Wm Technology, Inc. Q2 FY2022 Earnings Call

Hello. Thank you for standing by and welcome to the WM Technology Inc. Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. Please be advised that today's conference may be recorded. I would now like to hand the conference over to your speaker today Tim O'Shea, Director, Investor Relations. Please go ahead.

Hi everyone. Thanks for joining us today to discuss our fiscal 2022 second quarter results. We have our CEO, Chris Beals, 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 the 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 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 other important factors that could affect our actual results, please refer to our SEC filings available on the SEC's website including our quarterly report on Form 10-Q for the quarter ended June 30th, 2022 to be filed after this call and our Investor Relations website as well as the risks and other important factors discussed in today's earnings release. Should any of these risks materialize or should our assumptions prove to be incorrect actual financial results could differ materially from our projections or those implied by these forward-looking statements. Forward-looking statements represent our beliefs and assumptions only as of the date such statements are made. We undertake no obligation to update any forward-looking statements made during this call to reflect events or circumstances after today or to reflect new information or the appearance of unanticipated events except as required by law. Also during this call we will discuss certain non-GAAP financial measures. While we believe these non-GAAP measures are helpful to investors in understanding our business, they are not intended to be a substitute for our GAAP results. A reconciliation of each of these non-GAAP measures to the most directly comparable GAAP measure can be found in our earnings release. With that, I'd like to turn the call over to Chris.

