19
Grindr Inc. and subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(in thousands, except per share amounts and share data)
including privacy violations under the California Constitution and California common law, negligence, violation of the Unfair Competition Law, and unjust enrichment. The statement of claims seeks various forms of monetary, declaratory, and injunctive relief, in addition to certification as a class action. In June 2021, the petitioner attempted service of the statement of claims and the associated filings (all in translated form as required under applicable law) on Grindr. In November 2021, Grindr filed an initial response to the plaintiff’s Statement of Claim challenging the effectiveness of service. The plaintiff then filed opposition to Grindr’s service-related motion, raising a series of technical challenges. During the Israeli court hearing in January 2022, the Israeli court directed the plaintiff to start the service process from the beginning by seeking court permission to pursue international service on Grindr. On February 8, 2022, the Court formally permitted the Plaintiff, in ex parte, to serve the Company outside the jurisdiction. On March 30, 2022, Grindr received a package via U.S. Mail with the case documents. Grindr’s local Israeli counsel is preparing a motion seeking the court’s preliminary ruling on the question of applicable law. On July 5, 2022, the Company filed a motion to determine the governing law. On December 22, 2022, Grindr filed its response over the class certification, which opposes class certification and included both employee and expert opinions. Following a case management conference on March 6, 2023, the parties are coordinating on next steps in the litigation, including to schedule a possible mediation. Grindr believes that the claims lack merit, and it continues to consider and evaluate an appropriate response. At this time, this matter remains in its nascent stages, and it is too early to determine the likely outcome of this proceeding or whether the proceeding may ultimately have a material adverse effect on the Company’s business, including because of the uncertainty of (i) whether Grindr will incur a loss, (ii) if a loss is incurred, what the amount of that loss may be, and (iii) whether Grindr may determine to appeal or further contest the loss.
15.Subsequent Events
Except as described below, or as otherwise indicated in the footnotes, the Company has concluded that no events or transactions have occurred that require disclosure.
In 2020, in response to the COVID-19 pandemic, the Company adopted a remote-first working policy. In August 2023, the Company announced the adoption of a return-to-office plan (the “RTO Plan”). The Company’s RTO Plan provides employees with a one-time relocation package to support relocation to offices where their respective teams are based, or severance plans for employees who choose not to relocate or participate in the Company’s RTO Plan. The expense related to the RTO Plan cannot be estimated at this time.
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References in this report (the “Quarterly Report”) to “we,” “us” or the “Company” refer to Tiga Acquisition Corp. References to our “management” or our “management team” refer to our officers and directors, and references to the “Sponsor” refer to Tiga Sponsor LLC. The following discussion and analysis of the Company’sour financial condition and results of operations should be read in conjunction with the consolidated financial statements and therelated notes thereto containedincluded elsewhere in this Quarterly Report. CertainReport on Form 10-Q. In addition to the unaudited condensed consolidated financial information, contained in the following discussion and analysis set forth below includescontains forward-looking statements that reflect our plans, estimates, beliefs and expectations that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Exchange Act that are not historical facts and involve risks and uncertainties that could cause Our actual results toand the timing of events could differ materially from those expecteddiscussed in these forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and projected. All statements, other than statements of historical fact includedelsewhere in this Quarterly Report on Form 10-Q, particularly in “Special Note Regarding Forward-Looking Statements.”
Overview
Grindr Inc. (“Grindr” or the “Company”) is the world’s largest social network focused on the LGBTQ community with approximately 13.1 million MAUs (as defined below) and approximately 929 thousand Paying Users (as defined below) for the three months ended June 30, 2023, and approximately 13.0 million MAUs (as defined below) and approximately 898 thousand Paying Users (as defined below) for the six months ended June 30, 2023.
We have grown significantly over the years since our product launch. For the three months ended June 30, 2023 and 2022, we generated $61.5 million and $46.6 million of revenue, respectively, and for the six months ended June 30, 2023 and 2022, we generated $117.3 million and $90.1 million of revenue, respectively, representing period-over-period growth of 32.0% and 30.2% as compared to the three-month and six-month periods in 2022, respectively. We had over 929 thousand and 898 thousand Paying Users for the three and six months ended June 30, 2023, respectively, representing period-over-period growth of 21.5% and 20.7% as compared to the three-month and six-month periods in 2022. We have users in over 190 countries or territories and support 21 languages on our platform. On average, profiles on our platform sent over 330.8 and 297.2 million daily messages for the three months ended June 30, 2023 and 2022, respectively and 324.3 and 295.7 million daily messages for the six months ended June 30, 2023 and 2022, respectively.
The Grindr mobile application ("Grindr App") is free to download and provides certain services and features to Grindr's users for free, and then offers a variety of additional controls and features for users who subscribe to our premium products and services, Grindr XTRA and Grindr Unlimited. A substantial portion of our revenues are derived directly from users in the form of recurring subscription fees, providing our users access to a bundle of features for the period of their subscription, or in the form of add-ons to access premium features. Leveraging strong brand awareness and our significant user network stemming from our first mover advantage in the LGBTQ social networking space, our historical growth in number of users has been driven primarily by word-of-mouth referrals and other organic means.
While we have users in over 190 countries and territories, our core markets are currently North America and Europe, from which we derived 85.9% and 88.0% of our total revenues for the six months ended June 30, 2023 and 2022, respectively. We intend to grow our user base and revenues by continuing to introduce new and innovative products to all of 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 untapped potential users, favorable regulatory environments, and fast-growing economies.
In addition to our revenue generated from subscription fees and premium add-ons, we also generate revenues from both first-party and third-party advertising. We provide advertisers with the unique opportunity to directly target and reach the LGBTQ community, which is characterized by a higher-than-average proportion of well-educated, brand-conscious individuals with substantial aggregate global purchasing power. Advertisers on our Grindr App span across many different industries, including without limitation, statementshealthcare, gaming, travel, automotive, and consumer goods. We offer our advertisers a diverse range of initiatives, such as 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 our Grindr App. We will continue to evaluate opportunities to increase inventory with unique advertising units and offerings.
Recent Developments
In 2020, in response to the COVID-19 pandemic, we adopted a remote-first working policy. In August 2023, we announced the adoption of a return-to-office plan (the “RTO Plan”). Our RTO Plan provides employees with a one-time relocation package to support relocation to offices where their respective teams are based, or severance plans for employees who choose not to relocate or participate in our RTO Plan. The expense related to the RTO Plan cannot be estimated at this “Management’stime.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” regardingOperations
In July 2023, the Company’s financial position, business strategy andCommunications Workers of America AFL-CIO filed an election petition with the plans and objectivesNational Labor Relations Board seeking to hold a representation election for certain categories of management for future operations,Grindr employees. We are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated inprocess of reviewing the forward-looking statements, please refer to the Risk Factors section of the Annual Report on Form 10-K filed with the U.S. Securitiespetition and Exchange Commission (the “SEC”). The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.evaluating our response.
Overview
We are a blank check company incorporated in the Cayman Islands on July 27, 2020 formedConsolidated Results for the purposethree months ended June 30, 2023 and 2022
For the three months ended June 30, 2023 and 2022, we generated:
•Revenues of effecting a merger, amalgamation, share exchange, asset acquisition, share purchase, reorganization$61.5 million and $46.6 million, respectively. The increase was $14.9 million, or other similar32.0%.
•Net income (loss) of $22.3 million and $(4.3) million, respectively. The increase in net income was $26.6 million, or 618.6%.
•Adjusted EBITDA of $26.9 million and $21.5 million, respectively. The increase was $5.4 million, or 25.2%.
Consolidated Results for the six months ended June 30, 2023 and 2022
For the six months ended June 30, 2023 and 2022, we generated:
◦Revenues of $117.3 million and $90.1 million, respectively. The increase was $27.2 million, or 30.2%.
◦Net (loss) income of $(10.6) million and $0.2 million, respectively. The decrease in net income was $10.8 million, or (5400.0)%.
◦Adjusted EBITDA of $48.9 million and $41.6 million, respectively. The increase was $7.3 million, or 17.4%.
The Business Combination with one or more businesses. We intend to effectuate our Business Combination using cash derived from the proceeds of the Initialand Public Offering, the exercise in full of the over-allotment option and the sale of the Private Placement Warrants, our shares, debt or a combination of cash, shares and debt.
We expect to continue to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to complete a Business Combination will be successful.
