Leafly Holdings, Inc.

And welcome to today's Leafly first quarter 2022 earnings call. My name is Bailey and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star followed by one on your telephone keypad. I would now like to pass the conference over to Keenan Zoff with the Blue Shirt Group. Keenan, please go ahead.

Good afternoon and welcome to Leafly's first quarter 2022 earnings call. We will be discussing results announced in our press release issued today. With me are Leafly CEO Yoko Miyashita and CFO Suresh Krishnaswamy. Today's call will contain forward-looking statements which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements regarding the services offered by Leafly, the markets in which Leafly operates, business strategies, performance metrics, industry environment, potential growth opportunities, and Leafly's projected future results and financial outlook, and can be identified by words such as expect, anticipate, intend, plan, believe, seek, or will. These statements reflect our views as of today only and should not be relied upon as representing our views at any subsequent date, and we do not undertake any duty to update these statements. Forward-looking statements by their nature address matters that are subject to risks and uncertainties that can cause actual results to differ maturely from expectations. For discussion of the material risk and other important factors that could affect our actual results, please refer to the risk discussed in today's press release, our annual report on Form 10-K filed with the SEC on March 31, 2022, and our other periodic filings with the SEC. During the call, we will also discuss non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles. A reconciliation of the GAAP and non-GAAP results is included in our earnings press release, which has been filed with the SEC and is also available on our website, investor.leapley.com. With that, let me turn the call over to Yoga.

