WM Technology, Inc. (MAPS) Earnings Call Transcript & Summary

Thanks for having us. So I'm Chris Beals. I'm the CEO of Weedmaps, and I'm joined by Arden Lee, who is our CFO. So just diving right into it. Go to the next slide. So to orient you on WM technology, there's 2 parts to WM Tech. So on one side, we have our marketplace, Weedmaps, which is what we were founded on. We built that over 13 years ago. We've turned that into the dominant destination for cannabis consumers to shop, to find, to discover brands and conversely, the most effective way for cannabis retailers and brands to reach consumers. What we then did was we took our natural dominance on marketplace and augmented that with a set of business in a box or sort of B2B SaaS solutions, what we call WM business, which has a natural synergy with the marketplace in that it augments, it relies on the data, the transactions and the connections we make with all of these different constituent players within the sector, but then it also provides a natural [indiscernible] work and extension to that core marketplace. On the flip side or sort of staying on the marketplace for a second, the key thing with that marketplace is we're facilitating the discovery of product that turning into a transaction, and we are the most effective way for businesses to reach that roughly 12% to 13% of the population, which is very hard to down segment to, this actual frequent or semi frequent cannabis consumer. We define that as once a month or more. And our business clients know that this is the way in which they can not only reach those consumers, but present their inventory and do so compliantly given that in the cannabis sector, there's a dizzying array of laws and regulations. The other half of our operation is WM Business. And so this is the industry's first software solution that's truly sort of an end-to-end suite of software to help cannabis retailers, and we're expanding our offerings for brands, manage their operations, manage their data, manage this very complex inventory data they have, whether it be to use with the marketplace or to operate their internal operations. And so on that side, we have more than half of all U.S. licensees is paying clients and spending on average about $3,800 per month on a combination of SaaS subscriptions as well as sort of our upsell offerings, like feature listings, deals, promotions and other solutions we offer through the marketplace. So when you think about it, our solution not only covers sort of the market-making side of things for these businesses, but also is sort of encompassed with this broader suite of SaaS solutions that enables them to better satisfy consumer demand. Something I'll get into a little bit more in the presentation. Heading to the next slide. So just to orient you on the story. There are a couple of things to note here. One is this is the leading marketplace for cannabis. And the second is we're doing something, I think, fairly unique versus any other consumer goods sector, which is we're organically growing out of that marketplace to wrap it with a seamless suite of software solutions, things like CRM, like point-of-sale systems, e-commerce embeds, loyalty, messaging, the delivery and logistics software you need that sort of takes the marketplace experience and enables these retailers and brands to then effectively meet that demand. The other thing that's worth noting is we are ubiquitous. So we are in essentially every jurisdiction, both domestically and internationally, that offers cannabis and sort of whether it be small operators, large operators, really unique way to kind of play the sector and sort of play all of the markets and sort of have exposure to all of the different types of operators and businesses that are playing within the space, and that's really where a lot of our value proposition is to our clients is that regardless of whether they're in one state or they then expand out to other states, they can rely on the same platform, whether it be the Weedmaps marketplace or the WM Business SaaS suite to run their operations regardless of jurisdiction. The other thing I would say about our business that's important to note is, right now, we're driving an average ROAS or return on advertising spend that's about 5 to 8x. So that is for every dollar coming into sort of the Weedmaps marketplace for a business that wants to get more transactions in the marketplace coming to them, we're providing a 5 to 8x return. That's incredible value, but what it really underscores is that there's a huge amount of room to grow. That is something that if you look in other sectors, you would expect a much lower ROAS. And that means we have a lot of headroom for increased monetization that's still profitable for these businesses. The other thing that's worth noting is there aren't too many sectors that have as much inherent, broad, baked-in growth as this sector as. Something I'll get into a little bit more. But most analysts estimate that there is a steady state for the future cannabis industry that's more than 5x what the current operating industry is in terms of revenue and total addressable market. The other thing that's worth noting is most jurisdictions that have legalized, a small fraction of total demand is actually met on the legal market. So in most states that have legalized the, majority of consumer demand is still on the listed market. And ironically, that's actually a good thing. That means that that's an increased lever for growth because we know as time goes on, as the market matures, as retail density increases, consumers gradually shift from illicit markets to regulated legal markets, whether it would be for product safety, better product selection or added convenience. And so there's a ton of sort of macro levers to growth that are outside of the core business. The other thing I would say is in terms of the breadth of the business in a box solution as it gives us multiple levers to grow our GMV. And right now, we can't charge any fees due to federal [ illegality ] that our take rates or percentage fees or, for that matter, actually put payment rails for cannabis transactions into any of our solutions, whether it be on the marketplace or the SaaS side. That's a huge opportunity for growth. But separately, the fact that we have so many different pieces of software that tie into the GMV stream of these businesses in and of itself provides a broader avenue of growth of the GMV that we capture. So moving on to the next slide. This gets to the point that I touched on just a bit ago, which is there are multiple levers for growth within the existing business we have. So if we