WM Technology, Inc.

Good afternoon, everyone, and welcome to the WM Technologies, Inc. Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. If you require any further assistance, please press star, then zero. I would now like to turn the conference over to your host, Greg Stolowitz, VP, Investor Relations and Corporate Development. Please go ahead.

Hi, everyone. Thanks for joining our Q3 2021 earnings conference call. We have Chris Beals, our CEO, and Arlen Lee, our CFO, with us today. By now, everyone should have access to our earnings announcement. This announcement is also on our investor relations website, along with a supporting slide deck. During this call, we'll make forward-looking statements, including statements about our business outlook, strategies, and long-term goals. These comments are based on our plans, predictions, and expectations as of today, which may change over time. Our actual results could differ materially due to a number of risks and uncertainties, including the risk factors outlined in our most recent 10Q filed with the SEC and future reports filed with the SEC. Also during this call, we'll discuss certain non-GAAP financial measures. These non-GAAP measures are not intended to be a substitute for our GAAP results. Please refer to our earnings release on our investor relations website for reconciliation of GAAP to non-GAAP financial measures, as well as additional context in our key operating metrics. And finally, this call in its entirety is being webcast from our investor relations website, and an audio replay will be available on our website in a few hours. With that, I'd like to turn the call over to Chris.

Thanks, Greg, and thanks, everyone, for joining us this afternoon. I'm excited to take you through our operating results and the developments during the third quarter. Before we begin, we want to honor all of the veterans, their families, and friends around the world on this Veterans Day. On behalf of the entire WM Technology family, we appreciate everything you do for this country, and thank you for your sacrifices and service. Thematically, I want to note at the outset something very critical. With the recent introduction of a Republican-led federal cannabis legalization bill in the House last week, I think we've reached another milestone in the advancement on our journey to full cannabis legalization at the federal level. I think at this point it's now become clear that federal legalization isn't just an inevitability. It is one that is coming close at an ever-accelerating rate. However, federal legalization should not be confused with state deregulation. Even in a world with federal legalization, the disparate state cannabis regimes we see today will likely continue to evolve in the fashion we currently see. This is quite similar to the differences we see among states for a number of highly regulated goods, where the states have a vested interest in both public health and the state economy. Nonetheless, it bears repeating that federal legalization opens an incredible array of exciting product and monetization opportunities for WM technology. Conversely, the continuing patchwork of state regulation underscores the need for the scalable, flexible technology solutions we provide to enable businesses to scale across jurisdictions. And so the thing I really want to highlight here is that how we are positioning the company and what we are working on both visibly and behind the scenes from a strategy and product delivery viewpoint are intended to put us in the best possible position to reap the benefits that federal legalization will bring to our business while also reaping the greatest benefits now in the era prior to federal legalization. Moving to our business, WM Technology delivered a strong third quarter, as we saw year-over-year growth that significantly outpaced cannabis and market growth, while continuing to deliver on new organizational initiatives and software roadmap execution that set us up incredibly well for long-term growth and success. Our Q3 revenue finished at $51 million, growing at 9% year-over-year on a reported basis and 46% year-over-year when excluding Canada from last year's numbers. I'll go into a little more detail on the call, but we had high double-digit year-over-year growth across all of our metrics, with nearly 40% growth in monthly active users and double-digit U.S. growth in both average monthly paying clients and average revenue per paying client. I'm proud of our results. This quarter demonstrated the strength and resiliency of the Weedmaps marketplace and the WM Business offering as we achieved double-digit growth, despite deceleration in our client in-markets as reported in third-party data. For example, California, which is our largest market, saw lower in-market retail sales in Q3 versus the prior quarter, with only modest year-over-year growth. We saw a similar dynamic across a number of other in-markets. To be clear, we do not believe that there's been a pullback in consumer demand for cannabis in these markets. In fact, we believe that there continues to be strong and growing demand, even as consumers return to in-office work across regions. Rather, we believe the deceleration has been driven largely by consumer demand shifts or switching to non-licensed channels. While licenses continue to be issued across our end markets, license density is not where it needs to be, and the pace of license issuance remains sluggish, which is contributing to a thriving illicit market. And further, there's been a lot written in the press about how producers are dealing with the current supply glut by, in some cases, diverting product to unlicensed market channels at significant price discounts, which is only further fueling the consumer demand shift. As a reminder, WM Technology provides software and services to operators that have licenses required in their jurisdiction. Given that, the consumer demand shift to non-licensed operators has a direct impact on our business client base. A number of our clients struggled during the quarter as a result of this demand shift, and our priority was on meeting them where they were. We simplified the process of creating promotional deals on Weedmaps, allowing clients to target users seeking promotions with higher velocity. We introduced self-serve ad tools in several additional markets to allow our clients an easier setup process to run more targeted ad campaigns across our platform. We drove wider availability of menu and orders integrations with third-party point-of-sale providers, to ensure easier menu setup and orders and WM store enablement so that clients can more easily convert user traffic to transactions, whether it be on the Weedmap site or on their own owned and operated domains. The orders integration also greatly simplified workflows for retailers by directly inputting the orders into the retailer's point of sale. We expanded our cost per click or CPC pricing tests in additional markets to enable more performance-based buying options for our clients. These are just some of the examples of the efforts we took to maximize demand and traffic for our clients in the current environment. And again, as I mentioned at the outset, a lot of these changes are intended to both capture and reap the benefits now, but also position us incredibly well for when federal legalization comes. On the user side, we continue to drive improvements in the Weedmaps user experience by increasing the accuracy of menu and product information across our marketplace and surfacing deals and promotions in more intuitive ways for end users. We enabled online order ahead functionality in our iOS app within days of Apple lifting these app store restrictions. We launched our second annual Best of Weedmaps marketing program heading into Q3, recognizing retailers who meet quality thresholds and delivering great shopping experiences on Weedmaps with nearly 100% increase in retailer clients being recognized for excellence in user service, providing a win-win for both our users and in recognizing clients. While it's difficult to predict whether the in-market dynamics we saw in Q3 have bottomed out, we remain more bullish than ever in our growth opportunities and strategic positioning to capture both user and client-driven growth. Many industry observers have sized cannabis as a $20 billion to $25 billion license market in the U.S. today. However, these are the same observers that note that license demand is only a fraction of the total market. It's rare to have such a visible, total addressable market where growth is not only a function of new consumer demands, but also shifting existing consumer demand across channels. This total addressable market will get unlocked with the continued license issuance and new market openings, which are questions of when, not if. We're at the forefront of accelerating this demand shift to license markets through our policy efforts. Our government