Q2 2024 Leafly Holdings Inc Earnings Call
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and other valuable connections created on the Leafly platform among these three groups.
Leafleaf: In an era of liberalized access to cannabis, the need for Leafly's trusted voice and guidance has never been greater, and we remain invigorated by the opportunities to fill that need for the many millions on their journey of cannabis discovery.
Speaker Change: Our revenue in the second quarter was in line with guidance at $8.7 million. Our net loss was $1.3 million, and we finished with our adjusted EBITDA in cash well ahead of guidance, posting $483,000 in positive adjusted EBITDA this quarter.
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Eileen: I now have the pleasure of having you as that's your highest Eileen are skewed to begin Eileen. Please go ahead.
which reflects our continued focus on building a path to profitability, even while revenue performance remains muted.
Speaker Change: Good afternoon, and welcome to lease lease Q2, 'twenty 'twenty four earnings call.
This beat on adjusted EBITDA in the quarter was the result of our ongoing focus on collection efforts.
Speaker Change: Joining me on the call today are CEO, Yoko me Aster and CFO Suresh Krishna Swamy.
We were pleased to secure recoveries against previously written off customers who are making good on their outstanding balances and reactivating on our platform.
Speaker Change: In addition, Peter Lee, our President and Chief operating Officer is also joining us on the call today to assist with Q&A.
We are reaching a level of general stability with respect to bad debt.
Speaker Change: Today's prepared remarks have been recorded.
Speaker Change: Payment delinquencies remain the largest segment of canceled customers, accounting for just under 40% of the monthly recurring revenue lost in the quarter.
Speaker Change: A copy of our press release can be found on our website at investor <unk> Dot com.
Speaker Change: Today's call will contain forward looking statements, which are made pursuant to the safe Harbor provision of the private Securities Litigation Reform Act of 1995 as amended.
Speaker Change: Inability to pay remains a symptom of our capital-deprived industry, and we have implemented stricter controls to keep customers current. We expect this pressure to continue until macro conditions improve.
Speaker Change: Forward looking statements include statements regarding the services offered by legally.
Speaker Change: As account declines flatten, we are building a foundation from which we can grow back our retail account base, which sat at 3,595 retail accounts at the end of Q2.
Speaker Change: The markets in which we operate.
Speaker Change: This strategy performance metrics industry environment potential growth opportunities and lately, it's projected future results financial outlook expected results from cost saving measures management objectives and initiatives undertaken to improve our liquidity and capital.
Speaker Change: This marks a 6.4% reduction quarter over quarter and reflects a similar decline in our ending retail accounts from Q1 over Q4 2023.
Speaker Change: Looking now to our Brands Business. Over the second quarter, we revamped our Brand Subscription Offering.
Speaker Change: <unk>.
Speaker Change: And can be identified by words, such as expect anticipate focused intent.
Speaker Change: We introduce tiers to our offering to paygate the most engagement-driving features to our paying tiers, Pro and Basic, while offering a free listing that creates incentives to upgrade to a paying tier.
And believe seek or will.
Speaker Change: 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.
Speaker Change: By pay gating the most important features, such as more prominent placement in our products marketplace, we've seen a significant shift of GMB to subscribing brands and early results. We will be monitoring and optimizing this over the coming quarter.
Speaker Change: Forward looking statements by their nature address matters that are subject to risks and uncertainties that could cause actual results to differ materially from expectation and we caution you not to place undue reliance on such statements.
Speaker Change: This is the direct power of the Leafly platform at play, and we can use these findings to prove the value of our platform in an effort to accelerate the sell-through of our updated brand subscription product.
Speaker Change: For a discussion of the material risks and other important factors that could affect our actual results. Please.
Speaker Change: 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.
Speaker Change: We've also used this product launch to test our one-to-many outbound lead generation efforts and are using learnings from this project to revisit our lead generation strategy for retailers.
Speaker Change: And our other periodic filings with the SEC.
Speaker Change: At Leafly, we've long been committed to helping individuals discover the power of the cannabis plant.
Speaker Change: During the call. We will also discuss non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles.
