Hello. Thank you for standing by and welcome to the WM Technology Inc. Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference may be recorded. I would now like to hand the conference over to your speaker today Tim O'Shea, Director, Investor Relations. Please go ahead.

Hi everyone. Thanks for joining us today to discuss our fiscal 2022 second quarter results. We have our CEO, Chris Beals 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 including our quarterly report on Form 10-Q for the quarter ended June 30th, 2022 to be filed after this call and our Investor Relations website as well as the risks and other important factors discussed in today's earnings release. Should any of these risks materialize or should our assumptions prove to be incorrect actual financial results could differ materially from our projections or those implied by these forward-looking statements. Forward-looking statements represent our beliefs and assumptions only as of the date such statements are made. We undertake no obligation to update any forward-looking statements made during this call to reflect events or circumstances after today or to reflect new information or the appearance of unanticipated events except as required by law. Also during this call we will discuss certain non-GAAP financial measures. While we believe these non-GAAP measures are helpful to investors in understanding our business, they are not intended to be a substitute for our GAAP results. A reconciliation of each of these non-GAAP measures to the most directly comparable GAAP measure can be found in our earnings release. With that, I'd like to turn the call over to Chris.

Thanks Tim and thanks everyone joining us for today's call. I want to dive straight into our performance. We grew revenue by 24% year-over-year for the second quarter, driven primarily by growth in our paying client base. Our growth comes at a time when a number of our end markets saw year-over-year declines in licensed cannabis sales. While our results continue to exceed in market performance by a wide margin, we came short of our expectations. In the shortfall was a direct result of macro challenges, in particular the significant rise in gas prices and other inflationary pressures during the quarter. This particularly impacted our delivery clients more than we anticipated, specifically in California, a delivery heavy market. To be clear, these clients continue to see healthy returns on Weedmaps despite broader end market declines, the liquidity challenges impacted their ability to maintain or grow spend on our platform. As a result, we were forced to remove a number of these clients from our platform or reduce their spend because they weren't able to pay their invoices in a timely manner. Arden will touch on this later, but we're more cautious today for the second half as a result of what we're seeing. We're now planning as if the inflationary and other macro pressures impacting operators in the second quarter will accelerate in the second half until we have better visibility on improvements to the financial health of our clients and a return to growth across licensed end markets. Taking a step back, I also want to share what I'm seeing in hearing across our end markets. I've traveled across many of our markets over the last few months speaking with operators and policymakers, hearing their perspectives on the state of the cannabis industry, and giving advice on what we're…

Thanks Chris. We continue to make progress in the second quarter against our strategic priorities to broaden our client base in under-penetrated regions, improve our Weedmaps marketplace experience for clients and users, and drive increasing client adoption across the solutions on our platform. Despite the financial challenges that many operators are having in this environment, which is beyond our control, we're continuing to outpace end-market growth and have more confidence today than ever in what we can control. We've narrowed our focus on the product and go-to-market initiatives with the highest and most visible returns in this environment, while taking actions to manage towards adjusted EBITDA profitability including headcount reductions, limiting backfills for voluntary attrition and tightening our marketing investments across regions. Through these efforts we will enhance our market positioning, while continuing to build the foundation for profitable and sustainable growth over time. Turning to our results. Our year-over-year revenue growth of 24% for the second quarter compares to double-digit declines in licensed channels across many of our top end markets. As Chris noted, operators were faced with significant headwinds in the second quarter. Lingering challenges of wholesale price deflation, which we anticipated were compounded by the more recent spike in broader inflationary headwinds. High gas prices, further compress what were already then margins for our clients with delivery operations. While these clients rely on WM to drive growth, their ability to spend was significantly impacted during the back half of the second quarter in ways that we did not anticipate. As Chris also noted, our clients continue to see healthy returns on Weedmaps, but the financial challenges I referenced heavily impacted their ability to stay current on their invoices. As a result, we had nearly 500 clients that we either removed from the platform or put on payment…