relations team continues to work towards expanding the market through efforts at both the state and local levels to liberalize license issuance, enable delivery, and reduce irrational restrictions on how our clients can operate. Based on this policy work, we still believe there is significant license issuance to come in our existing markets. My confidence in capturing outsized growth also rests on the outsized ROI that we continue to provide to our clients versus other user acquisition channels. This quarter's performance is clear evidence of that dynamic. We grow our average revenue per paying client by close to 20% year-over-year, along with the 46% year-over-year revenue growth I noted earlier in the U.S. and in the face of the slowdown. As we look towards unlocking long-term growth across these markets, our ability to capture this growth has only increased with the investments we've made this quarter and the capabilities we're building. We're investing ahead of the key East Coast state openings, places like New Jersey and New York, with on-the-ground efforts through our social equity workshops and work with local cannabis associations. We're also seeding awareness of the Weedmaps brand with consumers through efforts like the Kevin Durant partnership that we announced in August. This is also in addition to us expanding the pace of our hiring of employees located in East Coast markets. We're incredibly focused on expanding our business with client segments such as multi-state operators and brands, groups that have traditionally had outsized presence on the East Coast and yet remain underserved segments of the WM business suite. These clients are looking for ways to maximize their presence with consumers, improve the ability to quantitatively understand their operations, and reduce their operating and compliance costs. MSOs we speak with are seeking a one-stop shop to optimize their return on investment across all marketing channels, leveraging data and providing ways to retarget their users. They need the bespoke tech solutions to handle complex integrations across disparate systems as a result of consolidating acquisitions of multiple retailers and trying to change back office workflows. Brands we speak with are looking for ways to go direct to consumer to tell their brand story. They want to spend scalably and compliantly across the limited marketing channels available to cannabis businesses and consolidate that spend with one versus multiple vendors. They demand analytics and tools to measure the effectiveness of their marketing campaigns. They need better data and insights to improve how they target businesses and consumers. To meet these needs, WM Technology has been developing capabilities based on client feedback and are incredibly excited to begin piloting these solutions in Q4. We've developed a pilot program for clients seeking full-service multi-channel solutions spanning both Weedmaps and off Weedmaps channels. As many of you know, marketing today in cannabis is extremely burdensome given compliance that can change from region to region. fragmented and incomplete data sources that don't talk to each other, and multiple channels to manage. With this program, we're aiming to accomplish three goals. First, we're leveraging our first-party consumer data and market sales data to help reduce and defriction the burden on cannabis retailers attempting to reach shifting consumer bases or specific consumer segments. Second, we're using this offering to establish ourselves as a consultative marketing partner to larger enterprise clients who are seeking this type of service model. And third, most importantly, We're creating a natural onboarding ramp for clients onto our loyalty and CRM solution, as well as for future data analytics offerings. In Q4, we'll be piloting this new initiative with a handful of enterprise-level clients in both the U.S. as well as Canada as we restart monetization in that region. We also will begin beta testing some of our new brand solutions in Q4. While there are thousands of cannabis brands, this client segment at less than 5% of our revenue is a largely untapped opportunity for WM Technology. Our new offerings will provide an array of tooling for brands to easily, effectively, and actionably market their catalog to consumers, receive data insights on the market and category performance to allow them to make real-time decisions on supply and demand management, and also access targeted messaging and user retargeting functionalities. In addition to these tools, we're working towards a partnership with Cookies co-founder Berner to launch a social app in the first quarter of next year that will focus on connecting cannabis consumers and brands. Given the restrictions on cannabis content currently enforced by mainstream social media platforms, we believe this partnership with Berner will not only be a great experience for our users, but a tremendous opportunity for brands, and for that matter, retailers, to effectively tell their story and connect with loyal cannabis consumers. Our ability to pilot these new solutions and bring them at scale to the market wouldn't be possible without the investments we've made this quarter. We continue to invest heavily in headcount across our regional go-to-market teams and and within our engineering product and design teams with over 75 new hires in Q3. As I noted last quarter, we're continuing to see dialogue from integration partners lead to opportunities to strategically deploy our balance sheet and pull forward growth. To that end, I'm incredibly pleased to report that we closed on some key acquisitions this quarter. We previously announced our acquisition of Sprout, which is an all-in-one CRM and targeted messaging solution that we're now offering as a premium upsell to our WM Business subscription. In September, we also signed and closed on the acquisitions of Canvea and Cancurrent. Canvea is a premium logistics compliance software solution that not only facilitates compliant fulfillment of delivery orders, but also helps handle complex workflows like dynamic delivery, sometimes referred to as ice cream truck model, which is currently a huge pain point for many delivery operators. Cancurrent is a service that builds custom integrations and connectors across different tech solutions based on customized workflows. One way to think of it would be as a power tool to speed connectors in industry with a lot of complex, regulatorily driven integrations and APIs. Both Canvay and Cancurrent will be offered as premium upsells to WM Business as well. These acquisitions fill critical gaps in the WM Business solution set and allow us to better serve our existing clients and to better target the MSO and brand client opportunities I mentioned earlier. I also want to welcome the founders and teams of these businesses to WM Technology. They joined our company and are excited by the possibilities of scaling their businesses, leveraging our market presence, and our positioning with retailers and brands. In addition to these acquisitions, we've made several investments in our strategic integration partners to aid in product integration and go-to-market efforts. I expect we'll have more opportunities in the near term as we continue to be on the receiving end of inbound dialogue from businesses that are interested in the possibilities of being part of the WM business portfolio of solutions. We'll approach these solutions in a disciplined manner as we evaluate how we can drive inorganic growth for WM Technology. While our end markets remain fluid, what is absolutely clear is that the long-term opportunity for WM Technology has never been more tangible. And our ability to get after that growth has been pulled forward in multiple ways with what our teams accomplished this quarter. I'm consistently hearing feedback from clients that they're pleased by the direction WM is taking in doubling down on providing more professional and integrated solutions to help them run their business. We're investing behind things like our data lake and sophistication of our technological architecture to enable us to accelerate the pace of bringing products to market based on feedback from our clients. We're also increasing the pace of hiring for what was already, I believe, the largest engineering team for any technology company in the sector. We're continuing to build for the future state where federal regulations will not only open markets but also unlock ways for us to monetize revenue in ways that we simply can't today. And the conversations I'm having with our existing and potential clients point loudly and clearly to the role that WM Technology occupies in cannabis. We are the leading purchase-driven intent marketplace, and the demand for our solutions on the business side is stronger than it's ever been. With that, I'll turn things over to Arden, who will talk through our financial results for the third quarter.

