WM TECHNOLOGY, INC. The following discussion and analysis of financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and related notes thereto 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, but not limited to, those discussed in the section titled "Risk Factors" included elsewhere in this Quarterly Report on Form 10-Q. 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 a technology and software infrastructure provider to retailers and brands in theU.S. state-legal and Canadian cannabis markets. We also provide information on the cannabis plant and the industry and advocate for legalization. The Weedmaps listings 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 reservation of products for pickup by consumers or delivery to consumers by participating retailers. We sell our offerings inthe United States , and have a limited number of non-monetized listings in several international countries includingAustria ,Canada ,Germany ,the Netherlands ,Spain , andSwitzerland . ThroughDecember 31, 2020 , we offered standard listing subscription clients access to a listing page on weedmaps.com in addition to free access to our SaaS solutions, including WM Orders,WM Dispatch , WM Exchange,WM Retail and WM Store , along with its API integrations with third-party point-of-sale ("POS") systems. For access to the orders functionality, beginning inSeptember 2019 , standard listing clients were also then required to pay a fixed services fee per delivery order submitted which we imposed regardless of whether the proposed order was canceled or completed. As ofJanuary 1, 2021 , we migrated all standard listing subscription clients to our new WM Business subscription package. Under this new subscription package, all retailers continue to receive access to a standard listing page and SaaS solutions. In addition, we began including access to WM Dashboard and eliminated the technology services fee on delivery orders as part of the transition to the new WM Business subscription package. We operate inthe United States ,Canada , and other foreign jurisdictions where medical and/or adult use cannabis is legal under state or applicable national law. We are headquartered inIrvine, California . Founded in 2008, we operate a leading listings marketplace with one of the most comprehensive SaaS subscription offerings sold to retailers and brands in theU.S. state-legal and Canadian cannabis markets. 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 platform and WM Business SaaS solution. Over the past 13 years, we have grown the Weedmaps listings marketplace to become the premier destination for cannabis consumers to discover and browse information regarding cannabis and cannabis products, with 14 million monthly active users ("MAUs") as ofSeptember 30, 2021 on the demand-side and 4,194 average monthly paying business clients during the nine months endedSeptember 30, 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 9,100 listing pages as ofSeptember 30, 2021 (of the over 18,300 listing pages listing pages on the marketplace). The Weedmaps listings 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 also has 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. Over the last three years, we have developed and launched several SaaS solutions for our retailer clients. These solutions now comprise an integrated platform for retailers, which we call "WM Business". WM Business provides a comprehensive set of tools to enable cannabis businesses to provide their goods and services compliantly, with what we refer to as "business-in-a- 29 -------------------------------------------------------------------------------- Table of Contents box" functionality. Our "business-in-a-box" solution helps cannabis retailers to improve their workflows and regulatory compliance in the course of serving cannabis consumers. We offer this functionality through a packaged software solution that includes (based on availability within any given market and state-level regulations) (i) a listing page with product menu on weedmaps.com, our iOS Weedmaps mobile application and our Android Weedmaps mobile application, which allows clients to disclose their license information, hours of operation, contact information, discount policies, and other information that may be required under applicable state law, (ii) the ability to receive reservations of products for pickup by consumers or delivery to consumers (either on weedmaps.com, on a white labeledWM Store site or third-party sites through our orders and menu embed product), thereby allowing inventory forecasting and helping retailers ensure sufficient staff are present to confirm product availability (and complete orders and process payments - both of which only occur outside the Weedmaps listings marketplace), (iii) logistics software such as driver apps and fleet-tracking tools to permit legal compliance with state delivery regulations, (iv) retail point-of-sale, or POS, solutions to manage inventory and track-and-trace compliance reporting, (v) analytics dashboards, (vi) access to our online wholesale exchange marketplace to browse brand catalogs and efficiently identify brands to obtain inventory from (and review license information and certificates of analysis, among other compliance features), and (vii) application program interface, or API, integrations to streamline workflows, thereby