Q2 2023 WM Technology Inc Earnings Call

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[noise] <unk> Vice President of Investor Relations. Please go ahead.

Hi, everyone. Thanks for joining us to discuss it fiscal 2023 second quarter results, we have our executive chair that Frances C. T O doesn't grazier, an interim CFO with US today by now everyone should have access to earnings announcement and supporting fly back on or an investor relations website during.

This call will make forward looking statements about our business Alec strategies multiple goals keep in mind that forward looking statements are not guarantee of future performance and are subject to a variety of risks and uncertainties some of which are beyond our control.

For actual results to differ materially from expectations reflected in any forward looking statements for discussion of risks and other important factors that could affect director or results. Please refer Choi SEC filings available on the SEC's website, and our Investor Relations website as well as the risks neither are important factors discussed in today's earnings release.

We specifically disclaim any intended obligation to update these forward looking statements, except as required by law for the benefit of those who may be listening to the replay or archived webcast. This call was held on August 8th 2023. Since then we may have made announcements related to the topics discussed. So please refer to the company's most recent press releases and a SEC filings.

We will also discuss non-GAAP financial measures along those prepared in accordance with cap non-GAAP financial measures should be considered in addition to it but not as a substitute for the information prepared in accordance with GAAP you can find a reconciliation of these measures to our GAAP results in our earnings presentation on our investors relations website and finally today's call is being webcast from our investors relations Webster.

An audio replay will be there soon with that I'll turn the call over to Doug.

Thanks, Greg and Hello to everyone joining us today.

To begin by welcoming Mary <unk>, who joined this last month as our interim CFO Mary has a wealth of experience that is already on display and will be invaluable to read maps technology as we continue to streamline and optimize our business.

I'd also like to welcome our CTO Duncan <unk> through the call.

Speak to what we're building a read maps Duncan has been on our team since 2019 became our CTO in Q4 of 2022 and is a key partner in driving focus across our organization Duncan represents the future direction of our platform and has accomplished much in a short time a C T O.

I'm excited for you all to hear from him today.

Finally, I'd like to thank our former CFO ardently for his time at the company, we wish him all the best in the future endeavors.

Now turn into our results. We are pleased with our second quarter performance, which reflects our renewed focus and continued productivity over the past few quarters for.

For the second quarter in a row repeat our expectations for revenue and adjusted EBITDA, while generating positive cash flow from operations.

Overall cash balance would have increased had it not been for payments related to last year's headcount reductions in Q2, we had revenues of $51 million net income of $2 million and adjusted EBITDA of $10 million are adjusted Opex was 32% lower than a year ago. We are fully committed to continuing the operational discipline that has driven are written.

Turn to profitability is Mary will speak to we feel comfortable with our financial and liquidity position.

While there is more to do we are pleased with the progress we have made especially in what continues to be a challenging and market.

As I have said for multiple quarters now we are focused on three objectives. This year delivering value to our clients, improving our marketplace and driving profitable and sustainable growth.

On delivering value to clients. In addition to the marketplace improvements, which we will speak to we are heavily investing in and committed to building deepened impactful relationships on national and hyper local levels. We are focused on engaging with our clients and the broader cannabis community have multiple touch points with are on the ground field marketing presence, we believe our.

80 to combined effective offline promotional activations with our digital platforms creates a built in Roy value add that is unique to weed maps and is something our clients are excited about.

We know how to drive folks to stores and that goes beyond our technology.

We also continue to innovate and strengthen our industry leading marketplace. In addition to continuously improving our user experience, we are tuning refining and scaling the product catalog personalization and conversions for our clients.

Duncan will touch on this more in a moment.

Finally on driving profitable and sustainable growth. It is critical for us to continue to be focused on savings.

We will now be surgical with where to find opportunity and continued to operate leaning scrappy.

Mary well mentioned, we do plan on being strategic with marketing investments that may put pressure on EBITDA in the near term, but we will do so intentionally we feel we are in a unique position in the industry to have the dry powder for meaningful user acquisition, focusing on priority markets and land and expand efforts, we need to take advantage of this opportunity and a very disciplined and the <unk>.