Thanks, Chris. Our Q3 results reflect our focus on growing users accessing the WeMaps marketplace and clients subscribing to WM Business. as well as our focus on investing against our largest growth opportunities. In Q3, we generated total revenue of $51 million, an increase of 9% versus the prior year period on a reported basis, and 46% when adjusting last year's third quarter to exclude Canada revenue given the reset we completed in Q4 of 2020. We drove healthy growth across our operating metrics with 37% year-over-year growth in monthly active users accessing the WeMaps Marketplace and 28 percent when excluding users attributed to the Learn section of our website, which we didn't track in the prior period. Within the U.S., we achieved 24 percent year-over-year growth in average monthly paying clients and 18 percent year-over-year growth in average monthly revenue per paying client. As I spoke to you last quarter, we've seen a slowdown in consumer spend within license channels throughout this year versus the peak volumes achieved in Q3 of 2020. And as Chris mentioned, we saw a deceleration of consumer demand within license channels across a number of our primary markets in the back half of the third quarter, which impacted our ability to drive higher levels of revenue per client growth as we exited Q3 versus the expectations we had. California, which is our largest market at just over 60% of revenue, had lower end market retail sales in Q3 versus Q2 of this year. We believe that deceleration was a result of consumer demand shifting from licensed to nonlicensed channels as producers offloaded excess inventory to deal with the supply glut, resulting in significant price differentials between licensed versus nonlicensed channels. Further adding to this shift is the failure of new license issuance to keep pace at the level required to adequately serve consumer demand within licensed channels. With that said, our ability to grow revenue per client on a sequential quarter-over-quarter basis in light of these end market dynamics is testament to the power of our operating model and the ROI we deliver to our clients. We continue to drive consistently higher levels of monetization across our client base the longer our clients stay on our platform, with our new client cohorts entering the system at higher levels of spend than our prior cohorts. It's also worth noting that despite the increases in our revenue per client metric, we remain one of the most cost-efficient channels for cannabis businesses to reach consumers and engage them to transact. Moving down to P&L, our Q3 gross profit of $49 million implied a 96 percent margin rate, which reflects 50 bps of margin expansion versus last year and slight expansion versus last quarter. While we've previously spoken about our expectations for gross margin contraction over time as we expanded to new growth areas, our ability to maintain margins during Q3 in this environment also speaks to the power of our operating model. Our reported operating expenses after cost of revenues and prior to DNA expense came in at $44 million for the quarter. Our reported OPEX includes $4 million in stock-based compensation, and $1 million in additional non-recurring charges related to the Sprout, Canvea, and CanCurrent acquisitions. More information on these charges will be available in our 8K and 10Q. Excluding these items, our adjusted OpEx for the quarter came in at $38 million, or a 40% increase versus last year. In Q3, Our sales and marketing OPEX prior to stock-based comp was $12 million, which represents 64% year-over-year growth, driven by increased headcount in our regional teams, sales leadership, and sales enablement teams, as well as strategic marketing investments. Our product development OPEX of $6 million, also prior to stock-based comp, represents a 15% year-over-year decline. But just a reminder that we began capitalizing new product development work in Q3. So our reported product development OPEX excludes $3.7 million of capitalized software development costs during the quarter. Our G&A for the quarter was $20 million prior to stock-based comp and advisory fees paid related to our acquisitions. And that represents 56% year-over-year growth, primarily driven by new costs that we incurred as a public company, such as D&O insurance. Again, all this detail is available in our 8K. We also recognized $2 million of bad debt expense within our G&A for the quarter, which is an extraordinarily high level for us versus prior quarters, but is reflective of some of the challenges that our clients have been having in dealing with the consumer demand shifts that impacted end market growth. As a result of the above, our adjusted EBITDA was $10 million in Q3, or a 20% margin rate. Our adjusted EBITDA reflects a decline versus a year ago as a result of the OpEx investments we made during the quarter, as well as the public company costs mentioned above. Again, a reminder that our adjusted EBITDA is prior to $6 million in non-cash costs comprised of stock-based comp and the advisory fees we paid related to the acquisitions we completed. A reconciliation of adjusted EBITDA to net income is provided in our earnings release. Our reported net income was $49 million, which includes a $46 million change in the fair value of our warrant liability resulting from the change in our accounting following the SEC statement earlier this year regarding accounting for these types of warrants. As I noted last quarter, we have an up-sea transaction structure, which is why we report net income as well as net income and EPS attributable to WM Technology, Inc., With our up-sea structure, we have unit holders in our operating entity, WM Holding Company, in addition to shareholders in our publicly traded entity, WM Technology, Inc., which results in several classes of shares that comprise our share count. As of September 30th, we have 65.7 million outstanding shares of Class A common stock, which have voting and economic