helping eliminate human error in recordkeeping and promoting compliance through accuracy. We also offer a growing set of offerings for brands to reach consumers and retailers as well as manage their brand catalog information. Our WM Business solution is sold as a value-priced monthly subscription package. We also offer several upsell and add-on products that allow businesses to have more prominent placement on the Weedmaps listings marketplace either through featured listings, display ads or promoted deal offerings. We sell our offerings inthe United States , and we have a limited number of non-monetized listings in several international countries includingAustria ,Canada ,Germany ,the Netherlands ,Spain , andSwitzerland . As ofSeptember 30, 2021 , we actively operated in over 20 U.S. states and territories that have adult-use and/or medical-use regulations in place. We define actively operated markets as those with greater than$1,000 monthly recurring revenue. As we continue to expand the presence and increase the number of consumers on the Weedmaps listings marketplace and broaden our SaaS offerings, we generate more value for our business clients. As we continue to expand the presence and increase the number of cannabis businesses listed on weedmaps.com, we become a more compelling marketplace for consumers. To capitalize on the growth opportunities of our two-sided marketplace and SaaS solutions, we plan to continue making investments in raising brand awareness, increasing penetration within existing markets and expanding to new markets, as well as continuing to develop and monetize new software solutions to extend the functionality of our platform, deepening the consumer experience with our platform, and providing a high level of support to our business clients. 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. While the legal acquirer in the Merger Agreement is Silver Spike, for financial accounting and reporting purposes under GAAP, Legacy WMH was the accounting acquirer and 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 30 -------------------------------------------------------------------------------- Table of Contents 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 , 2019, 2018 and 2017 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 . Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 (dollars in thousands, except for revenue per paying client) Revenues$ 50,884 $ 46,505 $ 138,969 $ 117,470 Net Income$ 49,205 $ 15,530 $ 73,773 $ 28,732 EBITDA(1)$ 50,578 $ 16,521 $ 76,985 $ 31,712 Adjusted EBITDA(1)$ 10,424 $ 16,521 $ 27,901 $ 31,712 Average monthly revenue per paying client(2)$ 3,817 $ 3,553 $ 3,682 $ 3,083 Average monthly paying clients(3) 4,444 4,363 4,194 4,233 MAUs (in thousands)(4) 13,907 10,185 13,907 10,185 ___________________________ (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. 31 -------------------------------------------------------------------------------- Table of Contents 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. A reconciliation of net income to non-GAAP EBITDA and Adjusted EBITDA is as follows: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 (in thousands) Net income$ 49,205 $ 15,530 $ 73,773 $ 28,732 Provision for income taxes 393 - 242 - Depreciation and amortization expenses 980 991 2,970 2,980 EBITDA 50,578 16,521 76,985 31,712 Share-based compensation 4,192 - 23,625 - Change in fair value of warrant liability (45,837) - (83,628) - Warrant transaction costs 41 - 5,547 - Impairment of right-of-use asset - - 2,372 - Transaction related bonus payment - - 1,550 - Transaction costs 1,450 - 1,450 - Adjusted EBITDA$ 10,424 $ 16,521 $ 27,901 $ 31,712
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 September Nine Months Ended
30, September 30, 2021
2021 2020 2021 2020
Average monthly revenue per paying client
$ 3,682 $ 3,083 32
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Prior definition¹:
Three Months Ended September Nine Months Ended
30, September 30, 2021
2021 2020 2021 2020
Monthly revenue per paying client $ 3,768 $ 3,678 $ 3,768 $ 3,678 ___________________________
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. While we have historically seen consistent growth in the number of our paying clients, we saw a decline starting in late 2017 through the first half of 2018 that we believe was driven by the uncertainty around legalization of adult-use cannabis byCalifornia onJanuary 2, 2018 . The first half of 2018 was a transition period within the state ofCalifornia during which only temporary licenses were granted to local retailers and the status and scope of permanent licenses was uncertain. During such time, we experienced a decline in paying clients, which moderated in the second half of 2018 when we saw our results inCalifornia to begin to return to more typical patterns. OnDecember 31, 2019 , we discontinued our service toCalifornia -based clients who failed to 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 . Current definition: Nine Months Ended Three Months Ended September 30, September 30, 2021 2021 2020 2021 2020 Average monthly paying clients 4,444 4,363 4,194 4,233 Prior definition¹: Nine Months Ended Three Months Ended September 30, September 30, 2021 2021 2020 2021 2020 Paying clients 4,559 4,171 4,559 4,171
___________________________
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.