Speaker Change: Increasingly for many consumers, that means turning to hemp-derived cannabinoids to fill a supply gap created by state and federal legislative failure to legalize and regulate cannabis.
Speaker Change: 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 web site at Investor talk briefly Dot com.
Speaker Change: From the introduction of popular hemp-derived CBD products following passage of the Farm Bill in 2018 to hemp-derived Delta 8 and increasingly hemp-derived Delta 9 products, Leafly has played a pivotal role in connecting brands and consumers looking for these products.
Speaker Change: Well answer a few pre submitted questions at the end of this call.
Speaker Change: With that let me turn the call over to Yaacov.
Yaacov: Good afternoon.
Yaacov: We remain steadfast in our commitment to enhancing operational efficiency on our path to profitability.
Speaker Change: Since the start of the year, we have had very active dialogue with a number of hemp brands.
Yaacov: And while there is still work to be done, we're making meaningful progress.
Speaker Change: We remain focused on delivering on our mission to help consumers discover the magic of cannabis.
Speaker Change: While we are in the early stages of exploring this opportunity, we believe that hemp-based cannabinoids present another avenue for us to fulfill our mission to help connect consumers with the cannabis products that are right for them, wherever they are located.
Speaker Change: These efforts have concentrated on creating value at the intersection of consumers brands and retailers by offering services and products to monetize the valuable connections created on the weekly platform. Among these three groups.
Speaker Change: Now, turning our attention to various states and provinces that are showing strong momentum within the market, we are so excited to see the launch of Ohio's recreational program ahead of schedule this week.
Speaker Change: In an era of liberalized access to cannabis the need for at least lease trusted voice and guidance has never been greater and we remain invigorated by the opportunities to fill that need for the many millions on their journey of cannabis discovery.
Speaker Change: By 2030, annual legal adult-use marijuana sales in Ohio could top $2.8 billion, according to estimates from New Frontier Data.
Speaker Change: Our revenue in the second quarter was in line with guidance at $8 7 million. Our net loss was $1 3 million and we finished with our adjusted EBITDA and cash well ahead of guidance posting 483000 and positive adjusted EBITDA This quarter, which reflects our continued focus on building a path to profitability.
Speaker Change: We are bullish on the state's approach of creating a smooth transition for existing medical cultivators, processors, testing labs, and retailers, as we believe this will create a robust market that's not as challenged by competition from the illicit market that other states have experienced.
Speaker Change: Even while revenue performance remains muted.
Speaker Change: We are also very pleased to be able to offer our online ordering features to Ohio consumers, a service we were unable to offer under previous medical cannabis regulations.
Speaker Change: This beat on adjusted EBITDA in the quarter was the result of our ongoing focus on collection efforts.
Speaker Change: We were pleased to secure recoveries against previously written off customers, who are making good on their outstanding balances and reactivating on our platform.
Speaker Change: We also saw an expansion of the medical program in Washington D.C. with the regulators there broadening the medical program to open access to licensees from the legacy cannabis gifting stores as well as allowing for consumers to self-certify to their qualifying medical conditions.
Speaker Change: We are reaching a level of general stability with respect to bad debt.
Speaker Change: Payment delinquencies remained the largest segment of canceled customers accounting for just under 40% of the monthly recurring revenue lost in the quarter.
Speaker Change: This removes the need to obtain a doctor's recommendation to purchase from medical stores.
Speaker Change: Inability to pay remains a symptom of our capital deprived industry and we have implemented stricter controls to keep customers current.
Speaker Change: Just last week we expanded our partnership with Uber Eats into Alberta Canada delivering safe legal cannabis straight to people's homes.
Speaker Change: We expect this pressure to continue until macro conditions improve.
Speaker Change: Albertans 18 and over can now place orders from local licensed cannabis retailers in the Uber Eats app and have it delivered to their door by their retailers provincially certified staff.
Speaker Change: As a count declines flatten we are building a foundation from which we can grow back our retail account base, which sat at 3595 retail accounts at the end of Q2.
Speaker Change: Finally, we remain cautiously optimistic about Florida's ballot initiative in the fall, along with awaiting the DEA's actions and rulemaking to formalize the rescheduling announcement made earlier this year.
