The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements and the related notes to those statements included in Item 1 "Financial Statements" in this Quarterly Report on Form 10-Q. 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 included elsewhere herein and in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . 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 Quarterly Report on Form 10-Q, 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 primarily 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 ofMarch 31, 2022 , we had 16.4 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 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), Cannveya (delivery and logistics software) solutions and Enlighten (software, digital signage services and multi-media offerings) 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 patients and customers 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 16.4 million monthly active users ("MAUs") as ofMarch 31, 2022 on the demand-side and 5,026 average monthly paying business clients during the three monthsMarch 31, 2022 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 over 9,700 listing pages as ofMarch 31, 2022 (of the over 18,400 listing pages on the marketplace). 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 and order-ahead for pickup or 27
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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.
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Three Months Ended
March 31,
2022 2021
(dollars in thousands, except for
revenue per paying client)
Revenues $ 57,452 $ 41,154
Net (loss) income $ (31,233) $ 7,731
EBITDA(1) $ (29,036) $ 8,974
Adjusted EBITDA(1) $ (953) $ 8,974
Average monthly revenue per paying client(2) $ 3,810 $ 3,503
Average monthly paying clients(3) 5,026 3,916
MAUs (in thousands)(4) 16,437 10,800
___________________________
(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 primarily 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 (loss) before interest, taxes and depreciation and amortization expense in the case of EBITDA and further adjusted to exclude stock-based compensation, change in fair value of warrant liability, transaction related bonuses, transaction costs, legal settlements and other non-cash, unusual and/or infrequent costs in the case of Adjusted EBITDA. Below we have provided a reconciliation of net (loss) 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 (loss) income to non-GAAP EBITDA and Adjusted EBITDA is
as follows:
Three Months Ended March 31,
2022 2021
(in thousands)
Net (loss) income $ (31,233) $ 7,731
(Benefit from) provision for income taxes (1,748) 241
Depreciation and amortization expenses 3,945 1,002
EBITDA (29,036) 8,974
Stock-based compensation 7,517 -
Change in fair value of warrant liability 18,219 -
Transaction related bonuses 1,957 -
Transaction costs 251 -
Legal settlements 139 -
Adjusted EBITDA $ (953) $ 8,974
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:
Three Months Ended March 31,
2022 2021
Average monthly revenue per paying client $ 3,810 $ 3,503
Prior definition¹:
Three Months Ended March 31,
2022 2021
Monthly revenue per paying client $
4,052
___________________________
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. Average monthly paying clients for the three months endedMarch 31, 2022 increased approximately 28% to 5,026 average monthly paying clients from 3,916 average monthly paying clients in the same period in 2021. The increase in average monthly paying clients in the three months endedMarch 31, 2022 as compared to the same period in 2021 was primarily due to broad increases throughout our Featured Listing product, WM Business subscription offering and other ad solutions represented. 30 --------------------------------------------------------------------------------
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Current definition:
Three Months Ended March 31,
2022 2021
Average monthly paying clients 5,026 3,916
Prior definition¹:
Three Months Ended March 31,
2022 2021
Paying clients 5,141 4,058
___________________________
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 the current period. 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. Since the beginning of the pandemic, we have continued to grow our MAUs, reaching 16.4 million atMarch 31, 2022 . 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.
Current definition:
As of March 31,
2022 2021
MAUs (in thousands) 16,437 10,800
Prior definition¹:
As of March 31,
2022 2021
MAUs (in thousands) 15,866 9,163
___________________________
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. 31
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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 102% in the first three months of 2022.
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
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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. 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.
On
Enlighten, a
digital signage services and multi-media offerings to dispensaries and brands.
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 during this 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 primarily 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. 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, credit card
processing costs and inventory costs related to multi-media offerings.
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.
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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.
