Leafly Holdings, Inc.

Good afternoon. Thank you for attending today's Leafly second quarter 2022 earnings call. My name is Frances and I'll be your moderator today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you'd like to ask a question, please press star one on your telephone keypad. I would now like to pass the conference over to our host, Keenan Zops with the Blue Shirt Group.

Good afternoon and welcome to Leafly's second quarter 2022 earnings call. We will be discussing the results announced in our press release issue 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, 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 could cause actual results to differ materially from expectations. For discussion of the material risks and other important factors that could affect our actual results, please refer to the risk assessed 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 at investor.leafley.com. With that, let me turn the call over to Yoko.

Thanks, Keenan, and thank you to everyone for joining us for our Q2 call. Revenue in the quarter was $12 million, up 14% over Q2 last year, and up 6% sequentially over Q1, as we continue to build on the investments we've made in the first half of this year. We saw an increase in monthly active users quarter over quarter, and ARPA remained relatively consistent. Like our peers in both technology and cannabis, we have not been immune to the macroeconomic headwinds. So I want to talk to you about those headwinds and what they mean, and after that, talk about why we're still bullish about the long-term prospects of this industry and this business. We're starting to see some macroeconomic impacts with signals from retailers, brands, and multistate operators that their advertising budgets are under scrutiny. While we're putting strategies in place to navigate through these challenges, we believe these factors will impact the second half of the year. Accordingly, we are taking steps to reduce operating expenses and have implemented a hiring freeze on top of the slower pace of hiring we saw in Q2. Suresh will give specific details around our guidance, but I want to be upfront about one thing. We believe the medium and long-term prospects for the cannabis industry are strong, and we have a tremendous opportunity in front of us. Our overall strategy remains unchanged, and we will focus on maximizing efficiencies across all areas by prioritizing projects and products that will result in the highest returns. In spite of some of these headwinds, I'm particularly pleased with the growth we're seeing from brand advertisers associated with our Q4 2021 product launch. Revenue from brands in the second quarter was up 22% over Q2 last year and up 33% sequentially. We also saw a stabilization and steady improvement in our monthly active users, highlighting our strategic efforts to expand our consumer audience, deliver an exceptional consumer experience, and drive long-term valuable and returning customers. We're an essential part of the cannabis industry, and Leafly plays a critical role in connecting retailers and brands with the growing number of cannabis consumers across North America. We've remained focused on the key priorities put in place earlier this year in order to increase our retailer and brand subscriber base, improve our ad platform, reduce friction for B2B partners, and create an incredible shopping experience. To deliver on these, we've recruited top technical product and UX talent this year. The team is now structured to innovate and nimbly execute our highest priority needs. In our last call, we talked about creating an incredible consumer shopping experience. And in Q2, we released several enhancements that drive consumer engagement and differentiation. Our teams have been successful in driving downloads of our native apps this year, an important strategy to increase consumer engagement. Native app consumers are some of the most engaged and active consumers on our platform. We rolled out a number of in-app features to improve the consumer shopping experience. Consumers can now place delivery orders directly in our iOS app. They can also now request doctor's appointments directly from our app, making it easier for them to connect with nearby doctors to obtain medical marijuana cards. As you'll recall, we launched a new delivery functionality directly within Leafly in Q1 of this year. And in Q2, we made a number of enhancements, including the addition of more filtering options so consumers can better see what dispensaries deliver and shop by product. This is a fundamentally different way to shop for cannabis. It's a product-first shopping experience that leverages our reviews and content, similar to how consumers are accustomed to shopping on other non-cannabis marketplaces. We continued to capitalize on our unparalleled strain database with our Best Buds Strain Quiz. This simple, personalized quiz helps users identify which strain most closely matches the feelings and effects they are looking for, connecting them more quickly with the right product. We believe this more seamless connection to products that matter help demystify cannabis and build shopper confidence. personalization remains one of the biggest and unmet needs for consumers and Leafly with its unique data and assets it's poised to solve this challenge we see the consumer experience as a foundational element of our flywheel and it expands across all sections of our platform from the information and resources consumers have come to expect to the ease of ordering in addition Our consumer and