Q3 2022 WM Technology Inc Earnings Call
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Yeah.
Good afternoon, everyone and welcome to the W. M Technology, Inc. Third quarter 2022 earnings Conference call I would now like to turn the call over to your host Greg follow Whats Vice President of Investor Relations.
Yeah.
Hi, everyone. Thanks for joining us today to discuss our fiscal 2022 third quarter results, we have our executive chair Dr. Francis Our CFO Juan Jose Huh.
And our CFO with us today.
By now everyone should have access to our earnings announcement. This announcement is also on our Investor Relations website, along with the supporting slide deck. During this call. We'll make forward looking statements, including statements about our business outlook and long term goals. These statements are not guarantees of future performance.
Subject to a variety of risks and uncertainties some of which are beyond our control our actual results could differ materially from expectations reflected in any forward looking statements for a discussion of risks and other important factors that could affect our actual results. Please refer to our SEC filings available on the SEC's web site, including our quarterly report on Form 10-Q for the quarter ended September 32002.
Two can be found after this call and our Investor relations website as well as the risks and other important factors discussed in today's earnings release should any of these risks materialize or should our assumptions prove to be incorrect actual financial results could differ materially from our projections or those implied by these forward looking statements for the can statements represent our beliefs and assumptions only as of the date such statements are.
We undertake no obligation to update any forward looking statements made during this call is reflective vince or circumstances after today or to reflect new information or data.
Anticipated events, except as required by law also during this call we will discuss certain non-GAAP financial measures.
While we believe these non-GAAP measures are helpful to investors in understanding our business. They are not intended to be a substitute for our GAAP results reconciliation of these non-GAAP measures to the most directly comparable GAAP measure can be found in our earnings release with that I'd like to turn the call over to Doug.
Thanks, Greg and thanks, everyone for joining today.
For auto it goes into an update on the quarter and our financial results I wanted to spend some time on the announcement, we shared earlier today, we announced a significant change to our executive leadership team, Chris <unk>, our CEO , who will be leaving the company effective immediately.
Once the search for a new CEO and have established an office of the CEO comprised of our existing executive leadership team, who will be reporting directly to me in the interim.
That includes our CLO wahoo, along with Arden, both of whom are on their call today.
On behalf of the entire board I want to recognize and thank Chris for navigating the company over the past three and a half years.
On our way to becoming a public company and before that as our general counsel.
I thought that we announced with Jonathan back in 2008 on the vision of creating a marketplace connecting consumers with the best local candidates. We were pioneers at the center of building. The early rails from the industry to engage in commerce, we were known for our Cedar cell knowledge of the plan the high ROI of our marketplace, our commitment to entering the prohibition against candidates.
Importantly, being the best place to discover and find candidates products.
During my time as CEO , we had a bootstrap culture with a track record of being profitable and cash flow positive as we scaled the business to a $100 million in revenue.
While the complexity of our industry have certainly increase we need to do a better job of executing our proven strategy and leveraging all of the strengths that have made us the industry leader.
Cofounder and one of the largest shareholders of the company I was asked to provide support to our management team. During this time when our end markets continued to be challenged us all I could add value give me my knowledge of the business as the former CEO and my insights and relationships around the industry. In my first 60 days of executive Chair I've worked with our leadership team to conduct deep.
Todd review of our strategy operations and investments to see where we can improve our performance I'm proud of what our team has achieved in this environment, but I believe that we can do better and I commit that we will do better when.
When we started 2022, we said it was an investment year, but with the macro environment. The way that it is now at the time for us to execute against what we've already invested while recalibrating our offer our operational focus to get leaner and meaner.
Become clear to me that we can create more focus for our teams. So they can move with more speed and urgency that means more rigorous prioritization of initiatives within our existing strategy to move more streamlined decision, making and organizational structures that means leveraging our systems more effectively to support operations getting.
Getting back to our roots of operational excellence and profitability.
That and the board and I have made a decision to transition leadership of the company and lots of outside search for a new CEO . We're speaking first and foremost a leader with deep hands on operating experience with complex online marketplaces and enterprise SaaS models.
We're looking for a leader with the flexibility and skills to adapt to a highly nuanced industry with large growth potential fulfill looking forward split. It is early days I expect this surge to be completed in 2023, and we of course, we will keep you apprised of developments in the interim I will be working very closely with our executive leadership team to be clear our business model and.
We are sound.
Really confident of that marketplace continues to provide strong ROI to businesses in the industry as evidenced by the spend of our clients. Our platform strategy is unique versus other type solution providers. We have the ability to continue building the future rail to the cannabis industry, while improving our cash flow as we ride out the storm of the current economic and industry headwinds.
As Arnaud will touch on we are already working towards plans for 2023 that drive clear line of sight to our margin and cash flow potential which has been our historical strength of the company, we will make the adjustments needed and how we operate to deliver more significant value to our clients and users.
Got it to work with our team and lead the company through this transition as we will be building against the opportunities that we have with that I'll turn the call over to art.
