Leafly Holdings, Inc.

Good afternoon. Thank you for attending today's Leafly fourth quarter 2023 earnings call. My name is Tamiya and I will be your moderator for today's call. I would now like to pass the conference over to your host, Josh DeBerg with Leafly. You may proceed.

Good afternoon and welcome to Leafly's full year 2023 and Q4 2023 earnings call. Joining me on the call today are CEO Yoko Miyashita and CFO Suresh Krishnaswamy. Today's prepared remarks have been recorded. A copy of our press release can be found on our website at investor.leithley.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 Leithley, the markets in which Leithley operates, business strategies, performance metrics, industry environment, potential growth opportunities, and least please 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 a 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 2022 annual report on 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.leafley.com. We changed the format of our call, and rather than doing a live Q&A, we have some submitted questions that we will answer at the end of this call. With that, let me turn the call over to Yoko.

Good afternoon, everyone. 2023 was a turbulent year across the cannabis industry. In the midst of macroeconomic and industry-wide headwinds, Leafly's attention has been on improving our efficiency as a business, which we believe strengthens our path to profitability while continuing to deliver value for our partners. We've focused on building a more durable business and also work to grow our relationships with high-value partners, ensuring they get the most out of the Leafly platform by engaging with the tools we offer. We continue to enhance our consumer experience through improvements to some of our most important features like field functionality, delivery offerings, and search capabilities, and are making it easier for retailers to work with Leafly to reach the cannabis-engaged consumers they are after. Q4 revenue was above our guidance at $9.75 million. Our adjusted EBITDA was positive $1.16 million, an improvement from negative $231,000 in Q3, and benefited from the reversal of bonus accruals. Cash, a crucial focus area for us, saw an uptick, finishing the year at $15.3 million, an increase of 5.7% quarter over quarter. According to a Whitney Economics report from June of 2023, less than 25% of the cannabis sector is profitable, reflecting the challenging operating conditions for retailers and brands. Those conditions impacted our business, and as a result, non-paying customers reached a high point for us in Q3, which we recognized was unsustainable. We strategically focused on collections throughout Q4, and we made difficult decisions to continue removing underperforming and non-paying retailers. Proactively terminating relationships with these partners was a tough but necessary step to get us to a durable and healthier base of customers. Ending retail accounts at year end were 4,075, a 30% reduction year over year, and an 8.8% decline quarter over quarter. As part of our efforts to understand trends, we've performed a deep dive into many of those lost accounts to gain insights into why they left the platform. Using that data, we are surfacing valuable insights to inform a more tailored approach to reactivation when it makes sense, offering pricing that we believe better aligns with individual retailer needs and budgets. With this more thoughtful approach, we expect fewer accounts churning for nonpayment or delinquency as the worst offenders are removed. And we expect to see better alignment of reacquired customers to the right product at the right price to build a stickier, more durable retailer base. As we've shifted the composition of our retailer base, we've also bolstered our sales team, recently hiring six new market managers and two new acquisition managers will be intently focused on improving penetration in key markets and going after new market opportunities. Our augmented sales team is focused on adding to our base of paying retail subscribers. To aid the team in doing that effectively in a challenging market, we plan to introduce price points and products for everyone who wants to be on our platform at any level of engagement. and better demonstrate and convey the power and value of our platform to our retail customers. We recently collaborated with a digital technology platform to measure online and offline purchases at a retail store chain in California. We tracked the consumer journey from learning about cannabis products on weekly to purchase. This attribution data shows what we long believed that Leafly plays a critical role in the consumer purchasing journey, regardless of whether they ultimately place an order on Leafly. This retail store chain saw their return on spend nearly double when factoring in the full influence of our platform, including research and discovery. We're on a continuous path of reducing retailer friction and enhancing the consumer experience. And we introduced a number of improvements, some incremental, some significant across the platform. In Q4, we rolled out more widely our order API, which reduces integration times and complexity and provides a more seamless experience, allowing retailers to receive weekly orders in their POS and fulfill them for shoppers from the systems retail staff use in-store. We also introduced new deal types and improved the deals engine that powers them. New deal types increase the volume and variety of deals in our marketplace. This is essential because it helps consumers find the best prices near them. The deals engine improvements reduce the time and effort for retailers to load new deals. That's important because consumers are searching for the best prices at a time when their own wallets are under pressure. Cannabis discovery remains core to who we are and what we do. Consumers continue to rely on Leafly to research, learn about, and ultimately decide what cannabis is right for them. Over our decades plus history of helping consumers discover cannabis, We have developed a unique and proprietary data set, which is helping power our prototype AI bud tender. We continue to refine the learning model with our first party data. We look forward to sharing more about this prototype later this year and how it could enhance the user experience across the Leafly platform. AI is just one example of an area our product team is working on and will continue to seek out strategic opportunities to invest in our product in meaningful ways. Our focus over this year, however, will be centered on improving our existing products and services with a focus on delivering value for the retailers, brands, and consumers we serve. As we look ahead, we see potential bright spots, including the anticipated rescheduling of cannabis by the DEA this year. This could provide extra cash flow for cannabis businesses as they shed the heavy tax burden of 280E under the federal tax code. Rescheduling should have a positive impact on the industry as a whole, potentially driving additional marketing spend from retailers and brands and encouraging the deployment of additional capital into the sector. And while we look forward to federal reform, we see the state-by-state legalization movement continue, which helps progress LEAKLY's business. We saw good growth in the markets that launched recreational sales in 2023. In Missouri, which started rec sales in February last year, we nearly doubled revenue in 2023 compared to 2022. And in Maryland, we saw a 27% increase in monthly revenue in the months after recreational sales started in July. New state markets will come online in the fall of this year, including Ohio, which became the 24th state to legalize adult recreational use. Ohio's medical market cannabis sales topped nearly 500 million in 2023 across 120 dispensaries, and many believe it has the potential to be a $1 billion-plus market when REC matures. We're already in the Ohio market in front of consumers and existing licensees and are excited to help them capitalize on legal recreational sales. Full penetration across the state could represent a sizable revenue opportunity just by using our current ARPA rates. Overseas, on April 1st, we will excitedly watch as Germany legalizes adult use cannabis. That's legalization momentum going global. Legalization moments like these fuel industry momentum and further normalize cannabis. Over time, this industry will continue to grow and will continue using the powerful platform we've built to serve high-value consumers looking for trusted and premium content and connecting them with local retailers and brands. I'll now turn the call over to Suresh.