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Operator: Good day and thank you for standing by. Welcome to the WM Technology, Inc. Q1 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. . Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, VP of Investor Relations, Greg Stolowitz. Please go ahead.

Greg Stolowitz: Hi, everyone. Thanks for joining us today to discuss our fiscal 2023 first 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 May 9, 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 in addition 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 hello to everyone joining us today. We had a good first quarter. We beat our expectations for revenue and adjusted EBITDA and generated positive free cash flow before making payments related to last year’s headcount reduction. While we have more work to do, we believe we are on the right path. I said back in March that focus is the key for us this year, focus on our marketplace, delivering value to our clients and driving profitable sustainable growth. We made progress in the first quarter in all three areas. On our marketplace, we’ve been using AI-driven algorithms to drive more personalized user experiences based on our first-party user affinity data. This includes personalized sort orders for menus that users see as well as personalized product recommendations in our add-to-cart experience.

We’ve been deploying new language models to expand our product catalog and brand matching efforts. With more accurate tagging of products to brands, we’re able to drive better user engagement and conversion through better search results, more relevant product information and product recommendations. On delivering value to our clients, our teams have been actively executing on the first phase of an end-market activation across our major regions with our street teams, which are helping clients expand their reach and impact. We’ve increased our on-the-ground and field marketing presence by 3x and have a weekly cadence of client events. We’re also rolling out changes to aid our clients on the marketplace. We launched the new listing redesign that allows our clients to add more hero imagery to engage new users along with order status push notifications to give more ways for our clients to communicate with users placing orders.

We’ve only just begun these efforts in Q1 and have more in-flight during this quarter, which arguably is the most important for the industry with 420 setting the tone for the year. I’ll touch briefly on this year’s 420 holiday. We always have a number of initiatives around the celebration of cannabis reform, but I’m particularly proud of how our teams rallied to drive value for our clients. We kicked off an integrated marketing campaign called the 20 Days of Deals to support many of our strategic clients with promotions for our users. We coupled that with regional event activations and what I call Retailer Appreciation Day Dispensary tours that span markets from Boston to Kansas City to Albuquerque and to our backyard here in SoCal. The 420 event itself resulted in our largest-ever order volume on a single day, surpassing the volume that we’ve seen in each of the 420 events over the last 5 years.

Finally, on driving profitable and sustainable growth, I said back in March that we’ll focus on what we can control. We control how we invest and the mindset we’re operating with, and Q1 bore fruit of that commitment. Our adjusted OpEx for the quarter was back to levels that we were operating under when we closed our go-public transaction in 2021. Our teams are showing discipline in where we’re hiring and how we’re achieving productivity to fund investments. Our net headcount declined during the quarter despite us making strategic hires as our managers are finding ways to operate more leanly. And as I said at the start of the call, we are free cash flow positive before termination payments from the headcount reductions we did back in December.

Taking a step back, yes, licensed end markets continue to be challenged in a way that we haven’t seen since the onset of legalization, and yes, our clients are still struggling to bring consumer demand back to licensed channels while dealing with crippling taxes and a lack of federal regulatory help. But I continue to see tremendous opportunities in our regions and the focused approach we are taking on marketplace and our clients. Our clients are seeing the impact of us bringing back cannabis culture and feeling the strength of our marketplace in the streets of their hometowns, which itself is bringing more opportunity. Now I’ll turn it over to Arden.

Arden Lee: Thanks, Doug, and thanks, everyone, for joining our call. Our first quarter performance beat our expectations on growth and profitability. Q1 revenue came in at $48 million, which compares to the $47 million expectation that we gave in March. Q1 adjusted EBITDA was a positive $7 million, which compares to the $4 million expectation that we had. And as Doug said, we were cash flow positive prior to residual payments from the headcount reductions we took in Q4. Our paying client base was marginally down versus last quarter, though up 12% versus last year. We continue to see client churn due to billing issues, which is masking the new licensees that we’re bringing on our platform. Our revenue per client was also marginally down versus last quarter, which primarily reflects mix considerations as we saw higher levels of growth in our emerging regions, which have lower revenue per client dynamics as opposed to spend declines in our established markets.

