Leafly Holdings, Inc.

Jay Son and I'll be the moderator for today's call all lines will be muted during the presentation portion of the call and opportunity for questions and answers at the end. Jay Son and I'll be the moderator for today's call all lines will be muted during the presentation portion of the call and opportunity for questions and answers at the end. Jay Son and I'll be the moderator for today's call all lines will be muted during the presentation portion of the call and opportunity for questions and answers at the end. Jay Son and I'll be the moderator for today's call all lines will be muted during the presentation portion of the call and opportunity for questions and answers at the end.

Good afternoon and welcome to Leafly's full year and fourth quarter 2022 earnings call. Joining me on the call today are CEO Yoko Miyashita and CFO Suresh Krishnaswamy. Today's prepared remarks have been recorded, after which Yoko and Suresh will host live Q&A. A copy of our press release, along with an accompanying earnings presentation, can be found on our website at investor.leafly.com. 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. And we caution you not to place undue reliance on such statements. For discussion of the material risks and other important factors that can affect our actual results, please refer to the risks discussed in today's press release, our annual report, Form 10-K, filed with the SEC on March 31st, 2022, and on Form 10-K-A, filed on May 2nd and December 2nd, 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.leapley.com. With that, let me turn the call over to Yoko.

Good afternoon. Amidst macroeconomic and industry headwinds, we ended 2022 with meaningful progress against our key initiatives. We grew full-year revenue 10% over 2021 in what overall has been a challenging environment, with overall cannabis sales down 1% in the United States. Growth was primarily driven from retail revenue, which was $36.7 million, up 9.3% year-over-year. Revenue from brands was $10.6 million, up 12.9% year-over-year. Ending retail accounts were up nearly 10% in 2022. we saw a stabilization of mail to an average of 8 million monthly active users. Brand spend, typically outsized in the period between Thanksgiving and December holidays, was more muted in 2022 than in previous years, and we continue to see softness in brand advertising spend. We focused on driving more value to retailers in 2022, contributing to growth in the year, where the launch of new products, including our new delivery-first shopping experience, prominent marquee ad units, and improved functionality of our retailer platform and services. We also rolled out our enhanced bidding capabilities more broadly, and our recent partnership with Uber Eats in Ontario has been successful with delivering an increase in orders to Toronto retailers by 254%. Most notably, the actions we took to control costs in 2022 delivered an improvement in our adjusted EBITDA loss we delivered negative 23 million adjusted EBITDA for 2022 above our expectations. Much of this was done through a right-sizing of the business in October, meaningful cost-cutting initiatives, and tight spending controls across the company. We continue to prudently manage expenses and protect cash and are implementing additional headcount reductions of approximately 40 positions expected to yield annual savings of $8 million beginning in Q2, as we continue to rationalize our cost base and be nimble in a difficult cannabis environment. Most notably, we are adjusting our go-to-market strategy to ensure we are allocating resources to our highest value clients, while maintaining our local approach and proven track record of bringing new retailers onto the platform. As market consolidation continues to accelerate, we are focused on building deeper relationships and increasing customer spend across Meekly's full suite of products and services. As has been the case for the past many months, our focus will continue to be on prioritizing projects and product enhancements that will result in the highest returns and maximizing cost efficiencies across the business. Our operational plan for 2023 builds on these priorities, and we expect considerable improvement to adjusted EBITDA on an annual basis going forward. This plan also allows us to preserve capital as we seek an improved path to profitability. Despite headwinds, I want to highlight the continued success we've seen from our local market strategy to enter less penetrated markets at lower price points with a focus on upsell. Both New Mexico and Montana are great examples of this. These two recreational markets opened last year. New stores opened, and our sales team focused on getting them subscribed to the platform and upselling them with our existing and new advertising products. This led our market penetration to reach 75% in both of these markets by the end of 22, from just over 50% at the start of the year, as well as achieve increase in ARPA of greater than 50% in both markets. This playbook is one that we've replicated multiple times as new markets come online. We will continue to increase penetration in markets where we see the greatest growth opportunities both in landing new retailers and through upsell, which we believe will drive ARPA up in the long term. In the short to medium term, with many markets still underpenetrated, ARPA will vary market by market. As we look ahead to 2023, we continue to operate in a weak macroeconomic environment and a challenging cannabis vertical. We expect the environment to be similar to what we saw exiting 2022, with growth muted and high variability from market to market. Cannabis prices are down, economics are difficult, with some markets