Recent Developments
Business Combination
On May 9, 2022, Grindr, Tiga entered into an agreementAcquisition Corp. (“Tiga”) and plan of merger with Tiga Merger Sub LLC, a Delaware limited liability company and direct and wholly-owned subsidiary of Tiga (“Merger Sub I”) entered into that certain Agreement and Plan of Merger (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 I and Tiga Merger Sub II LLC, a Delaware limited liability company and direct and wholly-owned subsidiary of Tiga (“Merger Sub II”) (together with the Original Merger Agreement, the “Merger Agreement”) pursuant to which Grindr was merged with and into Merger Sub I, with Grindr as the surviving entity and a wholly owned subsidiary of Tiga (“Merger Sub”(the “First Merger”), and Grindr (as it may be amended, restated, supplemented or otherwise modified from time to time,promptly afterwards and as part of the “Merger Agreement”).
Thesame overall transaction as the First Merger, Agreement provides that, among other thingsthe merger of such surviving company with and uponinto Merger Sub II, with Merger Sub II being the termssurviving entity and subject to the conditions thereof, the following transactions will occur (together with the other transactions contemplated by the Merger Agreement, including the Domestication (as defined below), the “Business Combination Transaction”):
| (i) | at the closing of the Business Combination Transaction (the “Closing”a wholly owned subsidiary of Tiga (the “Second Merger”), in accordance with the Delaware Limited Liability Company Act (“DGCL”), Merger Sub will merge with and into Grindr, the separate corporate existence of Merger Sub will cease, and Grindr will be the surviving corporation and a wholly owned subsidiary of Tiga (the “Merger”); and |
| (ii)
| as a result of the Merger, among other things, (x) each Grindr series X ordinary unit (“Grindr Series X Ordinary Unit”) and each Grindr series Y preferred unit (“Grindr Series Y Preferred Unit”, and together with the Grindr Series X Ordinary Units, the “Grindr Units”) that is issued and outstanding immediately prior to the Effective Time (as defined in the Merger Agreement) shall be cancelled and converted into the right to receive a number of shares of New Grindr Common Stock (as defined below) equal to the quotient obtained by dividing (i) the Aggregate Merger Consideration (defined below), by (ii) the number of Aggregate Fully Diluted Grindr Units (as defined below) (the “Exchange Ratio”); (y) each option to purchase Grindr Series X Ordinary Units granted under the Company Incentive Plan (as defined in the Merger Agreement) (“Grindr Option”) that is then outstanding and unexercised shall be converted into the right to receive an option relating to shares of New Grindr Common Stock upon substantially the same terms and conditions as are in effect with respect to such Grindr Option immediately prior to the Effective Time, including with respect to vesting and termination-related provisions; and (z) each Grindr Warrant (as defined below) that is outstanding immediately prior to the Effective Time shall be converted into the right to receive a warrant relating to shares of New Grindr Common Stock with substantially the same terms and conditions as were applicable to such warrant (excluding Grindr Options) to purchase Grindr Units (“Grindr Warrant”). “Aggregate Merger Consideration” means a number of shares of New Grindr Common Stock equal to the quotient obtained by dividing (i) the sum of (a) the Grindr Valuation (as defined below) plus (b) the aggregate exercise price of all in-the-money Grindr Options and all in-the-money Grindr Warrants that are issued and outstanding immediately prior to the Effective Time by (ii) $10.00; and “Aggregate Fully Diluted Grindr Units” means, without duplication, the aggregate number of Grindr Units that are issued and outstanding immediately prior to the Effective Time.
|
Under the Merger Agreement, Tiga has agreed to acquire all Grindr Units for (i) the Grindr Valuation plus (ii) the aggregate exercise price of all in-the-money Grindr Options and all in-the-money Grindr Warrants that are issued and outstanding immediately prior to the Effective Time the in the form of New Grindr Common Stock (at $10 per share) to be paid at the effective time of the Business Combination. “Grindr Valuation” means $1,584,000,000 plus the amount, if any, by which the Permitted Distribution Amount exceeds the Grindr Distribution Amount; “Permitted Distribution Amount” means $370,000,000 and “Grindr Distribution Amount” means the actual amount of any cash dividend or other dividend or distribution in respect of Grindr Units or equity interests Grindr makes, declares, sets aside, establishes a record date for or makes a payment date for between the date hereof and the Effective Time, provided that the amount of any such dividend or distribution may not exceed the Permitted Distribution Amount.
The Special Committee of Tiga has unanimously approved and declared advisable the Merger Agreement and the Business Combination. In addition, the Board of Directors of Tiga (the “Board”) has unanimously (i) approved and declared advisable the Merger Agreement and the Business Combination and (ii) resolved to recommend approval of the Merger Agreement and related matters by the shareholders of Tiga.
Prior to the Closing, subject to the approval of Tiga’s shareholders, and in accordance with the DGCL, Cayman Islands Companies Law (2020 Revision) (the “CICL”) and Tiga’s Amended and Restated Memorandum and Articles of Association (as may be amended from time to time, the “Cayman Constitutional Documents”), Tiga will effect a deregistration under the CICL and a domestication under Section 388 of the DGCL with the Secretary of State of Delaware), pursuant to which Tiga’s jurisdiction of incorporation will be changed from the Cayman Islands to the State of Delaware (the “Domestication”). In connection with the Domestication, Tiga, as the continuing entity in the Domestication, will be renamed “Grindr Inc.” As used herein, “New Grindr” refers to Tiga after the Domestication, including after such change of name.
In connection with the Domestication, (i) each of the then issued and outstanding Class A ordinary shares, par value $0.0001 per share, of Tiga (the “Tiga Class A Ordinary Shares”), will convert automatically, on a one-for-one basis, into a share of common stock, par value $0.0001 per share of New Grindr (the “New Grindr Common Stock”), (ii) each of the then issued and outstanding Class B ordinary shares, par value $0.0001 per share, of Tiga (the “Tiga Class B Ordinary Shares”), will convert automatically, on a one-for-one basis, into a share of New Grindr Common Stock, (iii) each then issued and outstanding warrant of Tiga will convert automatically into a warrant to acquire one share of New Grindr Common Stock (“New Grindr Warrant”), pursuant to the Warrant Agreement, dated November 23, 2020, between Tiga and Continental Stock Transfer & Trust Company, as warrant agent, and (iv) each then issued and outstanding unit of Tiga will separate and convert automatically into one share of New Grindr Common Stock and one-half of one New Grindr Warrant.
Forward Purchase Agreement
On May 9, 2022, concurrently with the execution of the Merger Agreement, the Company entered into an amended and restated forward purchase agreement (the “A&R FPA”) with the Sponsor. The A&R FPA replaces the FPA that was entered into in connection with the closing of the Initial Public Offering. The A&R FPA provides for the purchase by the forward purchaser of an aggregate of 5,000,000 Class A ordinary shares, plus an aggregate of 2,500,000 forward purchase warrants to purchase one share of New Grindr Common Stock at $11.50 per share, for an aggregate purchase price of $50,000,000, or $10.00 per Class A Ordinary share, in a private placement to close prior to or concurrently with the closing of a Business Combination. In addition, to the extent that the Non-FPS Amount (as defined in the A&R FPA) is less than $50,000,000 immediately prior to the closing of a Business Combination but following the Domestication, the forward purchaser has agreed pursuant to the A&R FPA to purchase (a) a number of shares of Class A ordinary shares (the “backstop shares”) equal to (A) (x) $50,000,000 minus (y) the Non-FPS Amount, divided by (B) $10.00, rounded down to the nearest whole number and (b) a number of redeemable warrants (the “backstop warrants”) equal to (I) the number of backstop shares in clause (a) multiplied by (II) 0.5, rounded down to the nearest whole number. In addition to the foregoing, the forward purchaser may, at its discretion (regardless of the Non-FPS Amount), subscribe for up to 5,000,000 backstop shares plus up to 2,500,000 backstop warrants at $11.50 per share, for an aggregate purchase price of $50,000,000, or $10.00 for each backstop share and one-half of one backstop warrant.
Convertible Promissory Note
On January 25, 2022, March 31, 2022, May 12, 2022, and June 27, 2022, the Sponsor had advanced the sum of $750,000, $300,000, $430,000, and $200,000, respectively, to the Company on account of the Note. All unpaid principal under the Note shall be due and payable in full on the effective date of the Company’s initial business combination, unless accelerated upon the occurrence of an event of default. At June 30, 2022, there was $1,680,000 outstanding under this Note and the amount available for withdrawal under the Note totaled $320,000.
Transaction Support Agreement
On May 9, 2022, concurrently with the execution of the Merger Agreement, Grindr, Tiga, Merger Sub, the Sponsor and the directors of Tiga entered into the Transaction Support Agreement. Pursuant to the terms of the Transaction Support Agreement, the Sponsor and the directors of Tiga agreed to, among other things, vote or cause its shares to vote in favor of the Business Combination Proposal (as defined in the Merger Agreement) and the other proposals included in the accompanying proxy statement/prospectus.