interest in WM Technology, Inc., and include shares that we issued to the founders of the recent acquisitions I spoke to earlier. We also have 65.5 million Class V shares outstanding, which have voting interest in WM Technology, Inc., but no economic interest. These V shares are paired with units that hold economic interest in our operating entity, and those paired share units are exchangeable one-for-one into shares of Class A common stock. We have an additional 25.7 million outstanding units in our operating entity, 23.2 million of which are vested as of September 30th, held largely by current and former employees that can also be exchanged into shares of Class A common stock. Finally, as you can see in our filings, the company adopted an equity incentive plan, and as part of that plan, we have about 243,000 vested restricted stock units. Our basic share count is the sum of those four share types and totaled approximately $155 million as of September 30th. We separately have another 19.5 million public and private warrants with a strike price of $11.50 that would be included on top of the 155 million basic shares when calculating a fully diluted share count. More information on the basic and fully diluted share count as of September 30th can also be found on our investor relations site. We ended the quarter with $78 million in cash and continue to be debt-free. Our business continues to generate significant cash flow. And in the third quarter, we generated $9 million in cash flows from operating activities. Our primary uses of cash during the quarter went towards funding the cash portion of the purchase price of our SPOUT and Canvea concurrent acquisitions. As Chris noted, we continue to be on the receiving end of promising inbounds from integration partners who are weighing their strategic options. And we continue to have active dialogue on bolt-on opportunities that could accelerate our growth priorities. I'll now turn to our financial outlook. As I noted on last quarter's call, 2021 has been a dynamic year for the cannabis industry and our end markets, with new states opening and licenses flowing, but on a slower cadence than the industry would like to see. Adding to these uncertainties are the consumer demand shifts from licensed to non-licensed channels as producers work through the supply glut in light of the slower growth that we've seen this year versus last. Given these dynamics, we think it's prudent to revise our outlook for Q4 revenue and adjusted EBITDA. We currently estimate Q4 revenue will be in the range of 50 to 52 million, which implies year-over-year percentage growth of low to high teens on a reported basis and high 20s to low 30s growth in the U.S. alone. Our Q4 revenue range implies full-year revenue for the year in the range of 189 to 191 million, which represents year-over-year percentage growth in the high teens on a reported basis and mid-40s for the U.S. alone. On the investment side, we are accelerating investments in Q4 as we look towards next-year growth opportunities and new market openings. We are working towards the integration of the Sprout and Canvea concurrent platforms as we look to scale both solutions in 2022. Our early progress has been strong as each of those companies came with entrepreneurial management teams. And we're continuing to aggressively hire new headcount across our regional revenue and engineering product and design teams to support the focused growth priorities we have heading into next year. Our outlook for Q4 adjusted EBITDA reflects our revenue guidance and expected level of investment, resulting in an adjusted EBITDA range of $3 million to $5 million for the quarter or $30 million to $32 million for the full year. This represents a margin rate range of mid to high teens for the full year. We fundamentally believe that the dynamics leading to our Q4 outlook are moment in time impacts that will normalize as we look to 2022 and beyond. We're currently working through our annual operating plans and will provide more detailed guidance for 2022 on our Q4 earnings call. With that said, I'd like to share some initial thoughts on our outlook. Based on our planning work to date, We expect to drive year-over-year revenue growth in 2022 that's in the high 30s on a percentage basis, which is well in excess of current industry expectations for end market growth. We plan to accelerate investments next year in support of the client-driven growth opportunities that Chris spoke to earlier, but we'll maintain cost discipline across other areas that aren't points of strategic differentiation for us as a company to enable continued positive EBITDA and cash flow generation. Our confidence in our growth outlook is a direct function of the client conversations we're having, the market opportunities for WM Tech that we are seeing, the ongoing planning by our teams, and the investments we're making today that will allow us to capitalize growth in 2022. Our confidence in our growth is also a function of a long-term opportunity we have across our end markets. Our existing U.S. states where we do business continue to be understored with just under 9,000 licenses today. We believe this number will grow by at least another 9,000 licenses to reach minimum levels of appropriate density, which we define as one store per 10,000 residents. And that growth is just within our existing states. If the entire U.S. achieves that level of minimum acceptable store density, today's license count will grow by a factor of 4X. As Chris noted, this growth is not a question of if, but when. And while license issuance has been more sporadic than we'd like to see, we're leading the change through our policy efforts to accelerate issuance, increase retail density, and drive a functioning and thriving licensed cannabis economy in the U.S. These factors provide a long runway of growth opportunities for WM Tech, both in 2022 and beyond. With that, I'll now turn the call over to Chris for some concluding remarks.