For example, revenue per client in California was flat versus last quarter. Our marketplace revenue in California itself grew in Q1 versus Q4, which drove a slight increase in share of mix for California, which now stands at 55% of our Q1 revenue. What’s also encouraging to see is that our monthly net dollar retention on our subscription revenue was back above 100% in Q1. Q1 adjusted EBITDA of $7 million reflected a 32% reduction in adjusted OpEx versus last year and 15% reduction versus last quarter. Our Q1 adjusted OpEx, as Doug noted, is at the same level as where we were in Q2 and Q3 of fiscal 2021, when we closed our go-public transaction and prior to the investment acceleration to build out our platform. We saw the largest declines in spend across sales and marketing and to a lesser extent G&A.

Our adjusted sales and marketing and G&A declined by 50% and 22% versus last year. Our adjusted G&A includes a $2 million non-cash charge related to provisions for doubtful accounts. We reported a net loss of $4 million for the quarter, which includes $3 million in D&A, $4 million in stock-based compensation, along with approximately $4 million in other non-recurring charges. Our GAAP OpEx, excluding cost of goods and D&A, was $45.5 million in Q1, a reduction of 29% versus last year. More information on these charges is available in our earnings release and will be in our Form 10-Q. We closed the quarter with $26 million in cash, which is after $5 million in payments that we accrued for in Q4 related to the headcount reductions we’ve spoken about previously.

We continue to be debt-free and are comfortable with our liquidity position. Our fully diluted share count across our Class A and B shares, classes was 148 million at the end of the quarter. A reconciliation of non-GAAP metrics to the nearest GAAP results 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. Turning to our outlook. We’re encouraged by the tone we’re seeing in recent weeks with the client dialogues our teams are having, the initiatives to drive premium listing fill rates across our established markets and the continued opportunities to grow our client base and spend levels in emerging regions with a more focused approach we’re taking to these markets.

With that said, we also remain cautious about the environment given continued uncertainty across licensed end markets and the broader macro environment. As such, we are planning as if our Q2 revenue will be consistent with Q1. On profitability, we have been investing selectively in strategic marketing in support of the 420 holiday for our clients and expect Q2 adjusted EBITDA will be in the $4 million area. We expect our marketing investments will ramp back down to more normalized levels in the second half. As we noted last quarter, we expect our cash in Q2 will continue to be impacted by remaining termination costs related to the headcount reductions we took last quarter and will represent a low point for the year. But as we also noted last quarter, we’re committed to driving double-digit adjusted EBITDA margins and positive cash flow for the year as we demonstrated in Q1.

Before we open it up to questions, I want to thank our team at Weedmaps for their continued focus on delivering against our plan for this year. We’re widening our moats and creating more distance versus the competition, thanks to our employees’ efforts. With that, let’s take questions.

Operator: Thank you. Our first question comes from the line of William Carter of Stifel. Your line is now open.

AndrewCarter: Thanks. This is Andrew on for William. First thing, I wanted to ask is looking at these kind of sequential decline in average paying client. Could you give us a sense of how much of that was cut off? And I guess which cutoff would be probably the mature markets? And then how much came from kind of the new markets and then within that kind of give us a sense of what the mix degradation is from new markets? I guess better said is kind of what’s kind of the delta between a new market coming online spend per client and kind of a mature market. Thanks.

Arden Lee: Yes. And Andrew, it’s Arden here. Just to clarify, when you say cut off, I assume you mean what we talked about previously around clients that we’ve unpublished.

AndrewCarter: Correct. That’s right.

Arden Lee: Yes. Yes. So let me give you one way to think about it, which is if we removed some of the churn that we’ve seen exactly due to that issue, our paying client count would have been relatively flat, marginally up quarter-over-quarter. So that’s point number one. Point number two is, if you look at our net client kind of adds over the course of the last quarter, the vast majority of that is coming from what we would characterize as emerging regions. The regions where, again, we’re not as penetrated from a licensee perspective and we’re still scaling on monetization. And then point number three, to the question that you asked around mix. Listen, we touched on it during the commentary, but one way to think about the impact of mix is the decline that we saw quarter-over-quarter on a revenue per paying client.

For this quarter was largely driven by that mix, meaning we had more client adds in emerging regions where the revenue per client dynamics are lower than the company average. We had elevated churn due to billing issues in our more mature markets where the spend levels are higher. And so that’s what you saw quarter-over-quarter.

AndrewCarter: Got it. And then looking at the kind of the second quarter, the EBITDA, the kind of step-down in EBITDA with a similar rate of sales, I’m assuming gross margin is going to hold on at the same rate. And you did say it was incremental advertising, but is all of that kind of step-down related to kind of incremental advertising spend?