Cool way Merrie will cover additional feature detail to support my earlier commentary.

It is no secret that the industry is struggling with growth.

While we hope for regulatory support from any at all levels of government history tells us not to hold our breath. So we need to focus on the things. We can control for 2023, we are focused on four key areas of growth first data induration combined with our improved search and dynamic pricing will give us more opportunities to better monetize targeted traffic on our platform.

Second we need to go and win priority markets as mentioned earlier with the combination of promotion expertise field marketing best in class of data and a healthy marketplace. We now have all the tools in place to win each market with confidence.

We need to expand on our brand offering by providing improved features like industry insights and brand specific shopping experiences.

We need to focus on our engagement with the large episodes, who require the highest level of customization. Once again operationally, we are ready to support the elevated needs of Msos and help them leverage our team and platform to get a high return on spend with us.

And these headwinds the goal for us is to protect our P&L and play the long game, we are profitable maintain sizable technology and marketing teams with good velocity and have the budget and resources to invest in opportunities across markets.

Puts us in a unique position in our industry protecting the piano is more than just EBITDA. It is important for us to work with clients, who we think are going to be successful and we will make it out the other side of this challenge market we.

We need to help control our clients spending on our platform to ensure we actually get paid to that and we do turn away sales from time to time, we also effectively tightened our collection procedures, which will put additional pressure on our top and bottom figures, but we believe it will ultimately improve the quality of our income resulted lower bad that expense risk and further prepare us for additional head.

When should they arise finally, we continued to identify efficiency opportunities in our business.

While revenue beat expectations and Q2, we remain concerned about the lack of political support in our industry in the near term outlook for many states.

Q2 sales are supported by the 420 holiday. So we're expecting Q3 revenue to look more like Q1 and are comfortable with how that sets us up for the long term one of the biggest mistakes candidates companies can make in this environment is to overreach there'll be a time to stretch our legs.

Wait for a positive regulatory catalysts as I've said before the longterm thesis surround candidates that sound for those with a patient and know how to see it through the strong will get stronger and headwinds will naturally call, an even better path for us stay lean stay profitable find growth in areas, we can't control ride it out and wait for positive industry catalyst.

Before I turn it over I wanted to provide an update on W. M technologies leadership search I B.

Believe the company is back to operating with a lean in cannabis first philosophy.

While the headwinds are ever present, I believe they are relatively measurable.

Mentioned before these two factors, where the gating items to begin our CEO search the board has engaged in a search firm, which is actively running a process for a new CEO Mary will continue to serve as a CFO on an interim basis.

In closing I am proud of what our team has accomplished over the past two quarters.

Change is never easy, but the entire organization has worked extremely hard to rally around and accomplish are important operational and financial goals.

Most importantly, they continued to service our clients and meet their needs, which is ultimately what will drive long term sustainable growth for Wm technology, our clients the industry and our shareholders as well for that I want to thank each and every team member with that I'll turn it over to Duncan.

Thank you Doug and good afternoon, everyone I'm excited to join you today to discuss our technology organization and how we are continuing to build a future. If we mess I joined W. M technology in 2019 to lead our efforts to set up our technology to be capable of scaling to a post federal equalization industry.

I Wanna start by giving a brief overview of the organization how our technology platform is involved in recent years and then talk about some of the most important initiatives, where we see tack as in driving competitive advantage for our business.

And as Doug mentioned, I will talk specifically about some of the key product and technology investments. We've made in the past quarter to our marketplace. Our technology team consists of more than 200 software engineers product managers data analysts data engineers user experience and user interface designers and many other walls that develop maintain and support the full stack technology. It helps you on <unk>.

Function of our business the scale of our technology team, while maintaining profitability as an industry advantage, we can simply invest more technology for our consumers and clients.

At the highest level our goal is to create a best in class experience for all we'd maps users and our clients.

