The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and the related notes to those statements included herein. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under "Risk Factors" and elsewhere herein.
Overview
OnJune 16, 2021 ,WM Holding Company, LLC (when referred to in its pre-Business Combination capacity, "Legacy WMH" and following the Business Combination, "WMH LLC ") completed its previously announced business combination withSilver Spike Acquisition Corp ("Silver Spike"). Legacy WMH was deemed to be the accounting acquirer under accounting principles generally accepted inthe United States of America ("GAAP"). In connection with the closing, Silver Spike changed its name toWM Technology, Inc. As used in this Annual Report on Form 10-K, unless the context requires otherwise, references to the "Company," "we," "us," and "our," and similar references refer toWM Technology, Inc , and its subsidiaries following the Business Combination and to Legacy WMH prior to the Business Combination.WM Technology, Inc. is one of the oldest and largest marketplace and technology solutions providers exclusively servicing the cannabis industry, primarily consumers, retailers and brands inthe United States state-legal and Canadian cannabis markets. Our business consists of our commerce-driven marketplace, Weedmaps, and our monthly subscription software offering, WM Business. Our Weedmaps marketplace provides information on the cannabis plant and the industry and advocates for legalization. The Weedmaps marketplace provides consumers with information regarding cannabis retailers and brands, as well as the strain, pricing, and other information regarding locally available cannabis products, through our website and mobile apps, permitting product discovery, access to deals and discounts, and reservation of products for pickup by consumers or delivery to consumers by participating retailers. As ofDecember 31, 2021 , we had over 15 million monthly active users on our marketplace. We believe the size of our user base and the frequency of consumption of cannabis of that user base is highly valuable to our clients and results in clients paying for our services. WM Business, our subscription package, is a comprehensive set of eCommerce and compliance software solutions catered towards cannabis retailers, delivery services and brands where clients receive access to a standard listing page and our suite of software solutions, including WM Orders,WM Dispatch ,WM Store , WM Dashboard, our integrations and API platform, as well as access to our WM Retail and WM Exchange products, where available. We charge a monthly fee to clients for access to our WM Business subscription package and then offer other add-on products for additional fees, including our featured listings and our Sprout (customer relationship management) and Cannveya (delivery and logistics software) solutions. We sell our WM Business offering inthe United States , currently offer some of our WM Business solutions inCanada and have a limited number of non-monetized listings in several other countries, includingAustria ,Germany ,the Netherlands ,Spain andSwitzerland . We operate inthe United States ,Canada , and other foreign jurisdictions where medical and/or adult cannabis use is legal under state or applicable national law. We are headquartered inIrvine, California . We were founded in 2008 and operate a leading online marketplace with a comprehensive set of eCommerce and compliance software solutions sold to retailers and brands in theU.S. state-legal and Canadian cannabis markets. The Company's mission is to power a transparent and inclusive global cannabis economy. We address the challenges facing both consumers seeking to understand cannabis products and businesses who serve cannabis users in a legally compliant fashion with our Weedmaps marketplace and WM Business software solutions. Over the past 13 years, we have grown the Weedmaps marketplace to become a premier destination for cannabis consumers to discover and browse information regarding cannabis and cannabis products, permitting product discovery and order-ahead for pickup or delivery by participating retailers. WM Business is a set of eCommerce-enablement tools designed to help our retailer and brand clients get the best out of their Weedmaps experience, while creating labor efficiency and managing their compliance needs. We have grown the Weedmaps marketplace to become the premier destination for cannabis consumers to discover and browse information regarding cannabis and cannabis products, with 15.7 million monthly active users ("MAUs") as ofDecember 31, 2021 on the demand-side and 4,337 average monthly paying business clients during the year endedDecember 31, 2021 on the supply-side of our marketplace. These paying clients include retailers, brands and other client types (such as doctors). Further, these clients, who can choose to purchase multiple listings solutions for each business, had purchased approximately 9,500 listing pages as ofDecember 31, 2021 (of the over 18,600 listing pages on the marketplace). The 46 -------------------------------------------------------------------------------- Table of Contents Weedmaps marketplace provides consumers with information regarding cannabis retailers and brands, as well as the strain, pricing, and other information regarding locally available cannabis products, through our website and mobile apps, permitting product discovery and order-ahead for pickup or delivery by participating retailers. We provide consumers with discovery channels to improve their knowledge of the local market for cannabis products, whether they are looking by strain, price, effects or form factors. Our weedmaps.com site, our iOS Weedmaps mobile application and our Android Weedmaps mobile application also have educational content including news articles, information about cannabis strains, a number of "how-to" guides, policy white-papers and research to allow consumers to educate themselves on cannabis and its history, uses and legal status. While consumers can discover cannabis products, brands, and retailers on our site, we neither sell (or fulfill purchases of) cannabis products, nor do we process payments for cannabis transactions across our marketplace or SaaS solutions.
Business Combination and Public Company Costs
OnJune 16, 2021 , Silver Spike consummated the business combination (the "Business Combination") pursuant to the certain Agreement and Plan of Merger, datedDecember 10, 2020 (the "Merger Agreement"), by and among Silver Spike,Silver Spike Merger Sub LLC , aDelaware limited liability company and a wholly owned direct subsidiary ofSilver Spike Acquisition Corp. ("Merger Sub"), Legacy WMH, andGhost Media Group, LLC , aNevada limited liability company, solely in its capacity as the initial holder representative (the "Holder Representative"). Pursuant to the Merger Agreement, Merger Sub merged with and into Legacy WMH, whereupon the separate limited liability company existence of Merger Sub ceased and Legacy WMH became the surviving company and continued in existence as a subsidiary of Silver Spike. On the Closing Date, and in connection with the Closing, Silver Spike changed its name toWM Technology, Inc. Legacy WMH was deemed to be the accounting acquirer in the Business Combination based on an analysis of the criteria outlined in Accounting Standards Codification 805. While Silver Spike was the legal acquirer in the Business Combination, because Legacy WMH was deemed the accounting acquirer, the historical financial statements of Legacy WMH became the historical financial statements of the combined company, upon the Closing. The Business Combination was accounted for as a "reverse recapitalization." A reverse recapitalization does not result in a new basis of accounting, and the financial statements of the combined entity represent the continuation of the financial statements of Legacy WMH in many respects. Under this method of accounting, Silver Spike was treated as the "acquired" company for financial reporting purposes. For accounting purposes, Legacy WMH was deemed to be the accounting acquirer in the transaction and, consequently, the transaction was treated as a recapitalization of Legacy WMH (i.e., a capital transaction involving the issuance of stock by Silver Spike for the stock of Legacy WMH). Accordingly, the consolidated assets, liabilities and results of operations of Legacy WMH became the historical financial statements of the combined company, and Silver Spike's assets, liabilities and results of operations were consolidated with Legacy WMH beginning on the acquisition date. Operations prior to the Business Combination are presented as those of Legacy WMH. The net assets of Silver Spike were recognized at historical cost (which are consistent with carrying value), with no goodwill or other intangible assets recorded. As a consequence of the Business Combination, Legacy WMH became the successor to anSEC -registered and Nasdaq-listed company which requires us to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. We have and expect to continue to incur additional annual expenses as a public company for, among other things, directors' and officers' liability insurance, director fees and additional internal and external accounting, legal and administrative resources, including increased audit and legal fees.