Thanks, Arden. Before we close, I wanted to welcome Doug Francis, our Co-Founder and Director, to his new role as Executive Chair of WM Technology. I'm incredibly excited to be partnering more closely with Doug. He and I co-ran the company for several years and he was the person who originally convinced me to come aboard to scale and expand WM Technology. His deep experience as an operator within the industry, along with his intuition and insight around our end markets will be a valuable asset for me, the other Board members, our company and our shareholders, especially at this moment in time. In closing, we recognize and appreciate the substantial economic and political challenges that all companies are facing in these uncertain times, especially our technology and cannabis peers. It's our job as a leadership team to navigate WM technology both operationally and financially through these times. We're in the very early stages of what some expect to be a $100 billion industry, and we are working towards winning where we play to create long-term value for our shareholders. Finally, our teams are battle tested and shine in their ability to execute in tough operating environments. On that note, I'd like to close with a heartfelt thank you to the team that makes it all possible. The people behind WM technology will always be our greatest competitive advantage. With that, let's open the call up for questions.

Thank you. [Operator Instructions] Our first question comes from DJ Hynes with Canaccord. You may proceed.

Hey. Thanks, guys. Arden, maybe I could start with you just a couple on the numbers. Monthly playing clients if I look at that metric how many new customers did you add via M&A in the quarter?

Yeah. So of the $500 million that we saw, let's call it about a couple of hundred were related to M&A. The balance was organic.

Okay. So in spite of kind of the churn on the platform you still had a pretty healthy quarter in terms of new adds – if that’s helpful?

That's right. Yeah. No, that's exactly right. And just to reemphasize that last piece of it. As we mentioned on the call, we saw significant churn. Again, clients that – the churn was pretty limited to clients that had these billing issues, as a result of again the financial challenges, particularly in California with $7 gas. And so that number that I just gave you is net of obviously that churn.

Yeah. Got it. So then just considering ARPU assumptions in the back half, right? I mean we got easier growth comps, if I look at kind of the second half of 2021. What are you assuming in terms of ARPU trends? And what levers do you have to try and sustain or kind of hold up ARPU?

Yes. Yes. So great question. So a couple of things. Before we get into ARPU trends in and out themselves. And so as you mentioned, we think it's prudent for us to take the unknown risks off the table to a certain extent. And what I mean by that is the challenges that hit us in Q2, again end market declines as we noted. And I'd say at the start of the quarter there were mixed views amongst operators as it relates to when end markets would stabilize and return to growth. And I think we've been pretty consistent in saying since Q3 of last year that we didn't expect growth to return across a number of end markets until the back half of this year. Well, given what we saw in Q2 we're [indiscernible] to continue to decline. Now as we've also said in the past, our growth isn't a function of end markets. It's more a function of the returns we're delivering for our clients. Now when you have clients that are – that have liquidity challenges and financial health challenges, that's another risk that we need to bake in. And so we're also baking that in into the back half. And one anecdote that I'll give you is we're not assuming that the clients that came off the platform in Q2 as a result of these billing issues are returning in the second half or to the extent that they're put on payment plans, we're not assuming that they're going to be in a position to spend at the levels that they previously were at. And then the third piece is we're not seeing it just yet to be clear. But there's a lot of noise around consumer health. And while our data would suggest that consumer…

Got it. Got it. Okay. Lots of good helpful color in there. Thank you.

Thank you. One moment for questions. Our next question comes from Joseph Meares with Truist. You may proceed.

Hi. This is Dominique Madonsela [ph] filling in for Joe. So do you have any updates on state of the international market? We know you have a strong presence in Europe that's not currently being monetized. Is there any progress on the legislation front there?