take that bucket you have the high ROAS, which means that there's increased room for sort of businesses to spend within the marketplace. Separately, in terms of average spend, most cannabis businesses spend a smaller percentage, generally less than 5% or roughly 5% of their revenue on sales or sorry, on marketing, and that generally grows, and we've seen it grow as a factor of time in most consumer good industries. But then separately, we're increasing the breadth of our software offerings. We're increasing our offerings along the line of data and analytics. And so there's numerous avenues of growth within the business that we already captured. But then as I mentioned, you have new jurisdictions that are opening up. You have a shift of consumers from illicit market to legal market, and so that's what drives the sort of broader macro TAM growth that gets to that over 5x growth in the future. And so I think, this is a really differentiated story in the sense that there's captured inherent growth and then there's sort of broader macro growth because we're still so early in sort of the cannabis utilization and life cycle. Moving on to the next slide. So this is a bit of an eye chart. I'm not going to go into every single thing this year, but there are a couple of things that I'll know. One is, there's an exploding number of SKUs within the cannabis sector. So on average, a cannabis retailer has over 400 SKUs, and you're generally going to have dozens of those SKUs turning in and out of stock daily. There are numerous complicated reasons for that, but the simplest way of describing it is, for all intents and purposes, cannabis, cannabis products are a farm market good, and we've never seen a farm market good type product really sold at scale with the type of infrastructure that we see with cannabis. And so when you think about the increasing number of SKUs, as jurisdictions mature, we see more SKUs, broader SKUs, new form factors. But then the fact that they come in and out of stock so quickly really means that one of the hardest things in the cannabis sector for consumer shopping or for businesses is how do I know what's in stock right now? How do I, against my demand, predict how much stock I need on the go forward? And that's really something that we've invested heavily. We have integrations with dozens of different point-of-sale systems. Another thing that I want to highlight is getting to the actual cannabis consumer, those who consume once a month or more is the core element of success within the cannabis sector. And that segment of folks, people who consume once a month or more, represent about 12% to 13% of the population. It's incredibly hard to down segment to those people. They are spread relatively evenly regardless of what demographic you use to slice, whether it be age, income, race, gender, that sort of thing. And so we not only represent sort of the most effective way for businesses to sort of digitally engage with consumers, it's that it's allowing them to digitally engage with the right consumers. Those people who drive high average order sizes, who are likely to repeat. They want to build affinity and receive transactions from. The other thing I'd note is when you look at most CPG spaces, the delta in terms of how you have to operate from country to country, I would say, is simpler than the delta and how businesses have to operate and reach consumers from state to state within the cannabis industry. To put it another way, when we look at each new state that's opening, when we look at the products that are offered, the legal and regulatory things that we have to build into our software suite or that retailers and brands have to meet, we see more of a delta from, say, a California to Michigan that we might see from the U.S. to the EU in another space. That's incredibly hard. It permeates down through the marketplace side, but then it also permeates through the business in a box suite, what we have to offer to these businesses to help them be compliant, especially when you consider the fact that most of the legal and regulatory burden where these businesses don't meet the rules and regulations of their jurisdiction, they're likely to lose their license. Those burdens predominantly fall in your front of house staff, your store managers. And so you have low train, sort of low education employees in positions of critical importance when it comes to maintaining compliance and ensuring your business can stay open. Just to keep things moving, let's continue on to the next slide. And so here, I think the thing that I want to highlight is we see markets mature, the complexity of the diversity of products both within a category as well as new categories emerging. We've seen, for instance, an explosion in the beverage segment. Now, we're seeing explosion in the subsegments within beverages, like the equivalent of what would be session beer sort of session beverages in cannabis. But the complexity and the breadth of products in markets is continually growing as markets mature. And so we haven't really reached this plateau or as into a folk point. And some would argue we may never where you're going to sort of see a relatively stable pool of brands of SKUs of products. And so what we have is this explosion of the number of new products, new clinical effects, new form factors, that sort of thing, which is equally complex and confusing, both for new consumers. But then -- and this isn't covered that often, but actually for long-standing, high-value, high-frequency consumers, who just aren't used to all of these new products that emerge as we have a legal market. And so what underpins not only the marketplace, but also the SaaS side of things is how do you normalize that inventory? How do you present it across a marketplace across the SaaS solutions, this idea of inventory as a service? And so we integrate with dozens of different POS solutions, multiple CRM and loyalty solutions with an end goal that for a consumer shopping on the marketplace, they have a homogenized experience even though we don't control any of the inventory ourselves. I mean, conversely for a retailer that's operating across different jurisdictions with different regulatory systems, that they can interact with this suite of software in a homogenized way. And so what you really see here is an incredibly complex set of data logistical normalization work that's happening on the back end that makes this marketplace transactable and drives consumers to continually come back and reengage with it, and that's how we built such dominance with our marketplace. Next slide. And so just maybe double clicking on that a little