Key Operating and Financial Metrics
We monitor the following key financial and operational metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions. Subsequent to the Business Combination, we modified our definition and calculation of three of our Key Operating and Financial Metrics: (a) average monthly revenue per paying client, (b) average monthly paying clients, and (c) MAUs. We made these modifications in order to better reflect our performance during a reporting period and to make these key metrics more easily comparable on a period-to-period basis. The changes to these metrics and a comparison to previous calculations are described below. We are providing our prior definitions of these key metrics, as well as a calculation of what our results would have been pursuant to such prior definitions, for the applicable periods so that investors and potential investors that have analyzed these key metrics historically using our prior definitions can compare our historical results to our current results with respect to these key metrics using the prior definitions. To see what our historical average monthly revenue per paying client, average monthly paying clients and monthly active users would have been for the years endedDecember 31, 2020 and 2019 using our modified definitions, as well as a comparison to what the results were using our prior definitions, please refer to our earnings release included as Exhibit 99.1 in our Current Report on Form 8-K, filedAugust 12, 2021 . 47
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Years Ended December 31,
2021 2020 2019
(dollars in thousands, except for revenue per paying client)
Revenues $ 193,146 $ 161,791 $ 144,232
Net Income (loss) $ 152,218 $ 38,830 $ (375)
EBITDA(1) $ 156,042 $ 42,808 $ 6,232
Adjusted EBITDA(1) $ 31,698 $ 42,808 $ 13,828
Average monthly revenue per paying client(2) $ 3,711 $ 3,256 $ 2,558
Average monthly paying clients(3) 4,337 4,140 4,699
MAUs (in thousands)(4) 15,734 10,000 8,009
___________________________
(1)For further information about how we calculate EBITDA and Adjusted EBITDA as
well as limitations of its use and a reconciliation of EBITDA and Adjusted
EBITDA to net income, see "-EBITDA and Adjusted EBITDA" below.
(2)Average monthly revenue per paying client is defined as the average monthly
revenue for any particular period divided by the average monthly paying clients
in the same respective period. See "-Average Monthly Revenue Per Paying Client"
below for a description of how we used to calculate average monthly revenue per
paying client and what our average monthly revenue per paying client would have
been using our prior definition for the applicable periods.
(3)Average monthly paying clients are defined as the average of the number of
paying clients billed in a month across a particular period (and for which
services were provided). See "-Average Monthly Paying Clients" below for a
description of how we used to calculate average monthly paying clients and what
our average monthly paying clients would have been using our prior definition
for the applicable periods.
(4)MAUs are defined as the number of unique users opening our Weedmaps mobile
app or accessing our Weedmaps.com website over the course of a calendar month.
Monthly active users in this table is for the last month in the period. See
"-MAUs" below for a description of how we used to calculate MAUs and what our
MAUs would have been using our prior definition for the applicable periods.
Revenue
We generate revenue from the sale of monthly subscriptions and our additional offerings as described previously. Our monthly subscription offering is sold based on a fixed price per month with the pricing based on the type of client. These subscriptions generally have one-month terms that automatically renew unless notice of cancellation is provided in advance. Our additional offerings range in price and terms. For clients that pay us in advance for subscription and other services, we record deferred revenue and recognize revenue over the applicable term of services provided.
EBITDA and Adjusted EBITDA
To provide investors with additional information regarding our financial results, we have disclosed EBITDA and Adjusted EBITDA, both of which are non-GAAP financial measures that we calculate as net income before interest, taxes and depreciation and amortization expense in the case of EBITDA and further adjusted to exclude non-cash, unusual and/or infrequent costs in the case of Adjusted EBITDA. Below we have provided a reconciliation of net income (the most directly comparable GAAP financial measure) to EBITDA and from EBITDA to Adjusted EBITDA. We present EBITDA and Adjusted EBITDA because these metrics are a key measure used by our management to evaluate our operating performance, generate future operating plans and make strategic decisions regarding the allocation of investment capacity. Accordingly, we believe that EBITDA and Adjusted EBITDA provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management.
EBITDA and Adjusted EBITDA have limitations as an analytical tool, and you
should not consider it in isolation or as a substitute for analysis of our
results as reported under GAAP. Some of these limitations are as follows:
•although depreciation and amortization are non-cash charges, the assets being
depreciated and amortized may have to be replaced in the future, and both EBITDA
and Adjusted EBITDA do not reflect cash capital expenditure requirements for
such replacements or for new capital expenditure requirements;
•EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for,
our working capital needs; and
•EBITDA and Adjusted EBITDA do not reflect tax payments that may represent a
reduction in cash available to us.
Because of these limitations, you should consider EBITDA and Adjusted EBITDA
alongside other financial performance measures, including net income and our
other GAAP results.
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A reconciliation of net income (loss) to non-GAAP EBITDA and Adjusted EBITDA is
as follows:
Years Ended December 31,
2021 2020 2019
(in thousands)
Net income (loss) $ 152,218 $ 38,830 $ (375)
(Benefit from) provision for income taxes (601) -
1,321
Depreciation and amortization expenses 4,425 3,978 5,162 Interest expense - - 124 EBITDA 156,042 42,808 6,232 Stock-based compensation 29,324 - - Change in fair value of warrant liability (166,518) -
–
Warrant transaction costs 5,547 -
–
Impairment of right-of-use asset 2,372 -
–
Transaction related bonus expense 2,200 - - Transaction costs 2,583 - - Legal settlement 148 - - Financing fees - - 3,394 Reduction in force - - 4,202 Adjusted EBITDA$ 31,698 $ 42,808 $ 13,828
Average Monthly Revenue Per Paying Client
Average monthly revenue per paying client measures how much clients, for the
period of measurement, are willing to pay us for our subscription and additional
offerings and the efficiency of the bid-auction process for our featured
listings placements. We calculate this metric by dividing the average monthly
revenue for any particular period by the average monthly number of paying
clients in the same respective period. We have consistently grown our monthly
revenue per paying client, reflecting the increased functionality we have
provided over time with our WM Business software solutions and the increased
retailer density within the markets we serve.
Current definition:
Years Ended December 31,
2021 2020 2019
Average monthly revenue per paying client $ 3,711 $ 3,256 $ 2,558
Prior definition¹:
Years Ended December 31,
2021 2020 2019
Monthly revenue per paying client
___________________________
¹ We previously calculated average monthly revenue per paying client by dividing total monthly revenue for the last month of any particular period by the number of paying clients in that last month of a particular period. We changed our definition because we believe using monthly revenue across the entire period is a better reflection of our results during such period than monthly revenue for only the last month of the period and believe our modified definition will be less susceptible to monthly fluctuations and therefore more reliable when comparing period-to-period results.