like Massachusetts, Oregon, and Arizona seeing significant reductions in the wholesale price of flour. These dynamics certainly have an impact on the retailers and brands who use our services. With this in mind, we continue to take a cautious and focused approach by managing the inputs we control, including cash flow and expenses, and driving significant improvements towards profitability. Our approach for the new year is rooted in the successes we made in 2022, knowing that the product innovations we have brought to market over the last 18 months, along with the focus and discipline on our cost base, have set us up to sustain ourselves through this turbulence and thrive once it subsides. Despite some of these industry and economic challenges, consumer interest in cannabis is persistent and remains high, with volumes of product orders holding steady. But consumers are looking for deals and value as we see them trading down to lower price point products. What does this mean for us? Targeted solutions for the cost-conscious consumer, like price comparison and deal and discount discovery, to connect them with the same quality products they seek for less. We have a tremendously diverse set of products, more than 150,000 available on the platform today. This also provides us with an immense amount of data that we can share with our retail and brand customers to further establish trust and reinforce the value of our platform. Part of servicing the consumer means continuing to improve the consumer experience and increase retention, which is critical to our success. We're focused on a couple of different things in 2023. First, consumer enhancements. We're building off our proprietary data to drive better personalization, curation, and effects-based shopping, which allows consumers to shop based on how they want to feel. We'll also focus on getting more deals to consumers to deliver what they're looking for in today's market, and that is value. In mobile apps, we've seen significant growth, and we continue to emphasize native. More than 1 million downloads of the Leafly app occurred in 2022. an 18.5% increase year over year. Mobile is where our most engaged customers are. They search more, they shop more, and we have an easier path to retention and engagement. Our app creates a sticky closed-loop experience where we can more freely interact through notifications offers and relevant content. Orders on mobile saw tremendous growth, 384% year over year, partially fueled by our UberEats partnership announced in October. This relationship is an extension of our strong belief that mobile is a critical component to our strategy. We are encouraged by early successes and continue to ramp up in Ontario. While still in its nascency, we think the UberEats partnership and our belief in a delivery-first shopping experience has tremendous opportunity as local markets embrace e-commerce and delivery. We also believe that reducing friction for our retail and brand customers will continue to demonstrate our commitment to making working with Leakly as easy and beneficial as possible, creating efficiency and value for our partners. We're hearing from our customers more and more that they want to understand how they can best leverage the Leakly platform to grow their business. We have a lot of information and data, and 2023 is about bringing that to life and making that data actionable for our customers. and combining it with our expertise and know-how. Third-party integrations, which are critical for reducing friction for our retailers, will benefit from a new and more robust ordering API. We'll improve ordering features with scheduled pickup windows, giving retailers greater control to manage their order flow. And to deliver for shoppers, we'll make it easier for retailers to create deals on weekly and offer new deal types. We will continue to innovate and improve on our ad products, including the extension of our marquee ad units into our mobile ads, providing an increase in impressions on our most engaged platforms. We will streamline the ad creation process through an improved ad builder, giving retailers and brands greater control. Looking at 2023, we are seeking an improved path to profitability through sustainable revenue growth and cash conservation. We see opportunities to rationalize our sales and support cost base by offshoring some operational support tasks while focusing our talent on higher value activities, such as in-market activations and building stronger relationships with our highest value customers. We'll continue to manage this year through a conservative approach as we seek a path to profitability, preserving cash, and targeting our resources against the key opportunities ahead. That's in places like Missouri, which just recently opened their rec market. They have approximately 200 stores in market that drove $100 million in sales of cannabis in its first month. We are in that market, in front of licensees, bringing them onto our platform and activating ordering. At full penetration across Missouri, that's a sizable revenue opportunity just by using our current ARPA rates. Cannabis, with all of its regulatory hurdles, and starts and pauses is a long game. We're going to see for the first time how cannabis performs in a down economy and what we see gives us reasons for optimism. We're adjusting to give consumers what they're looking for, value, and providing retailer and brand clients with clearer and simpler paths to reach shoppers. We've positioned ourselves in the market to benefit as opportunities start to take hold. And we believe we're positioned well for the year ahead and set up for success when the market re-accelerates. Now, I'll turn it over to Suresh.