WM Technology, Inc. (NASDAQ:MAPS) Q3 2022 Earnings Call Transcript November 7, 2022

WM Technology, Inc. reviews earnings inline with expectations. Reported EPS is $-0.06 EPS, expectations have been $-0.06.

Operator: Good afternoon everybody and welcome to the WM Technology Inc.’s Third Quarter 2022 Earnings Conference Call. I’d now like to show the decision over to your host Greg Stolowitz, Vice President of Investor Relations.

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Greg Stolowitz: Hi everybody. Thanks for becoming a member of us at this time to debate our fiscal 2022 third quarter outcomes. We have our Executive Chair, Doug Francis; our COO, Juan Feijoo; and our CFO, Arden Lee with us at this time. By now everybody ought to have entry to our earnings announcement. This announcement can also be on our Investor Relations web site together with the supporting slide deck. During this name, we’ll make forward-looking statements together with statements about our enterprise outlook and long-term objectives. These statements should not ensures of future efficiency. They are topic to quite a lot of dangers and uncertainties a few of that are past our management. Our precise outcomes might differ materially from expectations mirrored in any forward-looking statements.

For a dialogue of dangers and different vital components that might have an effect on our precise outcomes, please seek advice from our SEC filings obtainable on the SEC’s web site together with our quarterly report on Form 10-Q for the quarter ended September thirtieth, 2022 to be filed after this name in our Investor Relations web site in addition to the dangers and different vital components mentioned in at this time’s earnings launch. Should any of those dangers materialize or ought to our assumptions show to be incorrect, precise monetary outcomes might differ materially from our projections or these implied by these forward-looking statements. Forward-looking statements symbolize our beliefs and assumptions solely as of the date such statements are made. We undertake no obligation to replace any forward-looking statements made throughout this name to mirror occasions or circumstances after at this time or to mirror new data or the prevalence of unanticipated occasions besides as required by regulation.

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Also throughout this name, we’ll focus on sure non-GAAP monetary measures. While we consider these non-GAAP measures are useful to traders in understanding our enterprise, they aren’t meant to be an alternative to our GAAP outcomes. Reconciliation of those non-GAAP measures to probably the most straight comparable GAAP measure will be present in our earnings launch. With that, I’d like to show the decision over to Doug.

Doug Francis: Thanks Greg and thanks everybody for becoming a member of at this time. Before Arden goes into an replace on the quarter and our monetary outcomes, I needed to spend a while on the announcement we shared earlier. Today, we introduced a big change to our govt management staff. Chris Beals, our CEO, shall be leaving the corporate efficient rapid. We’ve launched the seek for a brand new CEO and have established an workplace of the CEO comprised of our current govt management staff who shall be reporting on to me within the interim. That contains our COO Juan Jose together with Arden each of whom are on the decision at this time. On behalf of the complete Board, I need to acknowledge and thank Chris for navigating the corporate over the previous three and a half years as CEO on our option to changing into a public firm and earlier than that as our General Counsel.

I believed that we had introduced the adjustment again in 2008 on the imaginative and prescient of making a market connecting shoppers with the perfect native hashish. We have been pioneers on the heart of constructing the early rails within the business to have interaction in commerce. We have been recognized for our C to promote data of the plant, the excessive ROI of our market, a dedication to ending the prohibition in opposition to hashish, and most significantly, being the perfect place to find and discover hashish merchandise. During my time as CEO, we had a bootstrap tradition with a monitor report of being worthwhile and money movement optimistic as we scaled the enterprise to $100 million in income. While the complexities of our business have definitely elevated, we have to do a greater job at executing our confirmed technique and leveraging the entire strengths which have made us the business chief.