Average Monthly Paying Clients
We define average monthly paying clients as the monthly average of clients billed each month over a particular period (and for which services were provided). Our paying clients include both individual cannabis businesses as well as retail sites or businesses within a larger organization that have independent relationships with us, many of whom are owned by holding companies where decision-making is decentralized such that purchasing decisions are made, and relationships with us are located, at a lower organizational level. In addition, any client may choose to purchase multiple listing solutions for each of their retail sites or businesses. OnDecember 31, 2019 , we discontinued our service toCalifornia -based clients who failed to 49 -------------------------------------------------------------------------------- Table of Contents provide valid licensing information, in accordance with our prior announcement inAugust 2019 to support only licensed cannabis retail operators and their partners on our platform. As a result, we experienced a high level of client churn in January as a result of the elimination of these operators. InJune 2020 , we initiated a similar effort inCanada to discontinue services toCanada -based retail operators clients who failed to provide valid license information, which drove a decline in paying clients beginning inSeptember 2020 . This reset ofCanada was completed onNovember 30, 2020 . Average monthly paying clients for the year endedDecember 31, 2021 increased approximately 5% to 4,337 average monthly paying clients from 4,140 average monthly paying clients in the same period in 2020. The increase in average monthly paying clients in 2021 was primarily due to an increase in WM Business subscription clients and an increase in premium listing clients, offset by the impact related to the removal of clients who failed to provide valid licensing information inCanada in 2020 as described above. Current definition: Years Ended December 31, 2021 2020 2019 Average monthly paying clients 4,337 4,140 4,699 Prior definition¹: Years Ended December 31, 2021 2020 2019 Paying clients 4,870 3,786 4,644 ___________________________ ¹ We previously defined paying clients, which was defined as the number of clients billed during the last month of a particular period. We changed our metric because we believe using the average number of paying clients across the entire period is a better reflection of our results during such period than the average paying clients for only the last month of the period and believe our modified definition will be less susceptible to monthly fluctuations and therefore more reliable when comparing period-to-period results.
Monthly Active Users
We define MAUs as the number of unique users opening our Weedmaps mobile app or accessing our Weedmaps.com website over the course of a calendar month. In any particular period, we determine our number of MAUs by counting the total number of users who have engaged with the weedmaps.com site during the final calendar month of the given period. Beginning inMarch 2021 , we began tracking and including the MAUs related to the Learn section on weedmaps.com into our calculation of MAUs. We view the number of MAUs as a key indicator of our growth, the breadth and reach of our weedmaps.com site, the value proposition and consumer awareness of our brand, the continued use of our sites by our users and their level of interest in the cannabis industry. As our business has grown, our MAUs increased each year from 2018 through 2021. This increase is due to a number of factors including, but not limited to, our continued expansion into new markets, further investments in our existing markets, increase in marketing spend, including web advertising, and the general increased awareness of our platform as the cannabis industry has grown and jurisdictions experience continued legalization of cannabis for medical and/or adult use. We also believe we were increasingly efficient with our marketing spend and, therefore, have been able to acquire users at lower costs. However, as our platform has grown organically, our MAU growth rates have at times naturally slowed and we may experience similarly slower growth rates in the future, even if we continue to add MAUs on an absolute basis. While it is not possible to identify all drivers of a change in any given period, an increase or decrease in digital marketing spend as well as significant market shifts including the removal of clients who fail to provide valid licensing information in certain markets can have outsized impacts on MAU growth. We cannot determine what, if any, impact the pandemic had on our MAU growth in 2020. As ofDecember 31, 2021 , we grew our MAUs by 57% year-over-year through increased organic traffic and more effective marketing campaigns. Since the beginning of the pandemic, we have continued to grow our MAUs, reaching 15.7 million atDecember 31, 2021 . While we believe, like other industries, the pandemic accelerated existing trends towards consumer adoption of online platforms, we cannot be certain to what impact, if any, the end of the pandemic will have on our MAUs or MAU growth.
We believe as we increase MAUs, we increase the value of our bundled SaaS
solutions to business customers.
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Current definition:
As of December 31,
2021 2020
MAUs (in thousands) 15,734 10,000
Prior definition¹:
As of December 31,
2021 2020
MAUs (in thousands) 14,904 10,000
___________________________
¹ When calculating our MAUs, we previously excluded the MAUs attributed to the Learn section of weedmaps.com, which we began tracking inMarch 2021 . We believe including MAUs from the Learn section of weedmaps.com more accurately reflects our total MAUs. MAUs as of dates prior toMarch 31, 2021 do not include MAUs from our Learn section.
Quarterly Key Operating Metrics
Current definition:
Three Months Ended December 31,
2021 2020
Average monthly revenue per paying client $ 3,789 $ 3,825
Average monthly paying clients 4,766 3,863
Prior definition:
Three Months Ended December 31,
2021 2020
Monthly revenue per paying client $ 3,781 $ 3,609
Paying clients 4,870 3,786
Factors Affecting Our Performance
Growth of Our
We have historically grown through and intend to focus on continuing to grow through the expansion of our two-sided marketplace, which occurs through growth of the number and type of businesses and consumers that we attract to our platform. We believe that expansion of the number and types of cannabis businesses that choose to list on our platform will continue to make our platform more compelling for consumers and drive traffic and consumer engagement, which in turn will make our platform more valuable to cannabis businesses.
Growth and Retention of Our Paying Clients
Our revenue grows primarily through acquiring and retaining paying clients and increasing the revenue per paying client over time. We have a history of attracting new paying clients and increasing their annual spend with us over time, primarily due to the value they receive once they are onboarded and able to take advantage of the benefits of participating in our two-sided marketplace and leveraging our software solutions. Our monthly net dollar retention, which is defined as total revenue from clients in a given month who were paying clients in the immediately preceding month, averaged at 101% in 2021. Our monthly net dollar retention averaged 100% for the eleven monthsbetween February 1 and December 31, 2020 (we excludeJanuary 2020 given the high level of client churn that we experienced as a result of our decision to remove clients inCalifornia who 51 -------------------------------------------------------------------------------- Table of Contents failed to provide valid licensing information at the end of 2019). We removed our paidCanada -based retail operator clients who failed to provide valid license information beginning inSeptember 2020 (following the earlier removal of suchCanada -based clients who were receiving free listing subscriptions).
Regulation and Maturation of Cannabis Markets
We believe that we will have significant opportunities for greater growth as more jurisdictions legalize cannabis for medical and/or adult use and the regulatory environment continues to develop. Thirty-eightU.S. states, theDistrict of Columbia ,Puerto Rico , and severalU.S. territories have legalized some form of whole-plant cannabis cultivation, sales, and use for certain medical purposes. Eighteen of those states and theDistrict of Columbia have also legalized cannabis use by adults for non-medical or adult-use purposes, and several other states are at various stages of similar legalization measures. We intend to explore new expansion opportunities as additional jurisdictions legalize cannabis for medical or adult use and leverage our business model informed by our 13-year operating history to enter new markets. We also have a significant opportunity to monetize transactions originating from users engaging with a retailer on the Weedmaps marketplace or tracked via one of our WM Business solutions. GivenU.S. federal prohibitions on plant-touching businesses and our current policy not to participate in the chain of commerce associated with the sale of cannabis products, we do not charge take-rates or payment fees for transactions originating from users who engage with a retailer on the Weedmaps platform or tracked via one of our WM Business solutions. A change inU.S. federal regulations could result in our ability to engage in such monetization efforts without adverse consequences to our business. Our long-term growth depends on our ability to successfully capitalize on new and existing cannabis markets. Each market must reach a critical mass of both cannabis businesses and consumers for listing subscriptions, advertising placements and other solutions to have meaningful appeal to potential clients. As regulated markets mature and as we incur expenses to attract paying clients and convert non-paying clients to paying clients, we may generate losses in new markets for an extended period. Furthermore, we compete with cannabis-focused and general two-sided marketplaces, internet search engines, and various other newspaper, television and media companies and other software providers. We expect competition to intensify in the future as the regulatory regime for cannabis becomes more settled and the legal market for cannabis becomes more accepted, which may encourage new participants to enter the market, including established companies with substantially greater financial, technical and other resources than existing market participants. Our current and future competitors may also enjoy other competitive advantages, such as greater name recognition, more offerings and larger marketing budgets.
