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spk06: ending today's Leafly fourth quarter and full year 2021 earnings call. My name is Sam and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you'd like to ask a question, simply press star one on your telephone keypad. At this time, I'd now like to turn the conference over to our host, Kenan Zoff with the Blue Shirt Group. Kenan, please go ahead.
spk04: Good afternoon and welcome to Leafly's fourth quarter and fiscal year 2021 earnings call. We will be discussing the results announced in our press release issued today. With me are Leafly CEO Yoko Miyashita and CFO Suresh Krishnaswamy. Today's call will contain forward-looking statements which are pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements regarding the services offered by Leafly, the markets in which Leafly operates, business strategies, performance metrics, industry environment, potential growth opportunities, and Leafly's projected future results and financial outlook. and can be identified by words such as expect, anticipate, intend, plan, believe, seek, or will. These statements reflect our views as of today only and should not be relied upon as representing our views at any subsequent date, and we do not undertake any duty to update these statements. Forward-looking statements by their nature address matters that are subject to risks and uncertainties that could cause actual results to differ materially from expectations. For a discussion of the material risk and other important factors that could affect our actual results, please refer to the risk discussed in today's press release, our Proxy Statement and Prospectives Consent Solicitation Statement, filed by Leafly, formerly known as Merida Merger Corp. 1, with the SEC on December 10, 2021. Our Proxy Statement and Prospectives Consent Solicitation Supplement, filed with the SEC on December 22, 2021. Our proxy statement perspectives consent solicitation supplement filed with the SEC on January 18, 2022, and our other periodic filings with the SEC. During the call, we will also discuss non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles. A reconciliation of the GAAP and the non-GAAP results is included in our earnings press release, which has been filed with the SEC and is also available on our website at investor.leafley.com. With that, let me turn the call over to Yoko.
spk07: Thank you, Kenan. Good afternoon, everyone. Welcome to our first earnings call as a public company. I want to start off by thanking all of you who have supported us over the years, our passionate cannabis community around the world, and most importantly, our entire Leafly team for their hard work and continued dedication to our mission, helping people discover cannabis. In February, we became a publicly traded company, and I want to welcome our new shareholders. We look forward to sharing our journey with all of you as we continue to grow and help others thrive in this unique and special industry. 2021 was a record year for Leafly and set the foundation for long-term growth and expanded opportunity. We delivered 18% revenue growth over 2020. With an influx of capital, we increased investments in the second half of 2021, which contributed to our record Q4 revenue of $12.1 million, or 30% year-over-year growth. We added 1,600 retail accounts in 2021, an increase of 44% over 2020. We rebuilt our brand subscriptions product from the ground up and launched new advertising products for retailers and brands. We also launched in-app ordering capabilities in our iOS app and reached our 10 millionth app download. To accomplish all this, we invested across the Leafly team, growing total headcount by 70% over 2020. I want to take you deeper into where we see the larger opportunities for long-term growth at Leafly. But before I do, for those of you who are new to our story, let me quickly spend a few minutes on what we do and what makes us poised to be a leader in this evolving market. Leafly, put simply, is the informed way to shop for cannabis. It's a marketplace that connects consumers with information and to licensed brands and retailers. We generate revenue from cannabis retailers and brands through our subscription-based marketplace listings and advertising solutions that allow those customers to reach our consumer audience along every step of their cannabis journey. For consumers, they come to our platform for our rich educational and informational content, including our comprehensive strains database, thousands of news and information articles, over a million product strain and store reviews, retailer menus, and online ordering for delivery or pickup through legal retailers. Lack of education and understanding of the cannabis plant is a barrier to adoption. The plant itself is complicated. and social stigma and concerns around product safety also persist as we transition out of a century of prohibition. Our educational and informational content breaks down these barriers for consumers and connects them with products and strains that match their needs from licensed brands and local retailers. Our content-first strategy allows us to attract consumers to our platform even before a market legalizes, a competitive advantage uniquely attributable to our trusted content and cannabis coverage. We believe Leafly can drive a more reliable shopping experience by helping consumers understand what they're buying and how to consume it. As they learn, browse, and shop, we have the opportunity to develop a personalization and curation engine unmatched in the industry. This provides a compelling reason for licensed retailers and brands to access our platform, where they can leverage our traffic, our proprietary insights, and our technology for customer acquisition, e-commerce ordering tools, and our digital advertising solutions to build their businesses. The legal cannabis industry is estimated to be $40 to $50 billion in sales by 2025, which is double the market size of 2020. By 2030, cannabis is estimated to grow to $70 billion, with some estimates as high as $100 billion in sales. While many look forward to federal legalization as a dependency for growth, our business model allows us to monetize the growing interest in cannabis shopping activity