Earnings Call Transcript - GRND Q2 2025

Operator, Operator

Good afternoon. My name is Kathleen, and I will be your conference operator today. I would like to welcome everyone to Grindr's Second Quarter 2025 Earnings Conference Call. I will now turn the conference over to Tolu Adeofe, Grindr's Head of Investor Relations. Please go ahead.

Tolu Adeofe, Head of Investor Relations

Thank you, moderator. Hello, and welcome to Grindr's Earnings Call for the Second Quarter 2025. Today's call will be led by Grindr's CEO, George Arison; and CFO, Vandana Mehta-Krantz. They will make a few brief remarks, and then we'll open it up for questions. Please note, Grindr released its shareholder letter this afternoon, and this is available on the SEC's website and Grindr's Investor page at investors.grindr.com. Before we begin, I will remind everyone that during this call, we may discuss our outlook, 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 period of 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 measures are included in the earnings release we issued today, which has been posted on the Investor Relations page of Grindr's website and in Grindr's filings with the SEC. With that, I'll turn it over to George.

George Arison, CEO

Thanks, Tolu, and hi, everyone. Grindr delivered another strong quarter, results that keep us firmly on track for the year. I've said that 2025 is about accelerating execution towards our long-term vision, including the launch of transformative products within the app, which expands how our users engage. This quarter is another proof point that we can deliver on our roadmap while continuing to drive strong financial performance. For years, users have asked for maps within the Grindr app, but technical and privacy constraints made it hard to do well. This has changed, and we launched beta versions of mobile mapping in both Right Now and Explore. Engagement on Right Now continues to be strong, and we've already begun to monetize the product faster than expected. We're excited to see adoption build as we enable users to move fluidly between the grid and the map views. Explore remains one of our most valuable features, especially for power users and frequent travelers, with over 25% of our MAUs using it monthly. We've now launched Explore Heatmaps: dynamic city-level views showing the most active areas across 21 markets. With those things in mind, events reflect historical, not live activity to help users search smarter online and in real life. Longer term, maps unlock a powerful surface for the gayborhood, for products around events, local activity, and businesses. If you've been following our shareholder letters, you've seen us articulate a clear ambition: to build one of the leading AI-native consumer companies, one that creates shareholder value by using Gen AI to deliver high-impact user experiences, differentiated value, and long-term revenue growth. To that end, we're building a full-stack foundation called gAI or Gay I, comprised of three layers: a model layer using a combination of our custom models and leading third-party foundation models; an architecture layer, where we are applying Grindr's behavioral, conversational, and male imagery-related values combined and enhance those models, generating insights and capabilities tailored to gay-specific contexts and needs; and an application layer that synthesizes those capabilities into differentiated user experiences. The architectural area is core to durable advantage. It allows us to run a variety of models to produce custom data sets and structured insights; train AI to understand gay life, cultural norms, and male imagery; establish a robust privacy framework, and to the world-class talent engine at the intersection of product, engineering, and AI. Our goal is to keep shipping features that wouldn't be possible without this stack, like A-List, while developing other products that match its level of ambition and value. For more detail, I'd encourage you to read the full shareholder letter. We have also posted a short deck on our website to walk you through our approach to gAI. I want to acknowledge Vanna for her amazing contributions as our CFO over the past three years. We announced last week that Vanna has initiated a transition. She is gracious to continue in her role as we identify a successor. Vanna has been a key player on our team in setting us up to deliver the types of results you see today, and she has been a great partner to myself and the Grindr team. We are all committed to business as usual as we move forward, and we will continue with strong and improving execution. As a team, we're moving fast, executing well, and making real progress on the future of Grindr, while continuing to deliver strong results. Thank you all for your continued support. I'm excited about the management of the business and what H2 has to bring and grateful to the team for their continued hard work. With that, I will turn it over to Vanna to update you on the financial results.

