WM Technology, Inc.

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Thank you for standing by. Welcome to the WM Technologies, Inc. Fourth Quarter 2022 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. To remove yourself from the queue, simply press star 1-1 again. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Greg Solowitz, Vice President of Investor Relations. Please go ahead, sir.

Hi, everyone. Thanks for joining us today to discuss our fiscal 2022 fourth quarter results. We have our Executive Chair, Doug Francis, and our CFO, Arden Lee, with us today. By now, everyone should have access to our earnings announcement. This announcement is also on our Investor Relations website, along with a supporting slide deck. During this call, we'll make forward-looking statements, including statements about our business outlook, strategies, and long-term goals. These statements are not guarantees of future performance. They're subject to a variety of risk and uncertainties, some of which are beyond our control. Our actual results could differ materially from expectations reflected in any forward-looking statements. For discussion of risk and other important factors that could affect our actual results, please refer to our SEC filings available on the SEC's website and our investor relations website, as well as the risk and other important factors discussed in today's earnings release. We specifically disclaim any intent or obligation to update these forward-looking statements, except as required by law. For the benefit of those who may be listening to the replay or archived webcast, this call was held and recorded on March 16, 2023. Since then, we may have made announcements related to the topics discussed, so please refer to the company's most recent press releases and SEC filings. Also during this call, we will discuss certain non-GAAP financial measures in addition to financial information prepared in accordance with GAAP. These non-GAAP financial measures should be considered in addition to, but not as a substitute for, the information prepared in accordance with GAAP. A reconciliation of these measures to our GAAP results can be found in our earnings presentation available on our Investor Relations website. And finally, this call in its entirety is being webcast from our Investor Relations website, and an audio replay will be available on our website in a few hours. With that, I'd like to turn the call over to Doug.

Thanks, Greg, and thanks, everyone, for joining us. Our fourth quarter results came in where we expected. We posted $49 million in Q4 revenue. $2 million in Q4 adjusted EBITDA and ended the year with $29 million in cash while continuing to be debt-free. Further, we grew our paying clients by double digits for last year despite challenges in our end markets. In my first quarter back at the helm, our team's focus was stabilizing revenue and getting back to our operating culture of driving profitability. And while there is still work to do, we're pleased with the progress we've made so far and are confident we have the right team and strategy in place. Like many companies, we are facing challenges in the current environment. Inflation is eating into consumer and business spending power. The higher cost of capital is slowing growth, and the fear of a looming recession is front and center on folks' minds. The cannabis industry is facing additional headwinds as we deal with overregulation, the slow rollout of new licenses across the country, a lack of government support combined with high taxes from all levels of government, commoditization of cannabis products, frozen capital markets, limited access to banking, and a thriving black market. Cannabis companies need all the help they can get right now, and they're letting us know that Weedmaps continues to be one of the best ways to engage an active cannabis community and acquire targeted consumers. Our omnichannel approach of integrated digital, in-store, events, community engagement, and street activations can create hyperlocal traffic for our clients. Given the nature of our users, each user engagement that we send to our clients, whether online or offline, creates meaningful value, especially in times like these. As we've been getting back to our roots and focusing on making the plant front and center, both brands and retailers alike want to associate their brand with Weedmaps, given how we engage and help shape the culture of cannabis. The outreach from our industry has been great, and we're making plans with key partners to tell the cannabis story in our pursuit of legalization and safe access. We have a clear plan to maximize our opportunities in what may be a difficult 2023 and lay the foundation for healthy growth in 2024 and beyond. As I mentioned last quarter, the key for us in 2023 is focus. We are focused on three things. Our marketplace experience with users, delivering undeniable value to our clients, and doing all of that with the goal of profitable and sustainable growth. First on our marketplace, we're getting back to what we do best and the roots of what made WeMap special by celebrating weed culture and the magic of the plant. We'll create differentiated content showcasing the craft nature of cannabis. will elevate the conversation about genetics and terpenes. For example, we're engaging with expert scientists, cultivators, and breeders across the country to tell the terpene and micro cannabinoid story across Weedmaps. Through educational content and by offering differentiated products through our marketplace, we'll help eliminate the high THC equates to the best weed fallacy. This will benefit the brands and retailers that we showcase on Weedmaps by highlighting differences other than just THC levels. We're also engaging with Dr. Bonnie Goldstein, our former medical director, and leading cannabis physician to create educational content on the therapeutic effects of cannabis. WeMaps has historically been and will continue to be a safe place for users to find cannabis for wellness and to help treat serious conditions and ailments. We're also working to improve the shopping experience of our users by enhancing our taxonomy, algos, and our search results to make search more intuitive across our platform. We'll better leverage our first-party user data to drive more personalized experiences and influence our user journeys toward making the right purchase from our clients. We sit in a privileged position given the first-party data sets that we own and the rise of large language modeling and AI reinforcement learning tools. WeMass has historically been the authoritative source for all things cannabis, and we'll continue building on that marketplace reputation by differentiating our content, user experience, and data in 2023. Next, we'll focus on delivering undeniable value for our clients to improve their returns. We plan to expand our advertising solutions across product categories, giving our clients more ways to reach our high intent users mid funnel and impact their purchase decisions. We're expanding the regional logic that drives our local ad offerings to give our clients more options on where they show up in our search experience. We have projects in flight to create new and differentiated deal types for our clients to reach users seeking value. We're working on integrating our SaaS solutions as value-added features and extensions of our marketplace to provide more utility to our users and clients. We'll make it easier for our clients to onboard, integrate, and grow with Weedmaps regardless of their tech stack. And we'll support our clients with local activations, retailer appreciation tours, brand collaboration, and exclusive merchandise drops so they can leverage the power of Weedmaps brand to tell their own stories. Finally, we'll focus on driving profitable and sustainable growth. We will focus on what we can control while preparing to accelerate our growth when markets improve. Rather than a one-size-fits-all approach to markets, clients, and solutions, we'll be disciplined in how we prioritize investments. We'll be pulling back spend against some of our newer non-marketplace solutions while we evaluate the product market fit of these offerings. We'll focus on driving a lean operating mentality in everything that we do. We've already done the heavy lifting, removing excess layers of management across the company, simplifying processes, and changing the way we work to drive sales and savings. We already restructured our workplace ahead of the start of this year, as difficult as that was, so that we can hit the ground running. I'm proud of what our teams have accomplished over the last several months in doing the hard work to set ourselves up for success in 2023. Productivity is a year-round effort with no finish line, and that's our mindset in 2023. Before I hand the call to Arden, I also want to provide a brief update on leadership. The board and I have decided to put our CEO search on hold for now, and I will continue leaning in and working with our senior leadership team for the time being. I'm deeply invested in the success of Weedmaps and will continue to drive our pace as we do our part in driving profitable growth for the industry. It's always darkest before the dawn, and though 2023 will be challenging, we believe that the future of the cannabis industry is bright and exciting, for those with the vision, know-how, and willingness to take it on. We at Weedmaps have deep knowledge of the plant, the supply chain, and where the industry is headed. We know how to leverage that insight into our marketplace and technology, and we know how to leverage data to not only acquire customers, but to showcase the products that will keep them coming back. We believe that Weedmaps is in a great position to capture opportunity across all value chain segments if and when broader legalization arrives. Until then, we'll continue executing against our focus priorities and leading from the front as we take the industry through this next stage of growth. It's time like these where the power of WeedMap's brand, the value of our marketplace, and the strength of our leadership position within cannabis truly shine with our users and clients. With that, I'll turn it over to Arden.