And that's not only maintain the most comprehensive and accurate menu and product offerings in the industry, but we also need to deliver a great user experience to drive growth for our clients to do this we felt the underlying technology that enables us to deliver those experiences in a manner that is not only durable scalable owners elion, but also supports the complexities and requirements of the regional candidates industry.

Over the past few years, we have all the organizations several very specific ways to facilitate that growth transitioning to being mobile first deepening our data focus and a focus on customer Centricity I'm happy to say, we have made massive strides in the first half of 2023.

I'd like to turn now to the underlying technology itself and how it is influencing the experiences of our users and clients as they utilize that we'd not some market wise in particular were laser focus on the benefits of our candidates industry, leading dataset machine learning and automation as we think about continuing to drive scale for our business and our clients business.

Our technology teams work across a number of important functional areas that's off our consumer acquisition conversion in her attention.

For those users we want to show them, the right and relevant content at the right time, and the shopping journey and enable them to quickly and seamlessly order their local product for pick up and delivery.

It is critical we deliver quality convenience and selection for user cohorts ranging from premium to economy for our clients. These efforts include tools to help them efficiently and accurately populate the online menus and Gail offerings and also to leverage our AD solutions to drive their specific business objectives.

The advancement of our technology platform is allowing us to accelerate our ability to hit our key objectives. For example, we ran dozens of experiments over the last two quarters to help ensure the marketplace experience matches best in class E Commerce platforms, and we expect those changes will lead to improved conversion rates for our clients and the second half of this fiscal year, we walk accelerate the release of improve.

Minutes of the product you ask an underlying technology will be laying the groundwork for growth more ways to shop more hyper local content to discover and more opportunities for clients to grow their business on weeknights.

On the consumer side, we enhance our search and chronic based shopping experience for users, making it far simpler for users to find the exact product strain or a fact, they're looking for.

We also <unk> to leave for the 420 holiday streamline the deal climbing experience.

This past quarter, we were focused on downfall conversions to drive the highest value to our clients, especially around the 427% on holidays.

As part of this landmark category shopping by more constantly surfacing that opportunity to users and also help optimize the checkout flatland postal order experience with value added features of order status and mobile flushed notifications, which helped alleviate challenges related to communicating with consumers do text messages.

Finally on the data science, we advanced or machine line in giving algorithms to not only drive personalised user experiment, but also to improve our overall menu on listing quality.

We increased product clarification chronic date of completion in syndication across our platform.

We use advanced machine learning to carry it that tens of millions of items across our product catalog as well as to augment and rich and ensure accurate and complete product information.

This enables us to respond to individual use any of that making sure our clients customers can shop with enhanced confidence in finding products and price points there right for them.

We are dynamically curating user search to show products that not only set the parameters of their search but are also located at retailers and delivery operators closest to them collectively we believe these efforts will improve our ability to acquire kindergarten and retain customers for our clients.

Finally, as we look to the future for our users. Our team is focused on improving the product category based shopping experience a deeper personalization localized carry the content.

And for our clients. We will continue ensure we have the highest quality menu items in the industry powered by seamless integration that's in class curation for brands and retailers and streamlined simplified tools for clients to create business efficiencies and drive growth on weakness.

<unk> has been a technology leader in Canada, since 2008, and as such millions of consumers. We are positioned to continue to do so and are very excited about what the future holds I want to thank the entire technology organization that makes our products better every single day of our consumers and clients and now let me turn it over to Mary for a few of our finances.

<unk> I'm applying to be joining my first W. M technology earnings call.

Quite a performance beat our expectations on top line growth and profitability Q2 revenue came in at 51 million, which compares to 48 million expectation that we gave up on me.

You too adjusted EBITDA, which compares to the 4 million expectation that we had.

Well it Stunk sob, we generated positive cash flow equal or making final payments related to last year's headcount reductions.

We have 5609 average normally paying client and king king down less than 1% versus Q1, we were able to drive new client growth across both mature on emerging market. However, these client when my.

My term largely stemming from California, and Oklahoma Chrome.

California's specifically, we pattern from delivery.

Facing economic headwinds or other client facing billing issue that we remove from the platform hopefully implemented more stringent collection policy overall.