Thanks Tim and thanks everyone joining us for today's call. I want to dive straight into our performance. We grew revenue by 24% year-over-year for the second quarter, driven primarily by growth in our paying client base. Our growth comes at a time when a number of our end markets saw year-over-year declines in licensed cannabis sales. While our results continue to exceed in market performance by a wide margin, we came short of our expectations. The shortfall was a direct result of macro challenges, in particular the significant rise in gas prices and other inflationary pressures during the quarter. This particularly impacted our delivery clients more than we anticipated, specifically in California, a delivery heavy market. To be clear, these clients continue to see healthy returns on Weedmaps despite broader end market declines, but the liquidity challenges impacted their ability to maintain or grow spend on our platform. As a result, we were forced to remove a number of these clients from our platform or reduce their spend because they weren't able to pay their invoices in a timely manner. Arden will touch on this later, but we're more cautious today for the second half as a result of what we're seeing. We're now planning as if the inflationary and other macro pressures impacting operators in the second quarter will accelerate in the second half until we have better visibility on improvements to the financial health of our clients and a return to growth across licensed end markets. Taking a step back, I also want to share what I'm seeing and hearing across our end markets. I've traveled across many of our markets over the last few months speaking with operators and policymakers, hearing their perspectives on the state of the cannabis industry, and giving advice on navigating the environment. I gave a keynote at this year's CWCBExpo in New York City where hundreds of future New York cannabis operators gathered to trade ideas on ways to open the industry. The excitement in New York around cannabis is everywhere. The idea sharing, the entrepreneurial spirit, and the hope for what this market will become have been energizing to me. I haven't seen this level of energy and potential since the opening of the California market. I'm also seeing the seeds for strong growth being planted in places like New Jersey and New Mexico. There’s a growing number of states looking poised to pass new legalization measures in the next two years. At the same time, we're in one of the most dynamic operating environments that I've seen over the last decade both within and outside of cannabis. As new operators prepare for opening day while they await their licenses, existing operators are facing margin compression compounded by inflation and a lack of access to capital. Yet, I see how our teams are executing. It's clear to me that our strategy is working and WM Tech's unique competitive advantages as a true platform are driving growth and differentiation versus others. My focus with our teams has been on delivering solutions faster and more efficiently, iterating responsibly to client feedback, something which I believe is a competitive advantage for our company. I have more conviction today than ever in the WM Tech platform and our role in unlocking growth and margin for our clients. Our ability to serve clients while driving sustainable growth is materially better than where we were just a year ago, when we closed our public transaction. The breadth of our solutions today gives us many levers of growth, whether with clients in challenged regions who are looking for efficient ways to drive sales or clients in emerging regions who are just getting started and scaling their businesses. We're a true platform, a marketplace with scale, a suite of business software solutions to enable commerce, and an ad network offering consumer reach for our clients. We're a platform powered by data, which is the tie that binds these offerings to the benefit of our clients and our users. We believe that the innovation we're bringing to the industry will improve operating efficiency for our clients as they seek ways to better compete in a challenging environment. As I've said all year long, WM Tech's growth is a result of three areas that I'll touch on today. First, driving deep client engagement across all markets and client types. Second, continuing to improve the shopping experience for our users on the Weedmaps marketplace; and third, expanding the adoption of our marketplace business enablement software and ad network solutions for the benefit of both our clients and users. Let's start with driving deep client engagement. We grew our base of paying clients by over 30% versus last year with many of these clients coming from regions where our license fee share is under 50%, demonstrating our ability to execute in newer markets. In the current environment, our clients continue to want more access to real-time performance data and more ways to surface promotions to customers. To that end, we rolled out tools like self-serve analytics, allowing clients to access detailed performance data across all of their listings, and improvements to our deals offering, allowing for a more streamlined deal creation and scheduling process. Moving on to our marketplace. We're active in driving more changes across Weedmaps for our users. We launched scheduled delivery orders, which now allows users to schedule specific time slots for receiving delivery orders. If you've ordered cannabis before, you know that lead times for delivery orders can be lengthy given the lack of retail density in many areas. With scheduled orders, our users can now order confidently with more precise delivery times, creating a better user experience. We also launched express delivery menus in California and Michigan. This feature enables clients to showcase limited menus that offer shorter delivery time periods, which again creates a better experience for our users placing orders on Weedmaps. We've also been working to increase consumer awareness and brand recall of the Weedmaps marketplace both in underpenetrated existing markets as well as new markets. Now let's talk about how we're expanding cross-product adoption across our platform. Before we do that, it's important to remind everyone that we currently have over a dozen distinct solutions available across our marketplace business enablement software and ad network. Today clients adopt about four solutions on average and that average has been growing over time. The more solutions our clients leverage, the more they see the value of their spend with Weedmaps and the more likely they are to increase their spend. Increasing the adoption of solutions is a priority for our teams. With recent shifts in our selling motions, we're better set up today to drive a land and expand strategy with our clients. We're continuing to add features to our existing offering with the recent introductions of in-store ordering kiosks and our payment solution that we're piloting in Canada. As a result of our relentless focus on execution, we're winning clients, expanding our base in under-penetrated regions, driving cross-product adoption, and rolling out value-added offerings to help clients dealing with margin pressures. We're also focusing our teams on delivering impactful product features faster. Looking ahead, we'll continue to stay focused on what we can control. That means continuing to broaden our client base and consumer awareness in emerging regions as these markets will be the future foundation for our growth. It means continuing to deliver solutions to help our clients drive profitable growth in this inflationary environment. While we believe operators will continue to be challenged in the second half, that doesn't change the work we're doing to position Weedmaps as the platform of choice for cannabis users, retailers, and brands. What it does change, however, is how we operate. As I noted, we're planning as if the macro environment will become even more challenging for our clients through the end of the year. To that end, we're focused on rigorous cost discipline and preparing for unknowns. We've reduced our spend in a number of areas and deferred investments for several strategic initiatives that aren't revenue-generating for us this year. We made the difficult decision to part ways with approximately 10% of our headcount last week while creating efficiencies by changing the ways we work, such as new centralized teams and processes overseeing our go-to-market efforts. These actions will provide more operating flexibility within this environment without sacrificing our ability to invest against critical priorities. Looking ahead, I'm excited by the work our teams are doing to get after the opportunity in New York as we wait for license issuance across the state. I'm excited by the recent changes we've seen legislatively in California and the increased volume of license issuance up and down the state. I'm excited by everything in between these two coastal strategic states. The end of litigation blocking 185 new licenses in Illinois, the approximately 200 additional licenses issued in New Mexico, and the continued movement in states like Maryland and Missouri as they head towards legalization. The next two years have the potential to set a high watermark for new states moving forward with adult-use medical cannabis legalization. The pace of license rollout in emerging regions like New York and New Jersey is set to be far more robust than what we saw in the early days of markets like California and Colorado. While we're working through the temporary disruption created by client liquidity challenges, we believe the long-term growth opportunity for WM Technology remains unchanged, and we will continue to play offense as we have all year while staying nimble in the face of dynamic end markets. With that, I'll turn the call over to Arden.

