WM Technology, Inc. (NASDAQ:MAPS) Q4 2022 Earnings Call Transcript

WM Technology, Inc. (NASDAQ:MAPS) Q4 2022 Earnings Call Transcript March 16, 2023

Operator: Thank you for standing by. Welcome to the WM Technology, Inc. Fourth Quarter 2022 Earnings Conference Call. As a reminder, today’s program is being recorded. And now I would like to introduce your host for today’s program, Greg Stolowitz, Vice President of Investor Relations.

Greg Stolowitz: Hi, everyone. Thanks for joining us today to discuss our fiscal 2022 fourth quarter results. We have our Executive Chair, Doug Francis; and our CFO, Arden Lee with us today. By now everyone should have access to our earnings announcement. This announcement is also on our Investor Relations website along with the supporting slide deck. During this call, we’ll make forward-looking statements including statements about our business outlook, strategies and long-term goals. These statements are not guarantees of future performance. They are subject to a variety of risks and uncertainties some of which are beyond our control. Our actual results could differ materially from expectations reflected in any forward-looking statements.

For a discussion of risks and other important factors that could affect our actual results, please refer to our SEC filings available on the SEC’s website in our Investor Relations website as well as the risk and other important factors discussed in today’s earnings release. We specifically disclaim any intent or obligation to update these forward-looking statements except as required by law. For the benefit of those who maybe listening to the replay or archived webcast, this call was held and recorded on March 16, 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 SEC filings. Also during this call, we’ll discuss certain non-GAAP financial measures and it isn’t to financial information prepared in accordance with GAAP.

These non GAAP financial measures should be considered in addition to, but not as a substitute for the information prepared in accordance with GAAP. Reconciliation of these measures to Our GAAP results can be found in our earnings presentation available on Investor Relations website. And finally, this call in its entirety is being webcast from our Investor Relations website. And an audio replay will be available on our website in a few hours. With that, I’d like to turn the call over to Doug.

Doug Francis: Thanks, Greg, and thanks everyone for joining us. Our fourth quarter results came in where we expected. We posted $49 million in Q4 revenue, $2 million in Q4 adjusted EBITDA and ended the year with $29 million in cash, while continuing to be debt free. Further, we grew our paying clients by double digits versus last year despite challenges in our end markets. In my first quarter back at the helm, our team’s focus was stabilizing revenue and getting back to our operating culture of driving profitability. And while there is still work to do, we’re pleased with the progress we’ve made so far and are confident we have the right team and strategy in place. Like many companies, we are facing challenges in the current environment.

Inflation is eating into consumer and business spending power. The higher cost of capital is slowing growth, and the fear of a looming recession is front and center on folks minds. The cannabis industry is facing additional headwinds as we deal with over regulation, the slow rollout of new licenses across the country, a lack of government support combined with high taxes from all levels of government, commoditization of cannabis products, frozen capital markets, limited access to banking, and a thriving black market. Cannabis companies need all the help they can get right now. And when they’re letting us know that Weedmaps continues to be one of the best ways to engage in active cannabis community and acquire targeted consumers. Our omni-channel approach of integrated digital, in-store events, community engagement and street activations can create hyper local traffic for our clients.

Given the nature of our users, each user engagement that we send to our clients, whether online or offline, creates meaningful value, especially in times like these. As we’ve been getting back to our roots and focusing on making the plant front and center, both brands and retailers alike want to associate their brand with Weedmaps, given how we engage and help shape the culture of cannabis. The outreach from our industry has been great. And we’re making plans with key partners to tell the cannabis story in our pursuit of legalization and safe access. We have a clear plan to maximize our opportunities and what may be a difficult 2023 and lay the foundation for healthy growth in 2024 and beyond. As I mentioned last quarter, the key for us in 2023 is focus.

We are focused on three things: our marketplace experience with users, delivering undeniable value to our clients, and doing all of that with a goal of profitable and sustainable growth. First on our marketplace. We’re getting back to what we do best and the roots of what made Weedmaps special by celebrating weed culture and the magic of the plant. We will create differentiated content showcasing the craft nature of cannabis. We will elevate the conversation about genetics and terpenes. For example, we’re engaging with expert scientists cultivators and breeders across the country to tell the terpene and micro cannabinoid story across Weedmaps. Through educational content and by offering differentiated products through our marketplace will help eliminate the high THC equates to the best weed fallacy.

This will benefit the brands and retailers that we showcase on Weedmaps by highlighting differences other than just THC levels. We’re also engaging with Dr. Bonni Goldstein, our former Medical Director and leading cannabis physician to create educational content on the therapeutic effects of cannabis. Weedmaps has historically been and will continue to be a safe place for users to find cannabis for wellness, and to help treat serious conditions and ailments. We’re also working to improve the shopping experience of our users by enhancing our taxonomy, and our search results to make search more intuitive across our platform. We will better leverage our first-party user data to drive more personalized experiences and influence our user journeys toward making the right purchase from our clients.