content teams have been laser focused on expanding our consumer audience. We've made technical improvements in our top of funnel acquisition, that's the news and learn sections of our site, and implemented a stronger content strategy focused on our most popular top performing material. We continued to see increased malgrowth through July due to the hard work and investments in this area. particularly to high demand areas of our site, like our dispensary finder. Our long history, category expertise, deep catalog of content, and our strained database strongly position us to expand our consumer base as cannabis becomes more mainstream. On the advertising side, retail markets across North America continue to evolve at different paces. Illustrating this are our top penetrated markets, which continue to drive growth in the business and provide key learnings as we expand into newer markets. I'm proud to share that our new automated auction-based bidding tool for retailers has now been rolled out in five states. We saw increases in ad revenue in the majority of those markets. These bidding-based ad products offer retailers greater opportunity to reach our valuable consumer audience and drive sales. We've built automation into our bidding process, resulting in greater efficiency as we take these ad units out for rebidding every 90 days. Our bidding success in early markets has demonstrated our ability to move retailers up the ARPA curve as markets mature, providing continued proof points that support our strategy. In lower penetrated markets, we continue to bring new retailers onto the platform to reach critical scale. Although we still continue to see churn in these lower penetrated markets and in markets with structural challenges. Our newly structured sales teams were designed to focus on our local market strategy to both increase penetration and reduce churn. We repeatedly hear from retailers that greater flexibility and reduced friction is essential to empowering them to manage their ad spend and generate sales. We've greatly reduced the barrier of entry for retailers to work with Leafly. This past quarter, we launched pickup and delivery integration with Blaze Point of Sale, which has allowed retailers using Blaze to increase the volume and velocity of their sales. We are now menu integrated with almost half of the cannabis point of sale systems serving licensed retailers in North America. This aligns with our strategy of integrating with existing systems rather than forcing retailers into a closed technology environment. We continue to emphasize putting cannabis retailers and brands in control of their businesses through access to data so they can attract consumers on our platform. In Q2, we released improvements and enhancements to our retailer dashboard, giving retailers greater visibility and transparency into their success on Leafly. More recently, we rolled out tools that allow clients instant access to ROI metrics and best in class insights so they can regularly see the value they are getting from us. We also recently launched our deals packages where retailers can offer promotions to consumers directly on our site in the path to purchase. We're seeing early adoption of this product, which provides an incremental revenue stream. We believe this product resonates well in the current macro environment where consumers are looking for value and retailers are competing for sales. Now focusing on some other momentum we are seeing. In Q2, we reached 100% market penetration in the Garden State, meaning every dispensary in New Jersey had a menu on the Leafly platform. It is a strong indicator of our focus on important East Coast markets and the power and reach of the Leafly brand spurred by our ability to build a presence even before a market legalizes. As we continue to invest for long-term growth, the industry is evolving at a rapid pace and our strategy is directly aligned to capitalize on the great momentum we expect to see. The Leafly brand is becoming more widely recognized as a thought leader in the cannabis space. We are one of the largest repositories of cannabis data. This includes our cannabis data library of tens of thousands of cannabinoid and terpene strain profiles from Leafly certified labs, subjective strain effects from consumer reviews, and cannabis popularity metrics. Given the breadth of this library, we recently launched a program called Leafly Plus University which allows accredited cannabis researchers to supplement their work with our large cannabis data set that would otherwise not be available. Rhode Island is expected to begin adult use sales in December, with Connecticut and New York expected to come on hopefully soon thereafter. We're closely watching the midterm elections that could bring legalized cannabis to millions of more consumers across the U.S. We're also excited about the 185 conditional retail licenses that were recently issued in Illinois after being tied up in litigation. These elections and moments changed the landscape within local markets. Governments hold the keys to when and how markets open up, from number of licenses to legalized e-commerce and delivery. We're closely watching the prospects for federal banking legislation this fall. Over the years, we've seen tremendous momentum in this industry, and while we face headwinds today, the industry is set up for long-term growth. And Leafly is positioned to reap the benefits of this growth as we continue to serve consumers, brands, and retailers who join us along on this journey. With that, I'll turn it over to Suresh.