Unitholder Support Agreement
In connection with the execution of the Merger Agreement, Tiga entered into a support agreement (the “Unitholder Support Agreement”) with Grindr and certain unitholders of Grindr (the “Requisite Unitholders”). Pursuant to the Unitholder Support Agreement, the Requisite Unitholders agreed to, among other things, vote to adopt and approve the Merger Agreement, the Merger and any other matters necessary or reasonably requested by Tiga for the consummation of the Merger, in each case, subject to the terms and conditions of the Unitholder SupportMerger Agreement. The transaction was completed on November 18, 2022 (the “Business Combination”). Grindr was deemed the accounting predecessor and the combined entity is the successor registrant with the SEC, meaning that Grindr’s condensed consolidated financial statements for previous periods will be disclosed in Grindr’s future periodic reports filed with the SEC.
A&R Registration Rights Agreement
TheWhile the legal acquirer in the Merger Agreement contemplates that, atwas Tiga, for financial accounting and reporting purposes under U.S. GAAP, Legacy Grindr was the Closing, Newaccounting 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 Sponsor,consolidated assets, liabilities and results of operations of Legacy Grindr became the independent directorshistorical consolidated financial statements of Grindr, and Tiga’s assets, liabilities, and results of operations were consolidated with Legacy Grindr 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.
As a consequence of the Business Combination, Grindr became the successor to an SEC-registered and certain securityholders ofNYSE-listed company, which required Grindr will enter into the Amendedto hire additional personnel and Restated Registration Rights Agreement (the “A&R Registration Rights Agreement”), pursuantimplement procedures and processes to which Newaddress public company regulatory requirements and customary practices. Grindr will agreehas incurred and expects to registerincur additional annual expenses as a public company for, resale, pursuant to Rule 415among 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 SecuritiesJumpstart Our Business Act of 1933, as amended (the “Securities Act”), certain shares of New Grindr Common Stock and other equity securities of New Grindr that are held by the parties thereto from time to time.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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. 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 for access to our users, such as advertising or partnerships.
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 market position. We utilize a freemium model to drive increased user acquisition, subscriber conversions, and monetization on the Grindr App. Many of our users choose to pay for premium features and functionalities, 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-on on a pay-per-use, or à la carte, basis. By continuously introducing new premium features into our subscription offering and unique premium add-on, we continue to increase our Paying Users and average revenue per paying user. For the three months ended June 30, 2023 and 2022, our Direct Revenue accounted for 86.4% and 83.2% of our total revenue, respectively and for the six months ended June 30, 2023 and 2022, our Direct Revenue accounted for 86.3% and 83.4% of our total revenue, respectively.
Indirect Revenue primarily consists of revenue generated by third parties who pay us for access to our users, including advertising, partnerships, merchandise, and other non-direct revenue. Our advertising revenue stream provides advertisers with the unique opportunity to directly target and reach the LGBTQ community, which generally consists of well-educated individuals with significant global purchasing power. We have attracted advertisers from a diverse array of industries, including healthcare, gaming, travel, automotive, and consumer goods. We offer a diverse range of advertising initiatives to advertisers, such as in-app banners, full-screen interstitials, rewarded video, and other customized units, typically on a CPM basis. We contract with a variety of third-party ad platforms to market and sell digital and mobile advertising inventory on our Grindr App. 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 App. We intend to continue to grow our Indirect Revenue through advertising, partnerships, merchandise, and other non-direct initiatives.
Operating and Financial Metrics
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
| (in thousands, except ARPPU and ARPU) | 2023 | | 2022 | | 2023 | | 2022 |
| Key Operating Metrics | | | | | | | |
| Paying Users | 929 | | | 765 | | | 898 | | | 744 | |
| Average Direct Revenue per Paying User ("ARPPU") | $ | 19.08 | | | $ | 16.89 | | | $ | 18.81 | | | $ | 16.84 | |
| Monthly Active Users ("MAUs") | 13,131 | | 12,162 | | 12,979 | | 11,984 |
| Average Total Revenue per User ("ARPU") | $ | 1.56 | | | $ | 1.28 | | | $ | 1.51 | | | $ | 2.51 | |
| | | | | | | |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
| ($ in thousands) | 2023 | | 2022 | | 2023 | | 2022 |
Key Financial and Non-GAAP Metrics(1) | | | | | | | |
| Revenue | $ | 61,538 | | | $ | 46,555 | | | $ | 117,347 | | | $ | 90,085 | |
| Direct revenue | $ | 53,185 | | | $ | 38,757 | | | $ | 101,311 | | | $ | 75,155 | |
| Indirect revenue | $ | 8,353 | | | $ | 7,798 | | | $ | 16,036 | | | $ | 14,930 | |
| Net income (loss) | $ | 22,331 | | | $ | (4,302) | | | $ | (10,568) | | | $ | 199 | |
| Net income (loss) margin | 36.3 | % | | (9.2) | % | | (9.0) | % | | 0.2 | % |
| Adjusted EBITDA | $ | 26,884 | | | $ | 21,462 | | | $ | 48,883 | | | $ | 41,623 | |
| Adjusted EBITDA Margin | 43.7 | % | | 46.1 | % | | 41.7 | % | | 46.2 | % |
| Net cash provided by operating activities | $ | 63,731 | | | $ | 13,962 | | | $ | 14,783 | | | $ | 27,836 | |
(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 income (loss) to Adjusted EBITDA and Adjusted EBITDA Margin.
•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 App. We calculate Paying Users by adding up the number of paying users in each day and then dividing by the number of days in the relevant measurement period. Paying Users is a primary metric that we use to judge the health of our business and our ability to convert users to purchasers of our premium features. We are focused on building new products and services and improving on existing products and services, as well as launching new pricing tiers and subscription plans, to drive payer conversion.
•ARPPU. We calculate average revenue per Paying User (“ARPPU”) based on Direct Revenue in any measurement period, divided by Paying Users in such a period divided by the number of months in the period.
•MAUs. A MAU, or Monthly Active User, is a unique device that demonstrated activity on the Grindr App over the course of the specified period. Activity on the app 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 MAUs as a monthly average, by counting the number of MAUs in each month and then dividing by the number of months in the relevant period. We use MAUs to measure the number of active users on our platform on a monthly basis and to understand the pool of users we can potentially convert to Paying Users.
•ARPU. We calculate average total revenue per user (“ARPU”) based on Total Revenue in any measurement period, divided by our MAUs in such a period divided by the number of months in the period. As we expand our monetization product offerings, develop new verticals, and grow our community of users, we believe we can continue to increase our ARPU.
Non-GAAP Profitability
We use net income (loss) and net cash provided by operating activities to assess our profitability and liquidity, respectively. In addition to net income (loss) 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 income (loss) excluding income tax (benefit) provision, interest expense, net of interest income from the related party loan to Catapult GP II, depreciation and amortization, stock-based compensation expense, and non-core expenses/losses (gains). Non-core expenses/losses (gains) include transaction-related costs, litigation-related costs, management fees, change in fair value of warrant liability and other expense, which includes asset impairment charges. Adjusted EBITDA Margin represents Adjusted EBITDA as a percentage of revenue.
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.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 (loss) 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 Part I, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2022.
Growth in User Base and Paying Users
We acquire new users through investments in marketing and brand as well as through word of mouth from existing users and others. We convert these users to Paying Users by introducing premium features which maximize the probability of developing meaningful connections, improve the user experience, and provide more control. For the three months ended June 30, 2023 and 2022, we had approximately 929 thousand and 765 thousand Paying Users, respectively, representing an increase of 21.4% period over period. For the six months ended June 30, 2023 and 2022, we had approximately 898 thousand and 744 thousand Paying Users, respectively, representing an increase of 20.7% period over period. We grow Paying Users by acquiring new users and converting new and existing users to purchasers of one of our subscription plans or in-app 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 brand awareness and increases conversion to one of our paid products and services. Our revenue growth primarily 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 New Geographic Markets
We are focused on growing our platform globally, including through entering new markets and investing in under-penetrated markets. Expanding into new geographies will require increased costs related to marketing, as well as localization of product features and services. Potential risks to our expansion into new geographies will include competition and compliance with foreign laws and regulations. As we expand into certain new geographies, 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 enter certain new markets with additional competitors and cost and revenue profiles.
Growth in ARPPU
We have developed a sophisticated understanding of the value our users derive from becoming Paying Users on our platform. We continually 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 product mix, the geographic mix, and the mix between subscription and add-on revenue. Our pricing is in local currency and may vary between markets. As foreign currency exchange rates change, translation of the statements of operations into U.S. dollars 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 Paying Users.
Investing in Growth While Driving Long-Term Profitability
Key investment areas for our platform include machine learning capabilities, including continually improving our technology; features that prioritize security and privacy; and new offerings that add incremental value to Paying Users.
