# Grindr Inc. (GRND) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Grindr Inc.'s 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1820144/000182014424000011/grnd-20231231.htm
Accession: 0001820144-24-000011
Filing date: 2024-03-11
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/GRND/
All MD&A years: /company/GRND/mda/
Previous year: /company/GRND/mda/fy2022/ (FY 2022)
Next year: /company/GRND/mda/fy2024/ (FY 2024)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. In addition to the audited consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, beliefs and expectations that involve risks and uncertainties. Our actual results and the timing of events could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in Item 1A. “Risk Factors” and “Special Note Regarding Forward-Looking Statements.”

Overview

Grindr Inc. ("Grindr" or the "Company") manages and operates the Grindr platform, a global social network platform serving and addressing the needs of the LGBTQ community. We had 13.3 million Average MAUs and 937 thousand Average Paying Users in 2023, as compared to 12.2 million Average MAUs and 788 thousand Average Paying Users in 2022.

The Grindr platform includes a mobile application ("Grindr App") and a web-browser-based application. The Grindr App is free to download and provides certain services and features to Grindr's users at no cost, and also offers a variety of additional controls and features for users who enroll in our premium subscription and add-on products, including access to our web application of Grindr XTRA and Grindr Unlimited. A substantial portion of our revenue is from direct revenue, representing 86.8% of total revenue for the year ended December 31, 2023. Direct revenue is derived directly from users in the form of subscription fees, providing our users access to a variety of features for the period of their subscription, or in the form of add-ons pay-per-use access to premium features. Leveraging strong brand awareness and our significant user network stemming from our first mover advantage in the LGBTQ social networking industry, our historical growth in number of users has been driven primarily by word-of-mouth referrals and other organic means.

In addition to our revenue generated from subscription fees and premium add-ons, we also generate indirect revenue, representing 13.2% of total revenue for the year ended December 31, 2023, which includes, both first-party and third-party advertising. We provide advertisers with the opportunity to directly target and reach our community. Advertisers on our Grindr platform span across many different industries, including healthcare, entertainment, gaming, travel, and consumer goods. We offer our advertisers a diverse range of advertising opportunities, including in-app banners, full-screen interstitials, and other customized units, typically sold on an impressions basis. Additionally, we contract with a variety of third-party advertisement sales platforms to market and sell digital and mobile advertising inventory on the Grindr platform. We will continue to evaluate opportunities to increase ad inventory with differentiated advertising units and offerings.

While we have users in over 190 countries and territories, our core markets are currently North America and Europe, from which we derived 85.1% and 86.9% of our total revenues for the years ended December 31, 2023 and 2022, respectively. We intend to grow our user base and revenues by continuing to introduce new and innovative products and services to all of our users and by providing customized products and services in targeted geographic regions outside of our current core market. We intend to focus on regions with a large number of potential users, favorable regulatory environments, and fast-growing economies.

In 2023, we generated $259.7 million of revenue, representing a year-over-year growth of 33.2% as compared to the 2022 period, and had 937 thousand Average Paying Users, which is 18.9% higher than our Average Paying Users in 2022. On average, profiles on our platform sent over 332.2 and 305.7 million daily messages in 2023 and 2022, respectively.

Recent Developments

In 2023 our leadership team announced a transition to a hybrid work model involving a return to in-office work and subsequently announced the adoption of a multi-phase RTO Plan beginning in the fall of 2023. Our hybrid work model requires employees to work two days per week in offices where their respective teams are based. The RTO Plan provided employees with a one-time relocation package to support relocation if necessary, or separation packages for employees who chose not to relocate or participate in our RTO Plan. In October 2023, we announced the second phase of the RTO Plan.

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In July 2023, the Communications Workers of America AFL-CIO filed an election petition with the National Labor Relations Board ("NLRB") seeking to hold a representation election for certain categories of our employees. In August and September 2023, the labor union filed with the NLRB a total of three unfair practice charges against us and requested injunctive relief under Sec. 10(j) of the National Labor Relations Act. Acting on the petition, the NLRB conducted a secret-ballot election in November and December 2023, which remained ongoing as of December 31, 2023. As of the date of filing of this Annual Report on Form 10-K, the NLRB has not ruled on the election petition or the unfair labor practice charges.

In November 2023, we refinanced our prior credit agreement with Fortress Credit Corp. by entering into a new credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and other lenders party thereto. The new credit agreement provides for a $300.0 million term loan and a $50.0 million revolving credit facility. Our wholly owned subsidiary, Grindr Capital LLC, is the borrower under the credit agreement and all obligations of Grindr Capital LLC under the credit agreement are guaranteed by Grindr Inc. and, subject to certain limited exceptions, our wholly owned domestic subsidiaries, and are secured by substantially all of the assets of Grindr Inc., Grindr Capital LLC and the guarantor subsidiaries. We borrowed the full amount of the $300.0 million term loan and $44.4 million under the revolving credit facility upon closing of the credit agreement on November 28, 2023. We used the proceeds and cash on hand to repay in full outstanding obligations under our prior credit agreement with Fortress Credit Corp. and to pay fees and expenses in connection with entering into the new credit agreement. As of December 31, 2023, $300.0 million was outstanding under the term loan and $44.4 million was outstanding under our revolving credit facility.

Consolidated Results for the Years Ended December 31, 2023 and 2022

For the years ended December 31, 2023 and 2022, we generated:

•Revenue of $259.7 million and $195.0 million, respectively. The increase for the year ended December 31, 2023 compared to the year ended December 31, 2022 was $64.7 million, or 33.2%.

•Net loss of $55.8 million and net income of $0.9 million, respectively. Net income decreased for the year ended December 31, 2023 compared to the year ended December 31, 2022 was $56.7 million. This resulted in a net loss margin of 21.5% and net income margin of 0.4%, respectively.