Three Months Ended
March 31,
2022 2021
(in thousands)
Revenues $ 57,452 $ 41,154
Operating expenses:
Cost of revenues 3,740 1,857
Sales and marketing 21,882 9,117
Product development 13,090 7,868
General and administrative 29,055 13,366
Depreciation and amortization 3,945 1,002
Total operating expenses 71,712 33,210
Operating (loss) income (14,260) 7,944
Other income (expenses)
Change in fair value of warrant liability (18,219) -
Other (expense) income, net (502) 28
(Loss) income before income taxes (32,981) 7,972
(Benefit from) provision for income taxes (1,748) 241
Net (loss) income (31,233) 7,731
Net loss attributable to noncontrolling interests (17,340) -
Net (loss) income attributable to WM Technology, Inc. $ (13,893) $ 7,731
Three Months Ended March
31,
2022 2021
Revenues 100 % 100 %
Operating expenses:
Cost of revenues 7 % 5 %
Sales and marketing 38 % 22 %
Product development 23 % 19 %
General and administrative 51 % 32 %
Depreciation and amortization 7 % 2 %
Total operating expenses 125 % 81 %
Operating (loss) income (25) % 19 %
Other income (expenses)
Change in fair value of warrant liability (32) % 0 %
Other (expense) income, net (1) % 0 %
(Loss) income before income taxes (57) % 19 %
(Benefit from) provision for income taxes (3) % 1 %
Net (loss) income (54) % 19 %
Net loss attributable to noncontrolling interests (30) % - %
Net (loss) income attributable to WM Technology, Inc. (24) % 19 %
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Comparison of Three Months Ended
Revenue
Three Months Ended March 31, Change
2022 2021 ($) (%)
(dollars in thousands)
Revenue $ 57,452 $ 41,154 $ 16,298 40 %
Total revenue increased by $16.3 million , or 40%, for the three months ended
March 31, 2022 compared to the same period in 2021. The increase was driven by a
9% increase in average monthly revenue per paying client and a 28% increase in
average monthly paying clients. Our growth in average monthly revenue per paying
client and average monthly paying clients primarily reflects continued growth in
our WM Business subscription offering and other ad solutions and more client
engagement driven by the increased functionality across our WM Business suite of
solutions. For the three months ended March 31, 2022 , Featured Listing product,
WM Business subscription offering and other ad solutions represented 53%, 20%
and 27% of our total revenues, respectively.
Cost of Revenue
Three Months Ended March 31, Change
2022 2021 ($) (%)
(dollars in thousands)
Cost of revenue $ 3,740 $ 1,857 $ 1,883 101
Gross margin 93 % 95 %
Cost of revenue increased by $1.9 million , or 101%, for the three months ended
March 31, 2022 compared to the same period in 2021. The increase was primarily
related to an increase of $1.6 million attributable to inventory costs in
connection with certain advertising revenue as well as cost of revenue
attributable to a company we acquired in the third quarter of 2021.
Sales and Marketing Expenses
Three Months Ended March 31, Change
2022 2021 ($) (%)
(dollars in thousands)
Sales and marketing expenses $ 21,882 $ 9,117 $ 12,765 140
Percentage of revenue 38 % 22 %
Sales and marketing expenses increased by $12.8 million , or 140%, for the three
months ended March 31, 2022 compared to the same period in 2021. The increase
was primarily due to an increase in personnel-related costs of $9.0 million , an
increase in outside services costs of $1.8 million , an increase in website
advertising costs of $1.0 million and an increase in branding and advertising
costs of $0.5 million . The increase in personnel-related costs was primarily due
to increased headcount, including increases in salaries and wages of $3.9
million , bonus expense of $2.8 million , which includes $1.3 million of expense
amortization related future bonus payouts in connection with prior acquisitions,
and stock-based compensation expense of $1.8 million . The increase in our
stock-based compensation was partially due to the removal of certain limitations
on the exercisability of certain equity awards issued to employees and
consultants upon the completion of the Business Combination. The increase in
stock-based compensation expense was also driven by the issuance of restricted
stock units to our employees during the second half of 2021 and the first
quarter of 2022.