Attracting and Retaining Talent
Our business relies on our ability to attract and retain our talent, including engineers, data scientists, product designers and product developers. As of June 30, 2023, we had 174 full-time employees; of which, approximately 62.0% work in engineering and product development. We believe that people want to work at a company that has purpose and aligns with their personal values, and therefore our ability to recruit talent is aided by our mission and brand reputation. We compete for talent within the technology industry.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Factors Affecting the Comparability of Our Results
General macroeconomic trends and events. General economic trends and events, including pandemics, demographic changes, employment rates, job growth, user confidence, and disposable income, have a substantial effect on both our users’ ability and desire to purchase premium subscriptions and advertisers’ ability and willingness to advertise on our network, thereby affecting both of our major revenue streams and our financial results over time and the year-over-year comparability of operating results. For instance, we believe the COVID-19 pandemic was a factor that suppressed user activity, particularly between March 2020 to July 2020, when in-person engagement across the markets in which we operate was severely impacted, and caused some users to be less active or cancel their subscriptions.
Governmental regulations. New governmental policies and regulations can affect our business in meaningful ways, even when such policies and regulations are not specifically related to the LGBTQ community. For example, the implementation of GDPR in Europe has given end-users more control over how their data and personal information are utilized and has thereby adversely affected our European advertisers’ ability to specifically target these users. This new regulation has had a stagnating effect on our indirect revenue growth trajectory in Europe. The implementation of similar regulations in other regions of the world, or new regulations that affect our ability to monetize the data received from our users, could have a significant impact on our operating results and ability to grow our business.
Seasonal variability and general advertising demand. Our ability to maintain consistently high advertiser demand for our platform can be affected by seasonal trends and 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 could have a significant impact on the financial condition of our business.
International market pricing and changes in foreign exchange rates. The Grindr App has MAUs in over 190 countries and territories. Our international revenues represented 41.3% and 37.8% of total revenue for the three months ended June 30, 2023 and 2022, respectively and 40.8% and 37.0% of total revenue for the six months ended June 30, 2023 and 2022, respectively. We vary our pricing to align with local market conditions and 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
Revenues
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 for access to our users, such as advertising and partnerships. As we continue to expand and diversify our revenue streams, we anticipate increasing monetization from premium add-ons, contributing to increase in revenues over time.
Direct Revenues. Direct Revenues are reported gross of fees for subscriptions and premium add-ons as we are the primary party obligated in our transactions with customers and therefore, we act as the principal. Our subscription revenues are generated through the sale of weekly subscriptions as well asmonthly subscriptions that are currently offered in one, three, six and twelve-month periods. Subscribers pay in advance, primarily through third party platforms, including iTunes, 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 Revenues. Indirect Revenues primarily consists of revenue generated by third parties who pay us for access to our users, including advertising, partnerships, and merchandise.
Our advertising operations provide advertisers with the unique opportunity to directly target and reach the LGBTQ community, which generally consists of well-educated individuals with significant global purchasing power. We have attracted advertisers from a diverse array of industries, including healthcare, gaming, travel, automotive, and consumer goods. We offer a diverse range of advertising initiatives to advertisers, such as in-app banners, full-screen interstitials, rewarded video, and other customized units, typically on a CPM basis. We contract with a variety of third-party ad platforms to market and sell digital and mobile advertising inventory on our Grindr App. 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 App.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cost of Revenue and Operating Expenses
Cost of Revenue. Cost of revenue consists primarily of the distribution fees which we pay to Apple and Google, infrastructure costs associated with supporting the Grindr App and our advertising efforts, which stem largely from our use of Amazon Web Services, and costs associated with content moderation, which involve our outsourced teams in Honduras and the Philippines ensuring that users are complying with our community standards.
Selling, General, and Administrative Expenses.Selling, general and administrative expenses consists primarily of sales and marketing expenditures, compensation and other employee-related costs, costs related to outside consultants and general administrative expenses, including facilities, information technology and infrastructure support. We plan to continue to expand sales and marketing efforts to attract new users, retain existing users and increase monetization of both our new and existing users.
Product Development Expense. Product development expense consists primarily of employee-related and contractor costs for personnel engaged in the design, development, testing and enhancement of product offerings, features, and related technology.
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 (Expense) Income
Interest (Expense) Income, Net. Interest (expense) income, net consists of interest income received on related party loans and interest expense incurred in connection with our long-term debt.
Other (Expense) Income, Net. Other (expense) income, net consists of realized exchange rate gains or losses and unrealized exchange rate gains or losses.
Change in Fair Value of Warrant Liability
The change in fair value of warrant liability represents the change in fair value of our public and private warrants.
Income Tax (Benefit) Provision
Income tax (benefit) provision represents the income tax expense associated with our operations based on the tax laws of the jurisdictions in which we operate. Foreign jurisdictions have different statutory tax rates than the United States. Our effective tax rates will vary depending on the relative proportion of foreign to domestic income, changes in the valuation of our deferred tax assets and liabilities, fluctuations in permanent differences, and changes in tax laws.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
We have neither engaged in any operations nor generated any operating revenues | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| ($ in thousands) | 2023 | | % of Total Revenue | | 2022 | | % of Total Revenue | | 2023 | | % of Total Revenue | | 2022 | | % of Total Revenue |
| Consolidated Statements of Operations and Comprehensive Income (Loss) | | | | | | | | | | | | | | | |
| Revenue | $ | 61,538 | | | 100.0 | % | | $ | 46,555 | | | 100.0 | % | | $ | 117,347 | | | 100.0 | % | | $ | 90,085 | | | 100.0 | % |
| Operating costs and expenses | | | | | | | | | | | | | | | |
| Cost of revenue (exclusive of depreciation and amortization shown separately below) | 16,110 | | | 26.2 | % | | 12,102 | | | 26.0 | % | | 30,925 | | | 26.4 | % | | 23,803 | | | 26.4 | % |
| Selling, general and administrative expense | 17,158 | | | 27.9 | % | | 23,234 | | | 49.9 | % | | 36,103 | | | 30.8 | % | | 33,612 | | | 37.3 | % |
| Product development expense | 6,200 | | | 10.1 | % | | 4,175 | | | 9.0 | % | | 11,706 | | | 10.0 | % | | 7,822 | | | 8.7 | % |
| Depreciation and amortization | 8,140 | | | 13.2 | % | | 9,092 | | | 19.5 | % | | 16,092 | | | 13.7 | % | | 18,118 | | | 20.1 | % |
| Total operating expenses | 47,608 | | | 77.4 | % | | 48,603 | | | 104.4 | % | | 94,826 | | | 80.8 | % | | 83,355 | | | 92.5 | % |
| Income (loss) from operations | 13,930 | | | 22.6 | % | | (2,048) | | | -4.4 | % | | 22,521 | | | 19.2 | % | | 6,730 | | | 7.5 | % |
| Other expense | | | | | | | | | | | | | | | |
| Interest expense, net | (12,917) | | | -21.0 | % | | (3,256) | | | -7.0 | % | | (23,710) | | | -20.2 | % | | (6,212) | | | -6.9 | % |
| Other income (expense), net | 169 | | | 0.3 | % | | 2 | | | — | % | | 292 | | | 0.2 | % | | (66) | | | -0.1 | % |
| Change in fair value of warrant liability | 7,098 | | | 11.5 | % | | — | | | — | % | | (8,219) | | | -7.0 | % | | — | | | — | % |
| Total other expense | (5,650) | | | -9.2 | % | | (3,254) | | | -7.0 | % | | (31,637) | | | -27.0 | % | | (6,278) | | | -7.0 | % |
| Net income (loss) before income tax | 8,280 | | | 13.5 | % | | (5,302) | | | -11.4 | % | | (9,116) | | | -7.8 | % | | 452 | | | 0.5 | % |
| Income tax (benefit) provision | (14,051) | | | -22.8 | % | | (1,000) | | | -2.1 | % | | 1,452 | | | 2.4 | % | | 253 | | | 0.5 | % |
| Net income (loss) and comprehensive income (loss) | $ | 22,331 | | | 36.3 | % | | $ | (4,302) | | | -9.2 | % | | $ | (10,568) | | | -10.1 | % | | $ | 199 | | | — | % |
| Net (loss) income per share: | $ | 0.13 | | | | | $ | (0.03) | | | | | $ | (0.06) | | | | | $ | — | | | |
Revenues
Revenues for the three months ended June 30, 2023 and 2022 were $61.5 million and $46.6 million, respectively. The $14.9 million increase, or 32.0%, for the three months ended June 30, 2023 compared to date. Our only activities from inception throughthe three months ended June 30, 2022 were organizational activitieswas due to an increase in Direct Revenue of $14.4 million, or 37.1%, from $38.8 million to $53.2 million. The increase in Direct Revenue was driven by increases in both ARPPU and those necessaryPaying Users, largely as a result ofthe new Weeklies subscription offering and continued adoption of the Boost a la carte product which enables our users to prepareboost profile views in a more targeted, affinity-specific fashion. ARPPU increased by 13.0%, or $2.19, to $19.08 for the Initial Public Offering, described below, and, afterthree months ended June 30, 2023, from $16.89 for the Initial Public Offering, identifying a target for a Business Combination. We do not expect to generate any operating revenues until after the completion of our initial Business Combination. We expect to generate non-operating income in the form of interest income on marketable securities held after the Initial Public Offering. We expect that we will incurthree months ended June 30, 2022. Our ARPPU increased expensesmainly as a result of beingimproved product mix with higher-priced subscription products and an increase in à la carte purchases. We expect ARPPU to fluctuate in the near-term as we continue to test different subscription options across different price points and for varying durations. For the three months ended June 30, 2023 and 2022, Paying Users increased by 164 thousand from approximately 765 thousand to approximately 929 thousand. Paying User penetration of our overall user base increased as a public company (for legal, financial reporting, accountingresult of our new Weeklies subscription offering and auditing compliance),the launch of new premium add-ons and features to drive greater subscription conversion. The increase in Indirect Revenue was primarily driven by year-over-year growth in advertising revenue due to an increase in the number of our advertising partners as wellof June 30, 2023 as for due diligence expenses in connection with searching for, and completing, a Business Combination.