Thanks Chris. We continue to make progress in the second quarter against our strategic priorities to broaden our client base in under-penetrated regions, improve our Weedmaps marketplace experience for clients and users, and drive increasing client adoption across the solutions on our platform. Despite the financial challenges that many operators are having in this environment, which are beyond our control, we're continuing to outpace end-market growth and have more confidence today than ever in what we can control. We've narrowed our focus on the product and go-to-market initiatives with the highest and most visible returns in this environment, while taking actions to manage towards adjusted EBITDA profitability including headcount reductions, limiting backfills for voluntary attrition, and tightening our marketing investments across regions. Through these efforts, we will enhance our market positioning, while continuing to build the foundation for profitable and sustainable growth over time. Turning to our results. Our year-over-year revenue growth of 24% for the second quarter compares to double-digit declines in licensed channels across many of our top end markets. As Chris noted, operators were faced with significant headwinds in the second quarter. Lingering challenges of wholesale price deflation, which we anticipated, were compounded by the more recent spike in broader inflationary headwinds. High gas prices further compressed what were already thin margins for our clients with delivery operations. While these clients rely on WM to drive growth, their ability to spend was significantly impacted during the back half of the second quarter in ways that we did not anticipate. As Chris also noted, our clients continue to see healthy returns on Weedmaps, but the financial challenges I referenced heavily impacted their ability to stay current on their invoices. As a result, we had nearly 500 clients that we either removed from the platform or put on payment plans, which drove outsized churn and downgrade activity in the back half of the quarter. For example, we started the quarter with a monthly net dollar retention across our recurring revenue solutions of 101% for the month of April, which fell to 92% for the month of June. Excluding clients with billing issues that we either removed from the platform or put on payment plans, however, our monthly net dollar retention for June was 104%, which is above our historic levels. These client challenges resulted in a mid-single-digit year-over-year decline in average monthly revenue per paying client, which offset the approximately 30% year-over-year growth we achieved in the number of average monthly paying clients. Our most challenged clients are largely based in the California market. Yet even in California, we continue to outperform the end market. Based on third-party data, the California licensed end market declined by 10% in the second quarter versus the prior year. Yet our California marketplace revenue grew by nearly 10% over the same period. As we've said in the past, our growth is not entirely reliant on end market growth. Rather, our growth is largely a function of the value we deliver to clients and our ability to deliver new solutions that improve client margins, and Q2 was evidence of this dynamic. Moving down the P&L, our Q2 gross margin rate of 93% is consistent with Q1 and reflects the investments we've made in our new client solutions, in particular our ad network offering. Our reported operating expenses after cost of revenues and before D&A expense came in at $65 million for the quarter. Our reported OpEx includes $8 million in stock-based compensation, along with $3 million in other nonrecurring charges. More information on these charges is available in our earnings release and the earnings slide deck and will be in our Form 10-Q. Excluding these items, our non-GAAP adjusted OpEx for the quarter came in at $54 million, or a 51% increase versus last year. It's important to note that our adjusted OpEx growth comparisons are impacted by public company costs that were only partially included in last year's second quarter, given the timing of our Go Public transaction. Our Q2 adjusted OpEx increase was driven by continued investments in our go-to-market teams, our engineering product and design works, and strategic marketing to support the 420 holiday. While bad debt expense continues to be a drag on margin, we reduced our bad expense by approximately one-third versus the first quarter. As we were reading and reacting to client liquidity challenges, we reassessed our investment levels throughout the quarter and cut spend across several noncritical areas. We're of course mindful of the current environment and made pivots throughout the quarter to right-size our spend relative to the growth we achieved in Q2 to position us well for the second half. We proactively slowed down hiring with net headcount growth of 5% during Q2, which compares to 18% in Q1. As Chris noted, we also made the decision to reduce our existing headcount by approximately 10% last week. We also rationalized our non-wage investments primarily with outside vendors and digital marketing. With respect to our digital marketing, let me provide an update. As you know, we've historically used monthly active user metrics to help gauge the effectiveness of our marketing efforts. As discussed in the release today, we are providing more information about the composition of those metrics including with the use of pop-unders, which management believes have been cost-effective in promoting brand awareness but limited in driving engagement. We're