33
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MAUs
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 in March 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 2020.
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 13.9 million at September 30, 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.
Current definition:
As of September 30,
2021 2020
MAUs (in thousands) 13,907 10,185
Prior definition¹:
As of September 30,
2021 2020
MAUs (in thousands) 13,028 10,185
___________________________
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. Factors Affecting Our Performance Growth of OurTwo-Sided Weedmaps Listings Marketplace We have historically grown through and intend to focus on continuing to grow through the expansion of our two-sided listings 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 34 -------------------------------------------------------------------------------- Table of Contents 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 the first nine months of 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 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), which resulted in a decrease in our overall net dollar retention by 7% for the period fromSeptember 2020 toDecember 2020 . For fiscal years 2018-2019, our monthly net dollar retention averaged 98%. 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-sevenU.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 listings 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. 35 -------------------------------------------------------------------------------- Table of Contents 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 three months endedSeptember 30, 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 listings 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 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. 36 -------------------------------------------------------------------------------- Table of Contents 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, 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 political contributions, interest expense, legal settlements, financing fees and other tax related expenses. Other income consists of change in fair value of warrant liability. 37
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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 September 30, Nine Months Ended September 30,
2021 2020 2021 2020
(in thousands)
Revenues $ 50,884 $ 46,505 $ 138,969 $ 117,470
Operating expenses:
Cost of revenues 2,035 2,109 5,800 5,572
Sales and marketing 12,806 7,384 37,194 21,437
Product development 7,782 6,923 25,921 20,325
General and administrative 23,220 12,906 70,356 37,147
Depreciation and amortization 980 991 2,970 2,980
Total operating expenses 46,823 30,313 142,241 87,461
Operating income (loss) 4,061 16,192 (3,272) 30,009
Other income (expenses)
Change in fair value of warrant liability 45,837 - 83,628 -
Other expense, net (300) (662) (6,341) (1,277)
Income before income taxes 49,598 15,530 74,015 28,732
Provision for income taxes 393 - 242 -
Net income 49,205 15,530 73,773 28,732
Net income attributable to noncontrolling
interests 28,370 - 48,675 -
Net income attributable to WM Technology,
Inc. $ 20,835 $ 15,530 $ 25,098 $ 28,732
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Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Revenues 100 % 100 % 100 % 100 %
Operating expenses:
Cost of revenues 4 % 5 % 4 % 5 %
Sales and marketing 25 % 16 % 27 % 18 %
Product development 15 % 15 % 19 % 17 %
General and administrative 46 % 28 % 51 % 32 %
Depreciation and amortization 2 % 2 % 2 % 3 %
Total operating expenses 92 % 65 % 102 % 74 %
Operating income (loss) 8 % 35 % (2) % 26 %
Other income (expenses)
Change in fair value of warrant liability 90 % 0 % 60 % 0 %
Other expense, net (1) % (1) % (5) % (1) %
Income before income taxes 97 % 33 % 53 % 24 %
Provision for income taxes 1 % 0 % 0 % 0 %
Net income 97 % 33 % 53 % 24 %
Net income attributable to noncontrolling
interests 56 % - % 35 % - %
Net income attributable to WM Technology,
Inc. 41 % 33 % 18 % 24 %
Comparison of Three Months Ended
Three Months Ended September 30, Change
2021 2020 ($) (%)
(dollars in thousands)
Revenues $ 50,884 $ 46,505 $ 4,379 9
Total revenues increased by $4.4 million , or 9% for the three months ended
September 30, 2021 compared to the same period in 2020. The increase was driven
by a 7% increase in average monthly revenue per paying client and a 2% 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 three months ended September 30, 2021 , Featured Listing product,
WM Business subscription offering and other ad solutions represented 56%, 22%
and 22% 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 $50.9 million for the three months ended September
30, 2021 compared $34.9 million in the same period in 2020. The increase of
approximately $16.0 million , or 46% in total revenue excluding Canada was
primarily driven by an 18% increase in the average monthly revenue per paying
client and a 24% increase in average monthly paying clients.