Thanks, Arden. Before we go to the Q&A session, I'd like to comment on the unique opportunity the WM Technology leadership team and I had on October 12th to ring the opening bell at NASDAQ. It was an especially meaningful moment as our industry reflects on how far we've come over the last 50 years since President Nixon first declared the infamous war on drugs. It also served as a reminder of the road we have ahead of us. Throughout our 13-year history at Weedmaps, we have worked to not only be a leader in the cannabis technology and solutions space, but but to also lead the way as a socially driven company working to help end the war on drugs and the numerous social harms that it's caused. And while we have a long way to go in terms of record expungement, license issuance, and states to actually allow the will of their voters and open up medical and recreational use, this year has been an historic one for the industry on many levels. Just last week with the news of the State's Reform Act, we now have the potential for debate on legislation from both sides of the aisle in Washington. As we head into 2022, I'm optimistic of the progress we have made as a country and of the great things ahead for our industry. I'd like to thank everyone again for joining us today, and we'll now open up the line for your questions.

Thank you. Ladies and gentlemen, to ask the question, you will need to press star then one on your telephone. To withdraw your question, press the pound key. Again, that's star one to ask the question. Please stand by while we compile the Q&A roster. Our first question comes from the line of Andrew Carter. Mr. Stiefel, your line is open.

Hey, thanks. Good afternoon. I wanted to ask, so I think you're laying out pro forma 28, 33% growth in the fourth quarter, accelerating the high 30s next year. I guess could you, with that kind of acceleration and knowing that the industry in markets, at least your primary, are still going to be tough, what gives you confidence in that on the one side? And if I could also ask, with the two acquisitions you made, any kind of insights and what that can mean into revenue per client growth as a tailwind next year? Anything to help us there on kind of giving confidence in the revenue for next year?