bit. I think -- and I don't want to go into too much detail here. But for instance, if you look at something like a DoorDash, an online marketplace for food. They don't have the need to normalize the same product across different stores, whereas we use a heavy amount of machine learning, data matching behind machines that regardless of the point of sale or inventory system the retailer brand is using, we can match like product to like product, powering price savings, product recommendations, the ability to redeem deals in the face of they're not being SKUs or [indiscernible] numbers across anything in cannabis. The fact that you have widely varying weight measurements for the 2 largest categories in cannabis, namely concentrates and cannabis flower. When you look at something like an Amazon, there's the difference in that we generally have to use a mix of -- for our product detail pages consumer data, normalized consumer review data to go into depth on how is this product is likely to impact or affect people. Separately, because we don't control the actual inventory or the warehouses in which the product sits, we're synthetically normalizing and stitching product catalogs, inventory levels across multiple different retailers where we don't physically control the back warehouse inventory storage. It's incredibly logistically difficult thing. And separately, when we then focus on the marketplace side of things, we find that for people to convert, to purchase products, as you would expect from what is effectively a pharmaceutical good, we need a deep amount of data about how is this product likely to impact them, affect them when they consume it before they're comfortable transacting online or often even in the store. And then the last thing I'd say is there's, to the extent we provide advertising solutions, we're providing them within a marketplace. And it's incredibly different from something like Google ads where they're not any marketplace surface. When we look at ads and we put them on the marketplace, we're doing things, we're combining first-party data in the broadest set of first-party data that's out there for cannabis, and I'll get into that a little bit more. With transactable services, and we're driving not towards impressions and clicks, we're driving towards conversion. When businesses come to the Weedmaps marketplace and they advertise, they are looking to drive actual consumer transactions and sticky consumer transactions where it's likely those consumers, preferably high-value, high-frequency consumers, which we're so good at capturing are going to continue to come back to the site. And so I think that's a big differentiator that a lot of people fail to realize is when people come to Weedmaps, they're not looking for store location or hours, they're looking for what is in stock real time, what they can buy at this point, what's going to come to their house most with, the price compare, the price shop and understand clinical effects, so if they spend $100 on a set of products, they know that they're not going to adversely affect them when they consume them. Next slide. And so just flipping over to the other part of the equation, WM Business. As I mentioned this, the genesis of WM Business and the suite of SaaS solutions is that it naturally grew off of and relied on and consumes the same underlying data and connective tissue that we use within the marketplace. And so there's a natural organic expansion where we get economies of scale of building out these other suites. The other part of this is that these solutions kind of wrap around the marketplace, and this is something I alluded to a little earlier, and sort of seamlessly continue the transaction and help ensure that it's successfully fulfilled. When you think about states having requirements of real-time GPS tracking drivers, the requirement to manifest what's in a vehicle, not going over sort of state specified limits of how much product can be on a delivery vehicle. It's important not just to pass the order onto the business, but then do things, and this is where our Canvey fleet management logistics solution comes in. It actually helped the business effectively respond to that order, compliantly load their vehicles and then have consumers be made aware of where that vehicle is and its delivery route, when it's going to arrive. Separately, when you think about the marketplace, the marketplace really captures someone coming in the top of the funnel and ideally going through and completing a transaction and come out the bottom of the funnel. And so when you think about things like WM deals, our CRM solution Sprout, and these are really natural augments that are intended to try and drive people to come back to the top of the funnel and place another order with a high frequency. And when we look at things like WM Retail, WM EXchange, can current or sort of more back-of-house solutions, these are intended to help businesses more effectively and cost efficiently meet compliance requirements, restock product and sort of run their operations so that they can get higher margins. And so, it naturally kind of relies on the same data and workflows that we see on the marketplace. And separately, each of these solutions often has a role in the breadth and depth of the inventory or brand or product catalog data that we pull into the marketplace. And that's how we've been able to curate and grow what is the most -- what I believe to be the most expansive sort of catalog of brand and product data. And so when you look at this whole thing, I think this really stands in a universe of one and that this is an end-to-end portfolio and suite of software where a business can come in and for one price, get almost this entire suite of software or pay small incremental amounts for additional pieces and it naturally just plugs and plays very nicely with the broad marketplace. Next slide. And so this just kind of gives you a landscape overview that when you look at -- you see that we're really the only operator in terms of the scale that we do, the revenue, the breadth of the product offering, the size of the engineering team, we're by far the largest operator in the space. And not only that, we've been operating profitably for our entire history, which is a huge differentiator. We've invested heavily since we've gone public and continue to scale our engineering product and design teams, engaging and broadening sort of our suite of solutions. And so when you look here, I think one of the key pieces when you think about a heavily regulatorily and sort of compliance-driven industry, it's often not just the individual pieces of software, but