Yes. So our policy team continues to engage internationally. I note – starting maybe with a new international market in Canada, we recently rolled out the release of online payments across several of our SaaS solutions. So the marketplace, the e-com embed the in-store kiosks. And so Canada I think while it's been a market that's traditionally struggled we're moving to push our solutions on the SaaS side and the market [indiscernible] there. On the EU markets, I think that, the pacing there is while continuing to move forward is coming at I think a somewhat slow pace. And I think, if we're looking at something like the German market, my current estimate would be that we'd probably see that start to round into form in the back half of next year or early in the following year. I'm very bullish and excited about that market, and our policy team is active there and we continue to be engaged in the Spanish market, and other markets that are also moving forward. And then flipping back again to North America, looking at Mexico, I think we're also engaging there from a policy view. And I think our view is also back half of next year. And in each of those cases, we're planning on the road map the right time to start making sort of developments that would target those markets. But we've seen those time lines kind of shift backwards, I'd say at this point, probably six to nine months from what we were anticipating at the beginning of the year or the end of last year.

Got it. Thank you.

Thank you. Our next question comes from Tom Champion with Piper Sandler. You may proceed.

Great. Good afternoon, guys. So the environment sounds very dynamic. And I'm wondering, if you could just elaborate a little bit on the linearity within the quarter? And I think you commented on what you're seeing in July. But, how did that -- how did the second quarter kind of enroll? And it sounds like you're tying a lot of the conditions to gas prices, and specific to California. I'm just curious, if there's been any alleviation and the pressure from gas prices rolling over a little bit more recently? And finally, just sticking with California I think Chris, you alluded to some positive legislative changes in the state. Could you elaborate on those? Thank you.

Yes. So Tom, I'll take the first part of that and then I'll turn it over to Chris, for that last question. And so Tom, it's interesting because I'd say, in terms of your question around the linearity of the quarter, it pretty much tracked what you saw with California gas prices in the sense of -- as we mentioned, we started out the quarter with pretty strong and healthy net dollar retention across our client base, pretty consistent with what we've seen for the last year. And I think over the back half of May and into June, that's where we really started seeing -- like I said again, specific to clients with delivery operations folks that just weren't upgrading with the type of cadence and frequency that they have in the past, folks that were not timely with their invoices different than what we've seen in the past. And we had to make some hard decisions in terms of publishing clients, that were somewhat kind of financially constrained and beyond the point of us, being able to accommodate them and also having tough conversations with other clients, where we had to downgrade spend and put them on payment plans and the like. Now, yes, it's true that from what we're seeing and hearing that gas is, what a but cheaper than where it was during the June peak. But keep in mind, we're still at $1 higher than where we were a year ago. And on top of that, I go back to what we said during the call itself, which was a lot of these delivery operators, which again have long-standing histories of being on our platform with healthy levels of spend and timely payment of the invoices, they were already struggling heading into Q2, just given the end market weakness and then the piece that really just, again, was the feather that tipped the scales was the compression in margins as ways to fuel cost. Now, what I'd also say is, you're right, Tom, as it relates to July and quarter-to-date, so Q3 to-date, despite the planning scenario that we gave for the back half, we're actually up mid-single digits on a year-over-year basis. But again, we just think it's prudent to factor in these known risks from a planning standpoint as it relates to rightsizing our spend and picking where we're going to invest with confidence. Let me turn it over to Chris.

Yes. And so, I think, on the gas prices, part of the reason for the high sensitivity is, because of the limited number of licenses in California. We, for instance, have delivery operators that, in some cases, are dispatching orders from Los Angeles down to San Diego, or other sort of similarly long distances. And the way that delivery operators monetize on our platform, as they buy a bunch of delivery pens, they cover a region. And so, what we saw them do is, basically pull back the number of pens, reduce the area they were servicing, because they're covering such unusually large areas. In some regions that means that, basically there weren't delivery operators servicing regions where they once were delivery operators actively servicing and competing in those regions. And so, that's part of where you're getting this heightened sensitivity is, you'd have delivery operators covering these much larger zones. It's also worth -- just to highlight some of the features we shipped this quarter we're very much intended to have high targeting and high stickiness for these delivery operators. So scheduled orders letting them bundle up; get orders in a scheduled window and dispatch one car with more -- with a full trunk or separately with dynamic orders, enabling the drivers to do dynamic delivery with a fully loaded trunk in accordance with state law and then receive orders that are dynamically routed to the nearest delivery vehicle. So a technically complex thing that is really intended to address some of the pain that these operators are feeling. But make no mistake about it; part of the issue is, with such a low license density, you have deliverers covering positively huge ranges that just wasn't feasible with the rise in gas prices. In terms of legislative changes, I…

Got it. Thanks, guys.