Speaker Change: This marks a six 4% reduction quarter over quarter and reflects a similar decline in our ending retail accounts from Q1 over Q4 2023.
Speaker Change: Looking now to our brands business over the second quarter, we revamped our brand subscription offering.
Speaker Change: The need for educated consumers and a trusted source to inform cannabis purchasing decisions has never been greater.
Speaker Change: Introduce tiers to our offering to pay gate. The most engagement driving features to our paying tiers pro a basic while offering a free listing that creates incentives to upgrade to a paid tier.
Speaker Change: And we're enthused and optimistic about our ability to create value for all participants on the Leafly platform through premium content and connections between consumers and the local retailers and brands that serve them.
Speaker Change: I pay gating. The most important features such as more prominent placement and our products marketplace. We've seen a significant shift of G. M. B to subscribing brands and early results, we will be monitoring and optimize newness over the coming quarter.
Speaker Change: I'll now turn it over to Suresh.
Suresh: Thank You Yoko and welcome everyone. In the second quarter we reported revenue of $8.7 million down 18.3% year-over-year and down 3.6% sequentially.
This is a direct power obliquely popcorn that play and we can use these findings to prove the value of our platform in an effort to accelerate the sell through of our updated brand subscription product.
Suresh: Retail revenue in Q2 was $7.3 million and brand revenue was $1.4 million. The year-over-year decline in total revenue was primarily driven by the removal of non-paying retail accounts from the platform over the last 12 months.
Speaker Change: We've also used this product launched to test our one to many outbound lead generation efforts and are using learnings from this project to revisit our lead generation strategy for retailers.
Suresh: At the end of Q2, our ending retail accounts totaled $3,595, which was a sequential decline of 245 accounts compared to the end of the first quarter.
Speaker Change: At least we we've long been committed to helping individuals discovered the power of the cannabis plant.
Speaker Change: Increasingly for many consumers that means turning to hemp derived cannabinoid to fill the supply gap created by state and federal legislative failure to legalize and regulate cannabis.
Suresh: The account declines were concentrated in a handful of markets, with Florida, California, and Oklahoma accounting for about 40% of the decline in ending retail accounts.
Suresh: It's important to note that the accounts that came off the platform during Q2 had a lower average ARPA as that cohort remains under pressure. Based on what we're seeing so far in Q3, cancellations are lower and we expect a decrease in ending retail accounts to moderate.
Speaker Change: From the introduction of popular hemp derived CBD products. Following passage of the farm Bill in 2018 to help drive Delta E and increasingly drive fell to nine products.
Speaker Change: We have played a pivotal role in connecting brands and consumers looking for these products.
Suresh: As a result of lower ARPA accounts being removed from our site, our ARPA for the second quarter was $684, which was up 23% year-over-year and up about 1% sequentially.
Speaker Change: Since the start of the year, we have had very active dialogue with a number of hemp brands. While we are in the early stages of exploring this opportunity. We believe that hemp based cannabinoid present, another avenue for us to fulfill our mission to help connect consumers with the canvas products that are right for them, whereas.
Suresh: Brand revenue in the second quarter was $1.4 million, down 25% year-over-year, but up from the $1.2 million reported in Q1.
Speaker Change: They are located.
Suresh: Our second quarter is typically a seasonally strong quarter for brand revenue due to the 4-20 holiday, and this year was no different. We saw brands investing in marketing during April in advance of 4-20.
Speaker Change: Now turning our attention to various states and provinces that are showing strong momentum within the market.
Speaker Change: We're so excited to see the launch of Ohio's recreational program ahead of schedule. This week.
Suresh: Following the holiday bump in spend, brands return to the spend levels we saw in Q1.
Speaker Change: By 2030 annual legal adult use marijuana sales in Ohio could top two $8 billion. According to estimates from new frontier data.
Suresh: Gross margin in the second quarter improved year-over-year to 89% compared to 88% in Q2 of 23.
Speaker Change: We are bullish on the state's approach of creating a smooth transition for existing medical cultivators processors testing opt in retailers as we believe this will create a robust market that's not as challenged by competition from the illicit market that other states have experienced.
Suresh: Moving to Operating Expenses.