So this is Chris Beals. I'll take the first part of that question. I mean, I think in terms of confidence and where things are going, I think one thing is really interesting is that I think what we're exhibiting are a number of counter-cyclical elements to our offering of solutions. So we've outperformed sort of what we've seen in the end markets fairly materially, and we expect to be able to continue to do so. I think the other thing is when you look at the go-forward, I think there's really two elements to what sort of dictates this sort of softening in cannabis-licensed businesses. I think one is there are structural fixes to it, and that's sort of more licenses being issued. That's the single biggest thing holding back scaling of the license industry. Most state legislatures are out of session right now. Local governments are kind of in the holiday period. So that has a slightly longer time period to it. You'll expect legislatures to come back sort of in Q1 into Q2 of next year and then licenses to issue out from there. Obviously, there are exceptions for jurisdictions already in movement, but Then there's behavioral shifting, which can happen on a shorter period. And one of the biggest things that we offer is one of the most cost-effective ways for cannabis businesses to effectively reach in consumers, drive sales, that sort of thing. And so I think part of what we're seeing is cannabis businesses during these leaner times start to switch or move spend to areas where they're going to get the highest yield and the highest efficiency. And I believe our marketplace side of our business represents that. The other piece is with the business solution side, especially as augmented by Sprout, by CanCurrent, by Canvea. When you look across our business suite, that really goes to the heart of how do you do key compliance and sort of business efficiency outcomes in a cost-effective, low-labor way. And so, again, that's something that really solves this pain point for these end businesses. So I take a lot of comfort in that, and then I also take a lot of comfort in the fact that I think we alluded to a small chunk of the things we have in pipeline. I think we have what I believe to be maybe the largest technology team servicing the cannabis sector. We've had one of our fastest quarters of hiring ever in the history of the company. And so the pace and speed of our offerings bringing new things to market is only accelerating. We have a number of interesting things in beta, some of which we talked about just a bit ago. And so that's where I get a lot of my confidence from. I think for the second part of the question, maybe I'll flip that over to Arden.

Arden Jones- Yeah. And, Andrew, in terms of the dynamics that you highlighted in terms of implied year-over-year revenue growth in Q4 and into next year, obviously Chris went through a lot of kind of what gives us confidence. I'd also just note that as we've been working through our plan, specifically around some of these opportunities that we noted on the call earlier, we have a lot of confidence around areas where we're underpenetrated today, right? We still have a lot of licensee share that we can get after. We have client segments that are big parts of the industry that want to work with us, that we want to lean into in terms of new product-driven strategies to get after those opportunities. And so that drives a lot of our confidence as well. Now, specifically around the question that you asked around Sprout and Canvea concurrent. Listen, we haven't provided a lot of financial disclosure around those acquisitions, but here's what excites us about both transactions, which is these are capabilities that fill meaningful opportunity sets within WM business, right? So we now have a CRM solution where what I'd say is with the existing Sprout client base that they had, and granted their client base in terms of what came over versus where we are as a company is just a fraction of what we bring to the table. But with those clients, they're averaging about, let's call it, $1,000 per month in spend. You look at what on the Cambria concurrent side, again, very small client footprint that we inherited, product market fit across all the regions where we do business. Their clients were spending on average in the kind of 500 to 700 area per month, right? And so when you think about both solutions, these are add-on opportunities that solve pain points for our clients that represent incremental revenue per client opportunities for us heading into next year.

That's helpful. Second, I wanted to switch gears a little bit and just kind of talk thematically about kind of where the industry is. We've seen the private flows, the two private rounds, the big ones, the 100 million raise and the $350 million raise, as well as we've seen some companies try to go the SPAC route. So I guess I just ask that is like part of the thesis here is to be attractively positioned to build versus buy companies. Does this latest activity, the enthusiasm in the private markets, perhaps the irrational approaches of the SPACs concern you or contribute, you know, in your conversations to any, like, stars in their eyes, lofty expectations from potential sellers?

Yeah, I think that's, you know, I think as you well know, there's a pretty big delta between public market valuations and private market valuations. And I think a lot of cannabis operators who are privately held and who could be targets for us are pretty keenly aware of that. But the thing is, and this is something we bring to the table that's incredibly unique, is for a lot of these businesses, a lot of the excitement with coming under the Weedmaps umbrella is the size, the speed, and the sophistication of our tech team, and the fact that we can get the PMI, the post-merger integration, after a transaction done quickly, and they can start to see traction with their products, sort of seeing their businesses thrive and grow, and then the synergies from interconnecting their software with ours. You know, the type of folks or the type of targets we look for are lean, hungry, sort of founder-led companies that have fast growth and really, I think, sophisticated technology. And those are the type of people who are drawn to how can I solve hard problems, how can I scale quickly, and that's really a unique fit for us and why we're such an attractive landing spot for companies like that. I think, yeah, it's natural for folks to look at some of these kind of zesty private valuations, but we hear a healthy amount of skepticism about, you know, whether those numbers are real or not. And separately, I think a lot of these businesses at the end of the day are really focused on if I come, if I join WM Technology, is this a partnership and is my sort of my baby going to thrive and that the technology they've made, the product and the offerings. And I think In that regard, I think the pace, I'd be remiss if I didn't say the pace of the post-merger integration and sort of the product iteration and integration of Canvea, Cancurrent, and Sprout, since we've acquired them less than just a few months ago, has been, frankly, breathtaking. I've been quite happy with it, and I think that's exactly the type of thing that good acquisitive M&A companies or M&A-focused companies can do.