For the three months ended June 30, 2023 and 2022, we had a net loss of $7,518,082 which consisted of operating costs of $3,037,584, a change in fair value of warrant liabilities (Public Warrants and Private Placement Warrants) of $4,031,433, a change in fair value of FPA liabilities of $731,176 and a fair value of private placement in excess of purchase price of $81,153, offset by interest earned on marketable securities heldrevenues from operations in the Trust AccountUnited States increased by $7.2 million, or 24.9%. During this same period, revenues from operations in the United Kingdom increased by $1.5 million, or 41.2%, and revenues from operations in the remainder of $363,264. Operating costs consistedthe world increased by $6.3 million, or 44.9%. The reasons for these changes are consistent with revenue changes previously noted.
Revenues for the six months ended June 30, 2023 and 2022 were $117.3 million and $90.1 million, respectively. The $27.2 million increase, or 30.2%, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 was due to an increase in Direct Revenue of $2,883,230$26.1 million, or 34.7%, from $75.2 million to $101.3 million. The increase in M&A related costs, $60,010Direct Revenue was driven by both an increase in accounting related costs, $30,000ARPPU and Paying Users, largely as a result of the new Weeklies
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
subscription offering and continued adoption of the Boost a la carte product, which enables our users to boost profile views in administrative support fees, $31,250a more targeted, affinity-specific fashion. ARPPU increased by 11.7%, or $1.97, to $18.81 for the six months ended June 30, 2023, from $16.84 for the six months ended June 30, 2022. Our ARPPU increased as a result of our new Weeklies subscription offering, improved product mix with higher-priced subscription products and an increase in insurance costs,à la carte purchases. For the six months ended June 30, 2023 and $33,0942022, Paying Users increased by 154 thousand from approximately 744 thousand to approximately 898 thousand, as we increased Paying User penetration of our overall user base as a result of launching new premium add-ons and features to drive greater subscription conversion. The increase in miscellaneous costs.
For the six months ended June 30, 2023 and 2022, we had a net income of $491,251 which consisted of a change in fair value of warrant liabilities (Public Warrants and Private Placement Warrants) of $4,926,361 and interest earned on marketable securities heldrevenues from operations in the Trust AccountUnited States increased by $12.7 million, or 22%. During this same period, revenues from operations in the United Kingdom increased by $2.3 million, or 34%, and revenues from operations in the remainder of $402,994, offsetthe world increased by an operating costs$12.3 million, or 46%. The reasons for these changes are consistent with revenue changes previously noted.
Cost of $4,243,935, change in fair valuerevenue
Cost of FPA liabilities of $513,016 and a fair value of private placement in excess of purchase price of $81,153. Operating costs consisted of $3,921,059 in M&A related costs, $109,306 in accounting related costs, $60,000 in administrative support fees, $62,500 in insurance costs, and $91,070 in miscellaneous costs.
Forrevenue for the three months ended June 30, 2021, we had2023 and 2022 was $16.10 million and $12.1 million, respectively. The $4.0 million increase, or 33.1%, was primarily due to growth in distribution fees (consistent with direct revenue growth) of $3.4 million, and increased infrastructure costs associated with our primary information systems vendors of $1.7 million.
Cost of revenue for the six months ended June 30, 2023 and 2022 was $30.90 million and $23.80 million, respectively. The $7.1 million increase, or 29.8%, was primarily due to growth in distribution fees (consistent with direct revenue growth) of $5.8 million, and increased infrastructure costs associated with our primary information systems vendors of $2.3 million.
Selling, general and administrative expense
Selling, general and administrative expense for the three months ended June 30, 2023 and 2022 was $17.2 million and $23.2 million, respectively. The $6.0 million decrease, or 25.9%, was primarily due to a $9.9 million decrease in stock-based compensation expenses related to the Series P unit modification that occurred in the second quarter of 2022 partially offset by salary increases from additional headcount and higher insurance expense.
Selling, general and administrative expense for the six months ended June 30, 2023 and 2022 was $36.1 million and $33.6 million, respectively. The 2.5 million increase, or 7.4%, was primarily due to an increase of $1.6 million for insurance expense and $1.1 million higher auditing and consulting fees.
Product development expense
Product development expense for the three months ended June 30, 2023 and 2022 was $6.2 million and $4.2 million, respectively. The $2.0 million increase, or 47.6%, was primarily due to increased salaries and benefits related expenses.
Product development expense for the six months ended June 30, 2023 and 2022 was $11.7 million and 7.8 million, respectively. The $3.9 million increase, or 50.0%, was primarily due to increased salaries and benefits related expenses.
Depreciation and amortization
Depreciation and amortization for the three months ended June 30, 2023 and 2022 was $8.1 million and $9.1 million, respectively. The $1.0 million decrease, or 11.0%, was primarily due to acquired intangibles amortization from our acquisition in June 2020 for which certain intangible assets were amortized under an accelerated amortization schedule, with higher amounts expensed in 2022.
Depreciation and amortization for the six months ended June 30, 2023 and 2022 was $16.1 million and $18.1 million, respectively. The $2.0 million decrease, or 11.0%, was primarily due to acquired intangibles amortization from our acquisition in June 2020 for which certain intangible assets were amortized under an accelerated amortization schedule, with higher amounts expensed in 2022.
Interest expense, net
Interest expense, net for the three months ended June 30, 2023 and 2022 was $12.9 million and $3.3 million, respectively. The $9.6 million increase, or 290.9%, was primarily due to increased interest expense relating primarily to
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
higher principal balances and a higher interest rate under our credit agreement. Interest expense including the amortization of debt issuance costs related to the credit agreement for the three months ended June 30, 2023 and 2022 was $13.2 million and $4.0 million, respectively. This was partially offset by the interest income from the related party loan to Catapult GP II, which for the three months ended June 30, 2023 and 2022 was $0.3 million and $0.8 million, respectively.
Interest expense, net for the six months ended June 30, 2023 and 2022 was $23.7 million and $6.2 million, respectively. The $17.5 million increase, or 282.3%, was primarily due to increased interest expense relating primarily to higher principal balances and a higher interest rate under our credit agreement. Interest expense including the amortization of $5,425,883debt issuance costs related to the credit agreement for the six months ended June 30, 2023 and 2022 was $24.4 million and $7.7 million, respectively. This was partially offset by the interest income from the related party loan to Catapult GP II, which consistedfor the six months ended June 30, 2023 and 2022 was $0.7 million and $1.5 million, respectively. See Note 4 and Note 6 to the unaudited condensed consolidated financial statements for additional information included elsewhere in this Quarterly Report on Form 10-Q for additional information.
Other income (expense), net
Other income (expense), net for the three months ended June 30, 2023 and 2022 was $0.2 million and $2.0 thousand, respectively.
Other income (expense), net for the six months ended June 30, 2023 and 2022 was $0.3 million and $(0.1) million, respectively.
Change in fair value of warrant liability
Change 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 $26.2 million as of June 30, 2023, resulting in a gain fromof $7.1 million for the three months ended June 30, 2023 and a loss of $8.2 million for the six months ended June 30, 2023 recognized in the unaudited condensed consolidated statements of operations and comprehensive (loss) income.