As a Co-Founder and one of many largest shareholders of the corporate, I used to be requested to offer assist to our administration staff throughout this time when our finish markets proceed to be challenged. I believed I might add worth given my data of the enterprise as the previous CEO and my insights and relationships across the business. In my first 60 days as Executive Chair, I’ve labored with our management staff to conduct a deep dive overview of our technique, operations, and investments to see the place we are able to enhance our efficiency. I’m pleased with what our staff has achieved on this setting, however I consider that we are able to do higher and I commit that we’ll do higher. When we began 2022, we stated it was an funding 12 months. But with the macro setting the way in which that it’s, now’s the time for us to execute in opposition to what we have already invested, whereas recalibrating our operational focus to get leaner and meaner.

It’s turn out to be clear to me that we are able to create extra focus for our groups to allow them to transfer with extra pace and urgency. That means extra rigorous prioritization of initiatives inside our current technique. It means extra streamlined decision-making and organizational buildings. It means leveraging our programs extra successfully to assist operations, and it means getting again to our roots of operational excellence and profitability. To that finish, the Board and I’ve decided to transition management of the corporate and launch an out of doors seek for a brand new CEO. We’re in search of initially a pacesetter with deep hands-on working expertise with advanced on-line marketplaces and enterprise quick fashions. We’re in search of a pacesetter with the pliability and expertise to adapt to a extremely nuanced business with giant progress potential, however nonetheless trying ahead splitting in its early days.

I anticipate this search to be accomplished in 2023, and we in fact, will maintain you appraised of developments. In the interim, I shall be working very intently with our govt management staff. To be clear, our enterprise mannequin and technique are sound. I’m extremely assured of that. Our market continues to offer robust ROI to companies within the business, as evidenced by the spend of our purchasers. Our platform technique is exclusive versus different tech answer suppliers. We have the power to proceed constructing the longer term rails of the hashish business, whereas enhancing our money movement as we experience out the storm of the present financial and business headwinds. As Arden will contact on, we’re already working in direction of plans for 2023 that drive clear line of sight to our margin and money movement potential, which has been our historic power as an organization.

We will make the changes wanted in how we function to ship extra vital worth to our purchasers and customers. I’m excited to work with our staff and lead the corporate via this transition, as we shall be constructing in opposition to the alternatives that now we have. With that, I’ll flip the decision over to Arden.

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Arden Lee: Thanks, Doug, and hi there to everybody on at this time’s name. Our Q3 efficiency comes within the face of continued challenges throughout our finish markets. The dangers we anticipated final quarter performed out as anticipated all through this quarter. Our Q3 income of $51 million declined 1% versus final 12 months, and our reported internet revenue and adjusted EBITDA have been each a lack of $10 million. Our adjusted EBITDA was closely impacted by reserves we took in opposition to our most aged shopper balances. We noticed 25% plus progress in paying purchasers throughout the third quarter, although this progress was totally offset by a decline in our income per paying shopper. We anticipated these pressures given the continued liquidity challenges that our purchasers are dealing with. Moving down the P&L.

Our Q3 gross margin fee of 92% is per the prior quarter. Our reported working bills after price of revenues and earlier than D&A expense got here in at $63 million for the quarter, and contains $2 million in stock-based compensation together with $6 million in different non-recurring expenses, which embody severance funds related to the headcount discount we executed in August. More data on these expenses is out there in our earnings launch and earnings slide deck and shall be in our Form 10-Q. Excluding these things our non-GAAP adjusted OpEx for the quarter got here in at $56 million, or a 46% improve versus final 12 months leading to our adjusted EBITDA loss. The largest driver of adjusted OpEx progress got here from the dangerous debt expense we incurred, which I’ll contact on now.

Excluding dangerous debt from each this quarter and the prior 12 months interval, our adjusted OpEx grew by 27% year-over-year and adjusted EBITDA was $1 million. Over the previous 12 months, we selectively labored with sure purchasers who’re dealing with difficulties to assist them navigate via the difficult setting. We’ve talked beforehand about how we consider that supporting our purchasers throughout making an attempt occasions like these pays dividends when circumstances enhance. This quarter what turned clear to us nevertheless is the extended time required for a return to progress throughout hashish finish markets. For instance, the California market which contributed 53% of our whole Q3 income noticed year-over-year declines in statewide gross sales of minus 10% primarily based on third-party knowledge throughout the quarter.