today while looking forward to the acceleration that legalization may provide. Our addressable market expands with each legalization moment, and to fully unlock it requires solving several challenges present in the industry today. First, this is an industry in transition. and the rules vary state by state, which means brands and retailers must build their businesses from scratch in each new state. Second, they lack the power of traditional advertising channels to attract consumers and drive new customer growth. Today, approximately 53% of legal retailers in North America are paying subscribers on the Leafly platform. This has given us the ability to develop a competitive marketplace in legal markets across North America, whereby retailers are paying a subscription fee to be listed on our platform. Once listed on the platform, we deliver additional value through a suite of advertising products, technical tools, and technical integrations that support and simplify customer acquisition and online ordering. On the brand side, we are just starting to gain market penetration in a total addressable market that significantly outsizes the current retailer cam in North America, which by our estimates is as large as 18,000 brands. The investments we've made to date have delivered proven top-line results and expanded our subscriber base of retailers and brands, and we'll continue to invest in three key areas, First, continued growth in our subscriber base. Second, new products and tools for increased monetization. And third, increased consumer engagement, which in turn drives ROI for our retailers and brands. So let's talk about growth in our subscriber base. Cannabis is a local market business that requires local go-to-market teams. We price strategically in line with the stage of market development to bring subscribers onto our platform quickly. As these markets mature and competition increases, these market share gains position legally well to increase monetization from retailers as competition for new customers increases. And we're staffed to execute this acquisition strategy now at a local market level. Our customer success teams are also now better resourced to drive increased adoption of the platform tools we offer, including order-enabled capabilities and advertising add-ons. This land and expand strategy sets retailers and brands up to achieve the best performance from the Leafly marketplace, attracting more customers and realizing greater ROI. On the brand side, we rebuilt our brand subscription offering from the ground up in June of 2021, allowing us to go after the large untapped TAM. Our investments in our sales and marketing teams focused at local markets are positioning us well to help us grow our brand and retailer subscriber base. Now on to improvements to our advertising platform and tools. We're focused on expanding monetization beyond subscription fees. In H2 of 21, we launched new advertising products for brands and retailers, including menu merchandising, which enables brands to advertise directly on retailer menus, and option-based bidding for retailers for premium ad placements. These performance ad products are critical to serve the needs of our brands and retail clients. Revenue from these additional ad products are expected to be a meaningful driver of revenue growth for us in 22. To properly serve the demand from retailers and brands for advertising opportunities, we'll continue to invest in our advertising platform over the course of the year ahead. Investments include improved auction bidding capabilities with self-serve features, more performance retail ad units, and improvements to our promotion capabilities. We're also investing in our B2B services and tools that make engagement with the Leafly platform more efficient and valuable for our retail and brand customers. This includes shortening the time to value and enabling businesses to acquire consumers at scale. Our B2B strategy has been focused on building lightweight tools to make it easier for our retail and brands partners to engage with our consumer audience, and we'll continue to invest to reduce friction for our customers. Our product roadmap in 22 includes additional improvements in our POS integrations to automate menus and order management, and improvements in our product catalog for greater standardization. I'll note that we generate rich data on our platform and continue to innovate to help our brand and retail customers make smarter decisions based on that data. Finally, on to building a stickier consumer experience. Development of our valuable audience starts with our content first strategy. We believe that because of the unique attributes and complexity of cannabis, our cultivation of a more educated consumer base will generate outsized returns on investment for our brands and retailer customers over time. In 2022, we are poised to deliver a consumer shopping experience that harnesses the breadth of premium editorial content we have created over the last 12 years and delivers greater curation and personalization. We are building a more meaningful value proposition for consumers to create an account on Leafly. We're also focused on delivering richer experience through our native app, where some of our most engaged consumers interact with Leafly. We'll also look to reward our most loyal customers with loyalty programs. We expect to generate increased ROI for retailers and brands through these investments in our consumer experience. The added benefit of our consumer-facing investments is that unlike much of our work on the retailer and brand side, which needs to be done on a hyper-local level, the consumer side improvements are easily scalable across legal markets. So investments made here will scale and have benefits across the entire Leasley platform. In summary, we couldn't be more excited about the prospects for Leasley and the prospects ahead of us for cannabis. We are eagerly awaiting recreational sales in sizable East Coast markets and are pleased to see continued discussions around federal legalization. We're so delighted to have you along with us on this journey as we seek to help millions more discover cannabis. I'll now turn the call over to Suresh to provide you with details on our financial performance.