Thanks, Doug, and hello to everyone on today's call. Our fourth quarter performance reflected the expectations we had on growth heading into the quarter, and the actions we took to drive profitability throughout the quarter. Q4 revenue came in at $49 million, resulting in a 5% decline for total second half revenue, consistent with our prior guidance. Q4 adjusted EBITDA was a positive $2 million. While our adjusted EBITDA continues to be impacted by provisions for doubtful accounts, we saw these non-cash charges narrow in Q4 as we expected. Adjusted EBITDA prior to these charges was $4 million, reflecting the cost reduction actions we took throughout the quarter. While our growth continues to be impacted by end market headwinds, which are driving reduced levels of spend by clients, we continue to expand our client base. Our paying clients grew by 19% versus last year. And when looking at spend levels by existing clients, we're seeing signs of stabilization, with our net dollar retention continuing to hold at levels consistent with the prior quarter. Our net dollar retention within California, which continues to be our largest region at 54% of Q4 revenue, expanded in Q4 versus the prior quarter. Q4 adjusted EBITDA of 2 million reflected a 9% reduction in adjusted OpEx versus last year. We rationalized a number of areas across the company, reducing excess management layers within our sales and marketing teams and eliminating our cross-functional domain orgs in favor of a new centralized operating structure. Our adjusted sales and marketing and G&A declined by 14% and 11% as a result, with product development increasing by 11% versus last year. We reported a net loss of $61 million for the quarter, which includes $6 million in stock-based compensation, along with approximately $56 million in other non-recurring charges, the bulk of which is related to the valuation allowance we took against our deferred tax assets, which is a non-cash charge, along with severance payments associated with the headcount reduction we executed during the quarter. More information on these charges is available in our earnings release and will be in our Form 10-K. We close the year with $29 million in cash, continue to be debt-free, and are comfortable with our liquidity position. In light of recent events, we're monitoring our banking situation closely and feel comfortable with the security of our cash deposits. We do not have relationships or any direct exposure with Silicon Valley Bank or Signature Bank. Our fully diluted share count across our Class A and B share classes was $148 million at the end of the quarter. A reconciliation of adjusted EBITDA to net loss, as well as the details of our share classes and share count calculation, are provided in our earnings presentation posted to our investor relations site. Lastly, as noted in our release, we have reported in our Form 10-K a material weakness on our general IT controls related to internal user access and change management over certain systems that are relevant to our financial reporting. I can tell you no misstatements have been identified in our audit as a result of these deficiencies, and we've already begun our remediation efforts. Turning to our outlook, we're confident that the sharp focus on our marketplace, client value, and profitability will help us navigate through the continued end market headwinds impacting our scaled markets. We expect to expand our paying client base given the opportunities we see. but also expect to see continued pressures on revenue per client across several of our scaled markets as a result of the ongoing declines across our end markets. Given these headwinds and general uncertainties in the current macro environment, we will not be providing full year guidance on revenue or adjusted EBITDA. We expect Q1 revenue, which is our seasonally lowest quarter, will be slightly down versus Q4 at 47 million, given seasonality related to the Q4 holidays. On profitability, we expect double-digit adjusted EBITDA margins and positive cash flow in 2023. We already took actions during Q4 to create clear line of sight to positive cash flow, regardless of end market dynamics. We're starting this year with a run rate level of adjusted OpEx that's consistent with where we were after we closed our GO public transaction and prior to accelerating investment. And yet today, we have a presence in more regions with an expanded client base and platform capabilities than where we were back then. We will invest based on how our growth is trending and don't anticipate significant investments to achieve our growth priorities. We also see continued opportunities to achieve productivity, which will give us capacity to fund growth investments. To that end, we expect Q1 adjusted EBITDA will be approximately $4 million as we ramp investments heading into the 420 holiday. Our cash in the first half will continue to be impacted by remaining severance and termination costs related to the headcount reductions we took last quarter. With that said, we are committed to driving positive cash flow this year, and we have a clear line of sight to delivering against that commitment given the cost reductions we've already achieved and the focused approach we'll take this year on new investments. In closing, I want to thank our team at WeMaps and Doug for his ongoing leadership as we get going in 2023. As Doug noted, 2023 will be a year to remember as we drive a focused set of priorities. Let's now open up the call for questions.