do they work seamlessly together. It's really the handoffs between these different pieces of software where your compliance often sort of goes to die. And so when you think about the entirety of this, when a business is signing up for the marketplace, when they're signing up for our WM Business suite, they're effectively able to meet a whole host of needs with one simple sign up, and that's a huge amount of value. Next slide. Here, I think this is also a bit of an eye chart, so I'll just say this. We have voluminous amounts of first-party data. I don't think there's anybody who has more product in brand data than we do. And separately, we have more menu data, more velocity of SKU data, more actual real-time inventory data than anyone else out there. And so when you look at that breadth of data, it's simply stated, we have a share embarrassment of riches. And the thing that's interesting is we're using that right now to do things like personalization on the marketplace to better stitch sort of products together across different pieces of our software platform, but we've done very little in terms of providing monetized data offerings, providing insights for investors into the industry. And so there's a huge opportunity before us to actually start taking and monetizing our data assets in and of themselves. But more importantly, within the marketplace, the ability to have that first-party data is really critical. And we see whether it be Amazon or sort of any number of other marketplaces out there, being able to effectively gather that first-party data, analyze it and use it to improve conversion, to help improve ROI for businesses is the name of the game. And when it comes to cannabis, there's nobody who's been doing it longer and broader than we have. Next slide. So here, I think this is just to give you a little bit of an example. So at the end of last year, we actually, we started rolling out and doing some experimentation with how we can take our first-party data and particularly information on consumers, what they've shopped on, what consumers similar to them were likely to have shopped for and combined it with how we do ordering and filters of menu items, that sort of thing to try and drive conversion again. The critical thing with the marketplace is you're looking to drive conversion, what's your average order size, what's your cadence of reorder, that sort of thing. And so what we did was we combined our proprietary data with these marketplace services we had to try and personalize the experience. And we've been doing this in other parts of the site, where we basically take affinity data or sort of actual behavioral data for that individual and then sort of customize parts of the site. The interesting thing about this experiment is it drove north of a 5% increase in conversion just that one experiment. And that's just 1 small example of the possibilities we're unlocking by merging our data sets with our marketplace. And we're doing similar things by merging data sets with things like our CRM or loyalty solutions. And separately, this is a fairly low in the funnel experiment. There's really interesting things we can do as we start to put this in higher in the discovery funnel, especially if you think back on what I mentioned about there being an explosion of new brands and SKUs helping consumers find sort and discover those is one of the most difficult things to do right now and is really making it difficult for new brands to effectively reach consumers. Next slide. So look, we're arguably the most cost-effective user acquisition channel in all of cannabis. This implied CPC that you see right here compares to something like a Google, which again is a non-transactable surface where you're going to have a CPC that's all over $3. And if you compare it to sort of ads within specialty or sort of marketplace type channels, that CPC can trend up towards $10. Separately, as being a marketplace, the key factor is, well, what is our conversion rate. And so we generally, when you look at conversion on ads within something like a Google AdWords, you're going to see a sub-1% conversion rate. Amazon generally trends towards just under a 10% conversion rate, and we're driving just south of the 20% conversion rate. And that's a result of the length of time we've been around, but in the amount of time and effort we put into trying to normalize this marketplace experience doing personalization and trying to hit the right consumer with the right products at the right time. And then separately, the end result of that, plus the fact that we over, and I should have mentioned this earlier, over 90% of our users fall into that once a month or more consumer bucket. You combine those 2 things, and that's how we get to that 5 to 8x ROAS or return on ad spend that I mentioned earlier. Next slide. Another product example that I just wanted to highlight quickly, and I think this underscores some of the under-the-hood work that's going on. And so here, what we're doing, this is our new admin. And what we did here from the new -- old admin to the new admin is we're putting on surfaces that make it easier for businesses to not only understand their return on ad spend, their ROAS, but also adding gamification and coaching elements that we can help these businesses better improve how they appear on the marketplace. If they're point-of-sale systems integrated, doing the real-time integration, turning it on, identifying opportunities where maybe their products sort of are out of line with market pricing, that sort of thing. Something that's incredibly hard to understand in a sector where you have as much variability in SKUs and inventory, that sort of thing. And so this Admin 2.0, which will -- we have in beta and we'll be expecting a release to general release in coming weeks, we expect to not only improve how businesses are sort of operating within the market or sort of how well they're curating their storefronts, but also to be able to organically increase how much they spend as they understand what their ROI is, areas where they can more effectively spend. And so, it's important to note that on the back end of this marketplace, things like this admin not only drive usability of the marketplace, but also this is going to serve as a whole businesses to more easily sell onboard on to things like WM Store, which is our e-commerce and that self onboard on the sprout or CRM solution. And so, if you think of this as sort of the nerve center for how you can use not only the marketplace, but the broader business in the box suite. With that, let me turn it over to Arden to talk a little bit about our financials.