•Adjusted EBITDA of $110.2 million and $85.2 million, respectively. The increase for the year ended December 31, 2023 compared to the year ended December 31, 2022 was $25.0 million, or 29.3%. This resulted in an Adjusted EBITDA margin of 42.4% and 43.7%, respectively. See “Management’s Discussion and Analysis of Financial Condition and Result of Operations—Non-GAAP Financial Measures—Adjusted EBITDA” for more details on the calculations and reconciliations.

The Business Combination and Public Company Costs

On May 9, 2022, Grindr, Tiga and Tiga Merger Sub entered into the Original Merger Agreement, as amended by that certain First Amendment to Agreement and Plan of Merger, dated as of October 5, 2022, by and among Grindr, Tiga, Merger Sub and Tiga Merger Sub II, together with the Original Merger Agreement, the Merger Agreement, pursuant to which Grindr was merged with and into Tiga Merger Sub, with Grindr as the surviving entity and a wholly owned subsidiary of Tiga in the First Merger, and promptly afterwards and as part of the same overall transaction as the First Merger, the merger of such surviving company with and into Tiga Merger Sub II, with Tiga Merger Sub II being the surviving entity and a wholly owned subsidiary of Tiga in the Second Merger, in accordance with the terms and conditions of the Merger Agreement. The Business Combination was completed on November 18, 2022. Grindr was deemed the accounting predecessor and the combined entity is the successor registrant with the SEC, meaning that Grindr’s consolidated financial statements for previous periods will be disclosed in Grindr’s future periodic reports filed with the SEC.

While the legal acquirer in the Merger Agreement was Tiga, for financial accounting and reporting purposes under U.S. GAAP, Legacy Grindr was the accounting acquirer and the Business Combination was accounted for as a “reverse recapitalization.” A reverse recapitalization (i.e., a capital transaction involving the issuance of stock by Tiga for the stock of Grindr) did not result in a new basis of accounting, and the consolidated financial statements of the combined entity represent the continuation of the consolidated financial statements of Legacy Grindr in many respects. Accordingly, the consolidated assets, liabilities and results of operations of Legacy Grindr became the historical consolidated financial statements of Grindr, and Tiga’s assets, liabilities, and results of operations were consolidated with Legacy Grindr

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beginning on the acquisition date. Operations prior to the Business Combination are presented as those of Legacy Grindr and will be presented as such in future reports. The net assets of Tiga were recognized at historical cost (which was consistent with carrying value), with no goodwill or other intangible assets recorded upon execution of the Business Combination. See Note 3 to Grindr's audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information.

As a consequence of the Business Combination, Grindr became the successor to an SEC-registered and NYSE-listed company, which required Grindr to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. Grindr has incurred and expects to incur additional annual expenses as a public company for, among other things, directors’ and officers’ liability insurance, director fees and additional internal and external accounting, legal and administrative resources, including increased audit and legal fees. The Company is classified as an Emerging Growth Company, as defined under the Jumpstart Our Business Act (the “JOBS Act”), which was enacted on April 5, 2012. As a result of the Business Combination, the Company is provided certain disclosure and regulatory relief, provided by the SEC, as an Emerging Growth Company and Smaller Reporting Company.

Grindr’s future results of consolidated operations and financial position may not be comparable to historical results as a result of the Business Combination.

How We Generate Revenue

We currently generate revenue from two revenue streams—Direct Revenue and Indirect Revenue, both of which are driven by the Grindr platform. Direct Revenue is revenue generated by our users who pay for subscriptions or add-ons to access premium features. Indirect Revenue is generated by third parties who pay us to advertise to our users.

Direct Revenue is driven by our subscription revenue and premium add-ons. Our current subscription offerings are Grindr XTRA and Grindr Unlimited. Our subscription revenue has grown through organic user acquisition and the viral network effects enabled by our brand and the quality of our platform. We utilize a freemium model to drive increased user acquisition, subscriber conversions, and monetization on the Grindr platform. A portion of our users choose to pay for premium features, such as access to more user profiles, ad-free environments, advanced filters, unlimited blocks and favorites, and the ability to send multiple photos at the same time, to enhance their user experience through our subscription products. Additionally, we offer premium add-ons on a pay-per-use, or à la carte, basis, such as the ability to boost a user profile to the top of the cascade. By introducing new premium features into our subscription and premium add-on offerings, we continue to increase our Average Paying Users and average revenue per Paying User. For the years ended December 31, 2023 and 2022, our Direct Revenue accounted for 86.8% and 83.7% of our total revenue, respectively.

Indirect Revenue primarily consists of revenue generated by third parties who pay us to advertise to our users. Our advertising offerings provide advertisers with the opportunity to target and directly reach the LGBTQ community, a group with significant global purchasing power and economic potential. We have attracted advertisers from a diverse array of industries, including healthcare, entertainment, gaming, travel, and consumer goods. We offer a diverse range of advertising opportunities to advertisers, such as in-app banners, full-screen interstitials, rewarded video, and other customized units, typically on a cost per mille ("CPM") basis. We contract with a variety of third-party ad platforms to market and sell a portion of our digital and mobile advertising inventory on the Grindr platform. In exchange for facilitating the advertising process, we pay the relevant third-party ad platform a share of the revenue derived from the advertisements they place on our platform. We intend to continue to grow our Indirect Revenue through advertising, partnerships, and other non-direct initiatives. For the years ended December 31, 2023 and 2022, our Indirect Revenue accounted for 13.2% and 16.3% of our total revenue, respectively.