evaluating other metrics to determine which may be most useful for investors and also reviewing where we direct marketing dollars. We expect to provide an update on that in our third quarter call. Turning to EBITDA, our Q2 adjusted EBITDA given the above factors was minus $0.6 million, which amounted to a first half adjusted EBITDA of minus $1.5 million and came short of our goal of being breakeven to slightly positive for the first half. Our reported net income was $20 million, which includes a $32 million change in the fair value of our warrant liability resulting from the change in our accounting following the SEC statement last year on accounting for these types of warrants. Our fully diluted share count across just our Class A and B share classes was 145 million at the end of the quarter. A reconciliation of adjusted EBITDA to net income as well as the details of our share classes and share count calculation are provided in our earnings release and quarterly results presentation that are posted to our Investor Relations site. We ended the quarter with $48 million in cash and we're comfortable with our liquidity position and do not have any need for outside capital to operate our business and execute our growth agenda. While we continue to monitor the strategic landscape, we believe time is on our side and these market conditions provide a competitive advantage to companies that can drive growth while operating profitably. I'll now turn to our financial outlook for the balance of fiscal 2022. Last quarter, I noted that we're mindful of the continued business challenges facing our clients in addition to the macro conditions that could weigh on consumer health and demand for cannabis. As we saw in the second quarter, the business and financial challenges for our clients have accelerated, with growth outlooks across licensed cannabis end markets getting revised downwards from what were already lower levels for 2022 versus prior years. We cannot ignore this reality as our ability to achieve growth is ultimately anchored in the financial health of our clients. Further, we are even more cautious today about the potential risk of a consumer pullback, though our data suggests consumer demand for cannabis remains healthy. For these reasons, we've tempered our growth expectations for the second half. We also want to provide clarity on where we have confidence and visibility on driving growth versus areas that remain challenging to predict given the lack of forward visibility on client financial health and end market conditions. To that end, our original outlook had assumed an acceleration in end market growth in the second half, particularly in California, which would have driven higher levels of average revenue per paying client growth. We now, however, are planning as if the year-over-year declines in California seen in Q2 will accelerate in the second half. As such, we are also planning as if liquidity for operators remains constrained and our average revenue per paying client will continue declining in the second half. We expect to mitigate these declines with growth in our paying client base. Given these dynamics, we're planning against an outlook where total revenue is flat to down in the mid-single-digit percent area on a year-over-year basis for the second half, which implies low double-digit percent growth for the full year. While our year-over-year revenue growth rate for Q3-to-date is in the positive mid-single-digit percent area, we believe our planning assumptions for the second half are prudent given the ongoing challenges that operators are facing and the uncertainty created by the current macro environment. We also believe we're in a moment in time and that our long-term growth opportunity remains unchanged. It's important to note that we're not assuming material revenue contribution from New York and New Jersey this year, as we have yet to see clear signs for when new licenses will be issued and when operators will be ready to spend. With our lowered growth expectations, we are also cautious in our investments to right-size our spend versus our growth outlook. We've reassessed our organizational structure in several areas and have found significant productivity opportunities by eliminating certain functions and slowing down the pace of our headcount investments. We've also aggressively reduced spending across non-critical areas of the business and scaled back investments in several strategic priorities that are not revenue-generating this year such as our plans for self-serve capabilities, data, and international expansion. We continue to view these opportunities as strategic, but will selectively ramp investments as visibility into revenue growth increases. Finally, on the East Coast, we have better visibility on timing of new license issuance versus where we were at the start of the year. As a result, we are also reducing planned investment in our winning the Big East initiative. With that said, we still view winning New York and New Jersey as critical and will invest accordingly. However, we feel comfortable that our lower levels of spend still support our plans to strategically own these markets. As a result of these rationalization efforts, we expect to end this year with positive adjusted EBITDA for the full year consistent with our decade-long track record of generating adjusted EBITDA profitability. As we've noted in the past, driving profitable growth is core to our DNA as a company and our commitment to achieving profitability is no different this year versus years prior. With that, I'd like to turn it over to Chris for some closing comments.