Product Development Expenses
Three Months Ended March 31, Change
2022 2021 ($) (%)
(dollars in thousands)
Product development expenses $ 13,090 $ 7,868 $ 5,222 66
Percentage of revenue 23 % 19 %
Product development expenses increased by $5.2 million , or 66% for the three
months ended March 31, 2022 compared to the same period in 2021. The increase
was primarily due to increases in personnel-related costs of $7.4 million and an
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increase in outside services of$0.8 million , offset by an increase in capitalized software development costs of$3.1 million . The increase in personnel-related costs was primarily due to increases in salaries, wages and bonus of$5.5 million , due to increased headcount, and stock-based compensation costs of$1.8 million . Bonus expense for the first quarter of 2022 includes$0.5 million of expense amortization related to future bonus payouts in connection with prior acquisitions. The increase in our stock-based compensation was partially due to the removal of certain limitations on the exercisability of certain equity awards issued to employees and consultants upon the completion of the Business Combination. The increase in stock-based compensation expense was also driven by the issuance of restricted stock units to our employees during the second half of 2021 and the first quarter of 2022.
General and Administrative Expenses
Three Months Ended March 31, Change
2022 2021 ($) (%)
(dollars in thousands)
General and administrative expenses $ 29,055 $ 13,366 $ 15,689 117
Percentage of revenue 51 % 32 %
General and administrative expenses increased by $15.7 million , or 117%, for the
three months ended March 31, 2022 compared to the same period in 2021. This
increase was primarily due to an increase in personnel-related costs of $7.0
million , insurance costs of $3.1 million as a result of additional insurance
coverage as a public company, bad debt expense of $2.7 million due to higher
reserves for past due balances outstanding greater than ninety days, software
expense of $1.4 million and professional services of $1.1 million . The increase
in personal-related costs was primarily due to increases in stock-based
compensation expense of $4.3 million , salaries and wages expense of $1.3 million
and bonus expense of $0.9 million , which includes $0.2 million of expense
amortization related future bonus payouts in connection with prior acquisitions.
The increase in our stock-based compensation was partially due to the removal of
certain limitations on the exercisability of certain equity awards issued to
employees and consultants upon the completion of the Business Combination. The
increase in stock-based compensation expense was also driven by the issuance of
restricted stock units to our employees during the second half of 2021 and the
first quarter of 2022.
Depreciation and Amortization Expense
Three Months Ended March 31, Change
2022 2021 ($) (%)
(dollars in thousands)
Depreciation and amortization expenses $ 3,945 $ 1,002 $ 2,943 294
Percentage of revenue 7 % 2 %
Depreciation and amortization increased $2.9 million for the three months ended
March 31, 2022 compared to the same period in 2021. The increase was primarily
due to increases in capitalized software amortization of $1.7 million , fixed
asset depreciation of $0.8 million and intangible asset amortization of $0.4
million . Capitalized software amortization included accelerated depreciation of
$1.1 million related to discontinued product features of WM Retail.
Other (Expense) Income , net
Three Months Ended March 31, Change
2022 2021 ($) (%)
(dollars in thousands)
Change in fair value of warrant
liability $ (18,219) $ - (18,219) 100
Other (expense) income, net (502) 28 (530) N/M
Other (expense) income $ (18,721) $ 28 (18,749) N/M
Percentage of revenue (33) % - %
__________________
N/M - Not meaningful
Other (expense) income, net increased by
ended
expense was primarily due to changes in fair value of warrant liability of
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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:
March 31, 2022 December 31, 2021
(in thousands)
Cash $ 55,857 $ 67,777
Accounts receivable, net 23,657 17,550
Working capital 54,620 61,134
As of March 31, 2022 , we had cash of $55.9 million . During the second quarter of
2021, we completed the Business Combination, resulting in proceeds of
approximately $80.0 million . Our funds are being 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.
Sources of Liquidity
We primarily finance our operations and capital expenditures through cash flows
generated by operations.
