WM Technology Inc. Q1 2023 Earnings Call

Good day, and thank you for standing by and welcome to W. M Technology, Inc. Q1, 2023 earnings call.

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I would now like to hand, the conference over to your speaker today VP of Investor Relations, Greg Delaware.

Please go ahead.

These non-GAAP financial measures should be considered in addition to but not as a substitute for information prepared in accordance with GAAP. A reconciliation of these measures to our GAAP results can be found in our earnings presentation available on our Investor Relations website and finally this call in its entirety is being webcast from our Investor Relations website, and an audio replay will be available on our website in a few hours with that.

I'd like to turn the call over to Doug.

Thanks, Craig and Hello to everyone joining us today, we had a good first quarter.

We beat our expectations for revenue and adjusted EBITDA and generated positive free cash flow before making payments related to last year's head count reduction, while we have more work to do we believe we are on the right path.

I've said back in March that focus is the key for US this year focus on our marketplace delivering value to our clients and driving profitable sustainable growth. We've made progress in the first quarter on all three areas on our marketplace. We've been using AI driven algorithms to drive more personalized user experiences based on our first part of your user affinity.

Data. This includes personalized sort orders for menus that users see as well as personalized product recommendations in our avocado experience, we've been deploying new language models to expand our product catalog and Brian matching efforts with.

With more accurate tagging of products to brands, we're able to drive better user engagement and conversion through better search results more relevant product information and product recommendations.

Delivering value to our clients our teams have been actively executing on the first phase of an end market activation across our major regions with our street teams, which are helping clients expand their reach and impact.

Increased our on the ground in field marketing presence by three acts and have a weekly cadence of client events.

We're also rolling out changes to aid our clients on the marketplace.

We launched the new listing redesign that allows our clients to add more hero imagery to engage new users along with order status push notifications to give more ways for our clients to communicate with users placing orders we have.

Only just begun these efforts in Q1 and have more in flight during this quarter, which arguably is the most important for the industry with 420 setting the tone for the year.

I'll touch briefly on this year's 420 holiday, we always have a number of initiatives around the celebration of candidates reform, but I'm, particularly proud of how our teams rallied to drive value for our clients.

We kicked off an integrated marketing campaign called the 20 days of deals to support many of our strategic clients with promotions for our users we coupled that with reasonable event activations in what I call retailer appreciation day dispensary tours that span markets from Boston to Kansas City to Albuquerque into our backyard here in Socal.

<unk> hundred 20 event itself resulted in our largest ever order volume on a single day, surpassing the volume that we've seen in each of the 420 events over the last five years.

Finally on driving profitable and sustainable growth I said back in March that will focus on what we can control.

We control, how we invest and the mindset, we're operating with and Q1 bore fruit of that commitment.

Adjusted Opex for the quarter was back to levels that we were operating under when we close or go public transaction in 2021.

Our teams are showing discipline in where we're hiring and how were achieving productivity to fund investments our net head count declined during the quarter, Despite us making strategic hires as our managers are finding ways to operate more leamy.

And as I said at the start of the call. We are free cash flow positive before termination payments from the head count reductions we did back in December .

Taking a step back yes license end markets continued to be challenged in a way that we haven't seen since the onset of legalization and yes. Our clients are still struggling to bring consumer demand back to licensed channels, while dealing with crippling taxes and a lack of federal regulatory help but I continue to see tremendous opportunities in our regions and a focused approach we are taking on mark.

Place and our clients.

Our clients are seeing the impact of us, bringing back candidates culture and fueling the strength of our marketplace and the streets of their hometowns, which itself is bringing more opportunity.

Now I'll turn it over to art.

Thanks, Doug and thanks to everyone for joining our call.

Our first quarter performance and our expectations on growth and profitability.

Q1 revenue came in at 48 million, which compares to the $47 million expectation that we gave in March.

Q1, adjusted EBITDA was a positive $7 million, which compares to the $4 million expectation that we had.

And as Doug said, we were cash flow positive prior to residual payments from the head count reductions we took in Q4.

Our paying client base was marginally down versus last quarter, though up 12% versus last year.

We continue to see client churn due to billing issues, which is masking the new licensees that were bringing on our platform.

Our revenue per client was also marginally down versus last quarter, which primarily reflects mix considerations as we saw higher levels of growth in our emerging regions, which have lower revenue per client dynamics as a place to spend declines in our established markets. For example revenue per client in California was flat versus last quarter our.

Our marketplace revenue in California itself grew in Q1 versus Q4, which drove a slight increase in share of mix for California, which now stands at 55% of our Q1 revenue.

What's also encouraging to see is that our monthly net dollar retention on our subscription revenue was bath above 100% in Q1.

Q1, adjusted EBITDA of $7 million reflected a 32% reduction in adjusted Opex versus last year, and 15% reduction versus last quarter.

Our Q1 adjusted Opex as Doug noted is that the same level as where we were in Q2 and Q3 of fiscal 2021, when we close or go public transaction and prior to the investment acceleration to build out our platform.

We saw the largest decline in spend across sales and marketing and to a lesser extent G&A, our adjusted sales and marketing and G&A declined by 50% and 22% versus last year Alright. Adjusted G&A includes a 2 million noncash charge related to provisions for doubtful accounts.

We reported a net loss of $4 million for the quarter, which includes $3 million in DNA $4 million in stock based compensation, along with approximately $4 million and other nonrecurring charges.

Our GAAP opex, excluding cost of goods and DNA was $45 5 million in Q1, a reduction of 29% versus last year.

More information on these charges is available in our earnings release and will be in our Form 10-Q.

We closed the quarter with $26 million in cash, which is after $5 million in payments that we accrued for in Q4 related to the head count reductions we've spoken about previously.

We continue to be debt free and are comfortable with our liquidity position.

Our fully diluted share count across our class a and B shares classes was $148 million at the end of the quarter. Our reconciliation of non-GAAP metrics to the nearest GAAP results as well as the details of our share classes and share count calculation are provided in our earnings presentation posted to our Investor Relations site.

Turning to our outlook, we are encouraged by the tone. We are seeing in recent weeks with the client dialogues. Our teams are having the initiatives to drive premium listings fill rates across our established markets and a continued opportunities to grow our client base and spend levels in emerging regions with a more focused approach we're taking to these markets.

With that said, we also remain cautious about the environment given continued uncertainty across license end markets and the broader macro environment.

As such we're planning as if our Q2 revenue will be consistent with Q1.

On profitability, we have been investing selectively in strategic marketing and supported the 420 holiday for our clients and expect Q2, adjusted EBITDA will be in the $4 million area. We expect our marketing investments will ramp back down to more normalized levels in the second half.

As we noted last quarter, we expect our cash in Q2 will continue to be impacted by remaining termination costs related to the head count reductions, we took last quarter and will represent a low point for the year.

But as we also noted last quarter, we're committed to driving double digit adjusted EBITDA margins and positive cash flow for the year as we demonstrated in Q1.

Before we open it up to questions I want to thank our team at <unk> for their continued focus on delivering against our plan for this year, we're widening our moat and creating more distance versus the competition. Thanks to our employees' efforts with that let's take questions.

Okay.

Thank you.

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Okay.

One moment please.

Yeah.

Our first question comes from the line of William Carter of Stifel. Your line is now open.

Hey, Thanks, it's Andrew on for William.

Firstly I wanted to ask is looking at these kind of sequential decline in average paying client could you give us a sense of how much of that was cut off.

How much.

I guess, what's the cutoff would be probably the mature markets and then how much came from kind of the new markets and then within that kind of give us a sense of what the mix degradation is from new markets. I guess better said is kind of what's what's kind of the delta between a new market coming online spend per client and kind of a mature.

Thanks.

Yes, Andrew it's Arden here just to clarify when you say cut off I assume you mean, what we've talked about previously around clients that we've unpublished.

Correct that's right.

Yeah, Yeah. So let me give you one way to think about it which is.

If we removed some of the churn that we've seen exactly due to that issue are paying client count would have been relatively flat marginally up quarter over quarter. So that's point number one point number two is if you look at our net client.

Kind of adds over the course of the last quarter.

The vast majority of that is coming from what we would characterize as emerging regions or the regions, where again, we're not as penetrated from a licensee perspective, and we're still scaling our monetization and then point number three to the question that you asked around mix.

We touched on it.

During the commentary, but one way to think about.

The impact of mix is the decline that we saw quarter over quarter on a revenue per paying client for this quarter was largely driven by that mix, meaning we had more client adds in emerging regions, where the revenue per client dynamics are lower than the company average we had elevated churn.

Due to billing issues in our more mature markets, where the spend levels are higher and so thats.

That's what you saw quarter over quarter.

Okay got it and then looking at the kind of the second quarter the EBITDA.

Kind of step down in EBITDA with a similar rate of sales I'm, assuming gross margins get a hold on at the same rate and you did say it with incremental advertising, but it's all of that kind of step down related to kind of incremental advertising spend.

Yes, yes so.

Again.

Related to the profitability the adjusted EBITDA.

Number for Q2, that's exactly the right way to think about it gross margin rate, we believe it should be pretty constant.

Versus what we saw in Q1, we.

We expect our product Avon G&A to stay relatively constant as a percent of sales.

In Q1.

The Delta is the increase in sales and marketing that we highlighted on the call.

And then one final one kind of thinking through like a top of funnel metrics kind of M. I use I know you haven't disclosed that in a while all we can really rely on third party and third party data are you seeing any kind of stability on that front.

Or kind of anything you can give us on that front.

Yeah, I'll start and Doug may chime in as well so listen what I'd say is that at the moment. Our teams have been primarily focused on driving mid and lower funnel conversion and so a lot of the work that we're doing both.

Both from a content strategy perspective from a marketing strategy perspective from a product roadmap perspective, and really optimizing for.

For those mid and lower funnel conversion. So for example, we talked about one of the things that we were promoting around the 420 holiday 20 days of deals that was all around again driving conversion to deal claims so.

So that the top of the funnel as we've talked about in quarters past tenants that kind of ebb and flow based on how we're investing against marketing full stop but right now where a lot of our efforts are from a funnel perspective around really driving that conversion activity.

Thanks ill pass it on.

Thank you.

Our next question comes from the line of Brett No block of Cantor Fitzgerald. Your line is now open.

Hi, guys. Thanks for taking my question really appreciate it.

I guess.

Coming into it.

Second quarter or maybe you know when you guys last spoke and reported first quarter results. When you say you're more optimistic about the demand environment.

As a whole than you were call. It 45 60 days ago.

Yes, and when you say demand environment.

Do you mean client demand or user demand or maybe we can address both.

Yes on the client demand.

Yes go ahead, sorry, yeah, Yeah. If you can address those more so on the client men.

Yeah, Yeah, so listen I would say it.

It's a bit of a bit of a tale of two two different sets of markets and what I mean by that is.

We have some very established.

Markets, where we do business right, we've talked in the past about California, we talked in the past about call.

Colorado These are states that.

It has a lot of folks.

Seen based on third party data continued to be.

In.

Continuing to be sideways dealing with headwinds right. So when you look at the license and market <unk> data that's put out by third parties. It will show for those two states that I just quoted that for most of this year, we've seen pretty steady sequential week over week to clients now with that being said there is all the other region.

<unk>, where we have a footprint in what I'd say is if you looked at our top states, where we do business.

We do business, where you would expect this to any state that has some form of medical.

Or or Rec regulation, if you look at our top 20 states. We have a number of states that are up double digits. Some states up triple digits, just given we have a small base.

A business that's growing at a very rapid clip.

But we're still dealing with the end market kind of headwinds that are impacting states like California, where our Colorado or in Oklahoma and that is what's weighing on kind of the overall.

Sentiment.

As we think about client demand so listen folks for sure across the board have demand for wheat maps, whether you're in a market that is dealing with these headwinds we're not I'd say the clients that are in markets that are dealing with headwinds.

Or even kind of more.

Anxious and their desire to be on our platform.

Given their need to get in front of the consumer.

So that's on the client side I'd say on the user side, we said this for.

For a while now that we think cannabis demand.

Consumer demand for cannabis is still very strong we think its resilient of course, we are keeping our eye on a lot of what's happening across the macro environment because that always is a risk.

To consumer pocketbooks and their spend for discretionary product, but based on the data that we're tracking it seems as if the consumer continues to hold in there. The question is how much of that demand continues to be allocated to licensed channels versus non licensed channels and that therein lies the sorts of headwinds across a lot of these established markets.

Thank you for that color and then maybe just on your on a deal for 28.

For 'twenty promotion.

You said it was one of the largest fortunately that you've kind of come in order volume.

To help quantify the percentage kind of growth Youre seeing.

You saw from that event over the year ago period.

Thank you.

Yeah.

I'll take a crack at that in terms of metrics until we Doug.

Doug talked about on the call how our order volume.

For this past for 2000 and eclipsed the prior 420 holidays and so we had our largest single day.

Order volume in the company's history.

Characterize it as year over year, we were up in the low single digit percent area, where we also saw a big.

Increases in deal claims specifically due to the 20 days of deals campaign, its a year over year.

Our deal claims were up well into the double digits on a percent growth.

So.

Yeah.

I appreciate that thanks, guys.

Thank you.

At this time AMC I see no further questions.

You for your participation in today's conference.

Does conclude the program you may now disconnect.

Everyone else has left to come.

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