Thanks, Arden. Before we close, I wanted to welcome Doug Francis, our Co-Founder and Director, to his new role as Executive Chair of WM Technology. I'm incredibly excited to be partnering more closely with Doug. He and I co-ran the company for several years and he was the person who originally convinced me to come aboard to scale and expand WM Technology. His deep experience as an operator within the industry, along with his intuition and insight around our end markets will be a valuable asset for me, the other Board members, our company, and our shareholders, especially at this moment in time. In closing, we recognize and appreciate the substantial economic and political challenges that all companies are facing in these uncertain times, especially our technology and cannabis peers. It's our job as a leadership team to navigate WM Technology both operationally and financially through these times. We're in the very early stages of what some expect to be a $100 billion industry, and we are working towards winning where we play to create long-term value for our shareholders. Finally, our teams are battle-tested and shine in their ability to execute in tough operating environments. On that note, I'd like to close with a heartfelt thank you to the team that makes it all possible. The people behind WM Technology will always be our greatest competitive advantage. With that, let's open the call up for questions.

Thank you. Our first question comes from DJ Hynes with Canaccord. You may proceed.

Hey. Thanks, guys. Arden, maybe I could start with you just a couple on the numbers. Monthly paying clients, if I look at that metric, how many new customers did you add via M&A in the quarter?

Yeah. So of the $500 million that we saw, let's call it about a couple of hundred were related to M&A. The balance was organic.

Okay. So in spite of kind of the churn on the platform, you still had a pretty healthy quarter in terms of new adds – if that’s helpful?

That's right. Yeah. No, that's exactly right. And just to reemphasize that last piece of it. As we mentioned on the call, we saw significant churn. Again, clients that – the churn was pretty limited to clients that had these billing issues, as a result of again the financial challenges, particularly in California with $7 gas. That number that I just gave you is net of obviously that churn.

Yeah. Got it. So then just considering ARPU assumptions in the back half, right? I mean we got easier growth comps, if I look at kind of the second half of 2021. What are you assuming in terms of ARPU trends? And what levers do you have to try and sustain or kind of hold up ARPU?

Yes. Yes. So great question. A couple of things. Before we get into ARPU trends in and out themselves. And so as you mentioned, we think it's prudent for us to take the unknown risks off the table to a certain extent. And what I mean by that is the challenges that hit us in Q2, again end market declines as we noted. At the start of the quarter, there were mixed views amongst operators as it relates to when end markets would stabilize and return to growth. We've been consistent in saying since Q3 of last year that we didn't expect growth to return across a number of end markets until the back half of this year. Given what we saw in Q2, we're considering this decline to continue. Our growth isn't a function of end markets. It's more a function of the returns we're delivering for our clients. Now when you have clients that are facing liquidity challenges and financial health challenges, that's another risk that we need to factor in. We are not assuming that the clients that came off the platform in Q2 as a result of these billing issues are returning in the second half. To the extent that they're put on payment plans, we're not assuming that they're going to be in a position to spend at the levels that they previously were at. The last point is we haven't yet seen significant evidence of a consumer demand pullback. Our data does suggest that consumer demand for cannabis remains healthy. However, we think it's prudent to plan for some cushion in that area. Bottom line, we expect pressure on our revenue per client for the back half. We expect to offset that with growth in our paying client base because we've been pretty consistent in terms of our ability to grow paying clients, especially within our emerging regions.