Arden Lee: Yes. So again, related to the profitability, the adjusted EBITDA number for Q2, that’s exactly the right way to think about it. Gross margin rate, we believe, should be pretty constant versus what we saw in Q1. We expect our product dev and G&A to stay relatively constant as a percent of sales versus Q1. The delta is the increase in sales and marketing that we highlighted on the call.

AndrewCarter: And then one final one, kind of thinking through like your top of the funnel metrics, kind of MAUs. I know you haven’t disclosed that in a while. All we can really rely on is third-party data. Are you seeing any kind of stability on that front, or kind of anything you can give us on that front?

Arden Lee: Yes, I’ll start, and Doug may chime in as well. So listen, what I’d say is that at the moment, our teams have been primarily focused on driving mid and lower-funnel conversion. And so a lot of the work that we’re doing both from a content strategy perspective, from a marketing strategy perspective, from a product road map perspective is really optimizing for those mid and lower funnel conversion. So for example, we talked about one of the things that we were promoting around the 420 holiday, 20 Days of Deals. That was all around, again, driving conversion to deal claims. So the top of the funnel, as we’ve talked about in quarters past, it tends to kind of ebb and flow based on how we’re investing against marketing full stop. But right now, where a lot of our efforts are from a funnel perspective are around really driving that conversion activity.

Operator: Thank you. Our next question comes from the line of Brett Knoblauch of Cantor Fitzgerald. Your line is now open.

Brett Knoblauch: Hi, guys. Thanks for taking my question. I really appreciate it. I guess coming into second quarter, maybe when you had last spoke in first quarter results, would you say you’re more optimistic about the demand environment as a whole than you were, call it, 45, 60 days ago?

Arden Lee: Yes, Brett. And when you say demand environment, do you mean client demand or user demand, or maybe we can address both. I guess on the client demand, yes. Go ahead. Sorry.

Brett Knoblauch: Yes. If you can address both, more so on the client demand.

Arden Lee: Yes. So listen, I’d say it’s a bit of a tail of two different sets of markets. And what I mean by that is, we have some very established markets where we do business. We’ve talked in the past about California. We talked in the past about Colorado. These are states that, as a lot of folks have seen based on the third-party data, continue to be sideways dealing with headwinds. So when you look at the licensed end market, GMV data that’s put out by third parties, it will show for those two states that I just quoted that for most of this year, we’ve seen pretty steady sequential week-over-week decline. Now with that being said, there’s all the other regions where we have a footprint. And what I’d say is, if you looked at our top states where we do business, we do business where you would expect us to — any state that has some form of medical or rec regulation.

If you look at our top 20 states, we have a number of states that are up double digits, some states up triple digits, just given we have a small base, a business that’s growing at a very rapid clip. But we’re still dealing with the end market kind of headwinds that are impacting states like California or a Colorado or an Oklahoma. And that is what’s weighing on kind of the overall sentiment as we think about client demand. So listen, folks, for sure, across the board, have demand for Weedmaps, whether you’re in a market that’s dealing with these headwinds or not. I’d say the clients that are in markets that are dealing with headwinds or even kind of more, I guess, anxious in their desire to be on our platform just given their need to get in front of the consumer.

So that’s on the client side. I’d say on the user side, we said this for a while now that we think consumer demand for cannabis is still very strong. We think it’s resilient. Of course, we are keeping our eye on a lot of what’s happening across the macro environment because that always is a risk to consumer pocketbooks and their spend for discretionary product. But based on the data that we’re tracking, it seems as if the consumer continues to hold in there. The question is how much of that demand continues to be allocated to licensed channels versus non-licensed channels and therein lies the source of headwinds across a lot of these established markets.

Brett Knoblauch: Okay. Thank you for that color. And then maybe just on your 20 Deals for 20 Days, 420 promotion. Can you help quantify, you said it was kind of like the largest 420 that you’ve had from order volume. Can you just maybe help quantify the percentage kind of growth you’re seeing or you saw from that event over the year ago period? Thank you.

Arden Lee: Yes. I’ll take a crack at that in terms of metrics. And Doug talked about on the call how our order volume for this past 420 eclipsed the prior 420 holidays. And so we had our largest single day order volume in the company’s history. I’d characterize it as year-over-year, we were up in the low single-digit percent area. Where we also saw a big increases in deal claims specifically due to the 20 Days of Deals campaign. It’s a year-over-year, our deal claims were up well into the double digits on a percent growth basis.

Operator: Thank you. At this time, I see no further questions. Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect.