Q1 2024 Leafly Holdings Inc Earnings Call
Okay.
Matt: Good afternoon. Thank you for attending the Leafly Q1 2024 earnings call. My name is Matt, and I'll be your moderator for today's call. All lines will be muted during the presentation portion of the call. I would now like to pass the conference over to our host Josh with Leafly. Josh, please go ahead.
Good afternoon, and thank you for attending to leaf with Q1 2024 earnings call. My name is Matt and I'll be your moderator for today's call all lines will be muted during the presentation portion of the call.
Josh: I'd like to pass the conference over to our host Josh release Lee.
Josh: Josh. Please go ahead.
Josh: Good afternoon, and welcome to Leafly's Q1 2024 earnings call. Joining me on the call today are CEO Yoko Miyashita and CFO Suresh Krishnaswamy.
Josh: Good afternoon, and welcome to at least Q1 2024 earnings call. Joining me on the call today are CEO yoga, and the Okta and CFO Suresh Krishna Swamy.
Josh: Today's prepared remarks have been recorded. A copy of our press release can be found on our website at investor.leafly.com. Today's call will contain forward-looking statements which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. Forward-looking statements include statements regarding the services offered by Leafly, the markets in which Leafly operates, business strategies, performance metrics, industry environment, potential growth opportunities, and Leafly's projected future results and financial outlook and can be identified by words such as expect, anticipate, focus, intend, plan, believe, seek, or will.
Josh: Today's prepared remarks have been recorded a copy of our press release can be found on our website at investor <unk> Dot com.
Josh: These statements reflect our views as of today only, should not be relied upon as representing our views at any subsequent date, and we do not undertake any duty to update these statements. Forward-looking statements, by their nature, address matters that are subject to risk and uncertainties that could cause actual results to differ materially from expectations, and we caution you not to place undue reliance on such statements. For a discussion of these material risks and other important factors that could affect our actual results, please refer to the risks discussed in today's press release, our 2023 annual report on Form 10-K filed with the SEC on April 1st, 2024, and our other periodic filings with the SEC.
Josh: Today's call will contain forward looking statements, which are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1095 as amended.
Josh: Looking statements include statements regarding the services offered by <unk> the markets in which <unk> operates business strategies performance metrics industry environment potential growth opportunities and weekly as projected future results and financial outlook and can be identified by words, such as expect anticipate focus in 10 plan.
Josh: <unk> believe seek or will.
Josh: These statements reflect our views as of today only should not be relied upon as representing our views at any subsequent date and we do not undertake any duty to update these statements.
Josh: Forward looking statements by their nature address matters that are subject to risks and uncertainties that could cause actual results to differ materially from expectations and we caution you not to place undue reliance on such statements for a discussion of the material risks and other important factors that could affect our actual results. Please refer to the <unk>.
Josh: Risks discussed in today's press release, our 2023 annual report on Form 10-K filed with the SEC on April one 2024, and our other periodic filings with the SEC. During the call. We will also discuss non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles a reconciliation of.
Josh: During the call, we will also discuss non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles. A reconciliation of the GAAP and non-GAAP results is included in our earnings press release, which has been filed with the SEC and is also available on our website at investor.leafly.com. We'll answer a few pre-submitted questions at the end of this call. With that, I will turn the call over to Yoko.
Yoko: GAAP and non-GAAP results is included in our earnings press release, which has been filed with the SEC and is also available on our website at Investor Dot <unk> Dot com.
Josh: We will answer a few pre submitted questions at the end of this call with that let me turn the call over to Yoko.
Yoko Miyashita: Good afternoon. Leafly remains steadfast in its commitment to enhancing operational efficiency on our path to profitability while ensuring sustained value delivery for our customers. Our efforts have been concentrated on strengthening our resilience as a business and nurturing relationships with our customers, which we believe empowers them to leverage the full spectrum of tools offered through the Leafy platform. At the same time, we're also increasing our efforts on customer acquisition, designed to re-grow and strengthen our network of retail. Our revenue in the first quarter was in line with guidance at $9 million, and our net loss was $2.4 million.
Yoko: Good afternoon, Lee remained steadfast in our commitment to enhancing operational efficiency on our path to profitability, while ensuring sustained value delivery for our customers.
Yoko Miyashita: Our efforts have been concentrated on strengthening our resilience as a business and nurturing relationships with our customers, which we believe empowers them to leverage the full spectrum of tools offered through the <unk> platform.
Yoko Miyashita: At the same time, we're also increasing our efforts on customer acquisition designed to re grow and strengthen our network of retail customers.
Yoko Miyashita: Our revenue in the first quarter was in line with guidance at $9 million. Our net loss was $2 4 million and our adjusted EBITDA and cash finished ahead of guidance, which reflects our continued focus on building a path to profitability.
Yoko Miyashita: And our adjusted EBITDA and cash finished ahead of guidance, which reflects our continued focus on building a path to profitability. As we previously mentioned, we prioritized collection efforts and made the tough decision to continue removing underperforming and nonpaying retailers after reaching a peak in nonpaying customers in Q3 of last year. We believe we have a process that is effective in enforcing payment terms and are encouraged by reactivation metrics, such as payment of past due amounts to come current and reactivate on our platform.
Yoko Miyashita: As we previously mentioned, we prioritize collection efforts and made the tough decision to continue removing underperforming and non paying retailers after reaching a peak and nonpaying customers in Q3 of last year.
Yoko Miyashita: We believe we have a process that is effective and enforcing payment terms and are encouraged by reactivation metrics such as payment of past due amounts to come current and reactivate on our platform.
Yoko Miyashita: As we work through what we believe is the worst of the challenges with delinquencies, we're working to turn around the decline in retail accounts by focusing on acquisition. At the end of the first quarter, Leafly had 3,840 retail accounts, marking a 5.8% reduction quarter over quarter and reflecting a moderating decline in our ending retail accounts sequentially.
Yoko Miyashita: As we work through what we believe is the worst of the challenges with delinquencies were working to turnaround the decline in retail accounts by focusing on acquisition.
Yoko Miyashita: At the end of the first quarter Leapley had 3840 retail accounts, marking a five 8% reduction quarter over quarter, and reflecting a moderating decline in our ending retail accounts sequentially.
Yoko Miyashita: As noted in our year-end earnings, we recently brought on board six new market managers and two new acquisition managers who are intensely focused on enhancing penetration in key markets and pursuing new market opportunities. Our market managers are armed with an enhanced product portfolio that now includes a price point for any retail customer, regardless of their size or. This allows us to pitch the right product to the right customer at the right price, which we believe should result in the growth of ending retail accounts sequentially as we move deeper into 2020. These new market and acquisition managers continue to ramp up.
Yoko Miyashita: As we noted in our year end earnings. We recently brought onboard six new market managers and two new acquisition managers, who are intensely focused on enhancing penetration in key markets and pursuing new market opportunities.
Yoko Miyashita: Our market managers are armed with an enhanced product portfolio that now includes the product price point for any retail customer regardless of their size or scale.
Yoko Miyashita: This allows us to pick the right product to the right customer at the right price.
Yoko Miyashita: Which we believe should result in the growth of ending retail accounts sequentially as we move deeper into 2024.
Yoko Miyashita: These new market and acquisition managers continue to ramp.
Yoko Miyashita: We will continue to emphasize protecting and growing existing accounts and combining that with renewed investment in the hunting and win-back of prospective customers to increase retail penetration. Additionally, increased supply also improves the consumer shopping experience, which ultimately creates our virtuous cycle. All of these efforts require us to effectively demonstrate and communicate the power and value proposition of our platform to our retail clientele, and we focused on improving how we tell that story. Part of communicating value to our retail partners is by demonstrating our ongoing commitment to reduce retailer friction and enhance the consumer experience.