spk01: Thank you, Yoko, and welcome, everyone. I want to thank all of you for your continued support. This is an exciting time for Leafly. Over the years, we've connected millions of consumers with the information they seek and connected them with retailers and brands that meet their needs. We've established a playbook in top markets and are now focused on expanding the reach of our marketplace across North America. Yoko just outlined our strategic initiatives and key investment areas for 2022. With this as a backdrop, I'll spend the majority of my comments today focused on the strength of our business model and how we scale over time. Before I jump into the financials, let me spend a few minutes on our business model. It's important to understand that a large portion of our revenue is subscription-based. The majority of this revenue today comes from retail accounts who pay a monthly subscription to be listed on our platform. With newly launched products in 2021, we're scaling a subscription revenue model for brands as well. We have multiple tiers of subscription services for both brands and retailers, and contracts are evergreen with a strong track record of continuous auto renewals. As Yoko mentioned, investments are already underway to further increase retailer accounts in existing key markets where we can increase penetration and expand our monetization opportunities. In addition, there is significant opportunity to bring new brands to the Leafly platform with approximately 18,000 brands that exist today. We further increase monetization from these retail accounts and brands through advertising add-ons, and this revenue is in addition to monthly subscriptions. This increased monetization comes from additional value we provide through products like auction-based bidding for advertising, off-site audience extension, and new features and functionality like technology integrations and order enablement. Our subscription plus advertising add-on model allows us to scale and monetize these activities today while creating what we believe to be a durable and expandable model as we grow. Today, we break out revenue by retail accounts and brands, which gives transparency into our growth within each addressable market. In addition, investments are tied to growth in each of these segments. As recently launched products mature over time, we believe our business model can become more predictable. Now on to the financials. At a high level in 2021, we delivered $43 million of revenue in line with projections. This represented 18% year-over-year revenue growth, driven by significant investments in the second half of the year. In Q4, we saw growth in new subscribers, strong holiday activations, and benefits from products like sponsored ads. which led to year-over-year revenue growth of 30% compared to Q4 of the previous year. In the fourth quarter, we delivered revenue of 12.1 million. Revenue from retail was 9.1 million, up 18% year-over-year, and revenue from brands was 3 million, up 87% year-over-year. Revenue from retail in 2021 was $33.6 million, an increase of 14% over 2020 as we continued to add retail accounts. We added 1,600 retail accounts in 2021, a year-over-year increase of 44%. Many of these accounts were added in lower population or lower demand markets at a lower price point. a strategic decision to more quickly grow the number of subscribers on our platform. This contributed to a lower average revenue per account, or ARPA, of $636, a decline of $99 from 2020. This trade-off is expected to benefit us as our growing base of retailers provide opportunities for greater monetization in the future. as they adopt our advertising products and online ordering capabilities. We also saw strength from brands as we introduced new products. Revenue from brands in 2021 was 9.4 million, an increase of 38% over 2020. Average monthly active users, or MAUs, in 2021 were 10 million, down from 11.5 million in 2020 when we saw a peak in consumer activity on our platform, as they were driven to e-commerce solutions as a result of the pandemic's lockdown. As the broader economy started to reopen in 2021, we saw a normalization in traffic to Leafly properties. Now turning to gross margin. Leafly is asset-light, with a proven scaling business model and strong gross margins. Total gross margin in the fourth quarter was 88%, an increase over 85% in Q4 2020, primarily driven by the increase in revenue. On a full year basis, total gross margin was 88%, an increase over 86% in 2020. Moving on to operating expenses. The business was operating at nearly