Brand Recognition and Reputation
We believe that maintaining and enhancing our brand identity and our reputation
is critical to maintaining and growing our relationships with clients and
consumers and to our ability to attract new clients and consumers. Historically,
a substantial majority of our marketing spending was on out-of-home advertising
on billboards, buses and other non-digital outlets. Starting in 2019, consistent
with the overall shift in perceptions regarding cannabis, a number of
demand-side digital advertising platforms allowed us to advertise online. We
also invested in growing our internal digital performance advertising team. We
believe there is an opportunity to improve market efficiency through digital
channels and expect to shift our marketing spending accordingly. Over the longer
term, we expect to shift and accelerate our marketing spend to additional online
and traditional channels, such as broadcast television or radio, as they become
available to us.
Negative publicity, whether or not justified, relating to events or activities
attributed to us, our employees, clients or others associated with any of these
parties, may tarnish our reputation and reduce the value of our brand. Given our
high visibility and relatively long operating history compared to many of our
competitors, we may be more susceptible to the risk of negative publicity.
Damage to our reputation and loss of brand equity may reduce demand for our
platform and have an adverse effect on our business, operating results and
financial condition. Moreover, any attempts to rebuild our reputation and
restore the value of our brand may be costly and time consuming, and such
efforts may not ultimately be successful.
We also believe that the importance of our brand recognition and reputation will
continue to increase as competition in our market continues to develop. If our
brand promotion activities are not successful, our operating results and growth
may be adversely impacted.
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Investments in Growth
We intend to continue to make focused organic and inorganic investments to grow
our revenue and scale operations to support that growth.
Given our long operating history inthe United States and the strength of our network, often businesses will initially list on our platform without targeted sales or marketing efforts by us. However, we plan to accelerate our investments in marketing to maintain and increase our brand awareness through both online and offline channels. We also plan to invest in expanding our business listings thereby enhancing our client and consumer experience, and improving the depth and quality of information provided on our platform. We also intend to continue to invest in several areas to continue enhancing the functionality of our WM Business offering. We expect significant near-term investments to enhance our data assets and evolve our current listings and software offerings to our brand clients, among other areas. We anticipate undertaking such investments in order to be positioned to capitalize on the rapidly expanding cannabis market.
During the third quarter of 2021, we completed two acquisitions.
OnSeptember 3, 2021 , the Company acquired certain assets of the Sprout business ("Sprout"), a leading, cloud-based customer relationship management ("CRM") and marketing platform for the cannabis industry. OnSeptember 29, 2021 , the Company acquired all of the equity interests ofTransport Logistics Holding Company, LLC ("TLH"), which is the parent company of Cannveya & CannCurrent. Cannveya is a logistics platform that enables the compliant delivery of cannabis and CannCurrent is a technology integrations and connectors platform facilitating custom integrations with third party technology providers. We are working towards the integration of these businesses and will invest in them appropriately to scale both solutions in the fiscal year 2022. We will also continue to explore inorganic opportunities that can help support and accelerate growth opportunities and new market openings.
As operating expenses and capital expenditures fluctuate over time, we may
accordingly experience short-term, negative impacts to our operating results and
cash flows.
Components of Our Results of Operations
Revenue
We generate revenue from the sale of our subscription offerings, which consist of access to the Weedmaps marketplace and SaaS solutions, as well as our additional offerings, which include featured listings placements, nearby listings, deal promotions and display advertising products. Our subscriptions generally have one-month terms that automatically renew unless notice of cancellation is provided in advance. We have a fixed inventory of featured listing and display advertising in each market, and price is generally determined through a competitive auction process that reflects local market demand, though we are testing a more dynamic, performance-based pricing model for these solutions across several markets. We also have generated revenue in the past on delivery orders placed through weedmaps.com, though this revenue was discontinued effectiveJanuary 1, 2021 , when we migrated clients to our new WM Business subscription offering. For clients that pay us in advance for listing and placement subscriptions services we record deferred revenue and recognizes revenue over the applicable subscription term.
Cost of Revenue
Cost of revenue primarily consists of web hosting, internet service, and credit card processing costs. Cost of sales is primarily driven by increases in revenue leading to increases in credit card processing and web hosting cost. We expect our cost of revenue to continue to increase on an absolute basis and remain relatively flat as a percentage of revenue as we scale our business.
Selling and Marketing Expenses
Selling and marketing expenses consist of salaries, benefits, travel expense and
incentive compensation for our sales and marketing employees. In addition, sales
and marketing expenses include business acquisition marketing, events cost, and
branding and advertising costs. We expect our sales and marketing expenses to
increase on an absolute basis as we enter new
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markets. Over the longer term, we expect sales and marketing expense to increase
in a manner consistent with revenue growth, however, we may experience
fluctuations in some periods as we enter and develop new markets or have large
one-time marketing projects.
Product Development Expenses
Product development costs consist of salaries and benefits for employees,
including engineering and technical teams who are responsible for building new
products, as well as maintaining and improving existing products. Product
development costs that do not meet the criteria for capitalization are expensed
as incurred. The majority of our new software development costs have
historically been expensed. We believe that continued investment in our platform
is important for our growth and expect our product development expenses will
increase in a manner consistent with revenue growth as our operations grow.
General and Administrative Expenses
General and administrative expenses consist primarily of payroll and related benefit costs for our employees involved in general corporate functions including our senior leadership team as well as costs associated with the use by these functions of software and facilities and equipment, such as rent, insurance, and other occupancy expenses. General and administrative expenses also include professional and outside services related to legal and other consulting services. General and administrative expenses are primarily driven by increases in headcount required to support business growth and meeting our obligations as a public company. We expect general and administrative expenses to decline as a percentage of revenue as we scale our business and leverage investments in these areas.
Depreciation and Amortization Expenses
Depreciation and amortization expenses primarily consist of depreciation on computer equipment, furniture and fixtures, leasehold improvements, capitalized software development costs and amortization of purchased intangibles. We expect depreciation and amortization expenses to increase on an absolute basis for the foreseeable future as we scale our business.
Other Income (Expense)
Other expense consists primarily of transaction costs related to the warrants,
political contributions, interest expense, legal settlements, financing fees and
other tax related expenses. Other income consists of change in fair value of
warrant liability.
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Results of Operations
The following tables set forth our results of operations for the periods
presented and express the relationship of certain line items as a percentage of
net sales for those periods. The period-to-period comparison of financial
results is not necessarily indicative of future results.