Operating and Financial Metrics

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[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["($ in thousands)","2023","","2022"],["Key Financial and Non-GAAP Metrics(1)"],["Revenue","$","259,691","","","$","195,015"],["Direct revenue","$","225,285","","","$","163,308"],["Indirect revenue","$","34,406","","","$","31,707"],["Net (loss) income","$","(55,768)","","","$","852"],["Net (loss) income margin","(21.5)","%","","0.4","%"],["Adjusted EBITDA","$","110,158","","","$","85,192"],["Adjusted EBITDA Margin","42.4","%","","43.7","%"],["Net cash provided by operating activities","$","36,147","","","$","50,644"]]
[[/GREPCENT_TABLE]]

(1)See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures” for additional information and a reconciliation of net loss to Adjusted EBITDA and Adjusted EBITDA Margin.

•Average Paying Users. A Paying User is a user that has purchased or renewed a Grindr subscription and/or purchased a premium add-on on the Grindr platform. We calculate Average Paying Users by adding up the number of Paying Users in each day and then dividing that number by the number of days in the relevant measurement period. A Paying User who is both a subscriber and an add-on purchaser in the same day will be counted as one Average Paying User. Duplicate Paying Users may exist if the same individual holds more than one Grindr subscription during the same period. We are focused on building new products and improving on existing ones to drive payer conversion. We believe Average Paying Users is a useful metric for assessing the health of our business, the growth of our Paying Users, and our paid penetration.

•ARPPU. We calculate ARPPU based on Direct Revenue in any measurement period, divided by Average Paying Users in such a period divided by the number of months in the period. We believe ARPPU is a useful metric for assessing the growth of our business and future revenue trends.

•Average MAUs. A MAU is a unique device that demonstrates activity on the Grindr platform during any given calendar month. Activity on the platform is defined as opening the app, chatting with another user, or viewing the cascade of other users. We also exclude devices where all linked profiles have been banned for spam. We calculate Average MAUs as a monthly average, by counting the total number of MAUs in each calendar month and then dividing by the number of months in the relevant period. We use Average MAUs to measure the number of active users on our platform on a monthly basis. We believe Average MAUs is a useful metric for assessing the health of our business and our growth in users.

•ARPU. We calculate ARPU based on total revenue in any measurement period, divided by our Average MAUs in such a period divided by the number of months in the period. We believe ARPU is a useful metric for assessing the growth of our business and future revenue trends.

Non-GAAP Profitability

We use net (loss) income and net cash provided by operating activities to assess our profitability and liquidity, respectively. In addition to net (loss) income and net cash provided by operating activities, we use Adjusted EBITDA, which is a non-GAAP measure of profitability.

We define Adjusted EBITDA as net (loss) income excluding income tax provision (benefit); interest expense, net; depreciation and amortization; stock-based compensation expense; severance; transaction-related costs; litigation-related costs for matters unrelated to the Company's ongoing business; Legacy Grindr management fees; loss on extinguishment of debt; (loss) gain in fair value of warrant liability; and other expense. Adjusted EBITDA Margin represents Adjusted EBITDA as a percentage of revenue.

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Adjusted EBITDA and Adjusted EBITDA Margin are key measures we use to assess our financial performance and are also used for internal planning and forecasting purposes. We believe Adjusted EBITDA and Adjusted EBITDA Margin are helpful to investors, analysts, and other interested parties because they can assist in providing a more consistent and comparable overview of our operations across our historical financial periods. In addition, these measures are frequently used by analysts, investors, and other interested parties to evaluate and assess performance.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures” for additional information and a reconciliation of net income to Adjusted EBITDA and Adjusted EBITDA Margin.

Key Factors Affecting our Performance

Our results of operations and financial condition have been, and will continue to be, affected by a number of factors that present significant opportunities for us but also pose risks and challenges, including those discussed below and in Item 1A. "Risk Factors" in this Annual Report on Form 10-K.

Growth in User Base and Paying Users

We acquire new users through investments in generating brand awareness as well as through word of mouth from existing users and others. We convert these users to Paying Users by offering premium features that maximize the probability of developing meaningful connections, improve the user experience, and provide more control over the experience. For the years ended December 31, 2023 and 2022, our Average Paying Users were approximately 937 thousand and 788 thousand, respectively, representing an increase of 18.9% year-over-year. We grow Paying Users by acquiring new users and converting new and existing users to purchasers of one of our subscription plans or our add-on offerings. As we scale and our community grows larger, we are able to facilitate more meaningful interactions as a result of the wider selection of potential connections. This in turn increases our product value and can increase conversion to one of our paid products. Our revenue growth depends on growth in Paying Users. While we believe we are in the early days of our opportunity, at some point we may face challenges increasing our Paying Users, including competition from alternative products and services and lower adoption of certain product features.

Expansion into Under-Penetrated Markets

We are focused on growing our platform globally, including through investing in under-penetrated markets to increase subscribers and advertising revenue. Expanding our business in under-penetrated markets will require increased costs related to marketing, as well as localization of product features and services. Potential risks to our expansion into under-penetrated markets will include competition and compliance with foreign laws and regulations. As we expand into certain under-penetrated markets, we may see an increase in users who prefer to access premium features through our add-on options rather than through our paid subscription packages, which could impact our ARPPU. We may also see a lower propensity for users to pay as we attempt to increase our market penetration in markets with additional competitors.

Growth in ARPPU

We continually work to develop new monetization features and improve existing features in order to increase adoption of premium add-ons and our subscription programs. Many variables will impact our ARPPU, including the number of Average Paying Users, paid product mix, the geographic mix of Paying Users, and the revenue generated from subscription versus add-on revenue. Our pricing is in local currency and may vary between markets. As foreign currency exchange rates change, foreign currency exchange risk related to transactions carried out in a currency other than the U.S. dollar could negatively impact revenue and distort year-over-year comparability of operating results. To the extent our ARPPU growth slows, our revenue growth will become increasingly dependent on our ability to increase our Average Paying Users.