Suresh: In Q2, OPEX totaled $8.4 million, down 17.5% year-over-year.
Suresh: We continue to focus on keeping our costs in check and aligning to our revenue opportunities.
Speaker Change: We are also very pleased to be able to offer our online ordering features to Ohio consumers a service we were unable to offer under previous medical cannabis regulations.
Suresh: Looking to Q3, we expect our OPEX excluding stock-based comp to be at similar levels to Q2.
Suresh: Our net loss in Q2 was $1.3 million, a modest improvement from the $1.4 million net loss reported in Q2 of 2023.
Speaker Change: We also saw an expansion of the medical program in Washington D. C with the regulators there broadening the medical program to open access to licensees from the legacy cannabis gifting stores as well as allowing for consumers yourself certified to their qualifying medical conditions.
Suresh: We're pleased to report that our adjusted EBITDA on Q2 was positive 483,000 compared to 80,000 reported in Q2 of 23.
Yoko: As Yoko discussed, our success in recovery of bad debt expense contributed to the positive EBITDA on Q2.
Speaker Change: This removes the need to obtain a doctor's recommendation to purchase from medical stores.
Speaker Change: Just last week, we expanded our partnership with Uber eats into Alberta, Canada, delivering safe legal cannabis street to People's homes.
Suresh: We continue to work towards building a long-term profitable business and leveraging our business model to achieve this.
Speaker Change: Before turning the balance sheet, I want to highlight the progress we've made with our Bad Debt and Collections.
Speaker Change: Burton's 18, and over can now place orders from local licensed cannabis retailers and the Uber eats app.
Speaker Change: As we mentioned last quarter, we have been very focused on improvements and saw the results of those efforts in Q2 with a net recovery in the quarter.
Speaker Change: And have it delivered to their door by their retailers provincially certified staff.
Speaker Change: Finally, we remain cautiously optimistic about Florida ballot initiative in the fall along with awaiting the D as actions and rulemaking to formalize the rescheduling announcement made earlier this year.
Suresh: Year-to-date, our bad debt expense as a percentage of revenue is 2.4% compared to the 6.5% average for the full year 2023.
Speaker Change: Overall, our number of delinquent accounts continues to trend downwards.
Speaker Change: The need for educated consumers and their trusted source to informed candidates purchasing decisions has never been greater and we are enthused and optimistic about our ability to create value for all participants on the weekly platform through premium content and connections between consumers and the low.
Speaker Change: Based on what we're seeing so far in July , this trend has continued and we plan to maintain these tighter processes to sustain and improve on this trend.
Suresh: Now to the balance sheet.
Speaker Change: We ended the quarter with $13.6 million in cash, excluding restricted cash. We expect Q3 cash burn to come in just a little more than the $1.2 million interest payment on the convertible notes.
Speaker Change: Retailers and brands that serve them.
I'll now turn it over to Suresh.
Suresh: Thank you Yoko and welcome everyone in.
Speaker Change: In order to allow us flexibility around offering our Commons talks from time to time and giving us additional optionality in raising capital, in late June we launched an at-the-market or ATM offering program.
Suresh: In the second quarter, we reported revenue of $8 7 million down 18, 3% year over year and down three 6% sequentially.
Suresh: Retail revenue in Q2 was $7 3 million in brand revenue was $1 4 million.
Suresh: Since the end of the second quarter, we have raised a modest amount of capital in our ATM offering.
Suresh: Year over year decline in total revenue was primarily driven by the removal of non paying retail accounts from the platform over the last 12 months.
Speaker Change: Going forward, we will be opportunistic based on market conditions in our use of this facility.
Suresh: At the end of Q2, ending retail accounts totaled 3595, which was a sequential decline of 245 accounts compared to the end of the first quarter.
Speaker Change: We also continue to have conversations with our lender and our financial advisors regarding our outstanding $29.4 million convertible notes that are due in January of 2025.
Speaker Change: We don't have any further updates on this today, but look forward to keeping you informed of this matter as appropriate.
Suresh: Declines were concentrated in a handful of markets with Florida, California, and Oklahoma accounting for about 40% of the decline in ending retail accounts.
Speaker Change: Now to our guidance.