Years Ended December 31,
2021 2020 2019
(in thousands)
Revenues $ 193,146 $ 161,791 $ 144,232
Operating expenses:
Cost of revenues 7,938 7,630 7,074
Sales and marketing 56,119 30,716 39,746
Product development 35,395 27,142 29,497
General and administrative 97,447 51,127 56,466
Depreciation and amortization 4,425 3,978 5,162
Total operating expenses 201,324 120,593 137,945
Operating (loss) income (8,178) 41,198 6,287
Other income (expenses)
Change in fair value of warrant liability 166,518 - -
Other expense, net (6,723) (2,368) (5,341)
Income before income taxes 151,617 38,830 946
(Benefit from) provision for income taxes (601) - 1,321
Net income (loss) 152,218 38,830 (375)
Net income attributable to noncontrolling
interests 91,835 - -
Net income (loss) attributable to WM
Technology, Inc. $ 60,383 $ 38,830 $ (375)
Years Ended December 31,
2021 2020 2019
Revenues 100 % 100 % 100 %
Operating expenses:
Cost of revenues 4 % 5 % 5 %
Sales and marketing 29 % 19 % 28 %
Product development 18 % 17 % 20 %
General and administrative 50 % 32 % 39 %
Depreciation and amortization 2 % 2 % 4 %
Total operating expenses 104 % 75 % 96 %
Operating (loss) income (4) % 25 % 4 %
Other income (expenses)
Change in fair value of warrant liability 86 % 0 % 0 %
Other expense, net (3) % (1) % (4) %
Income before income taxes 78 % 24 % 1 %
(Benefit from) provision for income taxes 0 % 0 % 1 %
Net income (loss) 79 % 24 % 0 %
Net income attributable to noncontrolling
interests 48 % 0 % 0 %
Net income (loss) attributable to WM
Technology, Inc. 31 % 24 % 0 %
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Comparison of Years Ended
Revenues
Years Ended December 31, $ Change % Change
2021 vs. 2020 vs.
2021 2020 2019 2021 vs. 2020 2020 vs. 2019 2020 2019
(dollars in thousands)
Revenues $ 193,146 $ 161,791 $ 144,232 $ 31,355 $ 17,559 19 % 12 %
Year ended December 31, 2021 compared to year ended December 31, 2020 . Total
revenues increased by $31.4 million , or 19% for the year ended December 31, 2021
compared to the same period in 2020. The increase was driven by a 14% increase
in average monthly revenue per paying client and a 5% increase in monthly
average paying clients. Our growth in average monthly revenue per paying client
reflects continued growth in our WM Business subscription offering and other ad
solutions, more client engagement driven by the increased functionality across
our WM Business suite of solutions and the impact of the pricing increase
related to transitioning all of our standard listing subscription clients to our
new WM Business subscription package at the beginning of 2021. These impacts
were partially offset by the removal of Canada -based clients who had higher
monthly spend than our average client base as well as the elimination of our
technology services fee on all delivery orders. For the year ended December 31,
2021 , Featured Listing product, WM Business subscription offering and other ad
solutions represented 55%, 22% and 23% of our total revenues, respectively.
During the second half of fiscal 2020, we discontinued our services to
Canada -based retail operator clients who failed to provide valid license
information, similar to the transition we implemented in California at the end
of fiscal 2019 (beginning with clients receiving free listing subscriptions in
June 2020 and continuing with paid listings starting in September 2020 ). Total
revenue excluding Canada was $193.1 million for the year ended December 31, 2021
compared $130.4 million in the same period in 2020. The increase of
approximately $62.8 million , or 48% in total revenue excluding Canada was
primarily driven by a 19% increase in the average monthly revenue per paying
client and a 25% increase in average monthly paying clients.
Year ended December 31, 2020 compared to year ended December 31, 2019 . Total
revenue increased by $17.6 million , or 12% for the year ended December 31, 2020
compared to the same period in 2019. The increase was driven by a 27% increase
in average monthly revenue per paying client, which was partially offset by a
12% decrease in average monthly paying clients as a result of factors described
above.
Cost of Revenue
Years Ended December 31, $ Change % Change
2021 vs. 2021 vs. 2020 vs.
2021 2020 2019 2020 2020 vs 2019 2020 2019
(dollars in thousands)
Cost of revenues $ 7,938 $ 7,630 $ 7,074 $ 308 $ 556 4 % 8 %
Gross margin 96 % 95 % 95 %
Year ended December 31, 2021 compared to year ended December 31, 2020 . Cost of
revenue was $7.9 million for the year ended December 31, 2021 compared to $7.6
million for the same period in 2020. There were no material changes to the
drivers of our cost of revenue.
Year ended December 31, 2020 compared to year ended December 31, 2019 . Cost of
revenue increased by $0.6 million , or 8%, for the year ended December 31, 2020 ,
compared to the same period in 2019. Credit card processing fees increased by
$0.6 million as revenue increased and more clients opted to use credit cards as
a form of payment.
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Sales and Marketing Expenses
Years Ended December 31, $ Change % Change
2021 vs. 2020 vs.
2021 2020 2019 2021 vs. 2020 2020 vs 2019 2020 2019
(dollars in thousands)
Sales and marketing
expenses $ 56,119 $ 30,716 $ 39,746 $ 25,403 $ (9,030) 83 % (23) %
Percentage of revenue 29 % 19 % 28 %
Year ended December 31, 2021 compared to year ended December 31, 2020 . Sales and
marketing expenses increased by $25.4 million , or 83% for the year ended
December 31, 2021 compared to the same period in 2020. The increase was
primarily related to an increase in personnel-related costs of $16.2 million .
The $16.2 million includes increases in salaries and wages of $6.3 million , as a
result of increased headcount, stock-based compensation expense of $6.0 million
and sales incentive plan compensation of $3.2 million due to higher revenues.
Also contributing to the increase in sales and marketing was an increase in
online advertising of $2.6 million as more advertising options became available
in the cannabis industry, an increase in branding and advertising expense of
$2.1 million , and an increase in events expense of $2.0 million .
Our stock-based compensation expense increased due in part to the removal of
certain limitations on the exercisability of certain equity awards issued to
employees and consultants upon the completion of the Business Combination. The
increase in stock-based compensation expense was also driven by the increased
issuance of restricted stock units to our employees during the second half of
2021.
Year ended December 31, 2020 compared to year ended December 31, 2019 . Sales and
marketing expenses decreased by $9.0 million , or 23%, for the year ended
December 31, 2020 , compared to the same period in 2019. Branding and advertising
cost, which consisted mostly of out-of-home advertising, decreased by $6.3
million as we concentrated more on online advertising for fiscal year 2020 due
to the current COVID-19 pandemic. Event related cost decreased by $3.6 million
due to cost incurred in 2019 related to the Weedmaps Museum of Weed while there
was minimal cost incurred related to events in 2020 due to the COVID-19
pandemic. There was also a decrease of $0.5 million and $0.1 million in travel
related expenses and marketing consulting fees, respectively, due to less
marketing projects as a result of the COVID-19 pandemic. The decrease in
marketing spend was offset by an increase in personnel-related cost of $1.5
million , mostly due to an increase in sales incentive plan compensation due to
higher revenues. The increase in personnel-related cost was partially offset by
a reduction in force in October 2019 resulting in a 25 percent headcount
decrease.
Product Development Expenses
Years Ended December 31, $ Change % Change
2021 vs. 2021 vs. 2020 vs.