That's possible.

<unk> and Ricky Martin.

Robin or client with 3022, and Q2 up seven 10-Q, one driven by increased client and are mature state offset by term largely a smaller lower revenues paying clients.

As we have previously stated we do expect the revenue per client will likely decline in the next few corners ugly online client in emerging markets to begin with lower levels performed on the platform.

In California revenue per client was that 6% versus last corner, California references I'm, 64% of our revenue in queue to slightly down from 55 and coupon on monthly knocked all every Thompson on our listings Avenue with 99.5% for the corner.

Keeps you adjusted EBITDA at <unk> 32 per cent reduction guested.

Versus last year someone to Q1, we saw the largest declines in phone across sales and marketing is digested sales and marketing declined by 38% versus last year.

Justin product development and adjusted you alone declined by 28% on 29 per cent respectively.

Alright, just again includes a 1.7 million non past charges related vision for doubtful accounts.

Let's go to our team to guidance.

That's fine and adjusted email like driven by our strong top line performance and continued efficiency, we are finding them or both of them.

Across wage and long legs.

We did see a timing shift and some marketing Samsung Q2, Q3, which helped with our queue to marching profile, but will impact our T. Three finance home finally, our Bob <unk>.

Continues to decline, which we believe reflects the policies and procedures, we have implemented over the past few callers.

I'll go with that we will be disciplined at our investment making decisions. This is what we did in queue to focused on 223 and beyond.

Example of this discipline are not headcount grew by test five and Q2, and then record over 530 employee.

We reported a net income of 2 million, which was impacted by 3 million Indiana.

$4 million in stock based compensation, along with approximately 2 million and other non reoccurring charges.

Our gap Opex.

Excluding cost of revenues and DNA with $41 million in Q2.

Reduction of 37% versus last year.

More information on these changes is available in our earnings release, which will be in our Form 10-Q.

We closed the quarter with $25 million cash, which is after $8.5 million in cash payment, but we had already accrued related to head count reductions from last year.

We have previously stated we expected Q2 will be the low point of our cash position for the year. Given we have now made all of the pain related to the headcount reductions.

We continue to be debt free and are comfortable with iron liquidity technician.

Oh sure count across our class a and the share classes.

149 million at the end of the court.

A reconciliation of non-GAAP Netflix to their nearest GAAP results.

As long as the details of our share classes and share account calculation.

Vided in our earnings presentation posted tomorrow.

That's a relationship.

I'd also like to provide an update on our independent auditors as previously recorded Baker Kelly will no longer service our auditor following the filing of our second quarter Form 10-Q.

I am pleased to announce that the board has approved the appointment of Moss Adams.

Company independent registered public accounting firm.

For the fiscal year, ending December 31, 2023.

According to our outlook, we continue to be pleased with the progress we are making a cross our three priority focus areas and are confident we are making the right strategic operational and financial decision.

W M technology up for the near and long term.

With that said, we are acutely aware of the well known challenges still facing our industry and the lack of progress on multiple fronts, including regulatory enforcement States G. M. B N license.

Continue prudently plan for and spend again, a realistic and reasonable deal of our top line and as such we are planning for cheaper revenue to be 47 million Unprofitability, we expect adjusted EBITDA will be in the 4 million area <unk>.

Marching in the quarter relative to Q2 will be largely driven partly by the timing shift at some marketing expenses from Q2 Q3 as well as additional investment we are planning to make across both activation and digital marketing.

We believe these investments are the right one to make to both support our clients and glad to read maps marketplace.

Main committed to our previous guidance a double digit adjusted EBITDA margin for fiscal year 23 on generating positive password for the year and expect our cash balance to increase in Q3.

At this time I'll turn the call back over to the operator Q at all.

Thank you at this time, we will conduct a question and answer session either.

A reminder to ask a question you will need to best Island, one on your telephone and wait for your name to be announced to enjoy your question. Please press down on one again, please stand by while we compiled acuity roster.

Yeah first question comes from Andrew Kinda Stifle. Please go ahead.