Got it. Got it. Okay. Lots of good helpful color in there. Thank you.

Thank you. One moment for questions. Our next question comes from Joseph Meares with Truist. You may proceed.

Hi. This is Dominique Madonsela filling in for Joe. Do you have any updates on state of the international market? We know you have a strong presence in Europe that's not currently being monetized. Is there any progress on the legislation front there?

Yes. Our policy team continues to engage internationally. Starting with a new international market in Canada, we recently rolled out the release of online payments across several of our SaaS solutions. The marketplace, the e-com embed, the in-store kiosks, and so on. Canada, I think, while it's been a market that's traditionally struggled, we're moving to push our solutions on the SaaS side there. On the EU markets, I think the pacing there, while continuing to move forward, is coming at a somewhat slow pace. For something like the German market, my current estimate would be that we'd probably see that start to round into form in the back half of next year or early in the following year. I'm very bullish and excited about that market, and our policy team is active there. We continue to be engaged in the Spanish market and other markets that are also moving forward. Flipping back again to North America, we are also engaging there from a policy view. I think our view is also back half of next year. In each case, we're planning then for the right time to start making developments that would target those markets, although we've seen those timelines kind of shift backwards, I'd say at this point, probably six to nine months from what we were anticipating at the beginning of the year or the end of last year.

Got it. Thank you.

Thank you. Our next question comes from Tom Champion with Piper Sandler. You may proceed.

Great. Good afternoon, guys. So the environment sounds very dynamic. I'm wondering if you could just elaborate a little bit on the linearity within the quarter? And I think you commented on what you're seeing in July. But how did the second quarter unfold? And it sounds like you're tying a lot of the conditions to gas prices, specific to California. I'm just curious if there's been any alleviation in the pressure from gas prices rolling over a little bit more recently? And finally, just sticking with California, I think Chris, you alluded to some positive legislative changes in the state. Could you elaborate on those? Thank you.

Yes. So Tom, I'll take the first part of that and then I'll turn it over to Chris for that last question. In terms of the linearity of the quarter, it pretty much tracked what you saw with California gas prices. We started out the quarter with pretty strong and healthy net dollar retention across our client base, consistent with what we've seen for the last year. Over the back half of May and into June, that's where we started seeing specific to clients with delivery operations folks that were not upgrading with the type of cadence and frequency that they have in the past, which forced us to make some hard decisions in terms of publishing clients that were somewhat constrained financially. Yes, it's true that from what we're seeing and hearing, gas prices are cheaper than they were during June peak. But, keep in mind, we're still at $1 higher than where we were a year ago. From a delivery perspective, we explored the sensitivity of the delivery operators covering large distances. That impacted our operations significantly. In terms of July and Q3 to date, despite the planning scenario that we gave for the back half, we're actually up mid-single digits on a year-over-year basis. But again, we just think it's prudent to factor in these known risks from a planning standpoint. I’ll turn it over to Chris now.

Yes. On the gas prices, part of the high sensitivity is due to the limited number of licenses in California. For instance, some delivery operators were dispatching orders from Los Angeles down to San Diego or other long distances. The delivery operations saw them pull back on the number of pens and reduce the area they were servicing; this was a key reason for the high sensitivity. It's also worth noting that several features we shipped this quarter were intended to address the pain delivery operators are feeling. Scheduled orders and dynamic delivery were introduced, which allows a more efficient dispatching system. In terms of legislative changes, there are two notable pieces, both of which we were part of pushing for. One was a reduction in the state tax for a period on cannabis, which should have a positive impact. Secondly, the state approved a program that provides grants and incentives to local governments to move forward with adult-use cannabis licensing. This is notable, as it emphasizes the importance of sufficient retail access. We believe this should lead to an increase in cannabis retail licenses in California addressing some of the current challenges.