2021 2020 2019 2020 2020 vs. 2019 2020 2019
(dollars in thousands)
Product development expenses
$ 8,253 $ (2,355) 30 % (8) % Percentage of revenue 18 % 17 % 20 % Year endedDecember 31, 2021 compared to year endedDecember 31, 2020 . Product development expenses increased by$8.3 million , or 30% for the year endedDecember 31, 2021 compared to the same period in 2020. This increase was primarily due to an increase in personnel-related costs of$14.9 million , including an increase in salaries and wages of$5.8 million due to increased headcount and an increase in stock-based compensation of$6.2 million . The personnel-related costs include capitalized software development costs of$7.4 million for the year endedDecember 31, 2021 related to certain costs we capitalized for the development or enhancement of our Weedmaps platform. Our stock-based compensation expense increased due in part to the removal of certain limitations on the exercisability of certain equity awards issued to employees and consultants upon the completion of the Business Combination. The increase in stock-based compensation expense was also driven by the increased issuance of restricted stock units to our employees during the second half of 2021. Year endedDecember 31, 2020 compared to year endedDecember 31, 2019 . Product development expenses decreased by$2.4 million , or 8%, for the year endedDecember 31, 2020 , compared to the same period in 2019. The decrease is due to a decrease of$1.7 million in personnel-related cost as a result of a reduction in force inOctober 2019 , resulting in an overall headcount decrease for us of 25 percent. There was also a decrease in cost relate to third-party development services of 57 -------------------------------------------------------------------------------- Table of Contents$0.4 million . The reduction in headcount and third-party development services was to drive operating efficiencies and increase our liquidity position at the time. Travel related expenses also decreased by$0.2 million due to the COVID-19 pandemic.
General and Administrative Expenses
Years Ended December 31, $ Change % Change
2021 vs. 2020 vs.
2021 2020 2019 2021 vs. 2020 2020 vs. 2019 2020 2019
(dollars in thousands)
General and administrative
expenses $ 97,447 $ 51,127 $ 56,466 $ 46,320 $ (5,339) 91 % (9) %
Percentage of revenue 50 % 32 % 39 %
Year ended December 31, 2021 compared to year ended December 31, 2020 . General
and administrative expenses increased by $46.3 million , or 91% for the year
ended December 31, 2021 compared to the same period in 2020. This increase was
primarily due to increases in insurance costs of $7.1 million as a result of
additional insurance coverage as a public company, allowance for doubtful
accounts of $4.2 million , professional fees of $3.8 million , software costs of
$2.8 million , and an impairment loss of $2.4 million . General and administrative
expenses also increased due to increases in employee related expenses of $23.3
million . This $23.3 million increase includes increases in stock-based
compensation expense of $18.2 million recognized in 2021, bonus expense of $2.4
million and salaries and wages of $1.2 million . Our stock-based compensation
expense increased due in part to the removal of certain limitations on the
exercisability of certain equity awards issued to employees and consultants upon
the completion of the Business Combination. The increase in stock-based
compensation expense was also driven by the increased issuance of restricted
stock units to our employees during the second half of 2021.
Year ended December 31, 2020 compared to year ended December 31, 2019 . General
and administrative expenses decreased by $5.3 million , or 9%, for the year ended
December 31, 2020 , compared to the same period in 2019. Personnel-related cost
decreased by $7.5 million due to a reduction in force implemented in October
2019 , resulting in an overall headcount decrease for us of 25 percent. The
reduction in headcount was to drive operating efficiencies and increase our
liquidity position at the time. Facility and travel related costs also decreased
by $3.3 million due to a combination of the reduced headcount and the stay at
home orders put into effect by us in March 2020 . Professional services decreased
by $2.3 million as a result of the decrease in legal and lobbying expenses. The
decrease was partially offset by an increase in rent expense of $5.6 million due
to a new office lease that commenced in March 2020 together with an increase in
software cost of $0.9 million as we entered into new software service agreements
to effectively operate the business. We also recorded additional provision for
doubtful accounts expense of $1.1 million during the year ended December 31,
2020 compared to the same period in 2019 due to higher reserves for past due
balances outstanding greater than ninety days.
Depreciation and Amortization Expense
Years Ended December 31, $ Change % Change
2021 vs. 2021 vs. 2020 vs.
2021 2020 2019 2020 2020 vs. 2019 2020 2019
(dollars in thousands)
Depreciation and amortization
expense $ 4,425 $ 3,978 $ 5,162 $ 447 $ (1,184) 11 % (23) %
Percentage of revenue 2 % 2 % 4 %
Year ended
Depreciation and amortization expenses increased by
the year ended
Year endedDecember 31, 2020 compared to year endedDecember 31, 2019 . Depreciation and amortization expenses decreased by$1.2 million , or 23%, for the year endedDecember 31, 2020 , compared to the same period in 2019. The decrease is due to accelerated amortization of$2.5 million related to intangible assets of theWeedmaps Museum of Weed recorded in fiscal year 2019, which was partially offset by additional depreciation of$1.3 million recorded in fiscal year 2020 related capitalized software development cost for our point of sale system that launched inOctober 2019 . 58 -------------------------------------------------------------------------------- Table of Contents Other Income (Expense), net Years Ended December 31, $ Change % Change 2020 vs. 2021 vs. 2020 vs. 2021 2020 2019 2021 vs. 2020 2019 2020 2019 (dollars in thousands) Change in fair value of warrant liability$ 166,518 $ - $ -$ 166,518 $ - N/M - % Other expense, net (6,723) (2,368) (5,341) (4,355) 2,973 184 % (56) % Other income (expense), net$ 159,795 $ (2,368) $ (5,341) $ 162,163 $ 2,973 N/M (56) % Percentage of revenue 83 % (1) % (4) % __________________ N/M - Not meaningful Year endedDecember 31, 2021 compared to year endedDecember 31, 2020 . Other income, net increased by$162.2 million for the year endedDecember 31, 2021 compared to the same period in 2020. The increase in other income was primarily due to changes in fair value of warrant liability of$166.5 million . The increase in other expense, net of$4.4 million was primarily due to warrant transaction costs of$5.5 million related to the Business Combination included in other expenses in 2021. Year endedDecember 31, 2020 compared to year endedDecember 31, 2019 . Other expenses decreased by$3.0 million , or 56%, for the year endedDecember 31, 2020 , compared to the same period in 2019. Financing related costs decreased by$2.7 million as a result of several equity and debt transactions that we were evaluating in 2019 but ultimately decided not to pursue. Other tax and interest related expenses also decreased by$0.8 million as 2019 included tax expenses related to revenue generated by our foreign subsidiary inCanada . Political contributions also decreased by$0.2 million period over period. The decrease was partially offset by loss from foreign currency exchange of$0.7 million related to revenue generated by our foreign subsidiary inCanada .
Seasonality
Our rapid growth and recent changes in legislation have historically offset seasonal trends in our business. While seasonality has not had a significant impact on our results in the past, our clients may experience seasonality in their businesses which in turn can impact the revenue generated from them. Our business may become more seasonal in the future and historical patterns in our business may not be a reliable indicator of future performance.