We sit in a privileged position given the first-party datasets that we own, and the rise of large language modeling and AI reinforcement learning tools. Weedmaps has historically been the authoritative source for all things cannabis, and will continue building on that marketplace reputation by differentiating our content, user experience and data in 2023. Next, we’ll focus on delivering undeniable value for our clients to improve their returns. We plan to expand our advertising solutions across product categories, giving our clients more ways to reach our high intent users mid funnel and impact our purchase decisions. We’re expanding the regional logic that drives our local ad offerings to give our clients more options on where they show up in our search experience.

We have projects in flight to create new and differentiated deal types for our clients to reach users seeking value. We’re working on integrating our SaaS solutions as value added features and extensions of our marketplace to prove — to provide more utility to our users and clients. We will make it easier for our clients to onboard, integrate and grow with Weedmaps regardless of their tech stack, and we will support our clients with local activations, retailer appreciation tours, brand collaboration and exclusive merchandise drops so they can leverage the power of Weedmaps brand to tell their own stories. Finally, we’ll focus on driving profitable and sustainable growth. We will focus on what we can control while preparing to accelerate our growth when markets improve.

Rather than a one size fits all approach to markets, clients and solutions will be disciplined in how we prioritize investments. We’ll be pulling back spend against some of our newer non-marketplace solutions, while we evaluate the product market fit of these offerings. We’ll focus on driving a lean operating mentality and everything that we do. We’ve already done the heavy lifting, removing excess layers of management across the company, simplifying processes, and changing the way we work to drive sales and savings. We already restructured our workplace ahead of the start of this year, as difficult as that was so that we can hit the ground running. I’m proud of what our teams have accomplished over the last several months, and doing the hard work to set ourselves up for success in 2023.

Productivity is a year round effort with no finish line and that’s our mindset in 2023. Before I hand the call to Arden, I also want to provide a brief update on leadership. The Board and I have decided to put our CEO search on hold for now, and I will continue leaning in and working with our senior leadership team for the time being. Deeply invested and successive Weedmaps, and will continue to drive our pace as we do our part in driving profitable growth for the industry. It’s always darkest before the dawn. And though 2023 will be challenging, we believe that the future of the cannabis industry is bright and exciting for those with a vision, knowhow and willingness to take it on. Real Weedmaps have deep knowledge of the plant, the supply chain and where the industry is headed.

We know how to leverage that insight into our marketplace and technology. And we know how to leverage data to not only acquire customers, but to showcase the products that will keep them coming back. We believe that Weedmaps is in a great position to capture opportunity across all value chain segments if and when broader legalization arrives. Until then we’ll continue executing against our focus priorities, and leading from the front as we take the industry through this next stage of growth. It’s time like these were the power of Weedmaps brand, the value of our marketplace and the strength of our leadership position within cannabis truly signed with our users and clients. With that, I’ll turn it over to Arden.

Arden Lee: Thanks, Doug, and hello to everyone on today’s call. Our fourth quarter performance reflected the expectations we had on growth heading into the quarter and the actions we took to drive profitability throughout the quarter. Q4 revenue came in at $49 million resulting in a 5% decline for total second half revenue, consistent with our prior guidance. Q4 adjusted EBITDA was a positive $2 million. While our adjusted EBITDA continues to be impacted by provision for doubtful accounts, we saw these non-cash charges narrow in Q4 as we expected. Adjusted EBITDA prior to these charges was $4 million, reflecting the cost reduction actions we took throughout the quarter. While our growth continues to be impacted by and market headwinds, which are driving reduced levels of spend by clients, we continue to expand our client base.

Our paying clients grew by 19% versus last year. And when looking at spend levels by existing clients, we’re seeing signs of stabilization, with our net dollar retention continuing to hold that level is consistent with the prior quarter. Our net dollar retention within California, which continues to be our largest region at 54% of Q4 revenue expanded in Q4 versus the prior quarter. Q4 adjusted EBITDA of $2 million reflected a 9% reduction in adjusted OpEx versus last year. We rationalize a number of areas across the company reducing access management layers within our sales and marketing teams, and eliminating our cross functional in favor of a new centralized operating structure. Our adjusted sales and marketing and G&A declined by 14% and a 11% as a result, with product development increasing by 11% versus last year.

We reported a net loss of $61 million for the quarter, which includes $6 million in stock-based compensation along with approximately $56 million in other non-recurring charges. The bulk of which is related to the valuation allowance we took against our deferred tax assets, which is a non-cash charge, along with severance payments associated with the headcount reduction we executed during the quarter. More information on these charges is available in our earnings release and will be in our Form 10-K. We close the year with $29 million in cash, continue to be debt free and are comfortable with our liquidity position. In light of recent events, we’re monitoring our banking situation closely and feel comfortable with the security of our cash deposits.

We did not have relationships or any direct exposure with Silicon Valley Bank or Signature Bank. Our fully diluted share count across our Class A and V share classes was 148 million at the end of the quarter. A reconciliation of adjusted EBITDA to net loss as well as the details of our share classes and share count calculation are provided in our earnings presentation posted to our Investor Relations site. Lastly, as noted in our release, we have reported in our Form 10-K, a material weakness on our general IT controls related to internal user access and change management over certain systems that are relevant to our financial reporting. I can tell you no misstatements have been identified in our audit as a result of these deficiencies, and we’ve already begun a remediation efforts.

