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Earnings call: WM Technology reports strong Q3 results amid market challenges

Published 13/11/2024, 11:28
Earnings call: WM Technology reports strong Q3 results amid market challenges
MAPS
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WM Technology, Inc. (ticker: WMTECH), a leading cannabis sector platform, reported its third quarter 2024 earnings, showcasing a period of robust financial performance.

Despite regulatory uncertainty and industry headwinds, the company posted net revenues of $46.6 million and adjusted EBITDA of $11.3 million, marking the eighth consecutive quarter of positive adjusted EBITDA profitability. CEO Doug Francis highlighted the company's efficiency and dedication as key drivers of its success.

Key Takeaways

  • WM Technology reported Q3 net revenues of $46.6 million and adjusted EBITDA of $11.3 million.
  • The company has $45 million in cash and remains debt-free.
  • CEO Doug Francis emphasized the company's focus on long-term success and efficient marketplace operations.
  • Regulatory uncertainties persist, particularly with federal cannabis reform and hemp regulation.
  • WM Technology plans to expand its marketplace vertically and horizontally, including marketplaces for hemp, seeds, and cannabis hardware.
  • The company is cautious about deploying capital and will focus on low-risk opportunities in the short term.

Company Outlook

  • WM Technology expects Q4 net revenues to be around $46 million.
  • The projected Q4 non-GAAP adjusted EBITDA is estimated at $7 million.
  • The company is setting the stage for growth in 2025, with strategic initiatives focused on maximizing shareholder value and expanding in emerging markets.

Bearish Highlights

  • The cannabis industry faces regulatory uncertainty, with no clear direction from the incoming Trump administration on federal cannabis reform.
  • Many states may ban hemp due to federal inaction, impacting the hemp market's growth potential.

Bullish Highlights

  • WM Technology continues to see growth in its standard listings product, driven by new client acquisition.
  • The company's financial stability provides a strong foundation for executing business initiatives.

Misses

  • Net revenues declined marginally year-over-year due to lower spend on featured listings and the impact of sunsetting certain products in the previous year.
  • The average monthly paying clients decreased by approximately 6% compared to the same period last year.

Q&A Highlights

  • There were no questions and answers during the call as it was in a listen-only mode for participants.

In summary, WM Technology's third-quarter earnings reflect a company that is navigating through industry challenges with a strong financial position and a clear strategic focus.

While the regulatory landscape remains uncertain, WM Technology is preparing for future growth opportunities and remains committed to its long-term goals.

The company's leadership is cautiously optimistic about the future and is strategically positioning itself to capitalize on potential industry changes.

InvestingPro Insights

WM Technology's (MAPS) recent earnings report paints a picture of a company navigating a challenging landscape with resilience. InvestingPro data provides additional context to the company's financial health and market position.

As of the last twelve months ending Q2 2024, WM Technology boasted impressive gross profit margins of 94.36%, aligning with the company's reported efficiency in marketplace operations. This is further supported by an InvestingPro Tip highlighting the company's "impressive gross profit margins," which underscores its ability to maintain profitability despite industry headwinds.

The company's strong balance sheet, with $45 million in cash and no debt, is reflected in another InvestingPro Tip stating that MAPS "holds more cash than debt on its balance sheet." This financial stability provides WM Technology with the flexibility to pursue growth opportunities and weather regulatory uncertainties.

However, investors should note that the stock has faced significant pressure, with a 34.91% price decline over the past six months. This aligns with the InvestingPro Tip indicating that the "stock has taken a big hit over the last six months." Despite this, analysts remain optimistic, with an InvestingPro Tip suggesting that "analysts predict the company will be profitable this year," which could signal potential upside for investors willing to weather the current volatility.

For those interested in a deeper dive into WM Technology's financial health and market prospects, InvestingPro offers 12 additional tips, providing a comprehensive view of the company's position in the dynamic cannabis industry.

Full transcript - WM Technology Inc (NASDAQ:MAPS) Q3 2024:

Operator: Good afternoon everyone and welcome to the WM Technology, Inc.'s Third Quarter 2024 Earnings Conference Call. All participants will be in a listen-only mode for the duration of the call. I would now like to turn the call over to your host Simon Yao, Director of Investor Relations.

