Leafly Holdings, Inc.

Good morning. Thank you for attending today's Leafly first quarter 2023 earnings 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'd like to queue for a question on today's call, you can do so by dialing star 1. I would now like to pass the conference over to your host, Kenan Zopp with the BlueShirt Group. You may proceed.

Good afternoon and welcome to Leafly's first quarter 2023 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 a live Q&A. A copy of our press release, along with an accompanying earnings presentation, can be found at our website at investor.leapley.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 to not place undue reliance on such statements. For a discussion of the material risk and other important factors that could affect our actual results, please refer to the risk assessed in today's press release Our annual report form 10-K filed with the SEC on March 29, 2023, 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 Suresh for the operational and financial details.

Thank you, Keenan, and welcome everyone. In the first quarter, we delivered results within our expectations. The macro environment for cannabis continues to be challenging. While the consumer remains interested in cannabis, as evidenced by increased engagement on our platform, they're seeking value. As a result, our retailer and brand customers' margins are being squeezed, and they're tightening their advertising budgets. Within this context, we continue to focus on our three priorities, one building a stronger marketplace two supporting the areas of the business that we believe will provide the greatest return from a near-term revenue perspective and three continuing to improve operating efficiency and preserving cash we ended q1 with 15 million dollars in cash q1 is far and away our highest cash burn quarter due to front year loaded expenses for 2023 These include annual insurance payments, including DNO, annual incentive payments, and other Q1 public company costs that totaled approximately $6 million. It's important to note that our cash burn for the remaining three quarters of 2023 is expected to be significantly below the cash burn level in Q1, with savings from the March restructure contributing about $2.3 million per quarter. We paid approximately $750,000 in Q2 for the restructure cost. Taken all together, we now expect our 2023 cash burn rate to be modestly higher than the $10 million that we previously disclosed due to pressure on top line growth, which I'll discuss in a moment. Amidst the difficult operating environment, we remain committed to prudently managing our capital with the intent of not needing to raise new capital on our path to profitability. Now to the income statement. Revenue in the first quarter was $11.2 million, down 1% year over year. Our revenue from retail was $9.5 million, up 3% year over year. As we mentioned last quarter, we continue to see softness in revenue from brands, which declined 21% year over year, and totaled $1.8 million. On a sequential basis, brand revenue declined 33% compared to Q4, reflecting a further pullback of brand spending on advertising, which we started to see in the second half of last year. April is typically our strongest month for brands as they advertise heavily in advance of 420. That did not play out this year. We are preparing for brands revenue on a quarterly basis in 2023, to be at similar revenue levels as Q1. Ad budgets remain tight and we're not seeing that spend return so far. Yoko will discuss changes to our commercial structure, which we believe present opportunities moving into the second half to improve brands revenue. Looking more closely at our retail results. Ending retail accounts in Q1 grew 5% year over year and declined 2% sequentially to 57.02. The bulk of this decline was attributed to one MSO who pulled their listings off recently. Their exit from our platform was a one-off decision and does not reflect what we're seeing across the business. Excluding the loss of this one MSO, which amounted to 165 accounts, our retail accounts would have grown 8% year over year and 1% sequentially. We are evaluating the health of our accounts across all markets and expect additional churn this year as the industry seeks a level of stability. We've seen softness in certain markets for retailers as margins are squeezed and dispensaries and some operators are making decisions to exit unprofitable markets or stakes. As discounted stores exit our platform, we've seen stabilization in our ARPA. Our retail ARPA in the first quarter was $553, a decline of 4% year-over-year and flat quarter-over-quarter. Q1 marked the third quarter in a row of stable ARPA, which gives us optimism that we're forming a base upon which we can improve. Going forward, we're focused on price increases and increasing share of wallet with our customers to drive improvement in ARPA in the second half of 2023. Moving to our operating expenses. Our OpEx in Q1 totaled $14.9 million, down 15% year-over-year, and down 9% sequentially. The reduction in headcount and cost-cutting efforts across the business allowed us to achieve this improvement in our OPEX. As a reminder, we took a one-time charge of approximately $750,000 in Q1 for the restructure discussed on our last call. Adjusted EBITDA for Q1 was a loss of $3.3 million compared to a loss of $5.4 million in Q1 of 22. we expect to report improvement in adjusted EBITDA each quarter through the rest of 2023. Taking into account these factors, our guidance for Q2 is as follows. We expect revenue to be around 10.5 million and adjusted EBITDA to continue to improve and be around negative 2.1 million. As a result of the headcount reductions in October and March and added cost containment efforts, we're seeing improved operating efficiency in the business. We are focused on our path to profitability and are executing against our plans to achieve this by the end of 2024, as previously disclosed. Our sales fee structure is now in place and our content team and product and engineering groups are enhancing our platform for our customers and consumers. The team at Leafly is hard at work laying a foundation for success when markets improve. I'll now turn the call over to Yoko for more detail.