Vandana Mehta-Krantz, CFO

Thank you, George. I appreciate the kind words as well as the partnership from you and the entire Grindr team as we work towards a seamless transition. Now let's turn to the results. Grindr delivered another strong quarter. In Q2, total revenue grew 27% year-over-year to $104 million, and the adjusted EBITDA margin was 43% or $45 million, right in line with our raised full-year guidance we provided last quarter, which we are reaffirming. Direct revenue for the quarter was $87 million, up 24% year-over-year, with growth led by the continued strength of our subscription offerings as we further enhanced our recommendations feature and continue to benefit from merchandising and paywall optimizations. Highlighting our key user metrics: average monthly active users in Q2 were 14.9 million, representing 6% growth year-over-year. Average paying users in the quarter reached 1.2 million, up 16% year-over-year. And our average direct revenue per paying user increased 7% over the prior year to $23.65 this quarter. Indirect revenue was $17 million, up 39% year-over-year driven by the ramp-up of our new third-party advertising partners and early traction in international markets as we continue to build out our third-party advertising platform. Moving to expenses and profitability, operating expense in Q2, excluding $27 million in the cost of revenue, was $53 million, up 43% year-over-year, primarily driven by stock-based compensation. Adjusted EBITDA for the quarter was $45 million or 43% of revenue compared to $37 million or 45% of revenue a year ago. Net income was $17 million for the second quarter, representing 16% of revenue compared to a net loss of $22 million in the same period last year. In Q1, we completed the redemption of all outstanding unexercised warrants which has eliminated the quarter-to-quarter valuation impact on GAAP net income. Accordingly, we delivered GAAP EPS in Q2 of $0.08 and expect to continue to generate positive EPS going forward. Turning to cash flow and the balance sheet, in the second quarter, Grindr generated free cash flow of $37 million and ended the quarter with approximately $121 million in cash and cash equivalents. Our gross leverage was 1.7x the last 12 months adjusted EBITDA. Year-to-date, Grindr has repurchased $325 million in common stock. And as of today, we have $175 million remaining under the share repurchase program. Based on our performance through the first half of the year, we are reaffirming our full-year 2025 outlook of 26% or greater revenue growth and adjusted EBITDA margin of at least 43%. And with that, operator, we'll now take questions.

Operator, Operator

And your first question comes from the line of John Blackledge of TD Cowen.

Logan Alexander Whalley, Analyst

It's Logan on for John. First question maybe, MAUs stepped up nicely in the quarter, both sequentially and on a year-over-year basis. Could you just talk about the biggest drivers of the top of funnel MAU growth in Q2? And then looking forward, could you comment on Grindr's penetration as you see it right now of the overall TAM in the U.S. and globally at this point? And then I just have one follow-up question as well.

George Arison, CEO

Logan, good to talk to you, and welcome, everybody. On the MAU question, I have three things I want to talk about. So bear with me as I go through that. First on kind of how MAUs are doing overall and second on third-party data, and then thirdly, on long-term opportunities, which I think will get to all the things you're asking about. With regards to MAUs, Right Now, you're correct, grew 6% year-over-year in Q2. We are very happy with that, and MAUs were doing very well this summer as well. We have a very, very healthy MAU situation with our users. We looked at users by country recently in terms of age, and we saw that we have a very strong presence with the younger cohorts, whether it's 18 to 22 or 23 to 29 cohorts; they're doing really well and growing in a strong way. So challenges that people talk about in the space with regards to Gen Z, Grindr does not have; we are doing very well. I think that's probably because we are the place to go to if you want to figure out what it's like to be gay and what your life is like; we are the gayborhood on your phone for people who don't live in gayborhoods in large cities, and that's what people kind of look forward to. So we're really happy with the MAU numbers as of right now and how they're doing, and I generally don't expect that to change in the future. Number two, the topic on MAUs is regarding third-party data. I know that a lot of you have to rely on these data sources for your analysis in mind by you, the analysts and investors. But we also know that in Grindr's case, they regularly are incorrect in what they project, frankly, probably more incorrect than correct. We've tried to work with them to understand the methodologies to help them correct the methodology, but they don't want to release what the methodology is, and so it's impossible for us to help them along. We count MAUs using unique devices. We think that's the most accurate way to do it after a lot of work having gone into it to figure out the best way because our users have some tendencies that are unique and unusual. People oftentimes create an account and then shut that account down and then create a new account, and you don't want that to be counted as two people in a given quarter. So we go down to the level of device. And so while I totally appreciate the reliance on third-party data, I think the reality is that our numbers speak for themselves, and I think MAUs are doing very well. And then lastly, with regards to long term, we do think there's a lot of opportunity for what we can do. Grindr's MAU growth historically has never been impacted by things that we do; it's always been kind of organic from the fact that people know us and come to us. But we think there are a lot of things we can do to help that along. And I'll talk about two buckets, one in marketing and one in product. On the marketing side, we believe that presenting ourselves better in different countries in a way that's more appropriate for that country would really help. And by that, I literally mean things like imagery that we show in the App Store, the language that we show in the App Store, and translations in the app with itself would really help, especially in places like Asia and Latin America. And that's something we've not done and are working towards putting resources behind. Additionally, the same brand depth that Grindr faced in the United States three years ago, which I think we've done a lot of work to correct, we need to do similar work in other parts of the world, Latin America in particular, and we're starting that in 2025, and we'll continue into next year as well. And then on the product side, part of the concept behind intention-based products, which we've been talking about for a long time now, is that there are people who might have a Grindr account but not use it as much because Grindr is very general in terms of what its offering is, whereas they want to have more specific intention, whether it's a 'right now' intention, whether it's relationship retention, or whether it's something else that travel. And so as we build out these intention-based products, 'Right Now' and like relationships, we believe that it's a way to bring users to be more engaged with us. That mostly applies to users who are older, around 40-plus years in age, who have a Grindr account but might not be using it very much. On your second question regarding TAM, there are two ways to think about TAM. You can think of TAM as just the number of people that Grindr could bring on board, and obviously, we think there is a ton of growth opportunity there, less so in the developed world, although still a ton, and more so in the developing countries like India and the Philippines, etc., where people are only now starting to come out and become comfortable with their sexualities. So growth opportunity there with TAM is huge. But I also think another way to think of TAM is just dollars that we can go after, right, the total amount of revenue we could amass. Our strategy is to make Grindr the core product really great but also to build these long-term new businesses like Woodwork and the health vertical, where we can sell more things to our users and offer them more services. And so from that point of view, we think the TAM can extend dramatically since, obviously, healthcare alone for our users is a huge opportunity to expand TAM, and then there are other areas like travel that we want to go after next that would add more to the TAM. So we think TAM is big and growing.