Speaker Change: For Q3'24, we expect revenue of around $8.4 million and an adjusted EBITDA loss of less than $1 million.
Suresh: It's important to note that the accounts that came off the platform. During Q2 had a lower average ARPA as that cohort remains under pressure.
Speaker Change: We have a number of projects and initiatives underway in both product development and sales strategy to stabilize revenues.
Suresh: Just on what we're seeing so far in Q3 cancellations are lower and we expect a decrease in ending retailer accounts to moderate.
Speaker Change: We are seeing green shoots associated with these efforts and will have more confidence as we see the results of these initiatives over the next few quarters. The team is focused on executing on these projects and we look forward to updating you on our progress.
Suresh: As a result of lower ARPA of accounts being removed from our site.
Suresh: For the second quarter was $684, which was up 23% year over year and up about 1% sequentially.
Speaker Change: I'll now turn the call back to Yoko.
Speaker Change: Brian revenue in the second quarter was $1 4 million down 25% year over year, but up from the $1 $2 million reported in Q1 our.
Yoko: Thanks, Suresh. As Irene mentioned, Peter Lee, our President and Chief Operating Officer, is also joining us on the call today to assist with Q&A.
Speaker Change: Our second quarter is typically a seasonally strong quarter for Brian revenue due to the 420 holiday and this year was no different.
Yoko: Irene will now move to the questions that we received prior to the call.
Yoko: Thanks Yoko. First we received this question.
Speaker Change: Soft brands investing in marketing during April and advance of $4 20.
Speaker Change: How is the second half of the year shaping up? When can you get back to top line growth?
Speaker Change: Following the holiday bump in spend brand's return to the spend levels, we saw in Q1.
Speaker Change: Thanks for the question, Ali. We did provide guidance for revenue and adjusted EBITDA for Q3, and we're not providing guidance beyond that. What I can say is that the team is hard at work to stabilize both the account base and revenue.
Speaker Change: Gross margin in the second quarter improved year over year to 89% compared to 88% in Q2 of 'twenty three.
Speaker Change: Moving to operating expenses.
Speaker Change: In Q2, Opex totaled $8 4 million down 17, 5% year over year.
Speaker Change: As I said earlier, we're seeing green shoots associated with the new sales efforts and product enhancements.
Speaker Change: We continue to focus on keeping our costs in check and aligning toward revenue opportunities.
Speaker Change: It's a high priority across the business, and we're working closely with customers and are encouraged by the responses to our efforts.
Speaker Change: Looking to Q3, we expect our opex, excluding stock based comp to be at similar levels to Q2.
Speaker Change: Another question we received, which I'll have Peter answer, is how many new accounts did you add in the second quarter?
Speaker Change: Our net loss in Q2 was $1 3 million a modest improvement from the $1 4 million net loss reported in Q2 of 'twenty three.
Speaker Change: Sure.
Peter: The gross account ads in Q2 were similar to those in Q1.
Speaker Change: We're pleased to report that our adjusted EBITDA in Q2 was positive 483000 compared to 80000 reported in Q2 of 'twenty three.
Peter: We continue to have mid-declines in retail accounts, and we believe our work over the past few quarters on delinquent accounts will help stabilize the account base in the upcoming quarters. As Suresh mentioned in his closing remarks, we are executing on new sales initiatives and strategies with the goal of winning new business and mitigating churn.
Speaker Change: As <unk> discussed our success in recovery of bad debt expense contributed to the positive EBITDA in Q2.
Speaker Change: We continue to work towards building, a long term profitable business and leveraging our business model to achieve this.
Speaker Change: And the final question we received, which Yoko can address is, can you provide an update on the status of your NASDAQ listing?
Speaker Change: Before turning to the balance sheet I wanted to highlight the progress we've made with her bad debt and collections.
Yoko: Thanks for the question. In late May, we submitted a proposed plan of compliance to NASAC, and we're continuing to work with them and provide them updates on our progress to regain compliance with the applicable listing standards.
Speaker Change: As we mentioned last quarter, we have been very focused on improvements and saw the results of those efforts in Q2 with a net recovery in the quarter.
Speaker Change: Year to date, our bad debt expense as a percentage of revenues to 4% compared to the six 5% average for the full year 2023.