Given these dynamics, we made the choice to speed up the reserves we’re taking in opposition to a handful of purchasers a few of whom stay on the platform at considerably downgraded ranges of spend, others of whom have been unpublished because of their liquidity challenges. Our dangerous debt expense was a big drag on our Q3 adjusted EBITDA, which was optimistic earlier than this cost. Our dangerous debt can also be restricted to a handful of accounts that noticed challenges earlier this 12 months versus a wider unfold challenge. Approximately 90% of the dangerous debt we incurred in Q3 pertains to 15 purchasers the place we are actually totally reserved in opposition to the vast majority of these accounts. What’s encouraging is the decline we noticed this quarter in our gross receivables balances. The third quarter is the primary, since finish market challenges started the place the change in our receivables was a supply of money.

We are very targeted on the place we’re investing and firmly consider that we are able to discover additional alternatives to rationalize our spend, as we get again on the trail in direction of money movement era. As Doug said, we all know we should do higher on this setting on controlling our spend, and we’ll proceed to take motion on productiveness alternatives. Our reported internet revenue lack of $10 million, contains $7 million acquire within the honest worth of our warrant legal responsibility. Our totally diluted share rely throughout our Class A and B share courses was 146 million on the finish of the quarter. A reconciliation of adjusted EBITDA to internet revenue in addition to the main points of our share courses and share rely calculation are offered in our earnings launch posted to our Investor Relations website.

We ended the quarter with $34 million in money and no long-term debt. We proceed to be comfy with our liquidity place given the productiveness initiatives that we have already taken and are persevering with to take motion in opposition to. Before I converse to our outlook for the fourth quarter, I additionally needed to handle our considering on extra metrics for disclosure. I discussed in our August earnings name that we have been evaluating extra metrics for traders to gauge the well being of our enterprise and progress in executing in opposition to our platform technique. We’ve determined to sundown our prior MAU metric as, it is a very broad high of funnel metric that has turn out to be extra correlated to our advertising investments and fewer correlated to our income progress. We anticipate to offer our extra metrics disclosure on our This autumn name in live performance with our 2023 plan and steerage.

More particulars on these adjustments will be present in our Form 10-Q submitting. Now, I’ll flip to our monetary outlook for the fourth quarter and supply some commentary on how we’re planning for fiscal 12 months 2023. I famous on our August earnings name that, we have been baking in dangers in our situation planning for the second half, together with continued finish market declines in Q3, bottoming out in This autumn together with continued liquidity challenges for our purchasers. Based on the place we’re at this time, we lack clear indicators that finish market challenges and shopper liquidity considerations have totally bottomed out. As such, we anticipate our second half income will decline nearer to the extensive finish of our steerage vary for the second half, or down within the mid-single-digit share space. We’re persevering with to execute in opposition to productiveness actions, as I famous, however anticipate This autumn adjusted EBITDA shall be additional impacted by dangerous debt expense, which is able to stay elevated in This autumn although considerably decrease than Q3.

As Doug said, we’re at the moment working via our annual working plans for subsequent 12 months and we’ll present extra detailed steerage for 2023 at a later stage. With that stated, I’d prefer to share some preliminary ideas on the place we’re focusing our plans. As a backdrop to our planning, we anticipate visibility on a return to progress throughout licensed hashish finish markets will stay low. Against this backdrop, we’re working in direction of creating extra focus throughout our groups, extra streamlined operations, and clear line of sight to optimistic money movement. While the setting could stay unsure our goal is to realize profitability and optimistic money movement in 2023. Our technique stays unchanged. What has modified although is the main focus now we have on executing operationally, rightsizing our investments with rigorous prioritization, and delivering in opposition to our margin and money movement potential whatever the macro setting.

In closing, Juan, myself and our complete management staff are trying ahead to partnering extra intently with Doug and bringing WM Tech to its subsequent section of progress. His intimate data of our firm and finish markets will serve us nicely as we get after the alternatives this 12 months and full our planning for 2023. With that, let’s open up the decision for questions.

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