Business context and reporting period
Grindr Inc. operates a global social networking platform serving the LGBTQ community, with free, advertising-supported access and paid subscriptions and add-ons. This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2023; comparative periods are 2022. The 2022 business combination was accounted for as a reverse recapitalization.
For Q3 2023, the company reported approximately 13.5 million monthly active users (MAUs) and 962,000 paying users. It operates in more than 190 countries and territories.
Financial and operating performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $70.3 million | $50.4 million | $187.6 million | $140.5 million |
| Operating income | $16.6 million | $3.9 million | $39.1 million | $10.6 million |
| Net loss | $0.4 million | $4.7 million | $11.0 million | $4.5 million |
| Net loss margin | (0.6)% | (9.2)% | (5.9)% | (3.2)% |
| Adjusted EBITDA (non-GAAP) | $32.6 million | $24.0 million | $81.5 million | $65.7 million |
| Adjusted EBITDA margin (non-GAAP) | 46.4% | 47.7% | 43.4% | 46.7% |
Q3 direct revenue was $61.6 million and indirect revenue was $8.7 million; nine-month amounts were $162.9 million and $24.7 million, respectively. Direct revenue growth reflected more paying users and higher average direct revenue per paying user (ARPPU): $21.33 in Q3 versus $17.67, and $19.69 for nine months versus $17.12. Q3 MAUs averaged 13.47 million versus 12.45 million; nine-month MAUs averaged 13.14 million versus 12.14 million.
Q3 operating expenses were $53.7 million, or 76.4% of revenue, compared with $46.5 million, or 92.3%. Cost of revenue was 26.0% of Q3 revenue. Product development expense rose to $13.3 million from $4.2 million, principally due to return-to-office (RTO) severance and higher compensation. Selling, general and administrative expense fell to $16.4 million from $20.3 million, partly reflecting lower prior-year Series P unit compensation. Nine-month operating expenses were $148.5 million versus $129.9 million.
Interest expense, net was $12.0 million in Q3 and $35.7 million for nine months, up from $4.8 million and $11.0 million, respectively. The company also recorded warrant fair-value losses of $3.4 million in Q3 and $11.6 million year to date. These items contributed to the nine-month net loss increasing despite higher operating income.
Cash flow, debt and liquidity
For the nine months ended September 30, 2023, operating cash flow was $23.1 million, investing cash outflow was $3.5 million, and financing cash inflow was $1.6 million. Cash, cash equivalents and restricted cash totaled $31.3 million at period-end, including $29.9 million of unrestricted cash. The MD&A separately reports Q3 operating cash flow of $41.0 million; the primary cash flow statement presents nine-month totals.
Debt carrying value was $343.4 million, net of $5.4 million in unamortized issuance costs; scheduled current maturities were $24.3 million. Reported interest rates on major loan tranches were approximately 13.6%–13.7%, and 9.8% on the Supplemental Term Loan II. That $30 million tranche matures May 17, 2024; other stated maturities extend to 2027. The company was in compliance with its financial covenants at September 30, 2023. It said cash, operating cash flows and available borrowing capacity should meet working-capital and capital-expenditure needs for the next 12 months, subject to market and business conditions.
Material changes and outlook
- Revenue increased 39.5% in Q3 and 33.5% for the first nine months year over year. Management attributed growth chiefly to the global rollout of weekly subscriptions, Boost add-ons, increased paying users and improved product mix. Advertising revenue also grew, supported by more advertising partners.
- Q3 net loss narrowed, while nine-month net loss widened. Management cited materially higher debt interest and warrant fair-value expense among the drivers of the year-to-date loss.
- The RTO plan generated $6.7 million of Q3 severance expense and $8.1 million year to date. The company expected less than $2.0 million of additional RTO expense in Q4 2023.
- The filing provides no numerical revenue or earnings guidance. Management expects to continue investing in technology, security, privacy and new offerings, and to pursue growth in under-penetrated markets; expansion may require added marketing and localization costs.
- Management identified competition, user and payer growth, pricing and product mix, advertising demand, foreign exchange, macroeconomic conditions, and privacy and data-protection regulation as factors that could affect results. European privacy rules have, in management’s view, constrained advertising growth.
Risks, contingencies and unusual items
- Disclosure controls and procedures were deemed ineffective at a reasonable-assurance level because a previously identified material weakness in the financial statement closing process remained outstanding. Remediation efforts include hiring accounting personnel, automating reconciliations and strengthening review procedures.
- In September 2023, Norway’s Privacy Appeals Board upheld a 65,000 NOK fine concerning alleged personal-data and advertising practices. Grindr received approximately $5.9 million from an escrow arrangement with Kunlun in October and filed suit in Oslo to overturn the decision. The company said the ultimate outcome and any amount payable cannot yet be reasonably estimated.
- A proposed class action in Israel alleges privacy violations related to sharing user information. The company disputes the claims; the filing says the matter remains at an early stage and its outcome and potential impact are uncertain. No material litigation accrual was recorded.
- A labor union filed an election petition and three unfair labor practice charges in 2023; the NLRB had not ruled as of the filing date.
- The debt facility is secured, contains leverage and other restrictive covenants, includes near-term maturities, and permits acceleration upon an event of default. Variable interest rates and elevated interest expense are important financial risks.
Important facts for investors to verify
- Whether paying-user, ARPPU and MAU growth continues, and whether subscription and add-on growth can sustain revenue expansion.
- How higher interest costs, the May 2024 loan maturity and required covenant levels affect refinancing needs and liquidity.
- Actual future RTO costs and whether operating cash generation remains adequate after debt service and investment.
- Developments in the Norwegian appeal, the Israeli class action and the NLRB matters, including any financial or operational effects.
- Progress in remediating the material weakness and whether disclosure controls are later determined to be effective.
- Adjusted EBITDA is a non-GAAP measure; assess it alongside GAAP net loss, cash flow and the company’s stated adjustment categories.