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Cost of Revenue
Three Months Ended September 30, Change
2021 2020 ($) (%)
(dollars in thousands)
Cost of revenues $ 2,035 $ 2,109 $ (74) (4)
Gross margin 96 % 95 %
Cost of revenue was $2.0 million for the three months ended September 30, 2021
compared to $2.1 million for the same period in 2020. There were no material
changes to the drivers of our cost of revenue.
Sales and Marketing Expenses
Three Months Ended September 30, Change
2021 2020 ($) (%)
(dollars in thousands)
Sales and marketing expenses $ 12,806 $ 7,384 $ 5,422 73
Percentage of revenue 25 % 16 %
Sales and marketing expenses increased by $5.4 million , or 73% for the three
months ended September 30, 2021 compared to the same period in 2020. The
increase was due to an increase in personnel-related costs of $3.2 million as a
result of increased headcount, an increase in sales incentive plan compensation
of $1.0 million due to higher revenues and an increase of $0.7 million in
stock-based compensation expense recognized in 2021, an increase in online
advertising of $0.6 million as more advertising options become available in the
cannabis industry, an increase in branding and advertising of $0.5 million and
an increase in consulting fees of $0.5 million .
Our stock-based compensation increased due in part to the removal of certain
limitations on the exercisability of certain equity awards issued to employees
and consultants upon the completion of the Business Combination. The increase in
stock-based compensation expense was also driven by the issuance of restricted
stock units to our employees during the third quarter of 2021.
Product Development Expenses
Three Months Ended September 30, Change
2021 2020 ($) (%)
(dollars in thousands)
Product development expenses $ 7,782 $ 6,923 $ 859 12
Percentage of revenue 15 % 15 %
Product development expenses increased by $0.9 million , or 12% for the three
months ended September 30, 2021 compared to the same period in 2020. This
increase was primarily due to an increase in personnel-related costs of $4.6
million due to increased headcount and an increase of $1.9 million in
stock-based compensation expense recognized in 2021, offset by capitalized
software development costs of $3.7 million . Our stock-based compensation
increased due in part to the removal of certain limitations on the
exercisability of certain equity awards issued to employees and consultants upon
the completion of the Business Combination. The increase in stock-based
compensation expense was also driven by the issuance of restricted stock units
to our employees during the third quarter of 2021.
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General and administrative expenses
Three Months Ended September 30, Change
2021 2020 ($) (%)
(dollars in thousands)
General and administrative expenses $ 23,220 $ 12,906 $ 10,314 80
Percentage of revenue 46 % 28 %
General and administrative expenses increased by $10.3 million , or 80% for the
three months ended September 30, 2021 compared to the same period in 2020. This
increase was primarily due to an increase in insurance costs of $3.1 million as
a result of additional insurance coverage as a public company, an increase in
software costs of $0.6 million , an increase in allowance for doubtful accounts
of $2.0 million and an increase in professional fees of $2.1 million . General
and administrative expenses also increased due to an increase in stock-based
compensation expense of $1.6 million recognized in 2021. Our stock-based
compensation increased due in part to the removal of certain limitations on the
exercisability of certain equity awards issued to employees and consultants upon
the completion of the Business Combination. The increase in stock-based
compensation expense was also driven by the issuance of restricted stock units
to our employees during the third quarter of 2021.