Liquidity and Capital Resources
The following tables show our cash, accounts receivable and working capital as
of the dates indicated:
As of December 31,
2021 2020
(in thousands)
Cash $ 67,777 $ 19,919
Accounts receivable, net 17,550 9,428
Working capital
61,134 10,918 As ofDecember 31, 2021 , we had cash of$67.8 million . During the second quarter of fiscal year 2021, we completed the Business Combination, resulting in proceeds of approximately$80.0 million . The additional funds will be used for funding our current operations and potential strategic acquisitions in the future. We also intend to increase our capital expenditures to support the organic growth in our business and operations. We expect to fund our near-term capital expenditures from cash provided by operating activities. We believe that our existing cash and cash generated from operations will be sufficient to meet our anticipated cash needs for at least the next 12 months. However, our liquidity assumptions may prove to be incorrect, and we could exhaust our available financial resources sooner than we currently expect. We may seek to raise additional funds at any time through equity, equity-linked or debt financing arrangements. Our future capital requirements and the adequacy of available funds will depend on many factors. We may not be able to secure additional financing to meet our operating requirements on acceptable terms, or at all. 59 -------------------------------------------------------------------------------- Table of Contents Sources of Liquidity Since our inception, we have financed our operations and capital expenditures primarily through cash flows generated by operations, a secured revolving line of credit agreement, the private sales of equity securities, and recently, the public sales of equity securities as a result of the Business Combination. To the extent existing cash and investments and cash from operations are not sufficient to fund future activities, we may need to raise additional funds. We may seek to raise additional funds through equity, equity-linked or debt financings. If we raise additional funds through the incurrence of indebtedness, such indebtedness may have rights that are senior to holders of our equity securities and could contain covenants that restrict operations. Any additional equity financing may be dilutive to stockholders. We may enter into investment or acquisition transactions in the future, which could require us to seek additional equity financing, incur indebtedness, or use cash resources. Cash Flows Years Ended December 31, 2021 2020 2019 (in thousands) Net cash provided by operating activities$ 23,092 $ 38,620 $ 6,295 Net cash used in investing activities$ (30,435) $
(1,311)
Net cash provided by (used in) financing activities
Net Cash Provided by Operating Activities
Cash from operating activities consists primarily of net income adjusted for certain non-cash items, including depreciation and amortization, change in fair value of warrant liability, impairment loss, stock-based compensation, provision for doubtful accounts, deferred taxes and the effect of changes in working capital. Net cash provided by operating activities for the year endedDecember 31, 2021 was$23.1 million , which resulted from net income of$152.2 million , together with a net cash outflows of$3.4 million from changes in operating assets and liabilities, and non-cash items of$125.8 million , consisting of depreciation and amortization of$4.4 million , fair value of warrant liability of$166.5 million , impairment loss of$2.4 million , stock-based compensation expense of$29.3 million , changes in deferred tax assets of$0.8 million and provision for doubtful accounts of$5.5 million . The net cash outflows from changes in operating assets and liabilities were primarily due to an increase in accounts receivable of$13.6 million , a decrease in accounts payable and accrued expenses of$0.5 million , partially offset by a decrease in prepaid expenses and other assets of$7.9 million , and an increase in deferred revenue of$2.8 million . The changes in operating assets and liabilities are mostly due to fluctuations in timing of cash receipts and payments. Net cash from operating activities for the year endedDecember 31, 2020 was$38.6 million , which resulted from net income of$38.8 million , together with net cash outflows of$5.5 million from changes in operating assets and liabilities, and non-cash items of$5.2 million , consisting of depreciation and amortization of$4.0 million and provision for doubtful accounts of$1.3 million . The net cash outflows from changes in operating assets and liabilities were primarily due to an increase in accounts receivables of$6.8 million , a decrease in accounts payable and accrued expenses of$1.0 million and an increase in prepaid expenses and other current assets of$3.0 million . These changes were partially offset by an increase in deferred rent of$3.7 million , an increase in deferred revenue of$0.9 million and a decrease in other assets of$0.7 million . The changes in operating assets and liabilities are mostly due to fluctuations in timing of cash receipts and payments. Net cash from operating activities for the year endedDecember 31, 2019 was$6.3 million , which resulted from net loss of$0.4 million , together with a net cash inflow of$1.3 million from changes in operating assets and liabilities, and non-cash charges of$5.3 million , consisting of depreciation and amortization expense of$5.2 million and provision for doubtful of accounts of$0.2 million . The net cash inflows from changes in operating assets and liabilities were primarily due to an increase in accounts payable and accrued expenses of$7.4 million , an increase in deferred rent of$0.5 million , together with an increase in deferred revenue of$0.2 million . These changes were partially offset by an increase in accounts receivable of$2.8 million and an increase in prepaid expense and other assets of$4.0 million . The changes in operating assets and liabilities are mostly due to fluctuations in timing of cash receipts and payments. 60 -------------------------------------------------------------------------------- Table of ContentsNet Cash Used in Investing Activities Net cash used in investing activities for the year endedDecember 31, 2021 was$30.4 million , which resulted from$16.0 million cash paid for acquisitions,$7.9 million cash paid for purchases of property and equipment, including certain capitalized software development cost, and$6.5 million cash paid for other investments.
Net cash used in investing activities for the year ended
Net cash used in investing activities for the year endedDecember 31, 2019 was$5.1 million , which resulted from purchases of assets related toWeedmaps Museum of Weed as well as other property and equipment and capitalized software development costs related to development of our POS solution.
Net Cash Provided by (Used in) Financing Activities
Net Cash provided by financing activities for the year endedDecember 31, 2021 was$55.2 million , which resulted from net proceeds from the Business Combination of$80.0 million , offset by$19.0 million distribution payments to members,$5.6 million paid for the repurchase of ClassB Units and$0.2 million repayment of notes payable to members. Net cash used in financing activities for the year endedDecember 31, 2020 was$22.4 million , which resulted from$22.0 million distributions to members and$0.4 million paid for the repurchase of ClassB Units . Net cash used in financing activities for the year endedDecember 31, 2019 was$22.0 million , which was attributable to$15.4 million in distribution payments to members,$5.0 million repayment of the secured line of credit, and$1.6 million for the repurchase of Class B units.
Contractual Obligations and Commitments
We have non-cancellable contractual agreements primarily related to leases. As
of
million
As ofDecember 31, 2021 , our tax receivable agreement liability was$128.6 million . We expect that the payments we will be required to make under the tax receivable agreement will be substantial. Assuming no material changes in relevant tax law, that there are no future redemptions or exchanges of Class A Units and that we earn sufficient taxable income to realize all tax benefits that are subject to the tax receivable agreement, the tax savings associated with acquisitions of common units in the Business Combination would aggregate to approximately$151.3 million over 15 years from Closing Date. Under this scenario, we would be required to pay to the Class A Unit holders approximately 85% of such amount, or$128.6 million , over the 15-year period from the Closing Date. The actual amounts we will be required to pay may materially differ from these hypothetical amounts, because potential future tax savings that we will be deemed to realize, and the tax receivable agreement payments made by us, will be calculated based in part on the market value of the Class A Common Stock at the time of each redemption or exchange under the Exchange Agreement and the prevailing applicable tax rates applicable to us over the life of the tax receivable agreement and will depend on us generating sufficient taxable income to realize the tax benefits that are subject to the tax receivable agreement. Payments under the tax receivable agreement are not conditioned on the Class A Unit holders' continued ownership of us. See Note 14 to our consolidated financial statements included herein.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with GAAP. The
preparation of these consolidated financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenue, expenses and related disclosures. We evaluate our
estimates and assumptions on an ongoing basis. Our estimates are based on
historical experience and various other assumptions that we believe to be
reasonable under the circumstances. Our actual results could differ from these
estimates.