Got it. Thanks, guys.

Thank you. One moment for questions. Our next question comes from Pablo Zuanic with Cantor Fitzgerald. You may proceed.

Thank you. Chris, the first question maybe more transparency on the 500 clients that you took out of the platform. Because according to official data there's 1,063 active storefront licenses in California and 481 active delivery licenses. So, if that's the case you pretty much took out the whole market of California from your platform on the delivery side? I'm just trying to understand. Again, we come back to the issue of transparency.

Yes. To clarify, that 500 is hard revenue. It's a mix of folks that we unpublish, which aren't the majority, and folks that we had to put on payment plans and downgrade their spend. Not all 500 were exclusively based in California. While most were California-based, unpublishing is not the bulk. Again, it’s a minority of the 500. The other balance relates to folks still on the platform but at much reduced levels of spend and staying current against those payment terms.

Okay. A second question; there were news about claims of illicit operators on your platform. Can you address this again?

Yes, we take trust and safety very seriously on the platform. We have enhanced verification for businesses getting onto the platform, reviewing their license information. We also have a flag and review process where we evaluate listings flagged by consumers, clients, or through internal review. Where we identify something that's a miss, it needs to be addressed or removed. We've seen the size of our moderation team grow over the last year. There's not a finish line when it comes to trust and safety, and we're continuing to improve the process. Regarding the article, several items flagged were not present on the platform at the time of publication, which demonstrates our approach to moderation is effective.

Thanks. One more if I may ask, conceptually, I used to think that the more stores in the state were better for you because you have more clients. But what are your thoughts on states like Oklahoma with too many stores that hurt the market?

That's a great question. We bundle our WM business and SaaS solutions and aim to charge incrementally to a larger number of small businesses by offering features that help them manage the consumer lifecycle. For states with limited licenses, we've been investing in tools to help back-office operations and enable greater efficiency. In places like Canada, we've been leaning in with payment solutions and our SaaS suite. In oversaturated states, we see natural consolidation occurring. We're targeting those areas by creating SaaS solutions that can harvest monthly revenue using features that are sticky.

Okay. Thank you for that. I want to add one more if I may. Can you talk about cadence for the second half? You talked about mid-single digits through quarter-to-date, but will the fourth quarter be a bigger decline than the third quarter sequentially?

As we think about the back half, we are careful not to bank on factors outside of our control. The challenges that hit us in Q2 were beyond our anticipation, particularly related to our client financial health. That said, we anticipate that the financial challenges for our clients will continue into the second half. If they have downgraded their spend, we won't assume they're reupping at previous levels. We're also estimating potential consumer demand for pullback. The risks in Q3 and Q4 could materialize depending on the dynamics of end market growth, operator liquidity, and sustaining consumer health.

Hey, thanks. Good evening. First question with respect to the AR issue. What does the AR difference look like between clients that have come on the platform in the last year versus the clients that have been on for longer?

The aging issues are less a function of the length of stay on the platform and more related to the type of operator. In the past quarters, the less robust clients had issues. However, in the second quarter, many of the clients facing challenges were long-standing clients with high levels of historical spend.

Got it. Second question; I want to revisit longer-term impacts of the MJBiz article. Number one, did you perceive any issues as a result of the article or isolated incidents? Secondly, were there investigations into the company?

I think anytime an article like that points to trust and safety, we need to think about improvements. The moderation systems are effective, as several flagged items were already removed or didn’t appear on the platform when the article was published. We haven't heard anything from the SEC or the State of California regarding investigations.

Thank you. I'm not showing any further questions at this time. I would now like to disconnect the call. Thank you for participating. You may now disconnect.