Depreciation and Amortization Expense
Three Months Ended September 30, Change
2021 2020 ($) (%)
(dollars in thousands)
Depreciation and amortization expenses $ 980 $ 991 $ (11) (1)
Percentage of revenue 2 % 2 %
Depreciation and amortization expenses were consistent for the three months
ended September 30, 2021 compared to the same period in 2020
Other Income (Expense), net
Three Months Ended September 30, Change
2021 2020 ($) (%)
(dollars in thousands)
Change in fair value of warrant
liability $ 45,837 $ - 45,837 100 %
Other expense, net (300) (662) 362 (55) %
Other income (expense), net $ 45,537 $ (662) 46,199 N/M
Percentage of revenue 89 % (1) %
__________________
N/M - Not meaningful
Other income, net increased by $46.2 million for the three months ended
September 30, 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 $45.8
million . The decrease in other expense, net of $0.3 million was primarily due to
changes in foreign currency transaction losses.
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Table of Contents Comparison of Nine Months EndedSeptember 30, 2021 and 2020 Revenue Nine Months Ended September 30, Change 2021 2020 ($) (%) (dollars in thousands) Revenue$ 138,969 $ 117,470 $ 21,499 18 % Total revenue increased by$21.5 million , or 18% for the nine months endedSeptember 30, 2021 compared to the same period in 2020. The increase was driven by a 19% increase in average monthly revenue per paying client, partially offset by a 1% decrease in average monthly paying clients in the period as a result of factors described below. 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 ofCanada -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 nine months endedSeptember 30, 2021 , Featured Listing product, WM Business subscription offering and other ad solutions represented 56%, 23% and 21% of our total revenues, respectively. During the second half of fiscal 2020, we discontinued our services toCanada -based retail operator clients who failed to provide valid license information, similar to the transition we implemented inCalifornia at the end of fiscal 2019 (beginning with clients receiving free listing subscriptions inJune 2020 and continuing with paid listings starting inSeptember 2020 ). Total revenue excludingCanada was$139.0 million for the nine months endedSeptember 30, 2021 compared to$91.3 million in the same period in 2020. The increase of$47.7 million , or 52%, in total revenue excludingCanada was primarily driven by a 23% increase in average monthly revenue per paying client and a 24% increase in average monthly paying clients. Cost of Revenue Nine Months Ended September 30, Change 2021 2020 ($) (%) (dollars in thousands) Cost of revenues$ 5,800 $ 5,572 $ 228 4 Gross margin 96 % 95 % Cost of revenues increased by$0.2 million , or 4% for the nine months endedSeptember 30, 2021 compared to the same period in 2020. The increase was due to an increase in web hosting and internet services of$0.8 million due to increased traffic to our website, offset by a decrease of$0.6 million in payment processing fees, as we provided more cost effective payment options to our clients. Sales and Marketing Expenses Nine Months Ended September 30, Change 2021 2020 ($) (%) (dollars in thousands) Sales and marketing expenses$ 37,194 $ 21,437 $ 15,757 74 Percentage of revenue 27 % 18 % Sales and marketing expenses increased by$15.8 million , or 74% for the nine months endedSeptember 30, 2021 compared to the same period in 2020. The increase was primarily due to an increase in personnel-related costs of$9.7 million , as a result of increased headcount, an increase in sales incentive plan compensation of$1.4 million due to higher revenues, and an increase in stock-based compensation expense of$4.5 million recognized in 2021, an increase in event costs of$2.4 million , primarily related to a large event held in the second quarter of 2021, an increase in online advertising costs of$1.7 million as more advertising options become available in the cannabis industry, an increase in outside services of$0.8 million and an increase in branding and advertising of$0.8 million . Our stock-based compensation increased due in part to the removal of certain limitations on the exercisability of certain equity awards issued to employees and consultants upon the completion of the 42 -------------------------------------------------------------------------------- Table of Contents Business Combination. The increase in stock-based compensation expense was also driven by the issuance of restricted stock units to our employees during the third quarter of 2021. Product Development Expenses Nine Months Ended September 30, Change 2021 2020 ($) (%) (dollars in thousands) Product development expenses$ 25,921 $ 20,325 $ 5,596 28 Percentage of revenue 19 % 17 % Product development expenses increased by$5.6 million , or 28% for the nine months endedSeptember 30, 2021 compared to the same period in 2020. The increase was due to an increase in personnel-related costs of$8.9 million , as a result of increased headcount and an increase of$3.9 million in stock-based compensation expense recognized in 2021 and an increase in outside services of$0.4 million , offset by capitalized software development costs of$3.7 million . Our stock-based compensation increased due in part to the removal of certain limitations on the exercisability of certain equity awards issued to employees and consultants upon the completion of the Business Combination. The increase in stock-based compensation expense was also driven by the issuance of restricted stock units to our employees during the third quarter of 2021. General and Administrative Expenses Nine Months Ended September 30, Change 2021 2020 ($) (%) (dollars in thousands) General and administrative expenses$ 70,356 $ 37,147 $ 33,209 89 Percentage of revenue 51 % 32 % General and administrative expenses increased by$33.2 million , or 89% for the nine months endedSeptember 30, 2021 compared to the same period in 2020. This increase was primarily due to an increase in personnel-related costs of$18.8 million as a result of an increase in stock-based compensation expense in 2021 of$15.3 million , bonuses paid related to the completion of the Business Combination and increased severance costs, an increase in insurance costs of$3.9 million due to additional insurance coverage as a public company, an impairment charge of$2.4 million related to a right-of-use asset, an increase in professional and consulting fees of$3.0 million , an increase in allowance for doubtful accounts of$2.4 million , an increase in rent expense of$0.8 million due to a new office lease that commenced inMarch 2020 , and an increase in software cost of$1.4 million as we entered into new software service agreements to effectively operate the business. Our stock-based compensation increased due in part to the removal of certain limitations on the exercisability of certain equity awards issued to employees and consultants upon the completion of the Business Combination. The increase in stock-based compensation expense was also driven by the issuance of restricted stock units to our employees during the third quarter of 2021. Depreciation and Amortization Expense Nine Months Ended September 30, Change 2021 2020 ($) (%) (dollars in thousands) Depreciation and amortization expenses$ 2,970 $ 2,980 $ (10) - Percentage of revenue 2 % 3 %
Depreciation and amortization were consistent for the nine months ended
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Other Income (Expense), net
Nine Months Ended September 30, Change
2021 2020 ($) (%)
(dollars in thousands)
Change in fair value of warrant liability $ 83,628 $ - 83,628 100
Other expense, net (6,341) (1,277) (5,064) 397
Other income (expense), net $ 77,287 $ (1,277) 78,564 N/M
Percentage of revenue 56 % (1) %
__________________
N/M - Not meaningful
Other income, net increased by $78.6 million for the nine months ended September
30, 2021 compared to the same period in 2020. The increase in other income was
due to changes in fair value of warrant liability of $83.6 million , offset by an
increase in other expense, net of $5.1 million . The increase in other expense,
net was primarily due to warrant transaction costs of $5.5 million related to
the Business Combination, offset by a decrease of $0.6 million related to
changes in foreign currency transaction losses.
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:
September 30, 2021 December 31, 2020
(in thousands)
Cash $ 77,935 $ 19,919
Accounts receivable, net 12,784 9,428
Working capital 68,161 10,918
As of September 30, 2021 , we have cash of $77.9 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.