break-even levels at the end of 2020. In 2021, following our convertible note financing at the end of June, we started making investments, primarily in advertising and marketing and in building out our sales and marketing and senior leadership teams. We expect our sales and marketing investments to drive top-line growth in 2022 and beyond as new sales employees complete their ramp and are fully onboarded. Total operating expenses in the fourth quarter were $15.1 million, an increase from $8.9 million in Q4 2020. Sales and marketing expenses were up $3.1 million in Q4. Product and engineering expenses were up $1.1 million, and G&A expenses were up $2.1 million. The increase in G&A includes additional expenses for D&O insurance costs for coverage relating to Merida's operations prior to the business combination. For the full year, total operating expenses were $48.7 million, approximately $4 million less than we originally anticipated spending in 2021. This compares to $40.7 million in 2020. As investments significantly increased over 2021, gap net loss in the fourth quarter was $5.1 million, compared to a net loss of $1 million in the previous year. Full-year net loss was $12 million, compared to a net loss of $10 million in the previous year, and included $1.3 million and $0.6 million, respectively, in interest expense on convertible notes. Adjusted EBITDA loss in Q4 was $4.1 million. And for the full year, adjusted EBITDA loss was $9.4 million. This is compared to losses of $0.6 million and $7.9 million for the same period in 2020. Now turning to the balance sheet. We ended the year with $28.6 million in cash. We added cash in February 22 through our business combination with Merida and the related issuance of convertible notes. We're excited about the investments that we're making and are poised to execute well in 22 and beyond. And now that we're a NASDAQ-traded public company, we're in a much better position to capitalize on the excitement in the cannabis space. And now on to our 22 guidance. The cannabis industry remains ripe with opportunity for growth, but it also remains dynamic, both in current legal markets and newer markets as they become legalized. For example, regulatory hurdles in a few existing markets are impacting our short-term growth outlook as the backlog of prospective retailers awaiting licenses gets cleared. We're also taking into consideration a slower than expected hiring pace for engineering talent. Our investments in both sales and engineering talent are underway, and we expect them to gain traction and drive higher revenue growth in the second half of the year. We anticipate revenue growth from the following areas. Growth in our retail and brand subscription base, driven by our local market strategy and improved B2B tools, and increased monetization driven by investments in our advertising products and ad platform. For the full year 2022, we are revising our revenue projection to between $53 million and $58 million, representing 29% growth over 2021 at the midpoint. As a reminder, this guidance does not factor in any new markets that have not begun legalized sales, including the largest East Coast markets like New York and New Jersey that are in the process of setting up their adult use recreational markets. With the revised revenue projections, we've been very thoughtful about our operating expenses. For the full year, we expect adjusted EBITDA loss to be between $31 and $26 million. This includes an estimated $8.5 to $9.5 million in annual public company costs and the additional investments in headcount, marketing, and product initiatives that Yoko outlined earlier. Going forward, our plan is to provide full-year guidance, along with additional color and transparency throughout the year as to how we're tracking. Due to the timing of this call, we felt it was appropriate to provide an indication that we're tracking to approximately $11.3 million in revenue for Q1 2022. So in closing, we're very pleased with our performance in 2021 and look forward to expanding our marketplace. We remain committed to investing with a disciplined approach and a focus on driving top-line growth. We'll continue to invest in platform enhancements that serve our consumers, retailers, and brands. We see opportunities in existing markets, and as more markets become legalized and timetables for sales in newly legalized markets become clear, our TAM expands. making our planned investments all the more critical for long-term growth. With that, I'll turn the call over to the operator and open it up for questions. Thank you.