Speaker Change: In the meantime, our stock continues to be listed and traded on the NASDAQ Capital Market, and we'll provide updates on this when we have more information to share.
Speaker Change: Overall, our number of delinquent accounts continues to trend downwards.
Speaker Change: That's it for questions.
Speaker Change: Based on what we're seeing so far in July. This trend has continued and we plan to maintain these tighter processes to sustain and improve on this trend.
Speaker Change: Great. Thanks, Eileen. Thanks so much for your questions. I want to thank you all for your participation today and for your continued interest in Leafly.
Speaker Change: Now to the balance sheet.
Speaker Change: We ended the quarter with $13 6 million in cash excluding restricted cash.
Speaker Change: Ladies and gentlemen, this concludes today's call. You may now disconnect your line.
Speaker Change: <unk> Q3 cash burn to come in just a little more than the $1 2 million interest payment on the convertible notes.
Speaker Change: In order to allow us flexibility around offering our common stock from time to time, and giving us additional optionality in raising capital in late June we launched an aftermarket or ATM offering program.
Speaker Change: Since the end of the second quarter.
Speaker Change: Raised a modest amount of capital in our ATM offering.
Speaker Change: Going forward, we will be opportunistic based on market conditions and our use of this facility.
Speaker Change: We also continue to have conversations with our lender and our financial advisors regarding our outstanding $29 4 million convertible notes that are due in January of 2025.
Speaker Change: We don't have any further updates on this today, but look forward to keeping you informed of this matter as appropriate.
Speaker Change: Now to our guidance.
Speaker Change: For Q3, 'twenty four we expect revenue of around $8 4 million and an adjusted EBITDA loss of less than $1 million.
Speaker Change: and many more. Thank you. Thank you. Thank you. Thank you. Thank you.
Speaker Change: We have a number of projects and initiatives underway in both product development and sales strategy to stabilize revenues.
Speaker Change: We're seeing green shoots associated with these efforts and we will have more confidence as we see the results of these initiatives over the next few quarters.
Speaker Change: The team is focused on executing on these projects and we look forward to updating you on our progress.
Yieldco: I'll now turn the call back to Yieldco.
Yieldco: Thanks, Suresh as Irene mentioned, Peter Lee, our President and Chief Operating Officer is also joining us on the call today to assist with Q&A.
Speaker Change: Eileen will now move to the questions that we received prior to the call.
Eileen: Thanks, Joe.
Eileen: First we received this question.
Speaker Change: How is the second half of the year shaping up.
Speaker Change: When can you get back to top line growth.
Speaker Change: Thanks for the question I mean, we did provide guidance for revenue and adjusted EBITDA for Q3, and we're not providing guidance beyond that what I can say is that the team is hard at work to stabilize both the account base and revenues.
Speaker Change: As I said earlier, we're seeing green shoots associated with our new sales efforts and product enhancements, it's a high priority across the business and we're working closely with customers and are encouraged by the responses to our efforts.
Peter Lee: Another question, we received which I'll have Peter answer is how many new accounts did you add in the second quarter.
Peter Lee: Sure. The gross account adds in Q2 are similar to those in Q1, we continue to have the declines from retail accounts. We believe our work over the past few quarters of delinquent accounts will help stabilize your account base in the upcoming quarters.
Rich: As rich mentioned in his closing remarks were executing a new sales initiatives and strategies with the goal of winning new business and mitigating churn.
Yoga: And the final question, we received which yoga can address is can you provide an update on the status of your NASDAQ listing.
Speaker Change: Thanks for the question in late May we submitted a proposed plan of compliance to NASDAQ and were continuing to work with them and provide them updates on our progress to regain compliance with the applicable listing standards.
In the meantime, our stock continues to be listed and traded on the NASDAQ capital market and we will provide updates on this when we have more information to share.
Speaker Change: That's it for questions.
Speaker Change: Great. Thanks, Eileen. Thanks, so much for your questions I want to thank you all for your participation today and for your continued interest in lately.
Speaker Change: Ladies and gentlemen. This concludes today's call you may now disconnect your line.
Speaker Change: Okay.