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.
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Cash Flows
Nine months ended September 30,
2021 2020
(in thousands)
Net cash provided by operating activities $ 25,173 $ 29,566
Net cash used in investing activities $ (23,246) $ (903)
Net cash provided by (used in) financing activities $
56,089
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 from operating activities for the nine months endedSeptember 30, 2021 was$25.2 million , which resulted from net income of$73.8 million , together with a net cash inflows of$3.0 million from changes in operating assets and liabilities, and non-cash items of$51.6 million , consisting of depreciation and amortization of$3.0 million , fair value of warrant liability of$83.6 million , impairment loss of$2.4 million , stock-based compensation of$23.6 million and provision for doubtful accounts of$3.0 million . The net cash inflows from changes in operating assets and liabilities were primarily due to a decrease in prepaid and other current assets of$6.5 million , an increase in accounts payable and accrued expenses of$0.3 million and an increase in deferred revenue of$2.5 million , offset by an increase in accounts receivable of$6.4 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 nine months endedSeptember 30, 2020 was$29.6 million , which resulted from net income of$28.7 million , together with a net cash outflows of$2.1 million from changes in operating assets and liabilities, and non-cash items of$3.0 million , consisting of depreciation and amortization. The net cash outflows from changes in operating assets and liabilities were primarily due to an increase in accounts receivables of$4.3 million , a decrease in accounts payable and accrued expenses of$1.1 million and an increase in prepaid expenses and other current assets of$0.5 million . These changes were partially offset by an increase in deferred revenue of$3.2 million and a decrease in other assets of$0.5 million . The changes in operating assets and liabilities are mostly due to fluctuations in timing of cash receipts and payments.Net Cash Used in Investing Activities Cash used in investing activities for the nine months endedSeptember 30, 2021 was$23.2 million , which resulted from$16.0 million cash paid for acquisitions,$4.2 million cash paid for purchases of property and equipment, including certain capitalized software development cost and$3.0 million cash paid for other investments. Cash used in investing activities for the nine months endedSeptember 30, 2020 was$0.9 million for purchases of property and equipment. Net Cash Provided by (Used in) Financing ActivitiesNet Cash provided by financing activities for the nine months endedSeptember 30, 2021 was$56.1 million , which resulted from net proceeds from Business Combination of$80.0 million , offset by$18.1 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 nine months endedSeptember 30, 2020 was$9.5 million , which resulted from$9.2 million distributions to members and$0.3 million paid for the repurchase of ClassB Units . Off Balance Sheet Arrangements We did not have any off-balance sheet arrangements in any of the periods presented in this quarterly report, except for operating leases as ofDecember 31, 2020 prior to the adoption of Accounting Standards Codification ("ASC") 842 - Leases, as discussed below. Critical Accounting Policies 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, 45 -------------------------------------------------------------------------------- Table of Contents 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, website and internal-use software development costs, income taxes, fair value measurements and equity-based compensation have the greatest potential impact on our condensed 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 our Weedmaps platform and our WM Business SaaS solution. 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 it expects to be entitled to in exchange for those services. Revenue is recognized over-time over the subscription period, generally a one-month period as the products are provided. We may also provide services to our customers that are recognized at a point in time. For example, prior toJanuary 1, 2021 , technology services fees relating to product reservation orders submitted were recognized when an order for delivery was submitted. Deferred revenue primarily consists of billings or payments received in advance of revenue recognition from subscription offerings, as described above, and is recognized as the revenue recognition criteria are met. We generally invoice customers and receive payment on an upfront basis. Website and Internal-Use Software Development Costs We capitalize certain costs related to the development of our SaaS solutions. In accordance with authoritative guidance, we began to capitalize these costs to develop certain software 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. For the nine months endedSeptember 30, 2021 , we capitalized$3.7 million of costs related to the development of software applications. 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 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. Fair Value Measurements We follow the guidance in ASC 820 - Fair Value Measurements for our financial assets and liabilities that are re-measured and reported at fair value at each reporting period. The fair value of our financial assets and liabilities reflects management's estimate of amounts that we would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, we seek to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). 