Logan Alexander Whalley, Analyst

Okay. Thanks, George. Yes, on the mapping announcement, it's exciting. Can you just talk more about the potential of mapping and what it could mean for maybe other product initiatives and use cases outside of Right Now or Explorer looking forward?

George Arison, CEO

For mapping, I just want to make sure I heard it right. Yes, so we released — in the Shareholder Letter, we talked about that we released map features in the app. This is something that users have asked for years. And we show, obviously, Grindr is very location-based, and so immediate around you is very important, and people were always like, can you actually show us on a map how far somebody is? And so we started to do that both in the Explore feature as well as in Right Now. So Right Now, you can, today in the places where it's out, look at users, not just based on when they posted something, but also how close they are to you. And then in the Explore function, we show you heat maps in 21 cities where it's really busy. We use historical data, not live data, to protect users' privacy. And that allows us to basically help you to understand, hey, these are the areas where usually, people are present. And if I want to search for people or if I want to figure out where to stay, etc., I can use that data to do that. So over the long term, we believe mapping can be really helpful in building out what we call local discovery, which is one of our long-term gayborhood growth verticals, things like identifying where to stay, where to eat, and what kind of activities might be happening around you that can be used by people locally, right? Like if you're in San Francisco and you live in San Francisco, you still could use that, or by people who want to travel to a given city before that. So those are the kinds of things that we envision long term mapping to help with, and we think it will be very valuable. It was in the past, historically, a complicated technology to enable in the app because of the mobile nature of our app, and now technology is in a place where we think we can do it really well. And so we expect that it's out.

Operator, Operator

Your next question comes from the line of Andrew Boone, Citizens.

Unidentified Analyst, Analyst

This is Briana on for Andrew. Can you just unpack what drove the acceleration in indirect revenue in the quarter? And then on operating expenses set up this quarter, can you walk us through the key drivers behind that increase? Is this reflective of ongoing investment in product, marketing, or headcount? And how should we think about investments going forward? And then I have one more question to that.