Certainly. Ladies and gentlemen, if you have a question at this time, please press star 11 on your telephone. One moment for our first question. And our first question comes from the line of DJ Hines from Canaccord. Your question, please.

Hey, guys. Thanks for taking the questions. Arden, so really nice progress in the margin front in Q4 and what's implied in Q1. As we think about the historical financial profile of business, is that aspirationally where you think you can get back to? And as we think about the dials you're turning to get there, is it more broad-based discipline or are there specific areas where you're taking a more calculated step back?

Yeah, DJ, first off, thanks for that question. I appreciate that. So a couple things, and let me know if I don't cover fully your questions. You know, we've talked in the past about our business model being inherently cash flow generative. And when we've gone through cycles of accelerating investment, how we've been able to kind of show shortly after that investment acceleration ends, the cash flow kind of generation that our business model supports, right? So back in fiscal 2019, when we last went through an investment acceleration year, you'll see in fiscal 2020, and I think that's what you're referencing, the EBITDA and cash flow that we were able to generate coming off the heels of that. We don't think there's any reason why we can't get back to those levels. Obviously, we've done a lot of heavy lifting, as Doug referenced, over the last quarter. We hit the ground running when we started the year. We took a lot of these difficult actions over the course of Q4 to set ourselves up to do so come January. And in terms of your second question around where did we find these opportunities, I'd say, A, there's a general kind of mindset of let's find productivity and operate leanly across the company. Now, with that being said, a lot of the cost reductions that we took in Q4 were very surgical and around certain areas. And what I characterized those areas as is, A, we eliminated a lot of excess kind of management layers and infrastructure that we had created. So we had created a number of cross-functional orgs across the company that candidly were slowing us down. in terms of our ability to get our teams to move at the speed which they wanted to. And then if you look at the other areas where we've really accelerated investment, it's a lot of our go-to-market kind of teams. And so what we've done is been a lot smarter around kind of pruning our go-to-market resources to kind of align with the market opportunity that we see in the near term. And then on the margin, I'd say that there were certain areas that were kind of nice to have but not necessarily need to have in this environment. And so we took a hard look at how our teams were working and tried to see where we could, again, remove redundancy to get more productivity. Yeah, yeah, okay, got it.

And then just as a follow-up, so At what level do you think we might see a floor in that monthly revenue per paying client metric? And I guess the question really is, like, how are you internally thinking about modeling and budgeting for that over the course of 23?

Yeah, so, you know, for us, we expect to continue to see pressure against that number. And I guess the answer to your question, DJ, is a bit nuanced. And why I say that is, in theory – When we're dealing with healthy marketplace dynamics, we would like to see that number not grow too much because we're continuing to expand in new regions, right? And as we talked about in the past, as we're expanding in new regions, those tend to be lower spend levels versus our scaled regions. Now, the issue that we're having in this environment, as we talked about for the last few quarters, is that across our scaled markets, specifically California, Colorado, Oklahoma, As folks have seen with the third-party data, end-market GMV continues to decline, continues to decline on a quarter-over-quarter basis. If you look at the data year-to-date in 2023 so far, it's been sequentially down for the better part of the Q1 today period. And so we're very mindful of that dynamic in terms of how we're modeling out and planning against those scaled markets or those scaled states of California, Oklahoma, and Colorado. What I will say, though, is outside of those three states, we're seeing very healthy demand trends amongst our clients. We're seeing healthy demand trends in terms of not only our ability to grow our paying client base, but also spend levels across these regions. So for us, what does that mean? We've got our eyes focused specifically on those three states just to get a read around client tone and health of our clients because it's still – touch and go, obviously, in those three states. But outside of that, it's business as usual, us getting after the opportunity.

Okay, got it. Thank you for the call. Thank you. One moment for our next question. And our next question comes from the line of Andrew Carter from Steeple. Your question, please.

Hey, thank you. Good evening. Good afternoon. So first question I would ask in terms of What you're seeing on the cash needs, I think the cash burn in the quarter was $4 million versus the kind of adjusted $4 million number. How much was cash charges? How much is kind of left to go in cash charges? And help us understand if there's anything due on the distributions given the special shareholder class on the cash basis.