Income tax (benefit) provision
Income tax benefit for the three months ended June 30, 2023 and 2022 was $14.1 million and $1.0 million, respectively. The $13.1 million decrease, was primarily due to the tax effect on the change in fair value of warrant liability, (Public Warrants and Private Placement Warrants) of $4,205,105, a gain fromthe change in fair value of FPA liability of $1,787,878, a gain invaluation allowance and nondeductible officer compensation, the fair value of Private Placement Warrants in excess of purchase price of $79,548foreign derived intangible income deduction, and interest earned on marketable securities held in the Trust Account of $3,355, offset by operating costs of $650,003 which consisted of $442,613 in legal fees, $75,475 in accounting related costs, $30,000 in administrative support fees, $31,250 in insurance costs,research and $70,665 in miscellaneous costs.development credit.
ForIncome tax provision for the six months ended June 30, 2021, we had a net income of $10,998,009, which consisted of a gain from2023 and 2022 was $1.5 million and $0.3 million, respectively. The $1.2 million increase, or 400.0%, was primarily due to the tax effect on the change in fair value of warrant liability, (Public Warrantsthe change in valuation allowance and Private Placement Warrants)nondeductible officer compensation, partially offset by the foreign derived intangible income deduction, and the research and development credit.
Our effective tax rates in fiscal 2023 and future periods may fluctuate, as a result of $11,534,063,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.
Net income (loss)
Net income (loss) for the three months ended June 30, 2023 and 2022 was $22.3 million net income and $4.3 million net loss, respectively. Net income (loss) increased by $26.6 million for the reasons explained above.
Net (loss) income for the six months ended June 30, 2023 and 2022 was $10.6 million net loss and $0.2 million net income, respectively. Net (loss) income decreased by $10.8 million for the reasons explained above.
Non-GAAP Financial Measures
To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we use Adjusted EBITDA, 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, is presented to enhance investors’ overall understanding of our financial performance and should not be considered a gainsubstitute for, or superior to, the financial information prepared and presented in accordance with GAAP.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Adjusted EBITDA
The primary financial measure we use is Adjusted EBITDA. EBITDA is defined as net income (loss), before interest, taxes, depreciation, and amortization. We define Adjusted EBITDA as net income (loss) excluding income tax (benefit) provision, interest expense, net of interest income from the related party loan to Catapult GP II, depreciation and amortization, stock-based compensation expense and non-core expenses/losses (gains), including transaction-related costs, litigation-related costs, management fees, change in fair value of FPAwarrant liability and other expense, which includes asset impairments. Our management uses this measure internally to evaluate the performance of $184,109,our business and this measure is one of the primary metrics by which our internal budgets are based and by which management is compensated. We exclude the above items as some are non-cash in nature, and others are non-recurring that they may not be representative of normal operating results. This non-GAAP financial measure adjusts for the impact of items that we do not consider indicative of the operational performance of our business. While we believe that this non-GAAP financial measure is useful in evaluating our business, this information should be considered as supplemental in nature and is not meant as a gainsubstitute for the related financial information prepared and presented in accordance with GAAP.
Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA for a period by revenue for the same period.
The following table presents the reconciliation of net income to Adjusted EBITDA for the three and six months ended June 30, 2023 and 2022.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
| ($ in thousands) | 2023 | | 2022 | | 2023 | | 2022 |
| Reconciliation of net income (loss) to Adjusted EBITDA | | | | | | | |
| Net income (loss) | $ | 22,331 | | | $ | (4,302) | | | $ | (10,568) | | | $ | 199 | |
| Interest expense, net | 12,917 | | | 3,256 | | | 23,710 | | | 6,212 | |
| Income tax (benefit) provision | (14,051) | | | (1,000) | | | 1,452 | | | 253 | |
| Depreciation and amortization | 8,140 | | | 9,092 | | | 16,092 | | | 18,118 | |
Transaction-related costs (1) | — | | | 866 | | | — | | | 1,178 | |
Litigation related costs (2) | 288 | | | 54 | | | 1,499 | | | 1,082 | |
| Stock-based compensation expense | 3,605 | | | 12,933 | | | 6,946 | | | 13,667 | |
Management fees (3) | — | | | 184 | | | — | | | 363 | |
Change in fair value of warrant liability (4) | (7,098) | | | — | | | 8,219 | | | — | |
Other expense (5) | 752 | | | 379 | | | 1,533 | | | 551 | |
| Adjusted EBITDA | $ | 26,884 | | | $ | 21,462 | | | $ | 48,883 | | | $ | 41,623 | |
| Revenue | $ | 61,538 | | | $ | 46,555 | | | $ | 117,347 | | | $ | 90,085 | |
| Adjusted EBITDA Margin | 43.7 | % | | 46.1 | % | | 41.7 | % | | 46.2 | % |
_________________
(1)Transaction-related costs consist of legal, tax, accounting, consulting, and other professional fees related to the Business Combination and other potential acquisitions, that are non-recurring in nature.
(2)Litigation related costs primarily represent external legal fees associated with the outstanding litigation or regulatory matters such as the potential Datatilsynet fine or the CFIUS review of the Business Combination, which are unrelated to Grindr’s core ongoing business operations.
(3)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.
(4)Change in fair value of Private Placement Warrants in excesswarrant liability relates to our warrants that were remeasured as of purchase price of $79,548 June 30, 2023.
(5)Other expense primarily represents costs incurred from reorganization events that are unrelated to Grindr's core ongoing business operations, including severance and interest earned on marketable securities held in the Trust Account of $35,076, offset by operating costs of $834,787 which consisted of $513,016 in legal fees, $112,770 in accountingemployment related costs, $60,000 in administrative support fees, $62,500 in insurance costs, and $86,501 in miscellaneous costs.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and Going ConcernCapital Resources
The following table summarizes our total cash and cash equivalents:
| | | | | | | | | | | | | | |
| | Six Months Ended
June 30, |
| ($ in thousands) | | 2023 | | 2022 |
| Cash, and cash equivalents, including restricted cash (as of the end of period) | | $ | 23,483 | | | $ | 26,940 | |
| Net cash provided by (used in): | | | | |
| Operating activities | | $ | 14,783 | | | $ | 27,836 | |
| Investing activities | | (2,575) | | | (2,176) | |
| Financing activities | | 1,158 | | | (15,890) | |
| Net change in cash and cash equivalents | | $ | 13,366 | | | $ | 9,770 | |
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 six months ended June 30, 2023, our operations provided $14.8 million of cash, which was primarily attributable to an increase of $16.1 million in depreciation and amortization, an increase of $8.2 million in the fair value change in warrant liability and an increase of $4.2 million in other non-cash adjustments partially offset by net loss of $10.6 million. Cash flows provided by operating activities were further attributable to a decrease of $3.2 million from changes in operating assets and liabilities.
During the six months ended June 30, 2022, our operations provided $27.8 million of cash, which was primarily attributable to net income of $0.2 million, an increase of $18.1 million in depreciation and amortization and an increase of $10.9 million in other non-cash adjustments. Cash flows provided by operating activities were further attributable to a decrease of $1.3 million from changes in operating assets and liabilities.
Cash flows used in investing activities
Net cash used in investing activities for the six months ended June 30, 2023 consisted primarily of additions to capitalized software of $2.5 million.
Net cash used in investing activities for the six months ended June 30, 2022 consisted primarily of additions to capitalized software of $1.9 million.
We expect our capital investments to increase over time as we further enhance our platform and product. However, historically, this has not been significant, as it has primarily comprised of capitalization of engineering labor costs and computer hardware costs for employees. Other increases could come from potential acquisitions or other platform extensions.
Cash flows provided by (used in) financing activities
Net cash provided by financing activities for the six months ended June 30, 2023 consisted of $19.4 million in proceeds from repayment of a promissory note to a member and related interest, and $1.7 million in proceeds from the exercise of employee stock options, partially offset by $18.7 million related to the principal paydown of our long-term debt.
Net cash used in financing activities for the six months ended June 30, 2022 consisted of $60.0 million in proceeds of issuance of debt and $1.0 million in proceeds from the exercise of employee stock options offset by $75.0 million in cash dividend paid, $1.0 million in debt issuance costs, and $1.0 million related to principal paydown of our long-term debt.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Sources of Liquidity
Since our inception, we have financed our operations and capital expenditures primarily through cash flows generated by operations, a senior secured credit facility, and the private sales of equity securities.
To the extent existing cash 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 indebtedness, such indebtedness may have rights that are senior to holders of our equity securities and could contain covenants that restrict operations. Any additional equity financing may be dilutive to existing stockholders. We may enter into investment or acquisition transactions in the future, which could require us to seek additional equity financing, incur indebtedness, or use cash resources.
Financing Arrangements
As of June 30, 2022,2023, we had cash and cash equivalents of $165,655. Until$22.1 million. We believe that our cash and cash equivalents, cash flows generated by operations and borrowings under our senior secured credit facility will be sufficient to meet our working capital and capital expenditure needs for the consummationnext 12 months. We believe we will meet longer term expected future cash requirements and obligations through a combination of cash flows generated by operations and available funds from our cash and cash equivalents. However, this determination is based upon internal projections and is subject to changes in market and business conditions.