Great. Thanks, Chris. So a couple of things. Clients, as we see -- as you can see here, the longer they are on our platform, the more they tend to just drive out their spend with Weedmaps. And so what you can see on the left-hand side is clients by cohort since month 1 on the platform through today. And you can see, as each cohort spends more time on Weedmaps their level of spend. So for example, that 2016 cohort spending, let's call it, between $500 to $1,000 per month today, just under $6,500 per month. That spend has increased and you can see the more recent cohorts are entering into the system at higher levels of spend with steeper slopes to the curve, if you will. And that's evidence of the ROAS and the returns that Chris spoke to. We believe we are by far, delivering the most outsized ROAS, and that's also evidenced by the relative comparison that you can see to the right. Our average monthly revenue per client is multiples higher than other tech solution sets within cannabis. Next slide, please. And we've grown consistently our client base as well as our levels of monetization. I'll focus on the top half of this chart, which is our U.S.-only metrics. Keep in mind that for folks that have been following our story, we reset our Canada marketplace. So the bottom half of this chart includes Canada. We didn't materially monetize Canada over the course of 2021. But if you look at the top half, you can see here that there's been very consistent growth in terms of our spend per client. And so in Q3 of 2021, our growth in spend per client was in the high teens on a year-over-year basis. It was the low single digits on a sequential quarterly basis. And in terms of paying clients, we grew that metric in the mid-20s year-over-year and mid-single digits on a quarter-over-quarter basis. Flipping to the next slide. Everything that we've spoken about here translates to the high-growth, high-margin financial model that is WM Tech. We year-to-date through the end of Q3 in the U.S. are growing our top-line at north of 50% year-over-year. Over 75% of our revenue base is recurring in nature across our WM business subscription fees as well as our featured listing fees, which are very subscription-like in nature. And we've managed to continue expanding our gross margins. Our gross margins are north of 95%, and we're profitable unlike a number of other potential comps within the broader tech ecosystem at 20% EBITDA margins. We believe this combination of growth and profitability that we've achieved is pretty unique across the broader technology landscape, whether looking at just cannabis comps or broader technology plays. And then lastly, we have multiple growth drivers. If you could flip ahead to next slide, we have multiple growth drivers with step function change potential, as you can see here. Multiple ways to win and multiple ways to drive growth going forward. Of course, new license issuance, new markets opening up, federal regulation presents step function growth opportunities for us. But within our existing markets, we still, as Chris mentioned before, only have half of licensees on WM business. We're still underpriced versus other options on a cost per click, and that's borne out in our ROAS metrics. And there's now more solutions within our toolkit to drive incremental share of wallet with both marketing and tech solutions budgets of operators that are out there. Our existing markets in and of themselves continue to be very understored with only 1 licensed retailer for every 25,000 residents. And we have new states coming online that are incremental opportunities for us. We've been also active in terms of acquiring capabilities that we can cross-sell and scale across our client base. We bought a few solutions, as Chris mentioned earlier, on the SaaS side. And as I mentioned upfront, federal regulations open up additional forms of monetization for us. We currently do not monetize GMV. We do not take any kind of payment fees, and that represents opportunity and potential for us down the road with federal regulations enabled streams. So with that, that wraps up our presentation for today. And so, we will switch over to the Q&A chat room for those who can join.