Yoko Miyashita: We will continue to emphasize protecting and growing existing accounts and combining that with renewed investment in hunting and win back of perspective customers to increase retail penetration.
Yoko Miyashita: Increased supply also improves the consumer shopping experience, which ultimately creates a virtuous cycle.
Yoko Miyashita: All of these efforts require us to effectively demonstrate and communicate the power and value proposition of our platform to our retail clientele and we focused on improving how we tell that story.
Yoko Miyashita: Part of communicating value to our retail partners is by demonstrating our ongoing commitment to reduce retailer friction and enhance the consumer experience.
Yoko Miyashita: Over the quarter, we introduced a range of improvements across the platform, including promo code functionality, which provides our retailers with yet another way to attract the attention of price-conscious shoppers. We also redesigned our information-only listings to drive greater value for our paying customers and introduced live chat for our retailers, enhancing their customer support experience and reflecting our focus on customer satisfaction that we believe helps better meet our customers. We also made changes to our retailer menu embeds with the goal of making them more SEO-like.
Yoko Miyashita: Over the quarter, we introduced a range of improvements across the platform, including promo code functionality, which provides our retailers with yet another way to attract the attention of price conscious shoppers.
Yoko Miyashita: We also redesigned our information only listings to drive greater value for our paying customers and introduced live chat for our retailers enhancing their customer support experience and reflecting our focus on customer satisfaction that we believe helps better meet our customers' needs.
Yoko Miyashita: We also made changes to our retailer menu embeds with the goal of making them more SCO optimized.
Yoko Miyashita: Previously, we mentioned a revamp of our deals engine, including the introduction of new deal types, increasing the volume and diversity of deals within our market. We've now improved our deal sorting functionality to give consumers easier visibility into the deals retailers are offering.
Yoko Miyashita: Previously we've mentioned a revamp of our deals engine, including the introduction of new deal types augmenting the volume and diversity of deals within our marketplace.
Yoko Miyashita: We've now improved our deals sorting functionality to give consumers easier visibility into the deals retailers are offering.
Yoko Miyashita: Last week, we witnessed a historic step forward in ending prohibition in the U.S. when the DEA formally agreed that cannabis should be moved from Schedule 1 to Schedule 3 under the Controlled Substances Act. While observers, advocates, and commentators all speculate what this will actually mean for the industry, what we celebrate is the formal acknowledgement of the medical potential of cannabis, along with the acknowledgement that cannabis does not warrant a classification assigned to the most addictive and harmful drugs in circulation today.
Yoko Miyashita: Last week, we witnessed a historic step forward and ending prohibition in the U S. When the DEA formally agreed that cannabis should be moved from schedule one to schedule III under the controlled substances Act.
Yoko Miyashita: While observers advocates and commentators I'll speculate what this will actually mean for the industry.
Yoko Miyashita: But we celebrate is the formal acknowledgment of the medical potential of cannabis.
Yoko Miyashita: Along with the acknowledgment that cannabis does not warrant a classification assigned to the most addictive and harmful drugs in circulation today.
Yoko Miyashita: We celebrate the potential for more research to drive informed policy and a pathway for cannabis operators to free up cash and invest in their business, including making necessary investments in marketing to educate and attract the many consumers looking for relief from this plan. Along with the DEA's actions in the ensuing rulemaking process to formalize the rescheduling, Florida voters will decide this November whether to legalize recreational adult use.
Yoko Miyashita: We celebrate the potential for more research to drive informed policy and a pathway for cannabis operators to free up cash and invest in their businesses.
Yoko Miyashita: Including making the necessary investments in marketing to educate and attract the many consumers looking for relief from this plant.
Yoko Miyashita: Along with the DEA as actions and the ensuing rulemaking process to formalize the rescheduling, Florida voters will decide this November whether to legalize recreational adult use.