Thank you. One moment for questions. Our next question comes from Pablo Zuanic with Cantor Fitzgerald. You may proceed.

Thank you. I guess, Chris, the first question maybe more transparency on the 500 clients that you took out of the platform. Because according to official data there's 1063, 1-0-6-3 active storefront licenses in California and 481 active Dan store right, which would be the delivery guys that you were talking about. So pretty much you took out the whole market of California of your platform on the delivery side? I'm just trying to understand. And again we come back to the issue of transparency, right?

Yes. No. I think I'll let Arden talk to the shape of the license that removed. I think the total number of license retail license at this point in California is over 1,000. So it's materially higher than that...

No. I'm sorry the official number -- sorry to interrupt and apologies for interrupting but the official number to be 100% clear as of July 5. In terms of active store front meaning brick-and-mortar is 1,063. And in addition there's delivery licenses that they call NAND storefront licenses which are 481, right? So in total there's 1,544 licenses issued as of July 5. So all I'm asking here when you said that you took out temporarily 500 clients from the platform because you were not paying you the way I interpreted what you all said was that pretty much all of them were California delivery people. So if that's the case you pretty much to go the whole market because...

Pablo, actually just to clarify. So that 500 is hard revenue. So that 500 to be clear. It's a mix of folks that we unpublish which aren't the majority of that 500 and folks that we had to put on payment plans and downgrade their spend. Now of course what I'd say is not all 500 were exclusively based in California. As you might imagine there's other markets out there that are seeing double-digit declines and whatnot. But I'd say the bulk of it was California-based. But keep in mind unpublishing like I said fully coming off the platform, yes, it's not the bulk of the 500. It's actually a minority of the 500. The other balance relates to folks that again we put on payment plans of varying degrees based on again each situation is specific. And so for those operators they are still on the platform albeit at much reduced levels of spend and staying current against those payment terms and the current spend if that makes sense.

Okay. And then I guess just a second question there were news I think about two, three weeks ago about claims that are still illicit operators in your platform? I know you have addressed this in the past but maybe this is a good chance to do it again. And the reason I ask again from outside you said that your marketplace revenue from California was up 10% year-on-year through end of through March -- middle of August I guess early August you were up mid-single digits and you're sounding very cautious for the back half right? That doesn't necessarily echo what the MSOs are saying, right? So when I try to put things together I'm saying maybe you still need to do some weeding out of accounts on your platform that's unfortunately still there and shouldn't be there. And that maybe explains some of these guidance for the back half.

Yes. No, I don't think it's that at all. We take trust and safety very seriously on the platform. And I think in the past we've demonstrated that by taking pretty proactive steps with new folks out. So we have two elements. We have enhanced verification for businesses getting onto the platform which is reviewing their license information before they can be published, and then periodic review is that license information comes up for expiry. The other thing is because there are large aspects of the platform that are self published by the business is a flag and review process that where we have a moderation team that looks at items that are flagged either by consumers, by other businesses or by internal review. And where if we identify something that's a miss it either has to be remediated or the listing or the information comes down. So we take that very seriously. We – size of our – and where if we identify something that's a miss, it either has to be remediated or the listing or the information comes down. So we take that very seriously. We've seen the size of our moderation team, over the last year and I think our internal view is that there's not really a finish line when it comes to something like trust and safety. I think we're continuing to look at ways where we can add automated flagging systems or we can integrate directly with databases to sort of streamline and remove the human element out of license verification and that sort of thing. So yes look, we take it very seriously. I think specifically with respect to that article I think evidence is that sort of the flag and remove system works properly is that, I think several of the things they mentioned were not on the platform at the time the article was published.