Yeah. Thank you <unk>, we're gonna ask on the 3022 <unk> spending per client could you quantify kind of what the pump was from April to that number and what's a good a good ongoing number it was that kind of up now there's a lot of moving parts, but I'll start there.

Yeah, Andrew it's Greg.

I would say this in this been obviously in a commentary we talked about some of the term we're seeing a lot of that was in the tail. We saw really good momentum, especially in the beginning a quarter for some of our larger clients increasing spend.

And so a lot of.

We were happy with that is reflective of the policy is made up leaning in and work with our clients as we look on the Gulf War, It obviously hurt or guide.

Say, we expect paying client count.

To be relatively flat just given we're going to see some growth, but we're going to see some austin insurance and that will impact the spend for clients that will probably be more reflective of what it was in queue.

Four Q1.

Versus what we saw in Quito.

And this is Doug. Additionally, as we go out the emerging markets.

The average spend per client tends to be lower so we will realize some of that in the near term.

Yeah, perfect I was kind of his second still has some different the retention what is kind of the net retention like right now in the emerging markets and kind of just spending profile because emerging markets a little bit of a selling proposition more so than California, where the brands are established.

Yeah, we don't have while we obviously don't have a specific regional net retention or a state by state number attention that we disclose I would just say we're continued to increase clients and are emerging markets of the Charlie saw obviously it was in California, Oklahoma. So we're seeing really good retention and growth in the emerging markets.

Spend levels.

Obviously below our average and some of our mature states or above the average and so does continue to increase but they obviously lowering the average as we develop those markets and as these clients are facing headwinds, we're really working with them to develop these emerging markets because the health of the market really.

Okay, It's a long term outcome.

Outcome, so again, we're being opportunistic and supporting our industry, where we can.

And the final question I'll ask you about the day's receivable I think it's down to 29 can you have you got it under control, where there's it's it's sizably within well I guess, what you would expect terms to be or is kind of the continued churn like kind of what levels are after thanks.

Yeah, let's leave obviously made.

We feel pretty good progress on our on our receivables and are just collection policies. We have implemented in continuing to plant slightly more stringent policies and are holding our clients that Doug talked about some of the revenue.

Decisions, we're making this commentary and so we felt in a good position are obviously or allowance for bad that is coming down there are still known unknowns out there and so we're not going to you know say, we're in the clear completely but we feel really good about the policy and procedures, but internally and how I work with our clients about half that number has been trending.

Thanks, I'll pass it on.

Thank you Thanks Hendrix.

One moment trying next question.

Your next question comes from Scott Fortune across and then M can.

Please go ahead.

Hey, this is <unk>. Thanks for taking the questions first one for me just on the client side can you just comment on what you've seen from your clients in terms of their appetite kind of embarrassed in advertising.

Kind of the more difficult macro backdrop, we've kind of seen a shift here to focus on margins in cash preservation, obviously, the ROI of your offerings compelling, but I'm just wondering if you've seen any kind of discernible changes in client spend behavior in the past six months. Thank you.

Yeah, obviously, the the various state to state. So each state has its own story, we definitely feel pressure across the board on our clients budgets in general that being said there are a few players who are consolidating taking advantage of these opportunities. So it's important for us.

To get those relationships type what those folks cause as you can see in some of our data that we did increase.

And come in places like California. So it really is just a state by state story.

Okay I appreciate the call and then second for me just kind of on the announcement from Mastercard just shut our candidates transactions just kind of your puts and takes their <unk>.

Have you seen any impact on the client's oratory impacts from your business just office announcement. Thank you.

Yeah, I mean, it's obviously additional headwinds that as an industry. We continue to face we know some companies out there have been technology.

Swimming they'd have that mastercard ability and their stock so that'll be a challenge for them.

Our industry is dynamic we're used to this so I imagine most of our clients will be able to Bob and weave in and and come out okay. But this is definitely just another pain that they're going to have to deal with.

That's it for me.

Thank you for your participation in today's program.

Conclude today's conference you may now disconnect.

Mmm.

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