spk06: Thank you, Suresh. We will now begin the Q&A session. If you'd like to ask a question, please press star 1 on your telephone keypad, and if you'd like to remove that question, please press star 2. As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking your question. My first question comes from the line of Jason Helfstein of Oppenheimer. Jason, you may proceed with your question.
spk02: Thanks. Maybe talk about the factor that you have in your control, the impediments to growth. So you did talk about R&D spending maybe a little less because it's harder to hire people. However, you could deploy that money on the sales side. But just talk about How much is this putting more bodies on the street relative to other factors that impede the customer from getting online? And then for the customers who are online, how are you kind of separating the new customers versus boosting revenue from existing customers? Thank you.
spk01: I'll answer that question from the financial lens and then I'll let Yoko chime in on some of the impacts we're seeing in the industry as it relates to our forecast. To be clear, nothing has changed about our long-term growth outlook and our opportunities as a company. We see this as more of a delay in the implementation of our plan. So as we look ahead to this year and some of the things that you raised, Jason, here are some of the key factors that impact our current expectations for this year. We added key roles to our senior leadership team late in 2021 and into the first quarter of 22. So at this point, we have better visibility into the year. We've taken another look at the business And one of the things we've done is reorganized across both sales and product to position for growth this year and over the long term. And we've also tied revenue to specific growth initiatives that we've modeled from the ground up. So on the revenue side, there's buckets that include monetization of existing customers as well as new products on our roadmaps. And we're investing in both of these areas. On the hiring side, it's a tough labor market, and the pace of hiring is slower than we anticipated six months ago, especially for technical roles. So many of the hires that we've made in sales are still on quota ramp, and in PDE still ramping up to full contribution. So that's another factor that we see. So this has delayed the launch and scaling of many of the new products on our roadmap. But we continue to make good progress, and we feel good about the investments we're making in these revised estimates.
spk07: That's a really fulsome response. Nothing to add there, Suresh.
spk02: Thank you.
spk06: Thank you, Jason. Our next question is from Gerald Pascarelli of Cowan. Gerald, please proceed.
spk03: Hi, good evening, and thank you very much for the questions. Just on the top-line guide, I think it's clear, and you laid it out pretty clearly, that you expect it to be a back half-weighted year. given the $11.3 million kind of run rate that you're doing in one queue. But when you look at the range between 53 and 58 million, are there any – I guess like what's driving the low end versus the high end? Is it going to be like a combination of increased subscription or increased subscription fees and retail accounts or increased advertising, maybe a combination of both? I'm just trying to understand what's embedded into the low end and the high end of your guide. Any color you could provide there would be helpful. Thanks.
spk01: Yeah, sure, Gerald. You know, we feel quite good about the guidance we're putting out today. It's really all about execution on the initiatives we've talked about, right? And just going back to Q4, we had good success with launches in Q4 around new products like menu merchandising, and we look forward to building on those. And now in Q1, we've launched you know, new products like Delivery Gateway and Bidding Portal, and we're very positive about those initiatives adding to revenues this year. So we have a lot of new products planned, and, you know, we have a product roadmap, and we need to execute. We talked about the timing of hiring talent. You know, that's something that we're very focused on, in addition to once we get them in, how long they take to get up to ramp. And the other factor is regulation. That could be a big swing factor in the near to medium term. That's a bit tough to predict. But I'd say overall we're very confident that, you know, we have visibility into the guidance that we're providing today.
spk07: Let me just add a little bit of color on the regulation piece. Sorry, Gerald, go ahead.
spk03: Sure thing. No, no, no, please, Yoko, go ahead.
spk07: No, I just wanted to just layer on a bit on the regulation headwinds and tailwinds, right, that can cause these swings so quickly. We've talked about in our risk factors and openly about our challenges in states like Florida where we've challenged the Department of Health's position on online ordering through marketplaces, right? That is a significantly large medical market, and the ability to turn on ordering for our customers has the ability to swing us in the positive direction. You know, we also know about challenges in Illinois where you've got about 185 licenses tied up in litigation. We're ready. We've got a strong foothold in that market. And our platform is set up to onboard these partners as soon as those licenses get issued and become available. So I think it's those things here that have this ability to move things pretty quickly, and we are prepped and ready to execute on our playbook. as those licenses get issued.