Fortress Credit Corp. Loan
See Note 6 to our unaudited consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information.
On June 10, 2020, Grindr Gap LLC (f/k/a San Vicente Gap LLC), Grindr Capital LLC (f/k/a San Vicente Capital LLC) (the “Borrower”), Fortress Credit Corp. (“Fortress”) and the other credit parties and lenders party thereto entered into a credit agreement (the “Credit Agreement”), which permitted the Borrower to borrow up to $192.0 million through a senior secured credit facility (the "Original Loan"). The full amount of the Public Offering, our only source$192.0 million Original Loan was drawn on June 10, 2020. The Borrower, Fortress and the other credit parties and lenders entered into Amendment No. 2 to the Credit Agreement on June 13, 2022, which permitted the Borrower to borrow an additional $60.0 million through several supplemental term loans (the “Second Amendment Loan” and, together with the Original Loan, the “Initial Term Loans”). The full amount of liquiditythe $60.0 million Second Amendment Loan was drawn on June 13, 2022.
The Borrower, Fortress and the other credit parties and lenders entered into Amendment No. 3 to the Credit Agreement on November 14, 2022, which permitted the Borrower to borrow an initial purchaseadditional $170.8 million through several supplemental term loans. An amount of ordinary shares$140.8 million of supplemental term loans was drawn on November 14, 2022 (the “Supplemental Term Loan I”)) and an amount of $30.0 million of supplemental term loans was drawn on November 17, 2022 (the “Supplemental Term Loan II”). The maturity date for the Supplemental Term Loan Iis November 14, 2027 and the maturity date for the Supplemental Term Loan II is May 17, 2024. Concurrently with entering into Amendment No. 3 to the Credit Agreement, the aggregate remaining principal balance on the Initial Term Loans totaled $197.9 million, and was split into two separate term loans, of which $30.9 million is scheduled to mature on June 10, 2025 and $167.0 million is scheduled to mature on November 14, 2027.
Grindr Inc., Grindr Group LLC, Fortress, Grindr Gap LLC, the Borrower and the other credit parties and lenders party thereto entered into Amendment No. 4 to the Credit Agreement on May 12, 2023, pursuant to which Grindr Inc. and Grindr Group LLC became guarantors of the borrowings under the Credit Agreement and pledged certain of each entity’s assets as collateral.
The Borrower is a direct subsidiary of Grindr Gap LLC, which is a direct subsidiary of Grindr Group LLC. Grindr Group LLC is a direct subsidiary of Grindr Inc. Borrowings under the Credit Agreement are guaranteed by Grindr Inc., Grindr Group LLC, Grindr Gap LLC and all of the subsidiaries of Grindr Group LLC (other than the Borrower and Grindr Canada Inc.) and are collateralized by the Sponsorcapital stock and/or certain assets of Grindr Inc., Grindr Group LLC and loans from our Sponsor.
On November 27, 2020, we consummated the Initial Public Offering of 27,600,000 Units, which included the full exercise by the underwriters of their over-allotment option in the amount of 3,600,000 Units, at a price of $10.00 per Unit, generating gross proceeds of $276,000,000. Simultaneously with the closingall of the Initial Public Offering, we consummated the salesubsidiaries of 10,280,000 Initial Private Placement WarrantsGrindr Group LLC.
The Borrower may be required to the Sponsor at a price of $1.00 per private placement warrant generating gross proceeds of $10,280,000.
Following the Initial Public Offering, the full exercise of the over-allotment option, and the Initial Private Placement, a total of $278,760,000 was placed in the Trust Account. We incurred $15,736,649 in transaction costs, including $5,520,000 of underwriting fees, $9,660,000 of deferred underwriting fees and $556,649 of other offering costs. On May 18, 2021, November 17, 2021, and May 23, 2022, respectively, the Company announced the approval and extension of the time period to consummate a Business Combination and the approval of the issuance and sale of certain private placement warrants in connection therewith. On May 20, 2021, November 22, 2021, and May 24, 2022, respectively, the required deposit of $2,760,000 was placed into the Trust Account and on May 25, 2021, November 23, 2021, and May 25, 2022, respectively, the Company issued and sold to the Sponsor 2,760,000 Extension Private Placement Warrants. The total amount of outstanding Private Placement Warrants is 18,560,000 and the total deposits into the Trust Account have been $287,040,000 ($10.40 per public share).
On March 16, 2022, the Board of Directors of the Company authorized the execution and delivery of a Convertible Promissory Note in the principal amount of $2,000,000 (the “Note”) to the Sponsor, as part of the Working Capital Loans. On January 25, 2022, March 31, 2022, May 12, 2022, and June 27, 2022, the Sponsor had advanced the sum of $750,000, $300,000, $430,000, and $200,000, respectively, to the Company on account of the Note. All unpaid principalmake annual mandatory prepayments under the Note shall be due and payable in full on the effective dateCredit Agreement equal to a percentage of the Company’s initial business combination, unless acceleratedconsolidated excess cash flow (as defined in the Credit Agreement) based on the Company's leverage ratio. The Borrower must also make mandatory prepayments upon the occurrence of certain other events. No mandatory prepayments were required for the three and six months ended June 30, 2023 and 2022 or for the year ended
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
December 31, 2022. The Company paid $17,442 for principal and interest in May 2023, which included a mandatory prepayment of principal. Amounts repaid under the Credit Agreement may not be reborrowed.
For the Initial Term Loans, the Borrower is required to make quarterly principal repayments equal to 0.50% of the original principal amount of the relevant loans, with the remaining aggregate principal amount payable on the maturity date of June 10, 2025 for a portion of the Initial Term Loans and until the maturity date of November 14, 2027 in the case of the remaining Initial Term Loans. For the Supplemental Term Loan I, the Borrower is required to make quarterly principal payments equal to 0.50% of the original principal amount of the loan, beginning on June 30, 2023, with the remaining aggregate principal amount payable on the maturity date of November 14, 2027. The maturity date for the Supplemental Term Loan I may be accelerated if the Initial Term Loans maturing on June 10, 2025 or the Supplemental Term Loan II maturing on May 17, 2024 are not repaid before their respective maturity dates. For the Supplemental Term Loan II, the Borrower is required to make principal payments equal to 25% of the original principal amount of the loan on June 30, 2023 and December 31, 2023, with the remaining aggregate principal amount payable on the maturity date of May 17, 2024.
The Initial Term Loans require payment of a premium on voluntary and mandatory prepayments (other than excess cash flow) until June 10, 2024 of the Initial Term Loans and until November 14, 2024 in the case of the remaining Initial Term Loans. The Supplemental Term Loan I requires payment of a premium on voluntary and mandatory prepayments (other than excess cash flow) until November 14, 2024. There is no prepayment premium required for the Supplemental Term Loan II.
Borrowings under the Credit Agreement are index rate loans or Term SOFR loans, at the Borrower’s discretion. Index rate loans bear interest at the index rate plus applicable margin based on the consolidated total leverage ratio. The applicable margin is currently 7.0% for all index rate loans, except for the Supplemental Term Loan II for which the applicable margin is currently 3.2%. Term SOFR loans bear interest at Term SOFR plus an applicable margin based on the consolidated total leverage ratio. The applicable margin is currently 8.0% for all Term SOFR loans except for the Supplemental Term Loan II for which the applicable margin is currently 4.2%.
The Credit Agreement includes restrictive non-financial and financial covenants, including the requirement to maintain a total leverage ratio no greater than a specified level, currently 4.50:1.00 prior to and through May 17, 2024 to the extent any Supplemental Term Loan II is outstanding. If no amount is outstanding under the Supplemental Term Loan II, our total leverage ratio must be no greater than 4.75:1.00 prior to and through March 31, 2024 and no greater than 4.25:1.00 thereafter. Also pursuant to the Fourth Amendment, the Company and Grindr Group became subject to the covenants under the Credit Agreement and the Company replaced Grindr Gap LLC as the reporting entity under the Credit Agreement. As such, the Company is required to furnish certain financial information to Fortress, including the financial covenant certification. As of December 31, 2022, the Borrower was in compliance with the financial covenants and as of June 30, 2023, the Company was in compliance with the financial covenants.
The obligations under the Credit Agreement are subject to acceleration at the election of the required lenders during the continuance of any event of default. At June 30, 2022, there was $1,680,000A default interest rate of an additional 2.0% per annum will apply on all outstanding under this note. All unpaid principal under the Note shall be due and payable in full on the effective date of our initial business combination, unless accelerated uponobligations after the occurrence of an event of default.
We intend to use substantially allContractual obligations and other uses of the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account, which interest shall be net of taxes payable and excluding deferred underwriting commissions, to complete our Business Combination. We may withdraw interest from the Trust Account to pay taxes, if any. To the extent that our share capital or debt is used, in whole or in part, as consideration to complete a Business Combination, the remaining proceeds held in the Trust Account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies.cash
As of June 30, 2022, we had cash of $165,655. We intend to use the funds held outside the Trust Account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete a Business Combination.
We will need to raise additional capital through loans or additional investmentsOur principal commitments have not materially changed from our initial shareholders, officers or directors. If we are unableAnnual Report on Form 10-K for the year ended December 31, 2022, which consist of obligations under the Credit Agreement and operating leases for office space. See Note 6 and Note 7 to raise additional capital, we may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations, suspending the pursuit of a potential transaction, and reducing overhead expenses. We cannot provide any assurance that new financing will be available to usour unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on commercially acceptable terms, if at all. These conditions raise substantial doubt about our ability to continue as a going concern through one year and one day from the issuance of this Form 10-Q .for additional information.
In connection with the Company’s assessment of going concern considerations in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” the Company has until November 27, 2022 to consummate a Business Combination. It is uncertain that the Company will be able to consummate a Business Combination by this time. If a Business Combination is not consummated by this date and an extension not requested by the Sponsor, there will be a mandatory liquidation and subsequent dissolution of the Company. Management has determined that the liquidity conditions and mandatory liquidation, should a Business Combination not occur, and an extension is not requested by the Sponsor, and potential subsequent dissolution raises substantial doubt about the Company’s ability to continue as a going concern. The Company intends to complete its Business Combination. No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after November 27, 2022.
Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities, which would be consideredsignificant off-balance sheet arrangements as of June 30, 2022. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements.
Critical Accounting Policies and Estimates
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 entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments ofreadily apparent from other entities, or purchased any non-financial assets.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities, other than an agreement to pay an affiliate of the Sponsor a monthly fee of $10,000 for overhead expenses and related services providedsources. Due to the Company. We began incurringinherent uncertainty involved in making these fees on November 23, 2020 and will continue to incur these fees monthly until the earlier of the completion of a Business Combination and the Company’s liquidation.
The underwriters are entitled to a deferred fee of $0.35 per Unit, or $9,660,000estimates, actual results reported in the aggregate. The deferred fee will become payable to the underwritersfuture periods could differ from the amounts held in the Trust Account solely in the event that we complete a Business Combination, subject to the terms of the underwriting agreement. However, one of the underwriters, Goldman Sachs (Asia) L.L.C., has agreed to waive its rights to the deferred underwriting in connection with its decision not to provide further services as a financial advisor, placement agent, capital markets advisor or in any other capacity in connection with closing of the Business Combination.
We entered into a private placement warrants purchase agreement, dated as of November 23, 2020, with the Sponsor which provides that at the option of the Sponsor, on the dates that are 6, 12 and 18 months, respectively from the closing date of the Initial Public Offering, the Company shall issue and sell to the Sponsor, its affiliates or permitted designees and the Sponsor shall purchase from the Company, an additional 2,760,000, private placement warrants at a price of $1.00 per private placement warrant for an aggregate purchase price of $2,760,000. At June 30, 2022, the private placement warrants purchase agreement has been fulfilled.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
We entered into a forward purchase agreement with the Sponsor or an affiliateThere have been no material changes to our discussion of the Sponsor which providescritical accounting estimates from those set forth in our Annual Report on Form 10-K for the purchase by the Sponsoryear ended December 31, 2022.
Recently Issued and Adopted Accounting Pronouncements
For a discussion of an aggregate of 5,000,000 Class A ordinary shares, plus an aggregate of 2,500,000 forward purchase warrantsrecent accounting pronouncements, see Note 2 to purchase one Class A ordinary share at $11.50 per share, for an aggregate purchase price of $50,000,000, or $10.00 per Class A ordinary share, in a private placement to close prior to or concurrently with the closing of a Business Combination. Pursuant to the forward purchase agreement, the forward purchaser was also granted an option to subscribe, in the forward purchaser’s sole discretion, for an additional 5,000,000 Class A ordinary shares plus an additional 2,500,000 redeemable warrants to purchase one Class A ordinary share at $11.50 per share, for an additional purchase price of $50,000,000, or $10.00 per Class A ordinary share, in one or multiple private placements to close prior to or concurrently with the closing of our initial business combination. The obligations under the forward purchase agreement do not depend on whether any Class A ordinary shares are redeemed by the Public Shareholders. The forward purchase warrants will have the same terms as the public warrants issued as part of the Units.
On May 9, 2022, concurrently with the execution of the Merger Agreement, the Company entered into an amended and restated forward purchase agreement (the “A&R FPA” or “Forward Purchase Agreement”) with the Sponsor. The A&R FPA replaces the FPA that was entered into in connection with the closing of the Initial Public Offering. The A&R FPA provides for the purchase by the forward purchaser of an aggregate of 5,000,000 Class A ordinary shares, plus an aggregate of 2,500,000 forward purchase warrants to purchase one share of New Grindr Common Stock at $11.50 per share, for an aggregate purchase price of $50,000,000, or $10.00 per Class A ordinary share , in a private placement to close prior to or concurrently with the closing of a Business Combination. In addition, to the extent that the Non-FPS Amount (as defined in the A&R FPA) is less than $50,000,000 immediately prior to the closing of a Business Combination but following the Domestication, the forward purchaser has agreed pursuant to the A&R FPA to purchase (a) a number of shares of Class A ordinary shares (the “backstop shares”) equal to (A) (x) $50,000,000 minus (y) the Non-FPS Amount, divided by (B) $10.00, rounded down to the nearest whole number and (b) a number of redeemable warrants (the “backstop warrants”) equal to (I) the number of backstop shares in clause (a) multiplied by (II) 0.5, rounded down to the nearest whole number. In addition to the foregoing, the forward purchaser may, at its discretion (regardless of the Non-FPS Amount), subscribe for up to 5,000,000 backstop shares plus up to 2,500,000 backstop warrants at $11.50 per share, for an aggregate purchase price of $50,000,000, or $10.00 for each backstop share and one-half of one backstop warrant.
Critical Accounting Policies
The preparation ofunaudited condensed consolidated financial statements and related disclosuresincluded elsewhere in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We identified the following critical accounting policies:
Warrant and Forward Purchase Agreement (FPA) Liability
The Company accountsthis Quarterly Report on Form 10-Q for the Warrants and FPA in accordance with the guidance contained in ASC 815-40, under which the Warrants and FPA do not meet the criteria for equity treatment and must be recorded as liabilities. Accordingly, the Company classifies the Warrants and FPA as liabilities at their fair value and adjusts the Warrants and FPA to fair value at each reporting period. These liabilities are subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the statements of operations. Changes in the estimated fair value of the warrants and FPA are recognized as a non-cash gain or loss on the statements of operations.
The Public Warrants for periods where no observable trade price was available are valued using a Monte Carlo simulation. For periods subsequent to the detachment of the Public Warrants from the Units, the Public Warrant quoted market price was used as the fair value as of each relevant date. The fair value of the Private Placement Warrants was determined using a Black-Scholes-Merton model. The committed units of the FPA are valued using a discounted valuation of a reconstructed unit price and the optional units of the FPA are valued using the same reconstructed unit price within a Black-Scholes-Merton model framework.
Convertible Promissory Note
The Company accounts for its Convertible Note under ASC 815, “Derivatives and Hedging” (“ASC 815”). Under 815-15-25, an election can be made at the inception of a financial instrument to account for the instrument under the fair value option under ASC 825. The Company has made such election for its Convertible Note. Using the fair value option, the Convertible Note is required to be recorded at its initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the Convertible Note is recognized as a non-cash gain or loss on the condensed statements of operations.
The Company has determined the fair value of the note is more accurately recorded at par since the conversion price is almost 150% higher than the value of the warrants. No arms-length transaction by a note holder would result in a conversion with this fact pattern, thus it is a more accurate depiction with recording at par. As such, no fair value change was booked to the statement of operations.
Class A Ordinary Shares Subject to Possible Redemption
We account for our ordinary shares subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Class A Ordinary shares subject to mandatory redemption (if any) are classified as a liability instrument and are measured at fair value. Conditionally redeemable ordinary shares (including ordinary shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control) are classified as temporary equity. At all other times, ordinary shares are classified as shareholders’ equity. Our Class A ordinary shares feature certain redemption rights that are considered to be outside of our control and subject to occurrence of uncertain future events. Accordingly, Class A ordinary shares subject to possible redemption are presented as temporary equity, outside of the shareholders’ deficit section of our balance sheets.