Yeah, yeah. So, Andrew, I can take that one. So, a couple things. So, as we referenced earlier, earlier on the call, we still have some residual charges, cash costs related to the cost reduction efforts that we took in Q4. So we talked or we filed in our 8K last quarter the severance charges related to the headcount reductions that we took. The bulk of those will hit in the first half. So we talked about just under $11 million of cash charges when we filed our 8K in December. We paid out over the course of Q4 about a quarter of those, so we still have some residual costs left to go. On your question around tax distributions, you know, our tax distributions have been averaging at about a buck a quarter or so, and so we don't expect, you know, much movement in the very near term on that front. What I will say is, you know, we've fully thought through the severance charges that are left to go in terms of our liquidity and cash management and planning and the like. And as you mentioned on the call, we feel very comfortable with our liquidity position. We've sized our cost base at a level where we have clear line of sight towards generating positive cash flow, regardless of what happened in California, Colorado, Oklahoma. And I touched on the dynamics that we're seeing in some of these other states. Got it.

Second question I have, so third-party kind of metrics, we look at similar web. Apptopia shows the time on the platform is down pretty significantly and accelerated year-to-date. That might be in part a function of the end markets themselves, but also, you know, what's kind of your sense of the MAU base? I know you're still kind of evaluating that, going back to drawboard, what you're disclosed, but your sales teams also obviously have to be armed with something to the value. So anything you can help on that and Do you think you're investing at the right level behind that? The demand generation, both sides of the funnel, obviously.

Yeah, I'll take that. This is Doug. We recently hired a new CMO who's an absolute pro on that. So we've been digging in. There's no doubt there's absolute pressure across the board on the marketplace, but we're still dialing in to see what the best metric is that reflects the health of our marketplace. But again, the end markets are tough. We are feeling it, but there are pockets of what we used to do great at Weedmaps, which is kind of tell the plant story. So we feel within like health and wellness with Dr. Goldstein and some of these other moves, we have top of the funnel moves that we can make that are opportunistic. And then these new features that we discussed, like category-based, allows us to really penetrate lower in the funnel. So we have enough slotted coming up here where we think we can get positive movement. But, again, there's no question there's pressure. Got it.

Final question I guess I'll just ask, and this is I realize, you know, you can't control the market. But if you step back and think about the original thesis of the go public transaction, a lot of it was to kind of take advantage of being a public candidate's play and being kind of the most capital efficient. And, you know, if you're not rewarded for that, you know, do you see the strategic value in remaining there? And given you've got cash flow in sight, this is a capital-efficient platform, you're going to have more options than others. So just anything, I'd love to hear any commentary on that.

Yeah, I can start on that one, Andrew. Listen, we're focused on executing the answer plan. We obviously went public for a reason. We have benefited from... The ability to tell our story externally and being able to kind of showcase the business model and the like. Obviously, it's a tough capital markets environment, but for us, we're focused on what we can control. What we control is executing against the plan that we have, and I'll leave it at that.

Fair enough. I'll pass it on.

Thank you. One moment for our next question. And as a reminder, ladies and gentlemen, if you do have a question at this time, please press star 11 on your telephones. And our next question comes in the line of Tom Champion Callahan from PSE. Your question, please.

Hi, thanks. This is Jim on for Tom. Thanks for taking the question. So I guess first, I have one for Doug. So you've been back with the company for about four months now, and there's a lot of macro challenges you're kind of dealing with. Can you just kind of talk us through some of your biggest takeaways? and what you've learned so far as you've been getting back involved with the business. And I had one for Arden. It seems like the allowance for doubtful accounts kind of keeps coming up. I guess curious how we should think about the cadence of that through the balance of the year. Thank you.

Yeah, so this is Doug. It's really a challenging market, that's for sure. But it is really a state-by-state and market-by-market story. So as we get getting out there and talking to folks, you know, the one thing that does come up is because a lot of budgets are compressed in the industry, they're really leaning on Weedmaps to tell their brand story. So, you know, kind of bringing some of the old gang back in the company has been exciting as well because we've been able to build some relationships with the MSOs and brands on the East Coast that were a little elusive to us. So, you know, what we're really doing now is focusing on the marketplace, our data and our search. We're really developing our content, which we think will help in all markets. You know, WeMaps really used to really be the source of truth for the industry. And, you know, through our data integrations and bringing kind of the pros back around, you know, that's really our goal is to be the thought leader. And we hope that drives from state to state as we help folks learn how to search for cannabis and how to consume cannabis the right way. But the main takeaway that I've gotten from most folks is that it's tough. And since we have full knowledge of the supply chain, we were already giving counsel and advice kind of beyond technology. So the main takeaway, again, is just the support that's needed.

Yeah, and on the second question you had, you're right. We did have bad debt expense again in the quarter. It was just over $2 million. We did call out in our November call that we expected bad debt to remain elevated in Q4 and to start normalizing over the course of 2023. Listen, it's still touch and go, as I mentioned before, in those three states. And with end market declines trending the way they are, we continue to be very kind of vigilant around not only collections and our gross AR growth, but how our AR is moving through various aging buckets. We've done a lot. We continue to do a lot operationally to control, like I said, what we can control. One of the big moves that we made starting the year was to put the accountability of our collections back into the hands of a lot of our account teams because they're quite successful in terms of managing that client relationship So we're seeing some good results stepping out of that.