spk03: Got it. Thank you, Suresh and Yoko. That's a super helpful color there. If I could squeeze another one in, I would love to get your thoughts just on your outlook for consumer traffic to the platform in particular as knock on wood, but it seems like consumer mobility is continuing to pick up, certainly from 4Q levels. So as you look out over the course of 2022, how do you think about that relationship between more consumer mobility versus traffic to your specific platform? Any color there would be great. Thank you.
spk07: Yeah, no, we really look at this in sort of two vectors, right? We saw an unusual amount of traffic at the peaks of COVID. You know the reasons why people were locked in their homes. You know, some markets you could only online order. And we saw a natural spike come with that. We've also seen with those post-COVID peaks, traffic's normalized and people wanting to go back into stores for shopping. But, you know, for us, Traffic and the consumer need has not changed, which is that ability to match them to the products and strains that are right for their needs. I think as we think about traffic, we're focused really on building and really getting better at answering that question for consumers. So, you know, historically very SEO-focused business, very top of funnel, but we're continuing to refine the kind of content that really powers and answers that underlying consumer need.
spk03: Perfect. Thank you very much for the caller. I will hop back into the queue.
spk06: Thank you, Gerald. As a reminder, to ask a question, it is star 1 on your telephone keypad. Again, to ask a question, it is star 1 on your telephone keypad. Our next question is from Eric Delaurier of Craig Hallam Capital Group. Eric, please proceed.
spk05: Great. Thank you for taking my questions. So as we look out, you clearly have a lot of white space to increase the number of retail accounts. And at the same time, we are seeing competition within markets pretty steadily increasing, which, as you guys have pointed out, leads to increased customer acquisition spend. So long-term, that sort of increase in both accounts and ARPA is pretty clear. Just wondering if you could provide a bit more color on how you expect that growth between accounts versus ARPA to shake out in the near term and maybe how some of those challenges, like you mentioned, in Florida or Illinois – might impact that. Thank you.
spk01: Yeah, sure. So we came off a very good Q4 in terms of adding retail accounts. We look at that, you know, continuing. As we look at the market and the ARPA that we're releasing, Really, it's an average of what we're seeing at the local market level. It's important to understand that our playbook and what we've had success at is really looking at markets at the local market level and seeing the level of penetration that they're at, where they are along the curve. We made a strategic decision last year to to go after the accounts and sign them up. We're certainly expecting with our product roadmap and investments this year that we're going to start seeing in the markets that we target the ARPA going up. Eric, it's growth on both fronts. We're certainly going and looking to add retail accounts. I mean, we've more than doubled the size of our sales team. Just since August, we've hired over 20 customer support managers to support the local market strategy. And I think we're going to see as we roll out our strategy, which really has been to land and expand, This year we're going to see the expand phase, and we're going to basically see opportunities for monetization in a lot of the new products in our roadmap.
spk07: Let me just pull on a couple of threads to illustrate this point. You know, we mentioned that we launched bidding, and we launched bidding in some of our strongest markets. And what we're seeing are, as a result of that, we are able to move ARPA upwards in those targeted markets. Now, back to marketplace and establishing it, you've got to have the right market context, i.e., there's got to be sufficient competition for the marketplace model to work, and we have to get a sufficient concentration of both retailers and consumers on platform to drive that kind of dynamic. But we see it happening, which is why we're investing in tools to augment and make us go faster on the bidding piece. The other thing, you asked specifically about Florida and Illinois. Those are strong markets. We've got great footholds in each, and we would see regulation tailwinds help us drive that forward. Illinois in particular, very excited about the work we were able to do over 2021 to start increasing that. And that's, you know, let me give you a little color on what that took from a local market framework. That was calling every single retailer to understand what their impediments were for coming onto the weekly platform and order enabling. In many cases, those were, hey, we don't like the friction of having to maintain a menu through our Jane menu and also having to upload on Leafly. What did we do in that instance? We integrated Jane as a menu partner. It's that kind of tactical hand-to-hand combat at the local market level that allows us to execute win market share and then increase spend over time.
spk05: Okay, great. That's, that's very helpful. And I think that makes a lot of sense. Basically, increasing the number of accounts you have increasing that penetration and then that sort of ARPA will follow. Can you just I guess there's more more high level, just along those lines, how should we think of the operating leverage that you see within specific markets, you know, when that ARPA really increases, and then just kind of taking a step back, you know, given these investments that you're making in sales and marketing and such today, you know, the overall operating leverage that you see sort of at maturity here. Thank you.
spk01: Yeah, sure. You know, we've been very disciplined in thinking through sort of what are the investments we need and the timing in terms by local market. And part of the sales reorg that we're going through is really to be able to make those decisions and target local markets depending on the states they're at. So certainly in markets where we have high penetration, we're seeing high ARPA, we are seeing better leverage on the pricing side. And when you roll all of that up, I can give you a few data points just looking at OpEx sort of X stock-based comp. For 22, we're looking at about 61% OpEx growth at the midpoint, and sales and marketing was about 40% of total OpEx in 21. We see that share growing this year. There is going to be more investment. I think as we start seeing in the second half of the year revenue from these initiatives pick up, we're forecasting better leverage in terms of margins. And I think we're going to lead in the markets that, you know, we have higher penetration with, and our plan is definitely to increase penetration and get the market to be more competitive through a combination of just adding more retailers in our platform and just driving more value to them through products and, you know, realizing that value through services like delivery and bidding.
spk05: Okay, great. Sorry, help of color. Thank you very much. Sure, thanks. Thank you.
spk06: Thank you, Eric. We'll now take our last question from Pablo Zunich of Cantor Fitzgerald. Pablo, please proceed.
spk00: Yeah, thank you. So, look, it's a very simplistic question, but, you know, you are guiding for a decline in sequential sales, 1Q, right, 11-point-something compared to 12.1 in the fourth quarter. So if you can explain that, and as you do that, Maybe talk about, you know, customer stickiness, especially on the retailer side in terms of the subscriptions, but also whether you're having to adjust prices for the subscriptions in a per market basis, right? I understand you talked about to enter new markets, you may offer a lower subscription package, but I'm wondering, in existing states, whether there's been any adjustments to subscription pricing on the retailer side. I'll have a follow-up, but if you can answer that first. Thank you.
spk01: Yeah, sure, absolutely. So just a big picture here, we anticipate growth throughout the year, particularly in the second half of the year. When you look at Q4, we had the benefit of increased holiday inventory targeted to brands, and Q1 just doesn't have that. So we have seen a modestly lower growth rate year over year, and based on our product roadmap and as our investments take hold, we do expect growth to pick up in the second half of the year. We also had success in Q4 launching new products like menu merchandising. That's something that we're going to continue to build this year. In Q1, as I just mentioned, we rolled out a delivery gateway and bidding portal as well. We have a product roadmap. We're very confident that as we progress through the year, we're going to roll new products out, and that's going to increase the leverage we have and increase monetization. In terms of stickiness and, you know, revenue mix, you know, I can say that, you know, most of our revenues come from existing customers. That's the subscription model. And it's fair to say that the acceleration is going to be driven by increased monetization of new products, increased monetization from that existing customer base as well as newer products. So we feel like we have reasonable visibility into the quarter.
spk07: I just want to layer on a couple of comments there. You talked about stickiness. And in our top markets, stickiness and pricing, there is a correlation. So first and foremost, the subscription prices we have are very market-driven. They're not just market-driven. They're driven at the zone level. And we are talking 3,000-plus pricing zones on our platform. But in our top markets, and this is publicly disclosed, Arizona is a great market for us, we see not just the kind of stickiness, the retention levels you would want to see, but it becomes a situation where if you are a retailer in Arizona, you cannot afford to not be on the Leafly platform. And that's what we look to when we're looking for that ability, and that is reflected in our pricing power that we have in markets like that. The flip side of that is in a nascent emerging market or a market with low concentration of retailers, you can't price at that same price point. So how do you price for the market conditions? And that is what our local market strategy is all about, understanding those unique attributes of each market and designing our go-to-market accordingly.