Thank you, Kenan. And hello to everyone who has joined today's call. It is a great time to be in cannabis. Before I get into sharing some of the exciting progress we've made over the last quarter, I want to recognize the momentum we are seeing in the industry and what it means for Leafly. Over the past several months across North America, we've seen a buildup to the opening of important recreational markets in New Jersey and New Mexico, with New York and Connecticut hinting at the potential to start rec sales in late 2022. We are still anticipating the expansion of recreational licenses in Illinois and Arizona. And in the heartland, work is gearing up for recreational youth ballot initiatives this fall from North Dakota to Missouri in a sign that legalization will continue to sweep the country. This is great for the industry, but also great for Leafly as we open new markets where we can easily scale our technology with few bespoke investments. And because of our content-driven marketplace, we already have a strong foothold across consumers in these markets and will continue to invest as they come online. Perhaps in the biggest nod to destigmatization I've seen, we also have the unique opportunity to ring the opening bell at NASDAQ on 420, the unofficial but widely celebrated cannabis holiday. In tandem with this industry momentum, Leafly had a solid start to 2022. Revenue for Q1 was $11.4 million, an increase of 21% year over year and in line with our expectations. This growth is a testament to our powerful name recognition and the growth we can drive with investment in the Leafly team and platform. and with our continued focus on building tools that provide outstanding ROI for our customers and a best-in-class shopping experience for consumers. We saw a 37% increase in the number of retail accounts in Q1 year-over-year, and our retail subscriber funnel remains strong. On a consecutive quarter basis, ending retail accounts grew 3%, reflecting elevated churn in challenging markets like Oklahoma and California and a higher-than-average number of out-of-business accounts. As we've fully transitioned our sales organization in Q1 to a regionalized model, our expanded sales capacity allows us to focus targeted efforts on reducing churn. Our top of funnel retailer acquisition remains strong and we are positioned well to quickly bring retailers onto our platform, especially in markets that are scaling and in existing markets where license numbers are poised to expand. The cannabis industry operates at a local market level, and our strategies and investments reflect this. When we look across the business, average revenue per retail account, or ARPA, varies from market to market. In some of our key and most highly penetrated markets, we are seeing steady ARPA growth. Newer markets with lower retail penetration on the Leafly platform provide significant opportunity to build up over time. As I mentioned last quarter, our strategy in these markets is to enter at lower price points, expand retail penetration, and drive higher spend from retailers over time. Given the mix of local markets across our platform and our strategic approach, we saw a slight and expected sequential decline in ARPA in Q1. Over time, as we invest in these markets, we are effective at increasing ARPA. We know that pricing power comes through our ability to bring as many retailers in a market onto our platform, and we'll continue to focus on improving penetration at the local level through our regional sales and CSM teams. Leafly's consumer strategy differentiates us from others in the market and has led to making cannabis more mainstream. Over the years, we've educated consumers and increased visibility across the industry before anyone else was publishing about cannabis at scale. With the momentum in cannabis today, we see traditional media publishers introducing more coverage around cannabis, which has helped solidify cannabis' move into the mainstream. That's positive for cannabis, and it has had a direct impact on our SEO traffic, specifically around our top-of-funnel news and learn sections. As a result, we ended the quarter with approximately 7.7 million monthly active users, a drop over Q1 last year. Importantly, our revenue strategy is not dependent on this top of funnel traffic. We maintained and in some markets grew traffic to sections of the platform that generate the greatest value in consumer engagement for our retail and brand partners. Top-of-funnel traffic remains important to our business, but in the short term, we will continue to optimize our strategy for revenue-generating traffic and prioritize markets, and in the long term, continue to invest in growing top-of-funnel traffic with unique and elevated cannabis content and differentiated consumer experiences. As we discussed during our first earnings call following the closing of our business combination with Merida Merger Core, we continue to make meaningful investments that we expect will have future positive impacts as we take a purposeful and disciplined approach to drive both short-term and long-term growth. Leafly's growth and success will be driven by investments in a few key areas. One, increasing our subscriber base across retail and brand accounts. Two, improving our advertising platform. Three, reducing friction and enhancing our offerings to our B2B partners. And four, creating an incredible consumer shopping experience. I'll touch first on increasing our subscriber base. The number of our retail and brand subscribers continues to grow. These subscriptions represent recurring revenue streams and position us well to move customers up the ARCA curve as we introduce new ad products to these accounts in Q2 and Q3. One of the most exciting areas of growth is in our new offerings for brands. Brands are realizing the power of Leafly to obtain high-value and high-intent customers. In Q1, the number of brand advertisers on our platform increased by 135% year over year. Although we are in the early stages of building out this customer segment, we are already working with top brands across THC-infused, other cannabinoid providers, and ancillary products. We are pleased with our progress in acquiring new brand advertisers and see this segment as a tremendous growth opportunity with a large untapped TAM. We've added team members to aggressively go after this market, including hiring an account director for brand sales. And with our revamped brand subscription product, now have a strong product that delivers real value for our brand partners. Moving on to improving our advertising platform. Our advertising platform continues to mature. As the overall industry grows and becomes more established, retailers and brands are experiencing increased competition to reach customers. We are continuing to invest in new advertising products and services that put retailers and brands in the driver's seat. as they seek to get in front of consumers in an efficient way. And we are excited to announce releases in the second half of this year. We introduced more automated bidding tools earlier this year, creating efficiencies as we moved away from a manual, more labor-intensive process. We are early in the stages, but we have already seen steady and strong growth in ad revenue in markets where we have introduced bidding tools. We are focused on scaling bidding capabilities in Q2 and expect continued growth ahead. One of the keys to maintaining trust with our customers is providing transparency about the performance of ad units subject to bidding. We are providing this data to customers through the bidding process, empowering our best partners to make informed decisions about customer acquisition spend. And by opening up premium ad units to bidding, we've been able to give more partners greater access to high-value placements that they might not have had access to previously. Let's talk about reducing friction for our B2B partners. The cannabis industry remains an industry full of friction and fragmentation for retailers and brands, particularly in the technology enablement space. We are working on both reducing that friction in our own environment and reducing it through building tools and services for our B2B partners. Our strategy revolves around empowering retailers to run their best businesses by integrating with their existing systems rather than forcing them into a closed technology environment. This reduces the barrier of entry to working with weekly and helps drive a simpler client experience with greater ROI as licensed retailers and brands can more easily leverage our traffic, proprietary insights, and our technology for customer acquisition, e-commerce, and digital advertising solutions. Some of the features we launched in Q1 include a business dashboard which allows clients instant access to ROI metrics and best-in-class insights so they can regularly see the value they are getting from Leafly. We also introduced Smart Tools, a collection of best practices that retailers can use to improve their performance on our platform. We continue to invest in our deals engine, which drives increased consumer activation when retailers offer consumer deals and discounts. and will soon exceed over 50 menu and order integrations with POS providers that power two-thirds of the menus on Leafly today. We'll continue to emphasize putting cannabis retailers and brands in control of their businesses through access to data and practical tools and tips to attract consumers on our platform. Looking ahead, we expect our sales and customer success teams to drive increased adoption of the platform tools we offer, including order-enabled capabilities and advertising add-ons. All of what I just spoke about inherently leads to creating an unmatched consumer shopping experience. Leafly is the informed way to shop for weed. Users turn to us for our long history, unmatched strain and dispensary reviews, research, and trusted expertise. We can offer a more informed shopping experience from beginning to end by helping consumers understand what they should try and where to buy and connecting them easily with local dispensaries that offer the products they want. Our focus in 2022 is utilizing our unrivaled proprietary content and data from the past 12 years to provide a level of curation and personalization that increases the value proposition for consumers and ultimately produces greater ROI for retailers and brands. You can see this come to life in our recently launched strain quiz, which leverages the data underlying our strains database in a short quiz to match consumers to the strains that deliver the feelings and experience they are looking for, then connect consumers to the stores that offer products with those strains. There is no place where we have more control over our consumer experience than in native apps. Our native app opportunity changed fundamentally late last year when Apple allowed for ordering in the iOS app. Growing our account base through investment in our native app is a priority growth factor for us in 2022 and beyond. To continue this theme of end-to-end experience, in Q1, we introduced a new consumer-facing delivery experience to augment our existing strong pickup offering, giving consumers an additional way to shop for cannabis in the way they want. And we are already seeing good results, particularly in California. We are in the midst of hyper-local marketing efforts in Los Angeles, the largest legal cannabis market in North America, to drive increased adoption of our full suite of consumer-facing products, including our new and improved Delivery Gateway. We remain the trusted source for cannabis information and insights across a wide spectrum of audiences, from media and lawmakers to regulators and the general public. Bolstered by our own editorial content, we've appeared across dozens of mainstream media outlets over the past quarter and consistently lead on share of voice as we not only provide color and context to the topic of cannabis and legalization, but also work to destigmatize and normalize its use. This elevated brand recognition is earned at a very low cost and helps heighten awareness and affinity for the Leafly brand. I say it often, I am pleased with what our teams have been able to accomplish this quarter and excited by the prospects for Leafly ahead as we continue to invest in areas that will have real and positive impacts on our business. With that, I'll now turn it over to Suresh.