Great. Thank you. Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to management for any further remarks. Thank you, everyone, for joining the call today. Thank you, ladies and gentlemen, for your participation at today's conference. This does conclude the program. You may now disconnect. Good day. Thank you. Thank you. Thank you. Thank you for standing by. Welcome to the WM Technologies, Inc. Fourth Quarter 2022 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press star-1-1 on your telephone. To remove yourself from the queue, simply press star-1-1 again. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Greg Selowitz, Vice President of Investor Relations. Please go ahead, sir.

Hi, everyone. Thanks for joining us today to discuss our fiscal 2022 fourth quarter results. We have our Executive Chair, Doug Francis, and our CFO, Arden Lee, with us today. By now, everyone should have access to our earnings announcement. This announcement is also on our investor relations website, along with a supporting slide deck. During this call, we'll make forward-looking statements, including statements about our business outlook, strategies, and long-term goals. These statements are not guarantees of future performance. They're subject to a variety of risks and uncertainties, some of which are beyond our control. Our actual results could differ materially from expectations reflected in any forward-looking statements. For discussion of risk and other important factors that could affect our actual results, please refer to our SEC filings available on the SEC's website and our investor relations website, as well as the risk and other important factors discussed in today's earnings release. We specifically disclaim any intent or obligation to update these forward-looking statements, except as required by law. For the benefit of those who may be listening to the replay or archived webcast, this call was held and recorded on March 16, 2023. Since then, we may have made announcements related to the topics discussed, so please refer to the company's most recent press releases and SEC filings. Also during this call, we will discuss certain non-GAAP financial measures in addition to financial information prepared in accordance with GAAP. These non-GAAP financial measures should be considered in addition to, but not as a substitute for, the information prepared in accordance with GAAP. A reconciliation of these measures to our GAAP results can be found in our earnings presentation available on our investor relations website. And finally, this call in its entirety is being webcast from our investor relations website, and an audio replay will be available on our website in a few hours. With that, I'd like to turn the call over to Doug.

Thanks, Greg, and thanks, everyone, for joining us. Our fourth quarter results came in where we expected. We posted $49 million in Q4 revenue, $2 million in Q4 adjusted EBITDA, and ended the year with $29 million in cash while continuing to be debt-free. Further, we grew our paying clients by double digits first last year despite challenges in our end markets. In my first quarter back at the helm, our team's focus was stabilizing revenue and getting back to our operating culture of driving profitability. And while there is still work to do, we're pleased with the progress we've made so far and are confident we have the right team and strategy in place. Like many companies, we are facing challenges in the current environment. Inflation is eating into consumer and business spending power. The higher cost of capital is slowing growth, and the fear of a looming recession is front and center on folks' minds. The cannabis industry is facing additional headwinds as we deal with overregulation, the slow rollout of new licenses across the country, a lack of government support combined with high taxes from all levels of government, commoditization of cannabis products, frozen capital markets, limited access to banking, and a thriving black market. Cannabis companies need all the help they can get right now, and they're letting us know that Weedmaps continues to be one of the best ways to engage an active cannabis community and acquire targeted consumers. Our omnichannel approach of integrated digital, in-store, events, community engagement, and street activations can create hyper-local traffic for our clients. Given the nature of our users, each user engagement that we send to our clients, whether online or offline, creates meaningful value, especially in times like these. As we've been getting back to our roots and focusing on making the plant front and center, both brands and retailers alike want to associate their brand with Weedmaps, given how we engage and help shape the culture of cannabis. outreach from our industry has been great and we're making plans with key partners to tell the cannabis story in our pursuit of legalization and safe access we have a clear plan to maximize our opportunities of what may be a difficult 2023 and lay the foundation for healthy growth in 2024 and beyond as i mentioned last quarter the key for us in 2023 is focus we are focused on three things our marketplace experience with users delivering undeniable value to our clients and doing all of that with the goal of profitable and sustainable growth. First on our marketplace, we're getting back to what we do best and the roots of what made WeedMap special by celebrating weed culture and the magic of the plant. We'll create differentiated content showcasing the craft nature of cannabis. We'll elevate the conversation about genetics and terpenes. For example, we're engaging with expert scientists, cultivators, and breeders across the country to tell the terpene and micro cannabinoid story across WeedMap's. Through educational content and by offering differentiated products through our marketplace, we'll help eliminate the high THC equates to the best weed fallacy. This will benefit the brands and retailers that we showcase on Weedmaps by highlighting differences other than just THC levels. We're also engaging with Dr. Bonnie Goldstein, our former medical director, and leading cannabis physician to create educational content on the therapeutic effects of cannabis. Weedmaps has historically been and will continue to be a safe place for users to find cannabis for wellness and to help treat serious conditions and ailments. We're also working to improve the shopping experience of our users by enhancing our taxonomy, algos, and our search results to make search more intuitive across our platform. We'll better leverage our first-party user data to drive more personalized experiences and influence our user journeys toward making the right purchase from our clients. We sit in a privileged position given the first-party data sets that we own and the rise of large language modeling and AI reinforcement learning tools. WeMass has historically been the authoritative source for all things cannabis, and we'll continue building on that marketplace reputation by differentiating our content, user experience, and data in 2023. Next, we'll focus on delivering undeniable value for our clients to improve their returns. We plan to expand our advertising solutions across product categories, giving our clients more ways to reach our high intent users mid funnel and impact their purchase decisions. We're expanding the regional logic that drives our local ad offerings to give our clients more options on where they show up in our search experience. We have projects in flight to create new and differentiated deal types for our clients to reach users seeking value. We're working on integrating our SaaS solutions as value-added features and extensions of our marketplace to provide more utility to our users and clients. We'll make it easier for our clients to onboard, integrate, and grow with Weedmaps regardless of their tech stack. And we'll support our clients with local activations, retailer appreciation tours, brand collaboration, and exclusive merchandise drops so they can leverage the power of Weedmaps brand to tell their own stories. Finally, we'll focus on driving profitable and sustainable growth. We will focus on what we can control while preparing to accelerate our growth when markets improve. Rather than a one-size-fits-all approach to markets, clients, and solutions, we'll be disciplined in how we prioritize investments. We'll be pulling back spend against some of our newer non-marketplace solutions while we evaluate the product market fit of these offerings. We'll focus on driving a lean operating mentality in everything that we do. We've already done the heavy lifting, removing excess layers of management across the company, simplifying processes, and changing the way we work to drive sales and savings. We already restructured our workplace ahead of the start of this year, as difficult as that was, so that we can hit the ground running. I'm proud of what our teams have accomplished over the last several months in doing the hard work to set ourselves up for success in 2023. Productivity is a year-round effort with no finish line, and that's our mindset in 2023. Before I hand the call to Arden, I also want to provide a brief update on leadership. The board and I have decided to put our CEO search on hold for now, and I will continue leaning in and working with our senior leadership team for the time being. I'm deeply invested in the success of Weedmaps and will continue to drive our pace as we do our part in driving profitable growth for the industry. It's always darkest before the dawn, and though 2023 will be challenging, we believe that the future of the cannabis industry is bright and exciting, for those with the vision, know-how, and willingness to take it on. We at Weedmaps have deep knowledge of the plant, the supply chain, and where the industry is headed. We know how to leverage that insight into our marketplace and technology, and we know how to leverage data to not only acquire customers, but to showcase the products that will keep them coming back. We believe that Weedmaps is in a great position to capture opportunity across all value chain segments if and when broader legalization arrives. Until then, we'll continue executing against our focus priorities and leading from the front as we take the industry through this next stage of growth. It's time like these where the power of WeedMap's brand, the value of our marketplace, and the strength of our leadership position within cannabis truly shine with our users and clients. With that, I'll turn it over to Arden.