Investing in Growth While Driving Long-Term Profitability

Key investment areas for us will be increasing headcount to rebuild our team, enhancing our platform to adapt for the impact of AI/ML on our user journey along with prioritizing security and privacy, and improving matching capabilities for successful connections.

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Attracting and Retaining Talent

Our business relies on our ability to attract and retain talent, including engineers, data scientists, product designers and product managers. As of December 31, 2023, we had 112 employees globally, 100 of which were full-time employees. Approximately 39% of our employees work in engineering and product development. We believe that many people want to work at a company committed to creating a world that is fair, equal, and just for the global LGBTQ community and that aligns with their personal values, and therefore our ability to recruit and retain talent is aided by our mission and brand reputation. We compete for talent within the technology industry.

Factors Affecting the Comparability of Our Results

Temporary variability and general advertising demand

Our ability to maintain consistently high advertiser demand for our platform can be affected by temporary trends in advertisers’ appetites to engage with our users or our brand. For example, events that result in temporary positive or negative publicity for our company (even if unfounded) may play a significant role in our advertisers’ desire to continue to advertise on our platform. Further, general economic conditions may lead to changes in advertising spending in general, which could have a significant impact on our results of operations. Such fluctuations in advertising demand are often unpredictable and likely temporary, but nevertheless could have a significant impact on the financial condition of our business.

International market pricing and changes in foreign exchange rates

The Grindr platform has MAUs in over 190 countries and territories. Our international revenues represented 41.7% and 37.4% of total revenue for the years ended December 31, 2023 and 2022, respectively. We vary our pricing to align with relative value to local competitors. Our international businesses typically earn revenues in local currencies. In addition, some of the platforms we work with utilize internally generated foreign exchange rates that may differ from other foreign exchange rates, which could impact our results of operations.

Key Components of Our Results of Operations

Revenue

We currently generate revenue from two revenue streams—Direct Revenue and Indirect Revenue. Direct Revenue is revenue generated by our users who pay for subscriptions or premium add-ons to access premium features. Indirect Revenue is generated by third parties who pay us to advertise to our users. As we continue to expand our revenue streams, we anticipate increasing monetization from premium add-ons and subscription offerings, contributing to increase in Direct Revenue over time.

Direct Revenue. Direct Revenue is reported gross of fees for subscriptions and premium add-ons as we are the primary party obligated in our transactions with customers, and we act as the principal. Our subscription revenues are generated through the sale of subscriptions that are currently offered or renewed in one-week, one-month, three-month, six-month and twelve-month periods. Subscribers pay in advance through third-party platforms, including Apple, Google Play, and Stripe, according to our terms and conditions. Subscription revenues, net of taxes and chargebacks, are recognized ratably over the term of the subscription.

Indirect Revenue. Indirect Revenue primarily consists of revenue generated by third parties who pay us to advertise to our users. Our advertising operations provide advertisers with the opportunity to target and directly reach our community, a group with significant global purchasing power and economic potential. We have attracted advertisers from a diverse array of industries, including healthcare, entertainment, gaming, travel, entertainment, and consumer goods. We offer a diverse range of advertising opportunities to advertisers, such as in-app banners, full-screen interstitials, rewarded video, and other customized units, typically on a CPM basis. We also contract with a variety of third-party ad platforms to market and sell a portion of our digital and mobile advertising inventory on the Grindr platform. In exchange for facilitating the advertising process, we pay the relevant third-party ad platform a share of the revenue derived from the advertisements they place on the Grindr platform.

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Cost of revenue and operating expenses

Cost of revenue. Cost of revenue consists primarily of the distribution fees we pay to Apple and Google, infrastructure costs associated with supporting the Grindr platform, which stem largely from our use of Amazon Web Services, and costs associated with content moderation, which involve ensuring that users are complying with our community standards.

Selling, general, and administrative expenses. Selling, general and administrative expenses consists primarily of compensation and other employee-related costs, professional fees, sales and marketing expenditures, and general administrative expenses, including facilities, insurance, and information technology and infrastructure support. We plan to continue efforts to attract new users, retain existing users and increase monetization of both our new and existing users, which may result in increased sales and marketing expenses in future periods.

Product development expense. Product development expense consists primarily of employee-related and contractor costs for personnel engaged in the design, development, testing, enhancement of product offerings and related technology, as well as related software costs.

Depreciation and Amortization. Depreciation is primarily related to computers, equipment, furniture, fixtures, and leasehold improvements. Amortization is primarily related to capitalized software, acquired definite-lived intangible assets (customer relationships, technology, etc.), as well as trademarks, patents, and copyrights.

Other income (expense)

Interest expense, net. Interest expense, net consists of interest income received on a promissory note to a member and interest expense incurred in connection with our long-term debt and revolving credit facility and loss on settlement of Deferred Payment (defined below).

Other income (expense), net. Other income (expense), net consists of realized and unrealized exchange rate gains or losses, and transaction costs allocated to warrants related to the Business Combination in 2022.

Loss on extinguishment of debt. Loss on extinguishment of debt represents the loss recognized on the early termination of our prior credit facility with Fortress Credit Corp.

(Loss) gain in fair value of warrant liability. (Loss) gain in fair value of warrant liability represents the change in fair value of our public and private warrants. As the private warrants are substantially similar to the public warrants, the warrants are remeasured from the publicly traded quotes from the active market.

Income tax provision (benefit)

Income tax provision (benefit) represents the income tax expense associated with our operations based on the tax laws of the jurisdictions in which we operate. Our effective tax rates will vary depending on changes in the valuation of our deferred tax assets and liabilities, fluctuations in permanent differences, and changes in tax laws.

