Grindr Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. Grindr operates a global LGBTQ social networking platform with free, advertising-supported and premium subscription offerings. The November 2022 business combination was accounted for as a reverse recapitalization, so comparative results generally represent Legacy Grindr.
Financial and operating performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $55.8 million | $43.5 million | +28.3% |
| Direct revenue | $48.1 million | $36.4 million | +32.1% |
| Indirect revenue | $7.7 million | $7.1 million | +7.7% |
| Operating income | $8.6 million | $8.8 million | Down $0.2 million |
| Net income (loss) | $(32.9) million | $4.5 million | Down $37.4 million |
| Adjusted EBITDA (non-GAAP) | $22.0 million | $20.2 million | +8.9% |
| Adjusted EBITDA margin | 39.4% | 46.3% | Down 6.9 percentage points |
| Net cash from operating activities | $8.5 million | $14.0 million | Down $5.5 million |
Revenue growth reflected more Paying Users and higher ARPPU. Average Paying Users rose 19.6% to 866,000; ARPPU increased 10.5% to $18.52. Monthly active users rose to 12.826 million from 11.806 million, and ARPU increased to $1.45 from $1.23. Direct revenue represented 86.2% of revenue, versus 83.6% a year earlier. Approximate gross margin, calculated as revenue less cost of revenue, was 73.5%, compared with 73.1%.
The GAAP net loss included $15.3 million of non-cash warrant fair-value expense, $10.8 million of net interest expense, and a $15.5 million income tax provision. Operating expenses also rose: selling, general and administrative expense increased 81.7% to $18.9 million, primarily due to stock-based compensation, headcount and outside services. Operating margin fell to 15.4% from 20.2%.
Cash, debt and liquidity
- March 31 cash and cash equivalents were $33.8 million; including restricted cash, total cash was $35.2 million. Cash and cash equivalents were $8.7 million at December 31, 2022.
- Operating cash flow was $8.5 million; investing cash outflow was $1.5 million, mainly capitalized software; financing cash inflow was $18.1 million, including repayment of a related-party note and interest.
- Debt carrying value was $360.1 million, net of unamortized issuance costs; stated principal was approximately $366.4 million. Current maturities, net, were $23.1 million. Reported debt interest rates ranged from 9.2% to 13.0%, depending on facility.
- Current assets of $74.4 million were below current liabilities of $84.5 million, a working-capital deficit of approximately $10.2 million. Stockholders’ equity was negative $5.6 million.
- Management said cash, operating cash flows and available credit-facility borrowings should be sufficient for working capital and capital expenditure needs over the next 12 months, subject to market and business conditions. The filing provides no quantified earnings or revenue guidance.
Material changes, outlook and risks
- Management attributed direct-revenue growth to increases in Paying Users and ARPPU, including higher-priced subscription products and à la carte purchases. It expects ARPPU to fluctuate near term as it tests subscription options and pricing.
- Adjusted EBITDA improved, but its margin declined, reflecting higher operating costs. Management expects continued investment in product, technology, security and privacy, and international expansion; expansion may entail additional marketing and compliance costs.
- Debt carries restrictive covenants, including leverage limits; the borrower reported compliance at March 31, 2023. A May 12, 2023 amendment made Grindr Inc. and Grindr Group guarantors, pledged certain assets, and added reporting and covenant obligations.
- Disclosure controls were concluded to be ineffective at a reasonable-assurance level because a previously identified material weakness in the financial close process remained. Remediation included hiring accounting personnel, automating reconciliations and strengthening close controls.
- Contingencies include a Norwegian data-protection administrative fine under appeal and an Israeli privacy class action. The company said outcomes and potential losses could not be determined; no material litigation accrual was recorded at quarter-end. The filing also identifies privacy and data-protection compliance, cybersecurity, competition, user retention, advertising demand, foreign exchange and macroeconomic conditions as risks.
Important facts for investors to verify
- Whether user, Paying User and ARPPU growth continues, and how subscription pricing tests affect conversion and revenue.
- Whether operating cash flow can sustain investment and service substantial, variable-rate debt, including upcoming maturities and covenant requirements.
- How much of the GAAP loss and tax provision reflects warrant remeasurement and related tax effects, versus recurring operating performance; review the company’s non-GAAP reconciliation.
- Progress in remediating the material weakness and whether disclosure controls become effective.
- Developments in the Norwegian appeal and Israeli litigation, and the implications of the post-quarter credit agreement amendment.