Thanks, Doug, and hello to everyone on today's call. Our fourth quarter performance reflected the expectations we had on growth heading into the quarter, and the actions we took to drive profitability throughout the quarter. Q4 revenue came in at $49 million, resulting in a 5% decline for total second half revenue consistent with our prior guidance. Q4 adjusted EBITDA was a positive $2 million. While our adjusted EBITDA continues to be impacted by provisions for doubtful accounts, we saw these non-cash charges narrow in Q4 as we expected. Adjusted EBITDA prior to these charges was $4 million, reflecting the cost reduction actions we took throughout the quarter. While our growth continues to be impacted by end market headwinds, which are driving reduced levels of spend by clients, we continue to expand our client base. Our paying clients grew by 19% versus last year. And when looking at spend levels by existing clients, we're seeing signs of stabilization, with our net dollar retention continuing to hold at levels consistent with the prior quarter. Our net dollar retention within California, which continues to be our largest region at 54% of Q4 revenue, expanded in Q4 versus the prior quarter. Q4 adjusted EBITDA of $2 million reflected a 9% reduction in adjusted OpEx versus last year. We rationalized a number of areas across the company, reducing excess management layers within our sales and marketing teams and eliminating our cross-functional domain orgs in favor of a new centralized operating structure. Our adjusted sales and marketing and G&A declined by 14% and 11% as a result, with product development increasing by 11% versus last year. We reported a net loss of $61 million for the quarter, which includes $6 million in stock-based compensation, along with approximately $56 million in other non-recurring charges, the bulk of which is related to the valuation allowance we took against our deferred tax assets, which is a non-cash charge, along with severance payments associated with the headcount reduction we executed during the quarter. More information on these charges is available in our earnings release and will be in our Form 10-K. We closed the year with $29 million in cash, continue to be debt-free, and are comfortable with our liquidity position. In light of recent events, we're monitoring our banking situation closely and feel comfortable with the security of our cash deposits. We did not have relationships or any direct exposure with Silicon Valley Bank or Signature Bank. Our fully diluted share count across our Class A and B share classes was $148 million at the end of the quarter. A reconciliation of adjusted EBITDA to net loss, as well as the details of our share classes and share count calculation, are provided in our earnings presentation posted to our investor relations site. Lastly, as noted in our release, we have reported in our Form 10-K a material weakness on our general IT controls related to internal user access and change management over certain systems that are relevant to our financial reporting. I can tell you no misstatements have been identified in our audit as a result of these deficiencies, and we've already begun our remediation efforts. Turning to our outlook, we're confident that the sharp focus on our marketplace, client value, and profitability will help us navigate through the continued end market headwinds impacting our scaled markets. We expect to expand our paying client base given the opportunities we see. but also expect to see continued pressures on revenue per client across several of our scaled markets as a result of the ongoing declines across our end markets. Given these headwinds and general uncertainties in the current macro environment, we will not be providing full year guidance on revenue or adjusted EBITDA. We expect Q1 revenue, which is our seasonally lowest quarter, will be slightly down versus Q4 at 47 million, given seasonality related to the Q4 holidays. On profitability, we expect double-digit adjusted EBITDA margins and positive cash flow in 2023. We already took actions during Q4 to create clear line of sight to positive cash flow, regardless of end market dynamics. We're starting this year with a run rate level of adjusted OpEx that's consistent with where we were after we closed our Go public transaction and prior to accelerating investment. And yet today, we have a presence in more regions with an expanded client base and platform capabilities than where we were back then. We will invest based on how our growth is trending and don't anticipate significant investments to achieve our growth priorities. We also see continued opportunities to achieve productivity, which will give us capacity to fund growth investments. To that end, we expect Q1 adjusted EBITDA will be approximately $4 million as we ramp investments heading into the 420 holidays. Our cash in the first half will continue to be impacted by remaining severance and termination costs related to the headcount reductions we took last quarter. With that said, we are committed to driving positive cash flow this year. And we have a clear line of sight to delivering against that commitment given the cost reductions we've already achieved and the focused approach we'll take this year on new investments. In closing, I want to thank our team at WeMaps and Doug for his ongoing leadership as we get going in 2023. As Doug noted, 2023 will be a year to remember as we drive a focused set of priorities. Let's now open up the call for questions.