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Results of Operations

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

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[[/GREPCENT_TABLE]]

Revenue

Revenue for the years ended December 31, 2023 and 2022 was $259.7 million and $195.0 million, respectively. The $64.7 million increase, or 33.2%, for the year ended December 31, 2023 compared to the year ended December 31, 2022, was primarily driven by an increase in Direct Revenue of $62.0 million, or 38.0%, from $163.3 million to $225.3 million. The increase in Direct Revenue was driven by the year-over-year increases in both, ARPPU of $2.77 and Average Paying Users of 149 thousand, largely as a result of rolling out Weeklies, our weekly XTRA subscription offering to all of our users worldwide and to the continued growth of the Boost à la carte product. Weeklies gave our users a lower priced option for XTRA product with a shorter duration. Boost enables our users to boost views of their profile in a more targeted fashion. ARPPU increased by 16.0%, or $2.77, to $20.05 for the year ended December 31, 2023, from $17.28 for the year ended December 31, 2022. Our ARPPU increased mainly as a result of improved product mix with subscription products with higher average monthly price and an increase in the price of Boost. We expect ARPPU to fluctuate in the near-term as we continue to test different subscription options across different price points and focus on generating more Paying Users. For the years ended December 31, 2023 and 2022, Average Paying Users increased by 149 thousand from 788 thousand for the year ended December 31, 2022 to 937 thousand for the year ended December 31, 2023. Average Paying Users increased as a result of the launch of our Weeklies XTRA subscription and Boost offerings. The increase in Indirect Revenue of $2.7 million, or 8.5%, from $31.7 million for the year ended December 31, 2022 to $34.4 million for the year ended December 31, 2023 was primarily driven by an increase in the number of our advertising partners as of December 31, 2023 as compared to December 31, 2022.

Revenue from North America increased by $31.4 million, or 24.6%, to $159.0 million in the year ended December 31, 2023 as compared to $127.6 million in the year ended December 31, 2022. During this same period, revenue from Europe increased by $20.1 million, or 47.9%, to $61.9 million in the year ended December 31, 2023 as compared to $41.8 million in the year ended December 31, 2022. Revenue from the remainder of the world increased by $13.2 million, or 51.7%, to $38.8 million in the year ended December 31, 2023 as compared to $25.6 million in the year ended December 31, 2022.

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Cost of revenue

Cost of revenue for the years ended December 31, 2023 and 2022 was $67.5 million and $51.3 million, respectively. The $16.2 million increase, or 31.6%, was primarily due to growth in distribution fees of $14.8 million, which is consistent with our direct revenue growth, and increased infrastructure costs of $1.2 million.

Selling, general and administrative expense

Selling, general and administrative expense for the years ended December 31, 2023 and 2022 was $80.4 million and $75.3 million, respectively. The $5.1 million increase, or 6.8%, was primarily due to a $12.2 million increase related to stock-based compensation under our equity incentive plans; $6.6 million increase in salaries, benefits, and other employee related expenses driven by the introduction of a new annual bonus incentive plan in 2023; $8.8 million increase in professional service fees, $3.2 million increase in insurance related to being a publicly traded company; partially offset by a $25.1 million decrease in stock-based compensation expenses due to expenses related to our prior Series P Units (as defined in Note 16 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K) that we recognized in 2022 and were not incurred in 2023.

Product development expense

Product development expense for the years ended December 31, 2023 and 2022 was $29.3 million and $17.9 million, respectively. The $11.4 million increase, or 63.7%, was primarily due to a $7.5 million increase in severance expenses, primarily related to our RTO Plan discussed above in "—Recent Developments"; a $2.6 million increase in salaries, benefits, and other employee related expenses, driven by the introduction of a new annual bonus incentive plan in 2023; a $0.8 million increase in contractor fees to support the engineering function through the decrease in headcount related to RTO, and $0.5 million increase in software costs.

Depreciation and amortization

Depreciation and amortization for the years ended December 31, 2023 and 2022 was $27.0 million and $37.5 million, respectively. The $10.5 million decrease, or 28.0%, was primarily due to acquired intangibles amortization from an acquisition in June 2020, that included a $5.9 million decrease due to customer relationships intangibles that were amortized under an accelerated amortization schedule, with higher amounts expensed in 2022, and a $7.0 million decrease due to technology intangibles that had a three-year useful life which was fully amortized in the second quarter of 2023. The decrease was offset by a $1.7 million increase related to capitalized software placed in service, as well as $1.3 million in capitalized software write offs that will no longer be placed in service.

Interest expense, net

Interest expense, net for the years ended December 31, 2023 and 2022 was $46.0 million and $31.5 million, respectively, which represents an increase of $14.5 million, or 46.0%. The increase in interest expense primarily resulted from higher debt balances for 2023, partially offset by lower interest rates under the 2023 Credit Agreement (as defined below) entered into in November 2023, the recognition of interest expense in 2022 related to a settlement with Kunlun Group Holdings Limited (“Kunlun”) that was not recognized in 2023, and interest income from the related party loan to Catapult GP II.

We agreed to settle a deferred payment owed to Kunlun in 2022 that resulted in $11.9 million of interest expense for 2022. In connection with the acquisition of Legacy Grindr in 2020, the SV Entities (as defined in Note 3 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K) had a cash obligation to pay $155.0 million to Kunlun as of June 30, 2023. This obligation was recorded by the SV Entities at the present value of these payments due in the future (“Deferred Payment”). When we agreed to settle the Deferred Payment with Kunlun in 2022, the difference between the assumed carrying value of the Deferred Payment at the time of settlement and the $155.0 million obligation resulted in $11.9 million of interest expense for 2022. See Note 3 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information.