Thanks, Doug and Hello to everyone on today's call.
Our Q3 performance comes in the face of continued challenges across our end markets. The risks we anticipated last quarter played out as expected throughout this quarter. Our Q3 revenue of $51 million declined 1% versus last year and our reported net income and adjusted EBITDA were both the loss of $10 million.
Our adjusted EBITDA was heavily impacted by reserves, we took against our most each client balances we.
We saw 25% plus for us and paying clients during the third quarter. The distress was fully offset by a decline in our revenue per paying client. We expect these pressures given the continued liquidity challenges that our clients are facing.
Moving down the P&L, our Q3 gross margin rate of 92% is consistent with the prior quarter. Our reported operating expenses after cost of revenues before G&A expense came in at $63 million for the quarter and included $2 million in stock based compensation, along with $6 million and other nonrecurring charges, which includes severance payments associated with the head count reduction we executed in August .
More information on these charges is available in our earnings release and earnings slide deck, and we'll be in our Form 10-Q.
Excluding these items our non-GAAP adjusted Opex for the quarter came in at $56 million or 46% increase versus last year, resulting in our adjusted EBITDA loss.
The largest driver of adjusted Opex growth came from the bad debt expense, we incurred which I'll touch on now excluding bad debt from both this quarter and the prior year period, our adjusted Opex grew by 27% year over year and adjusted EBITDA was $1 million.
Over the past year, we selectively work with certain clients, who are facing difficulties to help them navigate throughout this challenging environment. We've talked previously about how we believe that supporting our clients during trying times like these will pay dividends when conditions improve this quarter, what became clear to us. However is a prolonged time required for <unk>.
The breadth across cannabis end markets for example, the California market, which contributed 53% of our total Q3 revenue saw year over year declines in state wide sales of minus 10% based on third party data during the quarter.
Given these dynamics, we made the decision to accelerate the reserves, we're taking against a handful of clients some of whom remain on the platform at significantly downgraded levels of spend others of whom had been unpublished as a result of their liquidity challenges.
Our bad debt expense was a significant drag on our Q3 adjusted EBITDA, which was positive before this charge. Our bad debt is also limited to a handful of accounts that saw challenges earlier this year versus a wider spread issue approximately 90% of the bad debt. We incurred in Q3 relates to 15 clients, where we are now fully reserved.
Against the majority of these accounts, what's encouraging is the decline we saw this quarter in our gross receivables balances. The third quarter is the first since end market challenges began where the change in our receivables with a source of cash.
We are very focused on where we're investing and firmly believe that we can find further opportunities to rationalize our spend as we get back on the path towards cash flow generation as Doug stated, we know we must do better in this environment on controlling our spend and we'll continue to take action on productivity opportunities our reported net income.
Loss of $10 million includes $7 million gain in the fair value of our warrant liability our fully diluted share count across our class a and b share classes was $146 million at the end of the quarter.
Reconciliation of adjusted EBITDA to net income as well as the details of our share classes and share count calculation are provided in our earnings release posted to our Investor Relations site.
We ended the quarter with $34 million in cash and no long term debt, we continue to be comfortable with our liquidity position given the productivity initiatives that we've already taken and are continuing to take action against.
Before I speak to our outlook for the fourth quarter I also wanted to address our thinking on additional metrics for disclosure I mentioned in our August earnings call that we've been evaluating additional metrics for our investors to gauge the health of our business and progress in executing against our platform strategy.
We've decided to sunset our prior MAU metric as it's a very broad top of funnel metrics that has become more correlated to our marketing investments and less correlated to our revenue growth. We expect to provide our additional metrics disclosure on our Q4 call in concert with our 2023 plan and guidance more details on each of these changes can be found in our form.
<unk> 10-Q filing.
Now I'll turn to our financial outlook for the fourth quarter and provide some commentary on how we're planning for fiscal year 2023.
On our August earnings call that we were making in risks in our scenario planning for the second half, including continued end market declines in Q3 bottoming out in Q4, along with continued liquidity challenges for our clients.
Based on where we are today, we lack clear signs that end market challenges and client liquidity concerns at fully bottomed out as.
As such we expect our second half revenue will decline closer to the wide end of our guidance range for the second half we're down in the mid single digit percentage area.
We're continuing to execute against productivity actions as I noted, but expect Q4 adjusted EBITDA will be further impacted by bad debt expense, which will remain elevated in Q4, there was significantly lower than Q3.
As Doug stated, we're currently working through our annual operating plans for next year and we'll provide more detailed guidance for 2023 at a later stage with that said I'd like to share. Some initial thoughts on where we're focusing our plans.
As a backdrop to our planning we expect visibility on a return to growth across license candidates end markets will remain low.
Against this backdrop, we are working towards creating more focus across our teams more streamline operations and clear line of sight to positive cash flow, while the environment may remains uncertain. Our objective is to achieve profitability and positive cash flow in 2023 or.