Certainly. Ladies and gentlemen, if you have a question at this time, please press star 11 on your telephone. One moment for our first question. And our first question comes from the line of DJ Hines from Canaccord. Your question, please.

Hey, guys. Thanks for taking the questions. Arden, so really nice progress in the margin front in Q4 and looking flat in Q1. As we think about the historical financial profile of business, is that aspirationally where you think you can get back to? And as we think about the dials you're turning to get there, is it more broad-based discipline or are there specific areas where you're taking a more calculated step back?

Yeah, DJ, first off, thanks for that question. I appreciate that. So a couple things, and let me know if I don't cover fully your questions. You know, we've talked in the past about our business model being inherently cash flow generative. And when we've gone through cycles of accelerating investment, how we've been able to kind of show shortly after that investment acceleration ends, the cash flow kind of generation that our business model supports, right? So back in fiscal 2019, when we last went through an investment acceleration year, you'll see in fiscal 2020, and I think that's what you're referencing, the EBITDA and cash flow that we were able to generate coming off the heels of that. We don't think there's any reason why we can't get back to those levels. Obviously, we've done a lot of heavy lifting, as Doug referenced, over the last quarter. We hit the ground running when we started the year. We took a lot of these difficult actions over the course of Q4 to set ourselves up to do so come January. And in terms of your second question around where did we find these opportunities, I'd say, A, there's a general kind of mindset of let's find productivity and operate leanly across the company. Now, with that being said, a lot of the cost reductions that we took in Q4 were very surgical around certain areas. And what I characterize those areas as is, A, we eliminated a lot of excess kind of management layers and infrastructure that we had created. So we had created a number of cross-functional orgs across the company that candidly were slowing us down. in terms of our ability to get our teams to move at the speed which they wanted to. And then if you look at the other areas where we've really accelerated investment, it's a lot of our go-to-market kind of teams. And so what we've done is been a lot smarter around kind of pruning our go-to-market resources to kind of align with the market opportunity that we see in the near term. And then on the margin, I'd say that there were certain areas that were kind of nice to have but not necessarily need to have in this environment. And so we took a hard look at how our teams were working and tried to see where we could, again, remove redundancy to get more productivity. Yeah, yeah, okay, got it.

And then just as a follow-up, so At what level do you think we might see a floor in that monthly revenue per paying client metric? And I guess the question really is, like, how are you internally thinking about modeling and budgeting for that over the course of 23?

Yeah, so, you know, for us, we expect to continue to see pressure against that number. And I guess the answer to your question, DJ, is a bit nuanced. And why I say that is, in theory – when we're dealing with healthy marketplace dynamics, we would like to see that number not grow too much because we are continuing to expand in new regions, right? And as we talked about in the past, as we're expanding in new regions, those tend to be lower spend levels versus our scaled regions. Now, the issue that we're having in this environment, as we talked about for the last few quarters, is that across our scaled markets, specifically California, Colorado, Oklahoma, As folks have seen with the third-party data, end-market GMV continues to decline, continues to decline on a quarter-over-quarter basis. If you look at the data year-to-date in 2023 so far, it's been sequentially down for the better part of the Q1 today period. And so we're very mindful of that dynamic in terms of how we're modeling out and planning against those scaled markets or the scaled states of California, Oklahoma, and Colorado. What I will say, though, is outside of those three states, we're seeing very healthy demand trends amongst our clients. We're seeing healthy demand trends in terms of not only our ability to grow our paying client base, but also spend levels across these regions. So for us, what does that mean? We've got our eyes focused specifically on those three states just to get a read around client tone and health of our clients because it's still – touch and go, obviously, in those three states. But outside of that, it's business as usual, us getting after the opportunity.

Okay, got it. Thank you for the call. Thank you. One moment for our next question. And our next question comes from the line of Andrew Carter from Steeple. Your question, please.

Hey, thank you. Good evening. Good afternoon. So first question I would ask in terms of What you're seeing on the cash needs, I think the cash burn in the quarter was $4 million versus the kind of adjusted $4 million number. How much was cash charges? How much is kind of left to go in cash charges? And help us understand if there's anything due on the distributions given the special shareholder class on the cash basis.