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
Three months ended
2022 2021
(in thousands)
Net cash (used in) provided by operating activities $ (6,993) $ 10,587
Net cash used in investing activities $ (4,914) $ (283)
Net cash used in financing activities $
(13)
Cash from operating activities consists primarily of net income (loss) adjusted for certain non-cash items, including depreciation and amortization, change in fair value of warrant liability, stock-based compensation, provision for doubtful accounts, deferred taxes and the effect of changes in working capital. Net cash used in operating activities for the three months endedMarch 31, 2022 was$7.0 million , which resulted from a net loss of$31.2 million , together with net cash outflows of$6.5 million from changes in operating assets and liabilities, and non-cash items of$30.7 million , consisting of depreciation and amortization of$3.9 million , fair value of warrant liability of$18.2 million , stock-based compensation of$7.5 million , deferred income taxes of$1.7 million and provision for doubtful accounts of$2.8 million . Net cash outflows from changes in operating assets and liabilities were primarily due to an increase in accounts receivable of$7.8 million and a decrease in deferred revenue of 0.3 million, offset by a decrease in prepaid and other 38
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assets of
mostly due to fluctuations in timing of cash receipts and payments.
Net cash provided by operating activities for the three months endedMarch 31, 2021 was$10.6 million , which resulted from net income of approximately$7.7 million , together with net cash inflows of approximately$1.7 million from changes in operating assets and liabilities, and non-cash items of$1.1 million , consisting of depreciation and amortization and provision for doubtful accounts. The net cash inflows from changes in operating assets and liabilities were primarily due to a decrease in accounts receivables of$1.8 million , an increase in accounts payable and accrued expenses of$1.6 million and an increase in deferred revenue of$0.9 million . These changes were partially offset by an increase in prepaid expenses and other current assets of$2.5 million . The changes in operating assets and liabilities are mostly due to fluctuations in timing of cash receipts and payments.
Cash used in investing activities for the three months endedMarch 31, 2022 was$4.9 million , which resulted from$4.2 million cash paid for purchases of property and equipment, including certain capitalized software development cost and$0.7 million net cash paid for acquisition.
Cash used in investing activities for the three months ended
Less than
three months ended
settlement of equity awards.
Net cash used in financing activities for the three months endedMarch 31, 2021 was$10.6 million , which resulted from$10.5 million distributions to members and$0.1 million paid for the repurchase of ClassB Units .
Critical Accounting Policies and Estimates
Our condensed 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 condensed consolidated financial statements included herein. 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. We exclude sales taxes and other similar taxes from the measurement of the transaction price. 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.
Income Taxes
As a result of the Business Combination,WM Technology, Inc. became the sole managing member ofWMH LLC , which is treated as a partnership forU.S. federal and most applicable state and local income tax purposes. As a partnership,WMH LLC is not subject toU.S. federal and certain state and local income taxes. Accordingly, no provision forU.S. federal 39 -------------------------------------------------------------------------------- Table of Contents and state income taxes has been recorded in the financial statements for the period ofJanuary 1 to June 16, 2021 as this period was prior to 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. following the Business Combination, on a pro rata basis.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. The Company is also subject to taxes in foreign jurisdictions.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 ofMarch 31, 2022 , total net deferred tax assets and TRA liability were$171.0 million and$134.1 million , respectively.
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 ("RSUs") and performance-based restricted
stock units ("PRSUs") 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 three months ended March 31, 2022 , we
recognized stock-based compensation expense of $7.5 million . See Note 11 to our
condensed 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 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 three months endedMarch 31, 2022 , we capitalized$4.1 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 40
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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. As ofMarch 31, 2022 , 12,499,973 of the Public Warrants and all of the Private Placement Warrants remained outstanding . 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 ofMarch 31, 2022 andDecember 31, 2021 , warranty liability was$45.7 million and$27.5 million , respectively. See Note 4 to our condensed consolidated financial statements included herein.
Recent Accounting Pronouncements
See Note 2 to our condensed consolidated financial statements included herein.
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