46 -------------------------------------------------------------------------------- Table of Contents Leases EffectiveJanuary 1, 2021 , we adopted ASC 842 - Leases. Under this guidance, lessees classify arrangements meeting the definition of a lease as operating or financing leases, and leases are recorded on the consolidated balance sheet as both a right-of-use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or our incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right-of-use asset result in straight-line rent expense over the lease term. For finance leases, interest on the lease liability and the amortization of the right-of-use asset results in front-loaded expense over the lease term. Variable lease expenses are recorded when incurred. In calculating the right-of-use asset and lease liability, we elected to combine lease and non-lease components for all classes of assets. We excluded short-term leases having initial terms of 12 months or less from the new guidance as an accounting policy election, and instead recognizes rent expense on a straight-line basis over the lease term. We continued to account for leases in the prior period financial statements under ASC 840 - Leases. Emerging Growth Company Status Section 107 of the JOBS Act provides that an "emerging growth company" can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an "emerging growth company" can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. Section 107 of the JOBS Act provides that any decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable. We have elected to use this extended transition period under the JOBS Act. Recent Accounting Pronouncements See Note 2 to our condensed consolidated financial statements included herein. Item 3. Quantitative and Qualitative Disclosures about Market Risk We have operations both withinthe United States and in foreign jurisdictions, and we are exposed to market risks in the ordinary course of our business, including the effects of foreign currency fluctuations, interest rate changes and inflation. Information relating to quantitative and qualitative disclosures about these market risks is set forth below. Interest Rate Fluctuation Risk We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents. As ofSeptember 30, 2021 , we did not have any cash equivalents. The primary objective of our investment activities is to preserve principal while maximizing income without significantly increasing risk. Because our cash and cash equivalents have a relatively short maturity, our portfolio's fair value is relatively insensitive to interest rate changes. In future periods, we will continue to evaluate our investment policy in order to ensure that we continue to meet our overall objectives. Inflation We do not believe that inflation has had a material effect on our business, financial condition or results of operations. We continue to monitor the impact of inflation in order to minimize its effects through pricing strategies, productivity improvements and cost reductions. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations. Item 4. Controls and Procedures Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, is recorded, processed, summarized, and reported within the time period specified in theSEC's rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. In connection with Silver Spike's amendment to its annual report on Form 10-K, management re-evaluated, with the participation of Silver Spike's then-current chief executive officer and chief financial officer (Silver Spike's "Certifying Officers"), the effectiveness of Silver Spike's disclosure controls 47 -------------------------------------------------------------------------------- Table of Contents and procedures as ofDecember 31, 2020 , pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, Silver Spike's Certifying Officers concluded that, solely due to the material weakness in Silver Spike's internal control over financial reporting that led to Silver Spike's restatement of its financial statements to reclassify its Public Warrants and Private Placement Warrants as described in the Explanatory Note to Silver Spike's amendment to its annual report on Form 10-K, Silver Spike's disclosure controls and procedures were not effective asDecember 31, 2020 . Based on the evaluation, and in light of the material weakness in internal controls described above, our Chief Executive Officer and Chief Financial Officer have concluded that during the period covered by this report, our disclosure controls and procedures were not effective. We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. In light of the restatement of financial statements as described in the Explanatory Note to Silver Spike's amendment to its annual report on Form 10-K, we plan to enhance our processes to identify and appropriately apply applicable accounting requirements to better evaluate and understand the nuances of the complex accounting standards that apply to our financial statements. Our plans at this time include providing enhanced access to accounting literature, research materials and documents and increased communication among our personnel and third-party professionals with whom we consult regarding complex accounting applications. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects. 48
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