Our strategy remains unchanged.
Has changed though is the focus we have on executing operationally.
<unk>, our investments with rigorous prioritization and delivering against our margin and cash flow potential regardless of the macro environment.
In closing Wantto myself and our entire leadership team are looking forward to partnering more closely with Doug and bringing <unk> to its next phase of growth.
His intimate knowledge of our company in end markets will serve us well as we get after the opportunities this year and complete our planning for 2023 with that let's open up the call for questions.
To ask a question you will need to press star one on your telephone once again Thats Star one one placed on bond with compile the Q&A roster.
And Thats Star one one on a moment.
Our first question comes from the line of DJ Hynes from Canaccord. Your line is open.
Hey, guys. Thanks for taking the questions.
Doug I wanted to ask you so.
In the press release, I think you were quoted saying something along the lines of like we need to be more focused and more streamlined.
What does that mean to you is that narrow our product focus is it about getting costs realign like what's contemplated in that when you talk about focus on streamlining the business.
Yes, Paul basic textbook like operational things it starts with privatization that we've mentioned.
Putting a clear focus on what we're trying to accomplish here, we're trying to outline clear objectives internally <unk>.
Centralized decision, making and restructuring our internal work to allow us to move faster and then we need discipline on spend.
And make better trade off to deal with these headwinds.
That's really where the focus is going to be our strategy.
It is largely intact.
I'm with Chris working through that over the years, it's mainly it comes down to execution and the simple fact is we had all of our company dial turn it up to a tenant and what the market pressure on the economic headwinds, we definitely turned down some of those dials. So it's just about the logic and once we do that.
Yeah Okay.
And then switching gears a bit maybe more kind of macro regulatory line of question I guess, just curious what the midterm tomorrow like what are the key things that you're watching for that we could maybe drive signals from.
The end market Doug.
Okay.
Well again every year that we go through this we have positive news. So we expect nothing different this year and one of the things I want to try and bring to the company as more of a ground game getting back to the culture and so we're looking forward to executing getting in go to market strategy going into the space.
But again with foreign policy goes it's typically always positive.
We will be ready to execute when the news comes out.
By the way today, we also have one of our COO on the call.
We had some incremental thoughts as well so yes.
Hey, Jay This is Matt I was just wondering as Arne said, the only thing I wanted to add to what Doug said is the news I've always been positive obviously, the polling seems generally positive as well and most of these states, but I think part of what we're particularly excited about as a number of medical states that are looking to turn rack are very <unk>.
Positive states for US right. When you think of the likes of Maryland, Arkansas, and Missouri, and so while the timeline of how these how.
These states turn from <unk> as always.
Hard to predict but there's a lot of regulatory nuance I think there's plenty of reason to be bullish.
Some of these.
Ballot initiatives called the way, we expect them to.
Okay. It sounds good guys I appreciate the color. Thank you.
Thanks P J.
One moment for our next question.
As a reminder that star one one.
Our next question comes from Tom Champion from pump Piper Sandler Your line is open.
Hi.
Good afternoon.
Doug I'm wondering if you could talk a little bit about what's your what youre seeing in the end market.
You've been involved with with the company in the industry for a long time and in what ways is.
This current market environment familiar and in what ways is it is it new.
Hi.
How tied is.
Kind of the current challenge to the dynamics thats going on specific to California.
If you could touch on that a little bit and then just any.
Update on kind of the big East rollout, what youre seeing in.
And the New York, New Jersey area would be helpful. Thank you.
Yes, so so, California, obviously is feeling the commoditization of the plant.
Much robust black market that is definitely putting price pressure on everything and making operations hard for everyone.
It is happening a little bit in other states like Colorado, and Oklahoma, but we expect that forced to show itself and all the other states and time.
But for most of the operators in California, It's definitely definitely a lot of headwinds a lot of cost cutting a lot of preparing for what's going to come.
Next year.
Even in the East Coast States that are coming online.
Lot of black market problems as well that will put downward pressure on.
Prices out there and obviously the licenses in New York for example have taken a little bit longer than expected and obviously that doesn't help with what the forces that I just mentioned so just like everything in Canada, we've been in.
This game a long time, even though it says it's going to open things tend to take a lot longer and there's a lot more nuanced as governments work with local governments to kind of rollout.
Their policy and that happened again deal with a robust black market.
So again for US we just have to build the tools to help you guys survive and then we'd have to have the ground game because one thing that I can help bring to the table a little bit.
A broader understanding of the plant.
And when you get into a world where margin and everything gets crushed it really comes down to your ability to understand how to deliver quality the price.
Or is it something that can help some of our clients too.
Got it thank you.
Thank you.
And as a reminder, star one for questions.
Right.
I'm not showing any further questions in the queue I'd like to turn the call back over to our speakers for any closing remarks.
Okay.
Alright, well. Thanks, operator, we appreciate everyone for joining today and.
With that we'll wrap up today's call.
Okay.
And this concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
Yes.
Yeah.
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