Thanks. That's great perspective. I'll pass it along.

Thank you. Our next question comes from the line of DJ Hines with can accord your line is open.

Hey, thanks, guys. I appreciate all the color. Let's unpack here. I'm gonna start with art and then a follow up for Chris, I kind of a blunt question on the numbers. But look, do we need to see a change in the consumer demand environment for you to hit the preliminary view you laid out for next year?

Yeah, so for us, we don't think about it as needing to see a change in the consumer demand environment. Again, our view is that consumer demand remains very strong. It's a matter of kind of behavioral shifts across different channels. A lot of that tends to be based on the data that we're seeing and the client conversations that we're having, very much a moment in time type aspect. The other thing to keep in mind is, listen, we're continuing to see license issuance. What encourages consumer demand across license channels is more retail density. We had a lot of license issuance earlier in the year. We didn't see as much as we would have liked to have seen over the last quarter. But as folks get back in the new year and into legislative sessions, we fully expect to see more of that come our way, and that in and of itself will drive more consumer demand across license channels as well. The other thing I'd say is for us, as you think about our solution set, one of the things that we noted on the call is the fact that our clients You know, with the margin performance that we saw, with the client growth that we saw, we still have clients that want to maintain presence on the platform. It's critical for clients to be very visible with consumers right now. And so while they haven't been spending, in terms of rep or client, as much as we would like to see, we're still seeing clients very much wanting to maintain a visible presence on WeMaps to get very front of mind with the consumer.

Yeah, yeah, top four color. And then Chris, a follow up for you. I'm just wondering if you can kind of compare and contrast your expectations for the new markets that are coming online in the East Coast versus, you know, a market like California where you've been, you know, super successful, right? I think you touched on, you know, MSOs and brands being an important part of the strategy. Can you just maybe double click on the investments you're making there and what needs to happen for weed maps to be successful in these new markets?

Yeah, so, I mean, I think, to be honest, I think while people might tend to focus on California, we've been incredibly successful in a number of other markets across the U.S., and I think the East Coast markets probably won't fall cleanly in the paradigm for a single other market, and that's normal. That's what we see everywhere. So we've been investing fairly heavily in physical on-the-ground presence in the East Coast and also teams that are dedicated to just the East Coast. The other piece is I think if you kind of see a common thread in some of these acquisitions we've done and how the portfolio is positioned, these are very much sophisticated offerings for more distributed, sophisticated players. And so I think that's an intentional targeting of kind of the enterprise segment where they might be big, but their tech stack is often messy and convoluted. And that's exactly where we can come in both by building to what they have as well as inserting parts of our solution set. And so, you know, that's how we think about that. But it's worth noting that New York, New Jersey, Massachusetts, and a number of these other states all have social equity programs that they'll be rolling out. And those programs, as they've rolled out in other states, have almost entirely been SMBs. We're seeing Illinois on the cusp of issuing those licenses. And so, you know, I think what we've seen in the past, which is these are very sort of large, sort of limited number of operator markets, I don't think will continue to be the case going forward, or I feel fairly confident of that. It's just a question of the time in which those new licenses roll out, given things like local control and that sort of thing, which is what we face in a number of other existing markets. This is a common sort of paradigm that plays out in each market. But so, yeah, part of it is our portfolio, what we have. Part of it is the investments we've made in putting boots and feet on the ground, and then the other part is an added emphasis on the client types that are currently prevalent there and then making sure we continue to be responsive to the new clients that do enter the market. Yeah, super helpful. Thank you, guys.

Thank you. Our next question comes from the line of Tom Champion with Piper Sandler. Your line is open.

Thanks, guys. Good afternoon. Chris, you sound palpably more positive on the long term. I appreciate the comments. I'm wondering if you could just spend a little more time on the demand shift to non-licensed channels. Just curious, when you started to see this impact emerge in the quarter, I mean, the third quarter ended up more or less in line with our expectations. Is it correct to think of this as Mostly a 4Q impact. Curious if you could size it, guesstimate it, and any thought on how long it will take for the market to kind of normalize or, you know, is this a one-quarter impact, one, two, three? Just any thought around that would be helpful. Thank you.