And one last one if I may ask, just more conceptually. In theory, we tend to think that the more stores in the state the better for you right because you have more clients to deal with, but I'm sure we agree that in the case of Oklahoma there's just too many stores so that's not a great market for you. And in Canada there's 3,000 stores and you've been very gun-shy my opinion there in that market in terms of going back in again in full. So, I'm just trying to understand in the guess California there seems to be a big jump in licenses, right? From January to July, I count about 300 more licenses year-to-date from 1,200 to like whatever 1,542 now. So, the fact that there's more licenses out there or the New York has one day 3,000 licenses. I used to think that was great news for Weedmaps, but maybe not so much. Help me think about that please? Thanks.

So, I think that's a great question. I think there's a couple of aspects to it. I think with us bundling up our WM business and SaaS solutions and adding higher price tiers where people can avail themselves more look, we're better able to price discriminate and charge incrementally to a larger number of small businesses by providing sort of self-service SaaS solutions and things like that to go after. Part of the central idea of expanding the WM Business Bundle was letting these businesses grow and manage the consumer life cycle on their own and us to effectively harvest revenue out of it with more limited interaction. I think -- and so one of the realities is, we have to have a business model and what I've been leading us towards a business model that works for businesses on thin margins, as well as businesses with very flat margins. We have these limited license states. I think if you look at something like Canada, I think you can see that in play where we're leaning in with payments and the solution pushing on adoption of the WM store the e-com embed in Oklahoma looking to push out the new brands embed and brand synthetic ETC embed that we've created. I think separately and you've probably seen -- I've seen you refer to this some in your research I think there's a self-moderating aspect too, where I think we're starting to see the number of licenses in these oversaturated states down-regulate either through licenses closing or consolidation where larger more successful operators who can centralize their back-office operations are consolidated in the licenses. It's one of the reasons that in our SaaS suite and on the back end of the marketplace we've been investing in the tools that let a central back-offices administer a larger number of listings and more seamless and automated fashion. And so, yes I think your point is spot on in that -- the number of licenses can compress margins and cause on an intended effects. And I think we're attacking that with things like the ad bidding engine where people can get smaller byte [ph] size demand augmentation in the marketplace and then separately with the SaaS solutions, giving tools that are sticky and can harvest recurring monthly revenue from them using those SaaS pieces.

Okay. Thank you for that. I want to add one more if I may. I'm sorry here. So maybe for Arden. Can you just talk about cadence for the second half? I know you talked about mid-single-digits through quarter-to-date right? But you -- so does this mean that the fourth quarter will be a bigger decline than the third quarter sequentially. If you can just give some color there on. Thank you.

Yes. Yes. And so again, as we think about the back half, I'll circle back to what I said earlier I think in response to another question, which is -- we don't like to be in a position where we're banking on factors that are outside of our control, right? And in Q2, the piece that we didn't anticipate that was outside of our control, like we talked about, was the financial health of our client base. And so for us, again, as we thought through in this type of environment, where do we want to make sure that we're rightsizing our spend and investing against the things that have the highest visibility of return, we wanted to make sure that we were planning against the scenario where again, we measure twice cut lines. And so for us, that was extrapolating out, not only the financial challenges that our clients are having in the back half, meaning folks that we put on payment plans or unpublished assuming that they're not coming back on the platform or to the extent that they downgraded the spend that they're not -- we're not assuming that they're re-upping at levels that they were previously at. We're also assuming that end markets continue to decline. And like we've also talked about before our growth isn't a function of end market growth. But again end market health impacts client financial has, right? And then the last piece that we're just eyes wide open about, as we talked about is, consumer -- the risk of a consumer demand pullback. Now, we've also said, we haven't seen it just yet in our data, right? So, if you look at different data that we track on our marketplace and orders for example that are placed in the marketplace, we haven't seen evidence of any kind of consumer pullback, but we just think it's prudent to bake in some cushion related to that. Now, where our quarter-to-date as we mentioned as you flagged is up mid-single digits, now, we expect that there will be risk in Q3, Q4 as we planned against. If that doesn't materialize, however, it will be a function of one, two or three of the following, which is, a, end markets don't decline to the extent that you saw in Q2, in Q3 or Q4. B, we have clients that currently are constrained in terms of liquidity and access to capital that have kind of managed their operations to a point where they are more liquid. And c, we continue to see the same type of consumer health that we're currently seeing.