spk00: All right. Thank you, Yoko. And then maybe just to follow up, and this is more maybe a background question, but I know you've talked about your exposure to the eastern U.S., but, you know, when you talk about 5,200-plus accounts, right, you know, 20-plus accounts in New Jersey, 100 in Pennsylvania, I mean, if I start doing the numbers, I suppose a lot of those accounts have to be coming from Oklahoma, Michigan, California, right? So I'm just trying to understand how If you can give more color into your revenue exposure by region, and if you can't, at least, you know, talk about the dynamics that those customers are facing, right? I mean, if I'm in Massachusetts and I'm a retailer and I'm facing more competition, am I spending more on your platform, or are there more alternatives also that are coming to me? I'm just trying to get a better sense of regional mix for the company, if you can share that, and then just the dynamics you are facing there. Because, again, 5,200 sounds like a great number, right? But that means that California and Oklahoma have to be a big chunk also in terms of revenues. Thanks.
spk07: Yeah, and, you know, if you read our disclosures, you'll see our top three revenue markets, California, Oregon, and Arizona disclosed. But, you know, like those are revenue figures, and that does not necessarily reflect our TAM penetration. So I think you've picked up on a really interesting nuance within this business. And on the states, yes, you've got significant representation in Oklahoma. But as you know, huge, massive number of retailers in that market serving a much smaller medical population. What kind of dynamics does that drive on our marketplace? And frankly, we could actually get specific and show you. And there are dynamics that are unique to pricing zones within Oklahoma. So, again, it goes back to understanding what's happening in a particular market and serving those needs. You mentioned Michigan. You mentioned California. Still some structural challenges, right, with bringing a lot of that legacy spend into the licensed market. Those are, you know, California is a great one. Frankly, underpenetrated for us. So that does give us opportunity. And there is, you know, from our perspective, it's making sure we have the right product set for to implement our land and expand strategy. And I think that's one of the nuances that we haven't even gotten to talk about today, which is, hey, California, delivery market. How are you going to go after that? You need a really strong delivery product, something that will be rolling out in 22. What else can I say? East Coast, New Jersey, as you mentioned, all but two stores in New Jersey in the medical space already on platform today. How do we go after them? We make sure we have the right product set, including dual menus for all those med providers who will be the first to sell and rec, and make sure they're on platform with the tools they need to reach our consumer audience.
spk00: Got it. Thank you. And one last one, if I may. So on the 18,000 brands, that sounds, of course, like a big number. Can you talk about, you know, what type of penetration do you have there? Are you talking about 200 brands in your platform or, you know, close to 18,000? Just some color there, if you can.
spk07: Yeah, and just to break that brand number down to you, you know, remember we serve both the THC-infused as well as the non-infused brands, which is how we get to a significant number. And, frankly, it could be higher than that based on some of the reporting we see. We are in early days. But why we get excited about this new brand subscription product is because the challenges they face are very similar to retailers. They're trying to reach that engaged audience. They are trying to find advertising channels to connect with consumers. And by really providing this low entry point subscription, and again, there are different pricing points depending on size and scale and where you are and what market, what that does give brands is that ability to build that presence and profile and then leverage all of the advertising products that we have been adding to get in front of the consumer. And that, you know, you hear us talking about menu merchandising. I want to be super clear about the language we use here. Those are sponsored ads. Those are sponsored ads on retailer menus. And that kind of bottom of funnel engagement with a high intent shopper is incredibly valuable for that brand's audience.
spk00: Thank you.
spk07: Thanks, Pablo.
spk06: Thank you, Pablo. this time i'll now hand the conference back over to yoko for any closing remarks thank you sam and thank you everyone for joining us for our first earnings call we look forward to speaking with you again for our q1 earnings that concludes the leafly fourth quarter and full year 2021 earnings call thank you all for your participation you may now disconnect your line
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