Yoko Miyashita: And in New York, we have renewed hope for the rollout of legal cannabis following the recent positive court ruling in Leafly's favor that will allow us to offer our full scope of services to new licensees. Paired with the steady issuance of new retail licenses in the state, we believe we can now maximize our value proposition to retailers and consumers in a market we all believe should have meaningful upside. On an international scale, Germany celebrated 420 for the first time with fewer restrictions on cannabis, with legalization that went into effect in April.
Yoko Miyashita: And in New York, we have renewed hope for the rollout of legal cannabis. Following the recent positive court ruling and we favor that will allow us to offer our full scope of services to new licensees.
Yoko Miyashita: Paired with the steady issuance of new retail licenses in the state. We believe we can now maximize our value proposition to retailers and consumers in a market. We all believe should have meaningful upside.
Yoko Miyashita: On an international scale, Germany celebrated 420 for the first time with fewer restrictions on candidates with legalization that went into effect in April.
Yoko Miyashita: Germany is an economic powerhouse in Europe, and we believe Germany's actions will be a potential trigger across the European Union. They have a strong base of advocates pushing for change, and Leafly plays a role by providing content on our platform accessible globally that solves an education gap that currently exists. It is the collection of these pivotal moments that propel industry momentum and also contribute to the normalization of cannabis consumption worldwide. As the industry continues its upward trajectory, we remain steadfast in our commitment to leveraging our robust platform to cater to discerning high-value consumers, providing them with trusted premium content while facilitating connections with local retailers and brands. I'll now turn it over to Suresh.
Yoko Miyashita: Germany is an economic powerhouse in Europe, and we believe Germany's actions will be a potential trigger across the European Union.
Suresh: They have a strong base of advocates pushing for change and leaf we played the role by providing content on our platform accessible globally that solved and education gap that currently exists.
Suresh: It is the collection of these pivotal moments that propel industry momentum and also contribute to the normalization of cannabis consumption worldwide.
Suresh: As the industry continues its upward trajectory, we remain steadfast in our commitment to leveraging our robust platform to cater to discerning high value consumers, providing them with trusted premium content, while facilitating connections with local retailers and brands.
Yoko Miyashita: I'll now turn it over to Suresh.
Suresh Krishnaswamy: Thank you, Yoko, and welcome, everyone. In the first quarter, we reported revenue of $9 million, down 19.6% year-over-year and down 7.2% sequentially. Retail revenue in Q1 was $7.9 million, and brand revenue was $1.2 million. The year-over-year decline in total revenue was primarily driven by the continued removal of non-paying retail accounts from the platform. At the end of Q1, our ending retail accounts totaled $3,840, which was a sequential decline of 235 accounts compared to the end of the fourth quarter. This decline was anticipated again as we continue to remove non-paying accounts from the platform. The pace of these removals is slowing.
Suresh: Thank you Yoko and welcome everyone.
Suresh Krishnaswamy: At the same time, there remains some level of account churn due to out-of-business and budget reasons. As Yoko spoke about earlier, our new sales heads that we added are focused on adding accounts, which reinforces our commitment to stabilizing ending retail accounts. Our ARPA for the first quarter was $677, up 22% year over year and up about 1% sequentially. As expected, our retail ARPA is leveling out following the removal of small and non-paying accounts.
Suresh Krishnaswamy: In the first quarter, we reported revenue of $9 million down 19, 6% year over year and down seven 2% sequentially.
Suresh Krishnaswamy: Retail revenue in Q1 was $7 9 million and brand revenue was $1 2 million.
Suresh Krishnaswamy: The year over year decline in total revenue was primarily driven by the continued removal of non paying retail accounts from the platform.
Suresh Krishnaswamy: At the end of Q1, our ending retail accounts totaled 3840, which was a sequential decline of 235 accounts compared to the end of the fourth quarter.
Suresh Krishnaswamy: This decline was anticipated again as we've continued to remove non paying accounts from the platform.
Suresh Krishnaswamy: The pace of these removals is moderating.
Suresh Krishnaswamy: At the same time, there remains some level of account churn due to out of business and budget reasons as.
Suresh Krishnaswamy: As Yoko spoke to earlier, our new sales heads that we added are focused on adding accounts, which reinforces our commitment to stabilizing ending retail accounts.
Suresh Krishnaswamy: Our ARPA for the first quarter was $677 up 22% year over year and up about 1% sequentially.
Suresh Krishnaswamy: As expected our retail ARPA is leveling out following the removal of small and non paying accounts.
Suresh Krishnaswamy: Brand revenue in the first quarter was $1.2 million, down 34% year over year. Brand revenue declines are slowly stabilizing, and we expect year-over-year declines from Q3 onward to flatten. As part of our effort to stem these declines, we have revamped our brand subscription offering, including a new lower-priced basic tier. The goal of this offering is to introduce brands to the Leafly platform and the value proposition we provide
Suresh Krishnaswamy: Brand revenue in the first quarter was $1 2 million down 34% year over year.
Suresh Krishnaswamy: Revenue declines are slowly stabilizing and we expect year over year declines from Q3 onwards to flatten.
Suresh Krishnaswamy: As part of our effort to stem. These declines we have revamped our brand subscription offering, including a new lower priced basic tier.
Suresh Krishnaswamy: The goal of this offering essentially these brands to the <unk> platform and the value proposition we provide.
Suresh Krishnaswamy: Longer term, we seek to deepen our relationship with brands, extend their spend into more digital advertising, and we're working hard to return this part of the business back to growth. Gross margin in the first quarter improved year over year to 89.2% compared to 88% in Q1 of 2023. We continue to operate an asset-like model and anticipate maintaining these attractive margin levels. Moving to Operating Expenses. In Q1, OPEX totaled $9.8 million, down 34% year over year.
Suresh Krishnaswamy: Longer term, we seek to deepen our relationship with brands extend their spend into more digital advertising and we're working hard to return this part of the business back to growth.
Suresh Krishnaswamy: Gross margin in the first quarter improved year over year to 89, 2% compared to 88% in Q1 of 2023.
Suresh Krishnaswamy: We continue to operate an asset like model and anticipate maintaining these attractive margin levels.
Suresh Krishnaswamy: Moving to operating expenses.
Suresh Krishnaswamy: In Q1, Opex totaled $9 8 million down 34% year over year.
Suresh Krishnaswamy: We continue to look for ways to reduce our costs and be mindful of spend. Looking to Q2, we expect our OPEX excluding stock-based comp to be at similar levels to Q1. Our net loss in Q1 was $2.4 million, an improvement from the $5.4 million net loss reported in Q1-23.
Suresh Krishnaswamy: We continue to look for ways to reduce our costs and be mindful of spend.
Suresh Krishnaswamy: Looking to Q2, we expect our opex, excluding stock based comp to be at similar levels to Q1.
Suresh Krishnaswamy: Our net loss in Q1 was $2 4 million an improvement from the $5 4 million net loss reported in Q1 'twenty three.
Suresh Krishnaswamy: Our adjusted EBITDA for Q1 was negative $0.9 million, an improvement from the negative $3.3 million reported in Q1'23. We continue to work towards long-term operating profitability. Before turning to the balance sheet, I'd like to provide an update on our collections in Baghdad. In Q1, our bad debt as a percentage of revenue was 5.5%, an improvement over the 6.5% average for the full year 2023.
Suresh Krishnaswamy: Our adjusted EBITDA in Q1 was negative <unk> 9 million an improvement from the negative $3 $3 million reported in Q1 'twenty three.
Suresh Krishnaswamy: We continue to work towards long term operating profitability.
Suresh Krishnaswamy: Before turning to the balance sheet I'd like to provide an update on our collections and bad debt.
