Q3 2024 WM Technology Inc Earnings Call

Good afternoon, everyone, and welcome to the WM Technology, Inc. third quarter 2024 earnings conference call.

Speaker Change: All participants will be in a listen-only mode for the duration of the call. I would now like to turn the call over to your host, Simon Yao, Director of Investor Relations.

Speaker Change: Good afternoon and thank you for joining our third quarter 2024 results. We have our CEO Doug Francis and CFO Susan Echard with us today.

Speaker Change: By now, everyone should have access to our earnings announcement and supporting slide deck on our investor relations website. During this call, we will make forward-looking statements about our business outlook, strategies, and long-term goals.

Speaker Change: Keep in mind that forward-looking statements are not guaranteed for future performance and are subject to a variety of risks and uncertainties, some of which are beyond our control. Our action results could differ materially from expectations reflected in any forward-looking statements.

Speaker Change: For discussion of risks and important factors that could affect our actual results, please refer to our SEC filings available on the SEC website and our Investor Relations website. We specifically disclaim any intent or obligation to update these four looking statements except as required by law.

Speaker Change: For the benefit of those who may be listening to the replay or archived webcast, this call was held on November 12, 2024. Since then, we may have made announcements related to topics discussed, so please refer to the company's most recent press releases and SEC filings.

Speaker Change: We will also discuss non-GAAP financial metrics alongside those prepared in accordance with GAAP. Non-GAAP financial measures should be considered in addition to, 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 Intellectual Relations website.

Speaker Change: And finally, today's call is being webcasted from our Investor Relations website and an audio replay will be there shortly. With that, I will now turn it over to Doug.

Doug Francis: Thanks Simon and hello to everyone joining us today. Our third quarter reflected another consecutive period of strong quarterly results with net revenues of $46.6 million, adjusted EBITDA of $11.3 million and ending cash of $45 million.

Doug Francis: This quarter represented the 8th consecutive quarter of positive adjusted EBITDA profitability, and I believe is a result of the continued focus and dedication of our team towards efficiency.

Doug Francis: The cannabis industry continues to be dynamic and a large part of that is due to the lack of progress towards more sensible and consistent regulation both across the state and at a federal level.

Doug Francis: The massive change to the landscape of the federal government coming out of last week's elections changes the approach And I'm happy to work with the new administration to have our industry recognized as a lever and driver To help boost the economy, add much-needed jobs, and improve health services

Speaker Change: It is unclear whether the incoming Trump administration will continue the progress over the last year towards rescheduling cannabis to Schedule 3.

Speaker Change: On the other hand, we see some cause for optimism. The Senate is where potential cannabis reforms have died in recent years. With new Republican leadership with the Senate, who we hope are more focused on individual freedoms, we hope that the White House will lead the government towards the real change we have all been waiting for.

Speaker Change: We remain cautious as the government reforms may not always benefit the industry as hoped and the timeline for these reforms is difficult to predict.

Speaker Change: Another area of continued regulatory uncertainty is around intoxicating hemp, as another year has come and gone without clear instructions from the overdue federal FONDA.

Speaker Change: We believe that in response to this continued inaction on the federal level, many states will ban health hemp outright, much like California recently did.

Speaker Change: Instead of trying to make sense of the many nuanced questions the Farm Bill has left unanswered like those around driverless wet testing and THC versus THCA.

Speaker Change: States that do not ban hemp entirely will likely fold it into an existing medical or recreational cannabis model, which will take away the many advantages hemp businesses have over their regulated cannabis counterparts.

Speaker Change: like the ability to ship across state lines, advertise online with platforms that currently ban cannabis ads and sell their products in any retail establishment or even direct-to-consumer online.

Speaker Change: To that end, global expectations for hemp should be tempered. Regardless, we think that some form of hemp is here to stay.

Likely mostly in the forms of hemp-derived edibles and beverages.

Speaker Change: As a cannabis platform, we will work to find a way to provide our consumers access to this market in the safest way possible while continuing our support of the licensed cannabis operators and markets.

Speaker Change: While there's undeniable upside in the hemp space, we need to ensure we're not overextending into areas where the policy or market environment may not be fully supportive of sustainable growth.

Speaker Change: As I've said since my return to the company, our goal is to focus on the marketplace, be efficient, profitable, build a balance sheet for the future, and play the long game. 2025 will be no different.

Speaker Change: While we are not ready to change our current approach to guidance nor call a bottom, we are going to deploy capital around opportunities that we feel are low-risk in the short-term and will be key products for us when industry headwinds turn to tailwinds.