We believe that the assumptions and estimates associated with revenue
recognition, income taxes, stock-based compensation, capitalized software
development costs, goodwill and intangible assets and fair value measurements to
have the greatest potential impact on our consolidated financial statements.
Therefore, we consider these to be our critical accounting policies and
estimates. For further information on all of our significant accounting
policies, see Note 2 to our consolidated financial statements included herein.
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Revenue Recognition
Our revenues are derived primarily from monthly subscriptions and additional offerings for access to the Weedmaps platform and SaaS solutions. We recognize revenue when the fundamental criteria for revenue recognition are met. We recognize revenue by applying the following steps: the contract with the customer is identified; the performance obligations in the contract are identified; the transaction price is determined; the transaction price is allocated to the performance obligations in the contract; and revenue is recognized when (or as) we satisfy these performance obligations in an amount that reflects the consideration we expect to be entitled to in exchange for those services. The determination of the performance obligations and recognition of such items as over time or point-in-time requires us to make significant judgement and estimates. Substantially all of our revenue is generated by providing standard listing subscription services and other paid listing subscriptions services, including featured listings, promoted deals, nearby listings and other display advertising to our customers. These arrangements are recognized over-time, generally during a month-to-month subscription period as the products are provided. Prior toJanuary 1, 2021 , we charged a fee for access to our orders functionality and those fees were recognized at a point in time, typically when an order for delivery or pickup was submitted. Starting onJanuary 1, 2021 , we eliminated the technology services fees related to the orders functionality.
Income Taxes
WM Technology, Inc. is subject toU.S. federal income taxes, in addition to state and local income taxes with respect to its allocable share of any taxable income ofWMH LLC following the Business Combination. Any taxable income or loss generated byWMH LLC is passed through to and included in the taxable income or loss of its members, includingWM Technology, Inc. , on a pro rata basis. We are also subject to taxes in foreign jurisdictions. Tax laws and regulations are complex and periodically changing and the determination of our provision for income taxes, including our taxable income, deferred tax assets and tax receivable agreement liability, requires us to make significant judgment, assumptions and estimates. In connection with the Business Combination, the Company entered into a Tax Receivable Agreement ("TRA") with continuing members that provides for a payment to the continuing members of 85% of the amount of tax benefits, if any, thatWM Technology, Inc. realizes, or is deemed to realize, as a result of redemptions or exchanges of WMH Units. In connection with such potential future tax benefits resulting from the Business Combination, the Company has established a deferred tax asset for the additional tax basis and a corresponding TRA liability of 85% of the expected benefit. The remaining 15% is recorded within paid-in capital. To date, no payments have been made with respect to the TRA. Our calculation of the TRA asset and liability requires estimates of its future qualified taxable income over the term of the TRA as a basis to determine if the related tax benefits are expected to be realized. As ofDecember 31, 2021 , total net deferred tax assets and TRA liability were$152.1 million and$128.6 million , respectively. See Note 14 to our consolidated financial statements included herein.
Stock-based Compensation
We measure fair value of employee stock-based compensation awards on the date of
grant and allocate the related expense over the requisite service period. The
fair value of restricted stock units ("RSU") and performance-based restricted
stock units ("PSU") is equal to the market price of our Class A common stock on
the date of grant. The fair value of the Class P Units is measured using the
Black-Scholes-Merton valuation model. When awards include a performance
condition that impacts the vesting of the award, we record compensation cost
when it becomes probable that the performance condition will be met. The level
of achievement of such goals in the performance-based restricted stock awards
may cause the actual number of units that ultimately vest to range from 0% to
200% of the original units granted. Forfeitures of stock-based awards are
recognized as they occur. For the year ended December 31, 2021 , we recognized
stock-based compensation expense of $29.3 million . See Note 12 to our
consolidated financial statements included herein.
Capitalized Software Development Costs
We capitalize certain costs related to the development and enhancement of the
Weedmaps platform and SaaS solutions. In accordance with authoritative guidance,
we began to capitalize these costs when preliminary development efforts were
successfully completed, management has authorized and committed project funding,
and it was probable that the project would be completed and the software would
be used as intended. Such costs are amortized when placed in service, on a
straight-line basis over the estimated useful life of the related asset,
generally estimated to be three years. Costs incurred prior to meeting these
criteria together with costs incurred for training and maintenance are expensed
as incurred and recorded in product development expenses on our consolidated
statements of operations. Costs incurred for enhancements that were expected to
result in additional features or functionality are capitalized and expensed over
the estimated useful life of the
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enhancements, generally three years. The accounting for website and internal-use
software costs requires us to make significant judgement, assumptions and
estimates related to the timing and amount of recognized capitalized software
development costs. For the year ended December 31, 2021 , we capitalized $7.4
million of costs related to the development of software applications.
Assets and liabilities acquired from acquisitions are recorded at their estimated fair values. The excess of the purchase price over the estimated fair values of the net assets acquired, including identifiable intangible assets, is recorded as goodwill. The accounting for goodwill and intangible assets requires us to make significant judgement, estimates and assumptions. Significant estimates and assumptions in valuing acquired intangible assets and liabilities include projected cash flows attributable to the assets or liabilities, asset useful lives and discount rates.Goodwill is not amortized and is subject to annual impairment testing, or between annual tests if an event or change in circumstance occurs that would more likely than not reduce the fair value of a reporting unit below its carrying value. Intangible assets deemed to have finite lives are amortized on a straight-line basis over their estimated useful lives, where the useful life is the period over which the asset is expected to contribute directly, or indirectly, to our future cash flows. Intangible assets are reviewed for impairment on an interim basis when certain events or circumstances exist. For amortizable intangible assets, impairment exists when the carrying amount of the intangible asset exceeds its fair value. At least annually, the remaining useful life is evaluated. See Note 2 to our consolidated financial statements included herein. Fair Value Measurements In connection with the Business Combination, we assumed 12,499,993 Public Warrants and 7,000,000 Private Placement Warrants. All of the warrants remained outstanding as ofDecember 31, 2021 . The warrants are measured at fair value under ASC 820 - Fair Value Measurements. The fair value of the Public Warrants is classified as Level 1 financial instruments and is based on the publicly listed trading price of our Public Warrants. The fair value of the Private Warrants is determined with Level 3 inputs using the Black-Scholes model. The fair value of the Private Placement Warrants may change significantly as additional data is obtained. In evaluating this information, considerable judgment is required to interpret the data used to develop the assumptions and estimates. The estimates of fair value may not be indicative of the amounts that could be realized in a current market exchange. Accordingly, the use of different market assumptions and/or different valuation techniques may have a material effect on the estimated fair value, and such changes could materially impact our results of operations in future periods. As ofDecember 31, 2021 , warranty liability was$27.5 million . See Note 5 to our consolidated financial statements included herein.
Recent Accounting Pronouncements
See Note 2 to our consolidated financial statements included herein.
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