr, which is to meet other people, the more it was effective and beneficial to have the offering in the app. And thirdly, and most importantly, is that a very native and deep connection in how the product was being offered worked the best. So when you compared native placements to just regular advertising, native placements performed a lot better. As we built the health center, which is an area inside the app where you can access health information, including get woodwork products, that worked better than just native placements on the grid or somewhere else in the app. And then when we enabled a chatbot that allowed a person to go through the entire process of submitting their information to a clinician to get approved for a medication on woodwork, that worked even better. And the learning there is that the more native you can make the experience and more fully integrated into the product, the better it works in terms of being a channel for user acquisition for something other than connections. And from that perspective, PrEP and Grindr are made for each other, right? It's like a left hand, the right hand. The connection there is very immediate. And if there is one thing every Grindr user wants, it's to stay healthy and avoid HIV. And here we are bringing them a very powerful way to be able to do that, which is why we are so excited about this. I think, you know, that's kind of in summary what we've learned. I think the other thought I would add that's not so much connected on the marketing, but I think is an important woodwork learning is the customer experience. You know, we did woodwork with a we did, which was through a partnership. Most of the work being done by partners. it's all cash pay because it was the easiest way for us to get into doing a healthcare product so we could start learning but we could not control the customer experience for the level that we wanted which was detrimental with freddy what we like is that you have a business built by a set of folks who understand the space really really well they are specialists in the things that they do, which we are not specialists in, but it's a business also co-funded by two doctors. The CEO is a doctor and they have a chief medical officer, which I think is really beneficial for a space like this, getting into this. And so they have the control over the user experience because they have clinicians, they have a telehealth portal, they have pharmacies that they control, which ensures that the user experience is really good and high quality. But it's also done with a medical point of view, which is very different from a lot of the healthcare startups that you see out there, which for us had a lot of value. So that was not a user acquisition learning, but it was an operational learning that we, I think, took advantage of and making a decision to move forward with Freddie.

John North, CFO

Let me just add a couple of things. The first is, As we said earlier, we consider a number of alternatives, including a path to potentially build this ourselves. We looked, obviously, at a lot of different things, and we really like the Freddy team. But the reason that we were able to do that is because they all historically have and want to advertise on Grindr. It's one of the best places for them to acquire customers, and that's a pretty organic product market fit, obviously, to all the points George made. As it pertains to the earn out, the consideration, pretty straightforward, obviously, $190 million in cash, $60 million in stock. You know, the team at Freddie is incentivized and aligned to create shareholder value and participates in that value creation. You know, certainly has skin in the game. It's a meaningful number and is aligned with, you know, everyone's interests going forward. As it pertains to the performance bonus, I think we've been not specific on exactly how that's defined, other than to say it's based off of certain 27 performance metrics. It will be payable in 28 if achieved. And I would say that if we did pay the earn out, George and I would be very, very pleased. And I'll leave it at that. And again, we'll have more to talk about around what that means in 27 and beyond in five weeks. Just give us a little bit of time. I appreciate the question where you guys are going, but we'll lay that all out for you very shortly. And we'll have, frankly, a few more weeks of time to work with the Freddie team and continue to build stuff, which I think will inform, you know, kind of how we position everything publicly for you guys. Thank you.

Operator

Your final question will come from Ethan Kim with Morgan Stanley. Please unmute your audio and ask your question.

Ethan Kim, Analyst — Morgan Stanley

Hey, guys, this is Ethan on for Nathan Feather. Thanks for taking the question. I believe you said you'll speak more to the path to getting Freddie to 40%-ish margins at earnings. But maybe just for now, could you give us a sense of maybe how much of that margin expansion comes from investments coming down slash operating leverage versus a mixed shift away from the pharmacy business towards the telehealth and pharmacy services business?

John North, CFO

Sure. Happy to take that. nice to hear from you um the revenue is really pretty linear so whether they had 10 a thousand or 10 000 patients the per patient revenue doesn't really change um you know in terms of what that what that means per patient per month which we put in the letter but it's about four hundred dollars what we're really looking to is the infrastructure that's required and some of the learnings we had in particular with Woodwork is privacy, HIPAA, data segregation, and then obviously just making sure that you're following all the right regulatory and legal requirements is a super important part of being in the health space. We're really pleased with the Freddie team because they have a very robust offering, and we've gone through some pretty significant diligence to get to signing the purchase agreement today and we're delighted with what we've learned so far and the team has been fantastic but what we're really thinking in terms of improving that margin is frankly just a function of patient count there's not a synergistic play here the freddy's team does something totally different than what we do and they're an operational business that's fulfilling pharmacy prescriptions you know we're a software company so none of this longer-term margin is underwritten on any, you know, synergistic there. It's purely just based off of scale on the operating infrastructure required to deliver the business. And as we move to that inflection point, you'll see the margin continue to improve. So you obviously can calculate where the EBITDA margin is today. We've obviously said that maturity, you know, that's going to be north of 40%. And so there's an interpolation between it, but that's probably as specific as we can get tonight. Great. Thanks so much. Thank you for the question.

Operator

This concludes our Q&A session. Thank you for joining. You may now disconnect.