Echard: Echard, but we'll do it on our terms in a way that ensures long-term successes for the company and our stakeholders.

Echard: We're thinking about future growth potential for our marketplace in two key dimensions. First, the vertical dimension, which for us is the expansion of our core marketplace by adding new products and features, both upstream and downstream in our supply chain.

Echard: We are initially holding these efforts close to the vest and will discuss them in the coming quarters as we get closer to launch.

Echard: Second, we also plan to expand the marketplace horizontally, which for this phase will be around marketplaces for hemp, the seed and homegrown category, and marketplace dedicated to the hard work for those enjoying cannabis. We envision this to be similar to an elevated headshot.

Echard: These are natural adjacencies to our core, and while they'll provide exciting opportunities, they require us to be strategic in our approach. It's a space where we can offer immediate value to consumers while building out ecosystems that expand the reach of our platform.

Speaker Change: When I returned to WM Technology toward the end of 2022, my expectation was that my role as the Executive Chair would be temporary while I searched for a new CEO.

Speaker Change: During that time, my priority was to help navigate through the industry's headwinds and get the company back on track operationally and strategically.

Speaker Change: We have come a long way since then, and I am proud of our team's commitment and accomplishments that got us here.

Speaker Change: Our financial stability has put us in a position of strength and gives the company a runway to execute on its business initiatives.

With that, I will turn it over to Susan.

Susan Echard: Thanks Doug. Net revenues in the third quarter exceeded our guidance and increased sequentially to 46.6 million.

Susan Echard: Compared to the prior year, net revenues declined marginally due to lower spend on our featured listings product and the impact on revenue from the products we sunset in Q4 of last year.

Susan Echard: These declines are partially offset by growth in our standard listings product driven by the continued new client growth.

Susan Echard: Q3 average monthly paying clients of 5,100 marked another consecutive quarterly increase in 2024, but was approximately 6% lower than the same period last year, largely due to the impact of sunsetting certain products.

Susan Echard: While we are focused on adding new accounts and minimizing churn across all of our markets, we recognize that ongoing headwinds will continue to impact client profitability and drive further consolidation in the industry.

As a result of the lower average paying client count,

Susan Echard: The average monthly net revenues per paying client in Q3 increased 6% to $3,043 when compared to the prior year period.

Susan Echard: Since the clients using the aforementioned sunset products and the client's churn typically have a lower average selling price and monthly net revenue.

Susan Echard: We are encouraged by the recent stabilization of this metric, but as we've mentioned in the past, we expect this metric to fluctuate as we continue to add new clients across developing markets that are typically onboarded at lower levels of spend.

Turning to our expenses.

Susan Echard: Our GAAP OPEX, which includes our cost of revenue, declined 21% versus the prior year and was largely driven by the impairment charge that we took last year related to the sunsetting of our certain products.

Susan Echard: The balance of our OPEX favorability is attributed to decrease in cost of revenues which were a result of eliminated costs associated with those sunset products as well as decreases in sales and marketing and GNA due to lower headcount and timing of marketing spend.

Susan Echard: These savings were partially offset by personnel and outside services investments associated with our product development organization.

Susan Echard: Net income for the quarter came in at $5.3 million, which compares to a net loss of $2.5 million in Q3 of last year.

Susan Echard: Our Q3 adjusted EBITDA of $11.3 million, which represents a 24% margin, beat our guidance due to our better-than-expected revenues, as well as the operational discipline we continue to maintain throughout the organization.

Susan Echard: We generated $3.8 million in cash and closed the quarter with a cash balance of $45 million and we remain debt free.

the continued growth in our cash balance.

Susan Echard: provides us with the flexibility to explore a variety of strategic growth initiatives as we develop our 2025 goals to maximize shareholder value, invest in technology and infrastructure, and continue to expand in our emerging markets.

Susan Echard: Our share count across Class A and B common stock was $153 million as of November 4, 2024.

Susan Echard: A reconciliation of non-GAAP metrics to their nearest GAAP result as well as the details of our share classes and share count calculation are provided in our earnings presentation posted on our investor relations website.

Susan Echard: Now turning to our financial outlook. We expect Q4 net revenues to be approximately $46 million and Q4 non-GAAP adjusted EBITDA to be approximately $7 million.

Susan Echard: We are pleased with the progress made this year and we continue to build on this momentum as we set the stage for 2025.

Speaker Change: With that, I'll now turn the call back over to the operator to conclude our call.

Speaker Change: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.