Suresh Krishnaswamy: In Q1, our bad debt as a percentage of revenue was five 5% an improvement over the six 5% average for the full year 2023.
Suresh Krishnaswamy: Looking ahead, we're committed to maintaining the tighter processes we implemented last year and managing this proactively, and we are focused on further improvement. Now to the balance sheet. We end the quarter with $14.1 million in cash, excluding restricted cash.
Suresh Krishnaswamy: Looking ahead, we're committed to maintaining the tighter processes, we implemented last year and managing this proactively and are focused on further improvement.
Suresh Krishnaswamy: Now to the balance sheet.
Suresh Krishnaswamy: We ended the quarter with $14 1 million in cash excluding restricted cash.
Suresh Krishnaswamy: We're expecting our cash burn in Q2 to be around $1.5 million. As we discussed last quarter, our 29.7 million convertible notes are due in January of 2025 and have now become a current liability. Given our position today, we will not have the funds available to repay these notes when due.
Suresh Krishnaswamy: We're expecting our cash burn in Q2 to be around $1 5 million.
Suresh Krishnaswamy: As we discussed last quarter, our $29 7 million convertible notes are due in January of 2025 and have now become a current liability.
Suresh Krishnaswamy: Given our position today, we will not have the funds available to repay these notes when do you <unk>.
Suresh Krishnaswamy: Resolving this is a key priority for the company, and we're in ongoing dialogue with our lenders. Earlier this week, we announced that we worked with our lender and converted an additional portion of the outstanding principal to equity. You may recall we entered into a similar transaction with our lender in December.
Suresh Krishnaswamy: Solving this is a key priority for the company and we are in ongoing dialogue with our lender.
Suresh Krishnaswamy: Earlier this week, we announced that we worked with our lender and converted an additional portion of the outstanding principal to equity.
Suresh Krishnaswamy: You may recall, we entered into a similar transaction with a lender in December.
Suresh Krishnaswamy: We do anticipate some additional refinancing expenses related to our debt as we move through the year, and we look forward to providing additional updates on this matter when appropriate. Another item I want to provide an update on is our NASDAQ listing. We received notification from NASDAQ in early April, as expected, that we do not currently meet the requirements for continued listing on the NASDAQ capital market. We plan to submit a compliance plan and request a 180-day extension to give us time to regain compliance with the applicable listing requirements, which is due by May 24th.
Suresh Krishnaswamy: We do anticipate some additional refinancing expenses related to that as we move through the year.
Suresh Krishnaswamy: And we look forward to providing additional updates on.
Suresh Krishnaswamy: This matter when appropriate.
Suresh Krishnaswamy: Another item I want to provide an update on is our NASDAQ listing.
Suresh Krishnaswamy: We received notification from NASDAQ in early April as expected, but we do not currently meet the requirements for continued listing on the NASDAQ capital market.
Suresh Krishnaswamy: We plan to submit a compliance plan and request of 180 day extension to give us time to regain compliance with the applicable listing requirements, which is due by may 24th.
Suresh Krishnaswamy: At this time, our stock continues to be listed and traded on the capital market. We'll provide updates on this when we have more information to share. Now to our guidance. For Q2'24, we expect revenue of around $8.6 million and an adjusted EBITDA loss of approximately $1.1 million. The entire team at Leafly is focused on running a lean business and investing in product enhancements and in our sales team with the aim of returning the business to top line growth. We're also focused on improving our balance sheet, optimizing cash, and setting the company up for long-term success. I'll now turn the call back to you.
Suresh Krishnaswamy: At this time, our stock continues to be listed and traded on the capital markets. We will provide updates on this when we have more information to share.
Suresh Krishnaswamy: Now to our guidance.
Suresh Krishnaswamy: For Q2, 'twenty four we expect revenue of around $8 6 million and an adjusted EBITDA loss of approximately negative $1 1 million.