Simon Yao: Good afternoon and thank you for joining our third quarter 2024 results. We have our CEO, Doug Francis; and CFO, Susan Echard, with us today. By now everyone should have access to our earnings announcement and supporting slide deck on our Investor Relations website. During this call, we will make forward-looking statements about our business outlook, strategies and long-term goals. Keep in mind that forward-looking statements are not guarantees of future performance and are 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 a discussion of risks and important factors that could affect our actual results, please refer to our SEC filings available on the SEC website and our Investor Relations website. 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 on November 12, 2024. 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. We will also discuss non-GAAP financial metrics alongside those prepared in accordance with GAAP. Non-GAAP financial measures should be considered in addition to, but not as a substitute for, the information prepared in accordance with GAAP. You can find a reconciliation of these measures to our GAAP results in our earnings presentation on our Investor Relations website. And finally, today's call is being webcasted from our Investor Relations website and an audio replay will be there shortly. With that, I will now turn it over to Doug.

Doug Francis: Thanks, Simon, and hello to everyone joining us today. Our third quarter reflected another consecutive period of strong quarterly results with net revenues of $46.6 million, adjusted EBITDA of $11.3 million and any cash of $45 million. This quarter represented the eighth consecutive quarter of positive adjusted EBITDA profitability and I believe as a result of the continued focus and dedication of our team towards efficiency. The cannabis industry continues to be dynamic and a large part of that is due to the lack of progress towards more sensible and consistent regulation both across the state and at a federal level. The massive change to the landscape of the federal government coming out of last week's election changes the approach and I'm happy to work with the new administration to have our industry recognized as a lever and driver to help boost the economy, add much needed jobs and improve health services. It is unclear whether the incoming Trump administration will continue the progress over the last year towards rescheduling Cannabis to Schedule III, but as I've said before, we continue to believe that while the industry as a whole is excited to see Schedule III come to fruition, we do not think the move to Schedule III is enough because we firmly believe cannabis should be treated like wine and not on any schedule. On the other hand, we see some cause for optimism. The Senate is where potential cannabis reforms have died in recent years. With new Republican leadership with the Senate who we hope are more focused on individual freedoms, we hope that the White House will lead the government towards the real change we have all been waiting for. But we remain cautious as the government reforms may not always benefit the industry as hoped and the timeline for these reforms is difficult to predict. Another area of continued regulatory uncertainty is around intoxicating hemp as another year has come and gone without clear instructions from the overdue federal farm bill. This delay has forced states to independently regulate the issue and try to close loopholes that have allowed hemp companies to sell unregulated and untested products claiming to be derived from hemp in every state in the country. We believe that in response to this continued inaction on the federal level, many states will ban hemp outright, much like California recently did. Instead of trying to make sense of the many nuanced questions the farm bill has left unanswered, like those around dry versus wet testing and THC versus THCA. States that do not ban hemp entirely will likely fold it into an existing medical or recreational cannabis model, which will take away the many advantages hemp businesses have over their regulated cannabis counterparts, like the ability to ship across state lines, advertise online with platforms that currently ban cannabis ads and sell their products in any retail establishment or even direct to consumer online. To that end, growth expectations for hemp should be tempered. Regardless, we think that some form of hemp is here to stay, likely mostly in the forms of hemp derived edibles and beverages. As a cannabis platform, we will work to find a way to provide our consumers access to this market in the safest way possible, while continuing our support of the licensed cannabis operators and markets. While there is undeniable upside in the hemp space, we need to ensure we're not overextending into areas where the policy or market environment may not be fully supportive of sustainable growth. As I've said since my return to the company, our goal is to focus on the marketplace, be efficient, profitable, build a balance sheet for the future and play the long game. 2025 will be no different. While we are not ready to change our current approach to guidance nor call a bottom, we are going to deploy capital around opportunities that we feel are low risk in the short-term and will be key products for us when industry headwinds turn to tailwinds. But we'll do it on our terms in a way that ensures long-term successes for the company and our stakeholders. We're thinking about future growth potential for our marketplace in two key dimensions. First, the vertical dimension, which for us is the expansion of our core marketplace by adding new products and features both upstream and downstream in our supply chain. We are initially holding these efforts close to the best and will discuss them in the coming quarters as we get closer to launch. Second, we also plan to expand the marketplace horizontally, which for this phase will be around marketplaces for hemp, the seeds and homegrown category, and marketplace dedicated to the hardware for those enjoying cannabis. We envision this to be similar to an elevated headshot. These are natural adjacencies to our core and while they'll provide exciting opportunities they require us to be strategic in our approach. It's a space where we can offer immediate value to consumers while building out ecosystems that expand the reach of our platform. When I returned to WM Technology toward the end of 2022, my expectation was that my role as the Executive Chair would be temporary while I searched for a new CEO. During that time, my priority was to help navigate through the industry's headwinds and get the company back on track operationally and strategically. We have come a long way since then and I am proud of our team's commitment and accomplishments that got us here. Our financial stability has put us in a position of strength and gives the company a runway to execute on its business initiatives. But the mission is not complete and given the great long-term opportunities that would come with federal legalization, the Board and I have decided that I will assume the role of CEO and continue to lead the company into this next phase. With that, I will turn it over to Susan.