In April 2021, we loaned $30.0 million under a promissory note to Catapult GP II in April 2021. The promissory note bore interest at 10.0% per annum and was repaid in full during the first quarter of 2023. The total amount of interest income related to the note for the years ended December 31, 2023 and 2022 was $0.3 million and $2.8 million, respectively.

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Other income (expense), net

Other income (expense), net for the years ended December 31, 2023 and 2022 was other income of $0.1 million and other expense of $2.8 million, respectively. The change is $2.9 million, or 103.6%, was primarily due to $2.3 million in transaction costs allocated to warrants related to the Business Combination as other expense in 2022.

Loss on extinguishment of debt

Loss on extinguishment of debt for the year ended December 31, 2023, was $11.6 million due to the loss recognized on the early termination of our prior credit facility with Fortress Credit Corp. Refer to Note 10 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information.

(Loss) gain in fair value of warrant liability

(Loss) gain in fair value of warrant liability represents the change in the fair value of our Warrants between measurement dates. The Warrants remained unexercised and were remeasured to fair value of $67.6 million as of December 31, 2023 because of the increase in our share price as compared to December 31, 2022, resulting in a loss of $49.7 million for the year ended December 31, 2023 recognized in the consolidated statements of operations and comprehensive (loss) income. See Note 12 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information.

Income tax provision (benefit)

Income tax provision (benefit) for the years ended December 31, 2023 and 2022 was $4.0 million and $(0.9) million, respectively. Legacy Grindr restructured immediately prior to the Business Combination. The restructuring created two tax periods, one for Legacy Grindr through the restructuring, and one for Grindr through the remainder of the 2022. The $4.9 million increase, or 544.4% is primarily due to the tax effect on the increase in mark-to-market warrant liability adjustment, Section 162(m) officer compensation, and changes in the valuation allowance.

Our effective tax rates in fiscal 2023 and future periods may fluctuate, as a result of changes in our forecasts where losses cannot be benefited due to the existence of valuation allowances on our deferred tax assets, changes in actual results versus our estimates, or changes in tax laws, regulations, accounting principles, or interpretations thereof. Refer to Note 17 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information.

Net (loss) income

Net (loss) income for the years ended December 31, 2023 and 2022 was net loss of $55.8 million and net income of $0.9 million, respectively. Net (loss) income decreased by $56.7 million mainly due to the loss in fair value of warrant liability and loss in extinguishment of debt as discussed above.

Non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we use Adjusted EBITDA and Adjusted EBITDA margin, as described below, to understand and evaluate our core operating performance. These non-GAAP financial measures, which may differ from similarly titled measures used by other companies, are presented to enhance investors’ overall understanding of our financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

Adjusted EBITDA and Adjusted EBITDA Margin

We define Adjusted EBITDA as net (loss) income excluding income tax provision (benefit); interest expense, net; depreciation and amortization; stock-based compensation expense; severance expenses; transaction-related costs; litigation-related costs for matters unrelated to the Company's ongoing business, including those matters incurred as part of the Business Combination; Legacy Grindr management fees; loss on extinguishment of debt, (loss) gain in fair value of warrant liability and other expense that is unrelated to Grindr's core ongoing business operations. Our management uses this measure internally to evaluate the performance of our business and this measure is one of the primary metrics by which our internal budgets are based and by which management is compensated. We exclude the above items as some are non-cash in nature, and others may not be representative of normal operating results. Adjusted EBITDA adjusts for the impact

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of items that we do not consider indicative of the operational performance of our business. Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA for a period by revenue for the same period. While we believe that Adjusted EBITDA and Adjusted EBITDA Margin are useful in evaluating our business, this information should be considered as supplemental in nature and is not meant as a substitute for the related financial information prepared and presented in accordance with GAAP.

The following table presents the reconciliation of net income to Adjusted EBITDA for the years ended December 31, 2023 and 2022.

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["($ in thousands)","2023","","2022"],["Reconciliation of net (loss) income to Adjusted EBITDA"],["Net (loss) income","$","(55,768)","","","$","852"],["Interest expense, net (1)","46,007","","","31,538"],["Income tax provision (benefit)","4,023","","","(859)"],["Depreciation and amortization","27,041","","","37,505"],["Transaction-related costs (2)","\u2014","","","6,499"],["Litigation related costs (3)","2,339","","","1,722"],["Stock-based compensation expense","15,824","","","28,586"],["Severance expenses (4)","9,355","","","\u2014"],["Management fees (5)","(97)","","","644"],["Loss on extinguishment of debt","11,582","","","\u2014"],["Loss (gain) in fair value of warrant liability (6)","49,689","","","(21,295)"],["Other expense (7)","163","","","\u2014"],["Adjusted EBITDA","$","110,158","","","$","85,192"],["Revenue","$","259,691","","","$","195,015"],["Net (loss) income margin","(21.5)","%","","0.4","%"],["Adjusted EBITDA Margin","42.4","%","","43.7","%"]]
[[/GREPCENT_TABLE]]

_________________

(1)Interest expense, net for the year ended December 31, 2022, included the interest expense recognized with the settlement of the Deferred Payment as discussed above.

(2)Transaction-related costs consist of legal, tax, accounting, consulting, and other professional fees related to the Business Combination and other potential acquisitions.

(3)Litigation-related costs primarily represent external legal fees associated with the outstanding litigation or regulatory matters, including fees incurred in connection with the Business Combination, the potential NDPA fine, and employee unionization.

(4)Severance expenses related to severance incurred for employees who elected not to relocate or participate in our RTO Plan and other severance arrangements.

(5)Management fees represent administrative costs associated with San Vicente Holdings LLC's ("SVE") administrative role in managing financial relationships and providing directive on strategic and operational decisions, which ceased to continue after the Business Combination. In September 2023, certain management fees previously accrued were forgiven.