Suresh Krishnaswamy: The entire team at <unk> is focused on running a lean business and investing in product enhancements and in our sales team with the aim of returning the business to topline growth.
Suresh Krishnaswamy: We're also focused on improving our balance sheet, optimizing cash and setting the company up for long term success.
Speaker Change: I'll now turn the call back to Yieldco.
Suresh Krishnaswamy: Yeah.
Speaker Change: Thanks Rich.
Yoko Miyashita: Before addressing questions that have been submitted, I'd like to formally introduce everyone to Peter Lee, who joined Leafly this week as our President and Chief Operating Officer. We're excited about welcoming Peter to Leafly in a full-time capacity, where he'll lead new monetization efforts, operations, and corporate development, while also focusing on deepening relationships with our customers. We're excited to have Peter here with us for Q&A, and we're looking forward to introducing him to investors as he takes a more active role in future calls. Welcome, Peter. Josh will now move on to the questions that we received prior to the call.
Speaker Change: Before addressing questions that have been submitted.
Yoko Miyashita: Like to formally introduce everyone to Peter Lee, who joined lately This week as our president and Chief operating Officer.
Yoko Miyashita: We're excited about welcoming Peter at ALLETE clean a full time capacity, where he'll lead new monetization efforts operations and corporate development, while also focusing on deepening relationships with our customers.
Yoko Miyashita: So I need to have Peter here with us for Q&A and we're looking forward to introducing him to investors as he takes a more active role in future calls.
Yoko Miyashita: Welcome Peter.
Yoko Miyashita: Josh will now move to the questions that we received prior to the call.
Josh: Thanks Yoko. First, we received this question: How does the rescheduling of cannabis impact business and the industry?
Josh: Thanks, Yoko first we received this question how does the rescheduling of cannabis impact the business and the industry.
Yoko Miyashita: Thanks for the question. So we talked about our excitement around rescheduling in my earlier comments, but I want to go a little deeper here about why this is so exciting for the industry and for me. The last few years have been an incredibly difficult operating environment for the retailers and brands we serve. That's because the industry has been so capital constrained. And the cash benefits for operators from the 280E tax savings that they'll benefit from as a result of rescheduling have been estimated to range from $1 billion to $2 billion.
Josh: Thanks for the question. So we talked about our excitement around rescheduling in my earlier comments, but I wanted to go a little deeper here of why this is so exciting for the industry and for weekly.
Yoko Miyashita: The last few years, it's been an incredibly difficult operating environment for the retailers and brands we serve.
Yoko Miyashita: That's because the industry has been so capital constrained.
Yoko Miyashita: And the cash benefits for operators from the two AE tax savings that they'll benefit from as a result of rescheduling those have been estimated to range from 1 billion to $2 billion. Those are tax savings that can be reinvested in the growth of their businesses and that includes making necessary investments.
Yoko Miyashita: Those are tax savings that can be reinvested in the growth of their business, and that includes making necessary investments in consumer marketing and engagement. And, you know, Leafly, as the preeminent source of educational information content for consumers, we couldn't be more excited about the increase in opportunity for research that we expect to result from rescheduling from Schedule 1 to Schedule 2.
Yoko Miyashita: In consumer marketing and engagement.
Yoko Miyashita: And lastly is the preeminent source of educational information content for consumers, we couldn't be more excited about the increase in opportunity for research that we expect to result from rescheduling from schedule one to schedule III.
Josh: Thanks, Yoko. The second question we received is, can you provide an update on the convertible note?
Speaker Change: Thanks Yoko. The second question. We received is can you provide an update on the convertible notes.
Yoko Miyashita: Thanks for the question. I'd love to hand this one over to Peter.
Josh: Thanks for the question I'd Love to hand, this one over to Peter.