Yeah, yeah. So, Andrew, I can take that one. So, a couple things. So, as we referenced earlier, Earlier on the call, we still have some residual charges, cash costs related to the cost reduction efforts that we took in Q4. So we talked or we filed in our 8K last quarter the severance charges related to the headcount reductions that we took. The bulk of those will hit in the first half. So we talked about just under $11 million of cash charges when we filed our 8K in December. We paid out over the course of Q4 about a quarter of those, so we still have some residual costs left to go. On your question around tax distributions, you know, our tax distributions have been averaging at about a buck a quarter or so, and so we don't expect, you know, much movement in the very near term on that front. What I will say is, you know, we've fully thought through the severance charges that are left to go in terms of our liquidity and cash management and planning and the like. And as you mentioned on the call, we feel very comfortable with our liquidity position. We've sized our cost base at a level where we have clear line of sight towards generating positive cash flow regardless of what happened in California, Colorado, Oklahoma. And I touched on the dynamics that we're seeing in some of these other states. Got it.

Second question I have, so third-party kind of metrics, we look at similar web. Apptopia shows the time on the platform is down pretty significantly and accelerated year-to-date. That might be in part a function of the end markets themselves, but also, you know, what's kind of your sense of the MAU base? I know you're still kind of evaluating that, going back to drawboard, what you're disclosed, but your sales teams also obviously have to be armed with something to the value. So anything you can help on that and Do you think you're investing at the right level behind that, the demand generation, both sides of the funnel, obviously?

Yeah, I'll take that. This is Doug. We recently hired a new CMO who's an absolute pro on that. So we've been digging in. There's no doubt there's absolute pressure across the board on the marketplace, but we're still dialing in to see what the best metric is that reflects the health of our marketplace. But again, the end markets are tough. We are feeling it, but there are pockets of what we used to do great at Weedmaps, which is kind of tell the plant story. So we feel within like health and wellness with Dr. Goldstein and some of these other moves, we have top of the funnel moves that we can make that are opportunistic. And then these new features that we discussed like category-based allows us to really penetrate lower in the funnel. So we have enough slotted coming up here where we think we can get positive movement. But, again, there's no question there's pressure. All right.

Final question I guess I'll just ask, and this is – I realize you can't control the market. But if you step back and think about the original thesis of the go public transaction, a lot of it was to kind of take advantage of being a public candidate's play and being kind of the most capital efficient. And if you're not rewarded for that – Do you see the strategic value in remaining there? And given, you know, you've got cash flow in sight, this is a capital-efficient platform, you're going to have more options than others. So just anything, I'd love to hear any commentary on that.

Yeah, I can start on that one, Andrew. Listen, we're focused on executing the answer plan. We obviously went public for a reason. We have benefited from... The ability to tell our story externally and being able to kind of showcase the business model and the like. Obviously, it's a tough capital markets environment, but for us, we're focused on what we can control. What we control is executing against the plan that we have, and I'll leave it at that.

Fair enough. I'll pass it on.

Thank you. One moment for our next question. And as a reminder, ladies and gentlemen, if you do have a question at this time, please press star 11 on your telephones. And our next question comes in the line of Tom Champion Callahan from PSE. Your question, please.

Hi, thanks. This is Jim on for Tom. Thanks for taking the question. So I guess first, I have one for Doug. So you've been back with the company for about four months now, and there's a lot of macro challenges you're kind of dealing with. Can you just kind of talk us through some of your biggest takeaways? and what you've learned so far as you've been getting back involved with the business. And I had one for Arden. It seems like the allowance for doubtful accounts kind of keeps coming up. I guess curious how we should think about the cadence of that through the balance of the year. Thank you.

Yeah, so this is Doug. It's really a challenging market, that's for sure. But it is really a state-by-state and market-by-market story. So as we get getting out there and talking to folks, you know, the one thing that does come up is because a lot of budgets are compressed in the industry, they're really leaning on Weedmaps to tell their brand story. So, you know, kind of bringing some of the old gang back in the company has been exciting as well because we've been able to build some relationships with the MSOs and brands on the East Coast that were a little elusive to us. So, you know, what we're really doing now is focusing on the marketplace, our data and our search. We're really developing our content, which we think will help in all markets. You know, WeMaps really used to really be the source of truth for the industry. And, you know, through our data integrations and bringing kind of the pros back around, you know, that's really our goal is to be the thought leader. And we hope that drives from state to state as we help folks learn how to search for cannabis, how to consume cannabis the right way. But the main takeaway that I've gotten from most folks is that it's tough. And since we have full knowledge of the supply chain, we were already giving counsel and advice kind of beyond technology. So the main takeaway, again, is just the support that's needed.

Yeah, and on the second question you had, you're right. We did have bad debt expense again in the quarter. It was just over $2 million. We did call out in our November call that we expected bad debt to remain elevated in Q4 and to start normalizing over the course of 2023. Listen, it's still touch and go, as I mentioned before, in those three states. And with end market declines trending the way they are, we continue to be very kind of vigilant around not only collections and our gross AR growth, but how our AR is moving through various aging buckets. We've done a lot. We continue to do a lot operationally to control, like I said, what we can control. One of the big moves that we made starting the year was to put the accountability of our collections back into the hands of a lot of our account teams because they're quite successful in terms of managing that client relationship So we're seeing some good results stepping out of that.

Great. Thank you. Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to management for any further remarks. Thank you, everyone, for joining the call today. Thank you, ladies and gentlemen, for your participation at today's conference. This does conclude the program. You may now disconnect. Good day.