According to our outlook, we’re confident that the sharp focus on our marketplace, client value and profitability will help us navigate through the continued end market headwinds impacting our skilled markets. We expect to expand our paying client base given the opportunities we see, but also expect to see continued pressures on revenue per client across several of our skilled markets as a result of the ongoing declines across our end markets. Given these headwinds and general uncertainties in the current macro environment, we will not be providing full year guidance on revenue or adjusted EBITDA. We expect Q1 revenue, which is our seasonally lowest quarter will be slightly down versus Q4 at $47 million given seasonality related to the Q4 holidays.

On profitability, we expect double-digit adjusted EBITDA margins and positive cash flow in 2023. We already took actions during Q4 to create clear line of sight to positive cash flow regardless of end market dynamics. We’re starting this year with a run rate level of adjusted OpEx that’s consistent with where we were after we closed our go public transaction, and prior to accelerating investment. And yesterday, we have a presence in more regions with an expanded client base and platform capabilities and where we were back then. We will invest based on how our growth is trending and don’t anticipate significant investments to achieve our growth priorities. We also see continued opportunities to achieve productivity which will give us capacity to fund growth investments.

To that end, we expect Q1 adjusted EBIT DA will be approximately $4 million as we ramp investments heading into the 420 holiday. in the first half will continue to be impacted by remaining severance and termination costs related to the headcount reductions we took last quarter. With that said, we are committed to driving positive cash flow this year. And we have clear line of sight to delivering against that commitment given the cost reductions we’ve already achieved and the focus approach will take this year on new investments. In closing, I want to thank our team at Weedmaps and Doug for his ongoing leadership as we get going in 2023. As Doug noted, 2023 will be a year to remember as we drive a focus at our priorities. Let’s now open up the call for questions.

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Q&A Session

Operator: And our first question comes from the line of DJ Hynes from Canaccord. Your question please.

DJ Hynes: Hey guys, thanks for taking the questions. Arden, so really nice progress in the margin front and Q4 and what’s implied in Q1. As we think about the historical financial profile of business, is that aspirationally where you think you can get back to? And as we think about the dials are turning to get there, is it more broad based discipline? Are there specific areas where we’re taking a more calculated step back?

Arden Lee: Yes. thanks for that question. Appreciate that. So, a couple things, and let me know if I don’t cover fully your questions. We talked in the past about our business model being inheritive — inherently cash flow, generative. And when we’ve gone through cycles of accelerating investment, how we’ve been able to kind of show shortly after that investment acceleration ends the cash flow kind of generation that our business model supports, right. So back in fiscal 2019, when we went — last went through an investment acceleration year. You’ll see in fiscal 2020, I think that’s what you’re referencing, the EBITDA and cash flow that we were able to generate, coming off the heels of that. We don’t think there’s any reason why we can’t get back to those levels.

Obviously, we’ve done a lot of heavy lifting, as Doug referenced, over the last quarter. We hit the ground running when we started the year. We took a lot of these difficult actions over the course of Q4 to set ourselves up to do so. Come January and in terms of your second question around, where do we find these opportunities, I’d say: a, there’s a general kind of mindset of let’s find productivity and operate leanly across the company. Now, with that being said, a lot of the cost reductions that we took in Q4 were very surgical around certain areas. And what I characterize those areas, as is: a, we eliminated a lot of excess kind of management layers and infrastructure that we had created. So we have created a number of cross functional orgs across the company, that candidly we’re slowing ability to get our teams to move at the speed at which they wanted to.

And then if you looked at the other areas where we’ve really accelerated investment, it’s a lot of our go-to-market kind of teams. And so what we’ve done is been a lot smarter round, kind of pruning our go-to-market resources to kind of align with the market opportunity that we see in the near-term. And then on the margin, I’d say that there were certain areas that were kind of nice to haves, but not necessarily need to have in this area in this environment. And so we took a hard look at how our teams were working and try to see where we could, again, remove redundancy to get more productivity.

DJ Hynes: Yes, yes. Okay, got it. And then just as a follow-up. So at what level do you think we might see a floor in that monthly revenue for playing client metric? And I guess the question really is like, how are you internally thinking about modeling and budgeting for that over the course of ’23?

Arden Lee: Yes, so for us, we expect to continue to see pressure against that number. And I guess the answer to your question, DJ is a bit nuanced. And why I say that is, in theory, when we’re dealing with healthy marketplace dynamics, we would like to see that number not grow too much, because we’re continuing to expand in new regions, right. And as we talked about in the past, as we’re expanding in new regions, those tend to be lower spend levels versus our skilled regions. Now, the issue that we’re having in this environment, as we talked about for the last few quarters, is that across our scaled markets, specifically California, Colorado, Oklahoma, as folks have seen with a third-party data, end market GMV continues to decline, continues to decline on a quarter-over-quarter basis.