George Arison, CEO

Sure. I'll take the first question on indirect revenue, and then I'll hand over to Vanna to speak about expenses and then happy to do your next question as well. So I think if we talk about indirect revenue, it's worth it to talk about it conceptually since from where we were to where we are. When I joined Grindr in 2022, that was an area that was significantly under-invested in for a very long time and was not getting the attention that we believe it needed to take advantage of the full opportunity. We have a very desirable user base—people that are very much trendsetters for the world in general, not just for our community—and their income is higher; their education is higher as well overall. And so there's a ton of opportunity with them both for advertising, and we were not really taking any advantage of that at all. The growth that we've seen in advertising over the last three years has been primarily driven by third-party advertising, and that part of the business has done exceptionally well. I mean, I frankly don't think you could ask about anything more than what they've delivered. The growth numbers have been stunning. We've significantly increased the number of ads that we show users because Grindr was showing very few ads to users before while maintaining the CPM where it was in the past, and that's something that we didn't think was possible. We thought that CPM would inevitably go down. That was accomplished in part by adding more third-party providers that Grindr was not working with before, who could serve ads on our platform. So it's been really successful. We've also added new formats for the types of ads that we show—for example, rewarded video—which also help us increase the CPM and do well there. I would expect rewardable, in particular, to be a big growth lever in 2025, like as we think about next year and where we will see some additional opportunity. We do not expect to be adding more ads per session that people see. We think we're now in a good place versus where we were before, although we do think that there is more opportunity for better quality ads and more fill rates of the ads internationally since we're not fully at the same level as we are in the United States. Lastly, I think the one area where I've had a lot of learnings—and people told me when I joined that this would be a lot harder than I thought it would be. And that has to do with direct advertising. So these are ads that we partner with specific brands to do. We have a very good brand business. It's done very well as well and has grown significantly. But the categories of verticals that we've added to a brand business or specific companies that have come on board are much lower than I think many of us had hoped it would be the case today. That's not so much on Grindr anymore; we've done a lot of the work that we needed to do in our product to bring them on board, whether it's getting them data that they need or the types of ad formats that they want. What happened two years ago with an hash setback us in a pretty significant way. Brands are worried about advertising. I think there, we just need to continue to hammer the point that Grindr has a very desirable audience of trendsetting higher-income welfare men who spend a lot of time on the app, and it's a great way to reach them. We're not going to give up; we believe there's still a ton of opportunity in the direct business to grow. So I'm very happy with the indirect business's performance this year and in the past, and we expect them to continue to perform really well. So with that, I'll pass it over to Vanna to talk about expenses.

Vandana Mehta-Krantz, CFO

Yes, you are correct. Our operating expenses are reflecting our investment in our products. As you know, we have a very exhaustive product roadmap, and we're really excited about everything that we have that we're building for our users. So that is bringing along a little higher cost. We also have some accruals that were put into place in Q2. Additionally, I think last year, what you might have seen is that we back-ended some of our expenses as we are now more mature and we have more predictability in our overall financial profile by quarter. I would say that you're just seeing a more flattish expense base in every quarter, and the margins are reflecting that at 43%, which is right on where we thought we would be.

Unidentified Analyst, Analyst

Got it. And then just you mentioned in the letter that you're experimenting with pricing in existing peers and testing subscriptions as you guys add more value. Understood that changes are expected to materially impact 2025, but are there any early learnings that you guys can share on the test so far and how you're evaluating these changes?

George Arison, CEO

So I do want to reemphasize that none of the pricing changes or experiments that we might do will be material to this year. And so no one should count on those for 2025. I think it's really important. Most of our focus for the rest of the year as a product team and an engineering team is around driving revenue growth next year. I think it's really important to go into the year with a very clear plan of what you're going to be doing, and there's a lot of technical and product work to be done on enabling that, and so one of those pieces has to do with experimenting with pricing. Grindr has not raised prices since 2018 for either its XTRA or Unlimited offerings, which today are $19.99 and $39.99. If you just look at inflation from that period of time from 2018 to today, that would push our XTRA price to something like $25.50 and our Unlimited price to $49. In no way am I suggesting that that's the level we're going to reach right away or right now, so please don't assume that. But that would imply that there is a lot of room, just purely on inflation for us to increase prices. And when you couple that with the fact that we've added a ton of new products over the last four years and added a lot of value to the premium tiers, we think there is some level of opportunity there. When I say we've added new products, we've added a ton of free products or freemium products to the experience like Right Now, but then you get a lot more Right Now if you're a paying user. We've got albums, which are available to everybody, but you get more album capabilities if you are a paying customer. And then, obviously, in addition to that, there are specific products that are just for premium users such as A-list, which is only available to Unlimited users and as of right now, to a portion of Unlimited users. So when we released our three-year plan, we talked about the fact that there are two ways we could reach our long-term goals. Either one of them could get us there, but obviously, we wanted to do both. Number one was to get more users to pay for Grindr; number two was to get people who do pay for Grindr to pay more for all the value-added services and products that they are getting from us. I think we've done very well with getting more users to pay, and we'll continue to do that, obviously. And now there's an opportunity for us to start looking at getting revenue from all the value that we created for users. So far, I don't have any learnings to talk about because we've not done that. This was mostly a kind of message to everybody that we will start doing that. So as you see prices change, don't assume anything on that. This is experimentation and a testing learning process that we're going to go through over the next many months as we decide what the right place to be on price is.

Operator, Operator

And there are no further questions at this time. Ladies and gentlemen, that concludes today's call. Thank you, everyone, for joining. You may now disconnect.