Peter Lee: Thank you, Yoko. Solving for Leafly's capital needs is an important part of my role with the organization. I originally worked with the lender to put the convertible note in place more than two years ago. As Suresh noted, we took an opportunity to work with the lender and de-leveraged at this moment with two separate transactions to convert a small part of the debt to equity. Resolving the outstanding debt, as well as working with our advisors to explore a full range of opportunities that have the potential to maximize shareholder value, remains a priority.
Peter: Thank you Yoko solving for lease lease capital needs is an important part of my role with the organization.
Peter Lee: Originally worked with our lender to put the convertible note in place more than two years ago.
Peter Lee: Suraj notice, we took an opportunity to work with the lender and deleverage at this moment with two separate transactions.
Peter Lee: A small part of the debt to equity.
Peter Lee: <unk> outstanding debt as well as working with our advisors to explore a full range of opportunities that have the potential to maximize shareholder value remains a priority for us.
Peter Lee: I look forward to working with the management team to tackle this and many other opportunities and challenges ahead. Given the potential tailwinds from anticipated rescheduling, we believe it is a good time to look at all of our options now.
Peter Lee: Look forward to working with the management team to tackle this and many other opportunities and challenges ahead.
Peter Lee: Given the potential tailwind from anticipated rescheduling, we believe it is a good time to look at all of our options now.
Josh: And then our last question is about our retail accounts, which Suresh can answer. Can you talk about account churn and new customer acquisition?
Speaker Change: And then our last question is about our retail accounts, which rush can answer can you talk about account churn and new customer acquisition.
Suresh Krishnaswamy: Sure Josh.
Suresh Krishnaswamy: We believe we've reached a stable pace of accounts coming off our platform due to non-payment after the peak levels of both delinquent accounts and related bad debt expense in the second half of last year. In the normal course of business, we also see accounts churn due to budget reasons or going out of business.
Suresh Krishnaswamy: We believe we've reached a stable pace of accounts coming off of our platform due to non payment.
Suresh Krishnaswamy: The peak levels of both delinquent accounts and related bad debt expense in the second half of last year.
Suresh Krishnaswamy: In the normal course of business. We also see a constant <unk> due to budget reasons or going out of business.
Suresh Krishnaswamy: We've broadened our product suite to now include lower entry price points. And with this broader portfolio, we believe that our sales teams can work to retain customers that may need to trim their budgets, as well as introduce new customers to the platform at prices that align with their ability to pay. We're also starting to see early results for new customer acquisition after adding the eight new sales heads in January. For example, in Q1, we added around 20% more accounts than we added in Q4 of 2023.
Suresh Krishnaswamy: We broadened our product suite to now include lower entry price points and with this broader portfolio. We believe that our sales teams can work to retain customers that may need to trim their budgets as well as introduce new customers to the platform at prices that are aligned with their ability to pay.
Suresh Krishnaswamy: We're also starting to see early results for new customer acquisition after adding the eight new sales heads in January.
Suresh Krishnaswamy: For example in Q1, we added around 20% more accounts than we added in Q4 of 2023.
Suresh Krishnaswamy: Now, on a net basis, we're still reporting declines in ending retail accounts, but we're focused on both mitigating churn and winning new business with the goal of reversing the downtrend in the second half of the year. Okay. That's it for the questions.
Suresh Krishnaswamy: Now on a net basis, we are still reporting declines in ending retail accounts, but we're focused on both mitigating churn and winning new business with the goal of reversing the downtrend in the second half of the year.
Josh: That's it for the questions. I want to thank all of you for your continued interest in and support of LEAP. We appreciate your time today and are looking forward to keeping you updated on our operations and progress.
Suresh Krishnaswamy: That's it for the questions.
Speaker Change: I want to thank.
Josh: All of you for your continued interest and in support of lately.
Josh: We appreciate your time today and are looking forward to keeping you updated on our operations and progress.
Matt: That concludes the conference call. Thank you for your participation. You may now disconnect your line.
Speaker Change: That concludes the conference call. Thank you for your participation you may now disconnect your lines.