Susan Echard: Thanks, Doug. Net revenues in the third quarter exceeded our guidance and increased sequentially to $46.6 million. Compared to the prior year net revenues declined marginally due to lower spend on our featured listings product and the impact on revenue from the products we sunset in Q4 of last year. These declines were partially offset by growth in our standard listings product driven by the continued new client growth. Despite the financial challenges and budget constraints many of our clients continue to face, we are encouraged by our sequential quarterly growth in revenue. Q3 average monthly paying clients of 5,100 marked another consecutive quarterly increase in 2024, but was approximately 6% lower than the same period last year, largely due to the impact of sunsetting certain products. While we are focused on adding new accounts and minimizing churn across all of our markets, we recognize that ongoing headwinds will continue to impact client profitability and drive further consolidation in the industry. As a result of the lower average paying client count, the average monthly net revenues per paying client in Q3 increased 6% to 3,043 when compared to the prior year period since the clients using the aforementioned sunset products and the client's churn typically have a lower average selling price and monthly net revenue. We are encouraged by the recent stabilization of this metric, but as we've mentioned in the past, we expect this metric to fluctuate as we continue to add new clients across developing markets that are typically onboarded at lower levels of spend. Turning to our expenses. Our GAAP OpEx, which includes our cost of revenue, declined 21% versus the prior year and was largely driven by the impairment charge that we took last year related to the sunsetting of our certain products. The balance of our OpEx favorability is attributed to decrease in cost of revenues, which were a result of eliminated costs associated with those sunset products as well as decreases in sales and marketing and G&A due to lower headcount and timing of marketing spend. These savings were partially offset by personnel and outside services investments associated with our product development organization. Net income for the quarter came in at $5.3 million, which compares to a net loss of $2.5 million in Q3 of last year. Our Q3 adjusted EBITDA of $11.3 million, which represents a 24% margin, beat our guidance due to our better than expected revenues as well as the operational discipline we continue to maintain throughout the organization. We generated $3.8 million in cash and closed the quarter with a cash balance of $45 million and we remain debt free. The continued growth in our cash balance provides us with the flexibility to explore a variety of strategic growth initiatives as we develop our 2025 goals to maximize shareholder value, invest in technology and infrastructure, and continue to expand in our emerging markets. Our share count across Class A and B common stock was 153 million as of November 4, 2024. A reconciliation of non-GAAP metrics to their nearest GAAP result, as well as the details of our share classes and share count calculation are provided in our earnings presentation posted on our Investor Relations website. Now turning to our financial outlook, we expect Q4 net revenues to be approximately $46 million and Q4 non-GAAP adjusted EBITDA to be approximately $7 million. We are pleased with the progress made this year and we continue to build on this momentum as we set the stage for 2025. With that, I'll now turn the call back over to the operator to conclude our call.

Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

End of Q&A:

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