Thank you.

Thank you. [Operator Instructions] Our next question comes from Andrew Carter with Stifel. You may proceed.

Hey, thanks. Good evening. First question with respect to the AR issue and it sounded like California. But I guess it'd be interesting to know, what does the AR difference look like between the clients that have come on the platform in the last year versus the clients that have been on being been longer more historically? Thanks.

Sorry Andrew, just to be clear. Are you talking about just the aging of kind of our newer clients versus more kind of older legacy clients?

Correct. If you had to break down the AR risk between clients added in the last year versus clients that have been on the platform for a longer period of time that's kind of what I'm asking.

Yes. For us, I have to admit it has less to do with the age of the clients. And again, I want to go back and validate a few things, Andrew before I give you a more explicit answer, because the way what we've seen at least in terms of the aging is less a function of length of stay on the platform, more a function of the type of operator they are, right? And so, for example, we started seeing these issues as we've talked about on our calls in Q3 of last year when again we talked about the demand shifts away from license to non-licensed channels right? And I'd say the complexion of folks that had issues back then in Q3, Q4 and even in Q1 were folks that -- on balance probably we're newer to the platform but what we've noticed are in terms of their profiles, we're just not as robust in terms of their levels of spend on the platform, whereas, if you look at the complexion of clients that have ER issues in the second quarter as I mentioned before, a number of these were fundamentally healthy operators that had large levels of spend historically and had pretty established length of stay. I'd say for the prior quarters it was a mixed bag, but they were generally of lower spend, and I think that probably means a newer vintage.

Okay, got it. Second question, I want to ask longer term to the MJBiz article, now that you're in a public forum castes, number one, after you read it, did you read it and say, oh we've got some issues or they found some isolated incidents, but still we need some edge to put in some extra investment? And the second thing there were two allegations in there that there was investigations into the company, one from California Department of Cannabis, which doesn't regulate you and the SEC. Could you speak to either one of those? Thanks.

Yeah. I think – look, I think as I mentioned earlier, I think one thing that I think is evident that the trust and safety system is working is that several of the items that were flagged in the article were no longer at the site at the time of the article was published and we weren't giving advance notice of what those things were. They were things they gotten flagged or removed in the ordinary course. I think -- look I take pretty seriously. I think the trust and safety function ensuring that we have consumer trust and that sort of thing. I think anytime you have an article like that that comes out that points to things like that, I think look my belief is the right step is to sit and think could we do better? Is there anything we can improve here? Are there steps we can take with automation? I think not coincidentally there were some things in the road map already to try and make life -- or I should say improve scalability for the moderation team because we don't want that function to linearly scale as the number of listings grow. And so I think there is a natural synergy there with things that just made sense from being more cost efficient. But look I think the system that we had both on the enhanced verification of the up and the trust and safety systems, I think are both strong systems but ones that if we're going to be good stewards to the company, we're always going to need to continue to polish to evolve as we see new things come out. I think look in terms of the question, we have not heard anything from the SEC with respect to the MJBiz article or anything like that. And while we have frequent dialogue with the State of California, we haven't -- we have permanently brought it up with them, but we haven't heard anything that rises to the level of them coming back or having substantive issues so far.

Thank you. I appreciate that.

Yeah.

Thank you. And I'm not showing any further questions at this time. I would now like to disconnect the call. Thank you for participating. You may now disconnect.