(6)Change in fair value of warrant liability relates to our warrants that were remeasured as of December 31, 2023 due to the increase in our share price since December 31, 2022.

(7)Other expense represents other costs that are unrelated to Grindr's core ongoing business operations.

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Liquidity and Capital Resources

Cash Flows for the Years Ended December 31, 2023 and 2022

The following table summarizes our total cash and cash equivalents:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["($ in thousands)","2023","","2022"],["Cash and cash equivalents, including restricted cash (as of the end of period)","$","28,998","","","$","10,117"],["Net cash provided by (used in):"],["Operating activities","$","36,147","","","$","50,644"],["Investing activities","(4,230)","","","(5,585)"],["Financing activities","(13,036)","","","(52,112)"],["Net change in cash and cash equivalents","$","18,881","","","$","(7,053)"]]
[[/GREPCENT_TABLE]]

Cash flows provided by operating activities

Net cash provided by operating activities are primarily dependent on our revenues affected by timing of receipts from subscription and advertising sales. It is also dependent on managing our operating expenses, such as salaries and employee-related costs, selling and marketing expenses, transaction costs, and other general and administrative expenses. We expect to maintain strong operating cash flows given our historical performance. We will continue to invest in the right resources to support longer term profitable growth. Our operating cash flows should continue to cover our operating and financing costs.

During the year ended December 31, 2023, our operations provided $36.1 million of cash, which was primarily attributable to our net loss, adjusted for non-cash items, including $49.7 million in loss in fair value of warrant liability, $27.0 million in depreciation and amortization, stock-based compensation of $15.8 million, and the recognition of a loss on extinguishment of debt of $11.6 million, partially offset by a decrease in net working capital of $7.3 million, primarily from $11.9 million decrease in account receivables due to increase in direct revenue and indirect revenue during the year, this is offset by $4.7 million increase in accrued expenses and other current liabilities due to the timing of payments and certain litigation-related funds received from escrow, See Note 21 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information.

During the year ended December 31, 2022, our operations provided $50.6 million of cash, which was primarily attributable to our net income of $0.9 million, adjusted for non-cash items, including $37.5 million in depreciation and amortization, $11.9 million in loss in extinguishment of Deferred Payment (defined below), and $21.3 million in gain in fair value change in warrant liability and increase in working capital of $2.5 million, primarily from $10.2 million increase in accrued expenses and other current liabilities due to timing of payments, offset by $4.8 million decrease in account receivables due to increase in direct and indirect revenue during the year.

Cash flows used in investing activities

Net cash used in investing activities in the year ended December 31, 2023, consisted of additions to capitalized software of $3.7 million as well as purchases of property and equipment of $0.5 million.

Net cash used in investing activities in the year ended December 31, 2022, consisted of additions to capitalized software of $5.2 million as well as purchases of property and equipment of $0.4 million.

Cash flows used in financing activities

Net cash used in financing activities for the year ended December 31, 2023 was $13.0 million, resulting primarily from net borrowings of $23.1 million and payment of an early termination fee of $6.3 million in connection with the refinancing of our credit agreement in November 2023, partially offset by proceeds of $19.4 million received upon repayment in full of our related party note to Catapult GP II LP. In January 2024, we repaid $22.0 million under our revolving credit facility.

Net cash used in financing activities in the year ended December 31, 2022 was $52.1 million, resulting primarily from the payment of $196.3 million in distributions to our equity holders prior to the Business Combination and the payment of $155.0 million to Kunlun in connection with the settlement of the Deferred Payment as discussed above, partially offset by

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$230.8 million in borrowings under our prior credit agreement with Fortress Credit Corp., and $100.0 million received in connection with the exercise of the forward purchase agreement with Tiga.

Sources of Liquidity

Since our inception, we have financed our operations and capital expenditures primarily through cash flows generated by operations, borrowings under our credit facilities, and the sale of equity. To the extent existing cash and investments and cash from operations are not sufficient to fund future activities, we may need to raise additional funds. We may seek to raise additional funds through equity, equity-linked or debt financings. If we raise additional funds through the incurrence of additional indebtedness, such indebtedness may have rights that are senior to holders of our equity securities and could contain additional covenants that restrict operations, including our ability to raise additional capital. Any additional equity financing may be dilutive to existing stockholders. We may also enter into investment or acquisition transactions in the future, which could require us to seek additional equity financing, incur indebtedness, or use cash resources.

As of December 31, 2023, we had cash and cash equivalents of $27.6 million. We believe that our cash and cash equivalents, cash flows generated by operations, and borrowings under our revolving credit facility will be sufficient to meet our working capital and capital expenditure needs for the next twelve months.

Senior Secured Credit Facility

In November 2023, we refinanced our existing credit facility with a new $300.0 million term loan and $50.0 million revolving credit facility. We entered into a credit agreement with JPMorgan Chase Bank, N.A., as the administrative agent, and other lenders party thereto (the "2023 Credit Agreement") that governs the term loan and revolving credit facility. We borrowed the full amount of the $300.0 million term loan and $44.4 million under the revolving credit facility upon closing of the new credit agreement and used the proceeds and cash on hand to repay in full all outstanding obligations under, and terminate, our prior credit agreement with Fortress Credit Corp. As of March 7, 2024, $300.0 million was outstanding under the term loan and $22.4 million was outstanding under the revolving credit facility. In January 2024, we repaid $22.0 million under our revolving credit facility. We have the option to request that lenders increase the amount available under the revolving credit facility by, or obtain incremental term loans of, up to $100.0 million, subject to the terms of the 2023 Credit Agreement and only if existing or new lenders choose to provide additional term or revolving commitments.

Our wholly owned subsidiary, Grindr Capital LLC, is the borrower under the credit agreement and all obligations of Grindr Capital LLC under the credit agreement are guaranteed by Grindr Inc. and, subject to certain limited exceptions, our wholly owned domestic subsidiaries and are secured by substantially all of the assets of Grindr Inc., Grindr Capital LLC, and the guarantor subsidiaries.

Borrowings under our new credit agreement (other than swingline loans) bear interest at a rate equal to either, at our option, (i) the highest of the Prime Rate (as defined in the credit agreement), the Federal Funds Rate (as defined in the credit agreement) plus 0.50%, or one-month Term SOFR (as defined in the credit agreement) plus 1.00% (the “Alternate Base Rate”); or (ii) Term SOFR; in each case, plus an applicable margin ranging from 2.75% to 3.25% with respect to Term SOFR borrowings and 1.75% to 2.25% with respect to Alternate Base Rate borrowings. The applicable margin will be based upon our total net consolidated leverage ratio. Swingline loans under the credit agreement bear interest at the Alternate Base Rate plus the applicable margin. We are also required to pay a commitment fee for the unused portion of the revolving credit facility, which will range from 0.375% to 0.50% per annum, depending on our total consolidated net leverage ratio.

The term loan will amortize on a quarterly basis at 1.25% of the aggregate principal amount outstanding as of the initial closing date of the credit agreement, until the final maturity date on November 28, 2028. Any borrowings under the revolving credit facility may be repaid, in whole or in part, at any time and from time to time without any other premium or penalty, and any amounts repaid under the revolving credit facility may be reborrowed, in each case, until the maturity date on November 28, 2028.

Mandatory prepayments are required under the revolving credit facility when borrowings and letter of credit usage exceed the aggregate revolving commitments of all lenders. Mandatory prepayments are also required under the term loan in connection with (i) certain asset dispositions and casualty events, in each case, to the extent the proceeds of such dispositions or casualty events exceed certain individual and aggregate thresholds and are not reinvested, and (ii) unpermitted debt transactions. For the year ended December 31, 2023, we were not required to make any mandatory repayments.

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The credit agreement requires compliance with certain financial covenants including a maximum total net leverage ratio and minimum fixed charge coverage ratio. The credit agreement also contains customary restrictive covenants regarding indebtedness, liens, fundamental changes, investments, restricted payments, disposition of assets, transactions with affiliates, hedging transactions, certain prepayments of indebtedness, amendments to organizational documents and sale and leaseback transactions. The credit agreement contains certain customary events of default. If an event of default has occurred and continues beyond any applicable cure period, all outstanding obligations under the credit agreement may be accelerated or the commitments may be terminated, amongst other remedies. Additionally, the lenders are not obligated to fund any new borrowing under the credit agreement while an event of default is continuing.

Uses of Cash

Our principal commitments consist of obligations under our credit agreement, operating leases for office space, and our payments for the use of cloud services. In addition, we are subject to pending legal proceedings from time to time, including a potential NDPA fine. If we receive unfavorable results in one or more legal proceedings, we could be required to make substantial cash payments. See Note 21 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information.

Critical Accounting Policies and Estimates

We believe that the following critical accounting policy reflects the more significant estimates, assumptions, and judgments used in the preparation of our consolidated financial statements. These estimates, judgments, and assumptions impact the reported amount of assets, liabilities, revenues, and expenses and the related disclosure of contingent assets and liabilities as of the date of the consolidated financial statements. Because of the size of the financial statement elements to which they relate, some of our accounting policies and estimates have a more significant impact on our consolidated financial statements than others. We have based our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Due to the inherent uncertainty involved in making these estimates, actual results reported in future periods could differ from our estimates. For additional information, see the disclosure included in Note 2 to our consolidated financial statements included elsewhere in this Form 10-K.

Stock-based Compensation

Immediately prior to the completion of the Business Combination, Legacy Grindr's compensation plan was terminated and each option outstanding and unexercised at the effective time of the Closing was converted into the right to receive an option to purchase our common stock upon substantially the same terms and conditions as the unit options immediately prior to the Business Combination. In addition, all vested profit units were exchanged for our common stock.

In connection with our Business Combination, on November 18, 2022, the Board of Directors adopted the 2022 Equity Incentive Plan (the “2022 Plan”), which permits the grant of incentive awards, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance awards, and other awards.

We measure the fair value of restricted stock units that are subject to market conditions and are liability-classified using a Monte Carlo simulation model. Prior to vesting, compensation expense is recognized over the derived service period, which is determined at the grant date. The Monte-Carlo model is updated to measure the fair value of the liability at each reporting period. Our use of the Monte Carlo simulation model requires estimates, including the expected term, the expected volatility, the risk-free interest rate, and the dividend yield. The expected volatility assumption is developed using the historical volatility observed for the peer group companies used as guideline for Grindr due to the lack of history for Grindr as a public company. The determination of the peer group is inherently uncertain and changes in the assumption could have a material impact on the liability of the market-based awards.

Other Matter

Organization for Economic Cooperation and Development Base Erosion and Profit Shifting Project - Pillar 2

Changes in the tax laws of foreign jurisdictions could arise as a result of the base erosion and profit shifting project undertaken by the Organization for Economic Cooperation and Development ("OECD"). The OECD, representing a coalition of member countries, has recommended changes to long-standing tax principles related to transfer pricing and has developed model rules, including establishing a global minimum corporate income tax tested on a jurisdictional basis

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(referred to as "Pillar Two"). Many jurisdictions have either adopted or announced an intention to adopt Pillar Two for tax years beginning in 2024. While there was no impact in the current year, legislation will be monitored going forward for potential impacts in prospective periods.

Recently Issued and Adopted Accounting Pronouncements

For a discussion of recent accounting pronouncements, see Note 2 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information.