Yeah, so I think one thing that aids us in sort of being able to observe and see these things is given our distributed reach and the fact that we offer fairly ubiquitous tooling everywhere is that we get to see the data and sort of what the data shows ahead of a lot of folks. And I'd say kind of coming out of Labor Day, we started to hear some rumblings and see a little bit of stuff in the data kind of indicating that it felt like sort of consumer sort of volumes were softening. On the flip side, I think as you saw in the numbers we had, you know, you start to see increased gapping of our performance exceeding what we were seeing on the ground. I think that's, again, representative of sort of our ubiquitous nature, but also the fact that, you know, we've been doing a lot of work to sort of aid consumer ease, product discoverability, the iOS app coming on. But, you know, so I think for retailers, I think really what we were seeing and what started to seem to play or what started to play out was, some product getting diverted into the illicit market from legal channels up supply chain, and sort of consumers starting to see, I think, similar quality product at a cheaper price in a different place. However, the thing I would note is I think that there are behavioral shifts that are starting to counteract this and that we'll start to see sort of occurring out periods. You know, I think one is just being honest. I think a lot of cannabis businesses weren't extremely tight and ROI focused or ROAS focused on their marketing and ad spend. And I think that naturally you'll start to see them look to what's the most efficient way that I can attract and obtain consumers. You know, I think a lot of operators didn't spend a lot of time educating consumers on why they should come to the legal market versus the illegal market. And so these are things that you start to see businesses react to. I think in terms of the out periods, I think As I alluded to before, probably the closest thing to a silver bullet for this is more retail licenses. A lot of what drives this is just not enough retail channels to handle the supply that's being produced, but then also the fact that it's inconvenient for a consumer to drive a long distance or have limited selection because there aren't enough retailers. That will take some time to solve, but these behavioral shifts will happen more quickly. I think... You know, this story varies from state to state. I think there are some states that have performed better than others, but we'll see them kind of continue to act. So I don't think overnight this is going to resolve itself, but I think that you have a number of factors that are moving towards sort of solving it. And we've seen, you know, temporal periods of this happening in the past. I think, frankly, when California made the transition to the Prop 64 adult use regime, it took time for things to settle out. And I think this this too will settle out in a similar fashion. It's just a matter of sort of those steps being taken.

Got it. That's really helpful.

Thank you. Our next question comes from the line of Pat Walraven with JMP Securities. Your line is open.

Hi, this is Aaron Kimson. I'm for Pat. First off, I want to touch on the opportunity in Canada. Is the plan there still to begin remonetizing clients there this quarter or early next year? And secondly, can you talk about the changes you've seen in the Canadian marketplace over the last year as well as further changes that may make it a more fully functional market?

Yeah, so I think we're piloting some stuff around multi-channel marketing, but then also more performance-based ads and that sort of thing that should be better tailored to the Canadian market. I think one of the things that was interesting in the Canadian market, and obviously we have a team that's on the ground there. We've had a long-standing sort of physical presence in Canada, and so we've been working closely with a lot of the folks there. I think it's been tough because What a lot of people weren't expecting was Canada pulling back on the allowance of sort of curbside pickup and delivery, and those convenience factors made a big difference, especially in Ontario where you could get that from the provincial stores. I think you're starting to see a more skeptical look at the fact that the provincial sort of regulators are deciding what products stores may carry. So I think that we'll start to see a change on the delivery piece first, and then I think we'll start to see a change on the other pieces later. There are no two bones, not mincing words. I think the Canadian market is in a difficult place right now, and I think that there are a lot of folks thinking about how they're going to fix that. But I think at the end of the day, as you look at the number of retailers increasing and them needing to sort of think more creatively of ways to reach consumers, that's really a problem that our platform and the fact that we're a software provider and can move fairly nimbly is designed to solve. But that being said, I think that... To get back to your question, yes, we are sort of beginning the first steps towards monetization in Canada again this quarter, but I'm really hopeful and we're doing work to see what we can do to try and sort of help solve the broader systemic problems in Canada that are hindering the market from functioning as well as it could. Great.

Thank you very much.

Thank you. As a reminder, ladies and gentlemen, that's star one to ask the question. Our next question comes from the line of Conor Passarella with Troy Securities. Your line is open.

Hi, Chris. Hi, Arden. Conor here on for Terry. Thanks for taking my questions, guys. Just wanted to start with one on legalization regulatory. So there's been several new state legalization bills announced, South Dakota, Maryland, Ohio, just to name a few. Which announcements over the last 90 days do you think are most important for MAPS?

Yeah, I think... For me, the ones that jump out are, for instance, with Governor Cuomo leaving in New York, them making steps to get sort of a cannabis commission and sort of that cannabis infrastructure back in place. I think with him stepping down, a lot of the cannabis or sort of people who are going to be tapped to be regulatory folks for cannabis kind of left with him. And so I think there's been some really interesting movement with New York moving to sort of – rebuild that infrastructure under the new governor. Uh, I think in terms of, uh, what Maryland's doing, I think there's some promise there. Maryland's always been a very strong market for a medicinal market. I think they've needed, uh, a bit more on the retail, uh, density side. Uh, but there's been fairly robust consumer demand, uh, and they've been, I think responsive to, uh, consumer convenience requirements. Uh, I think we'll see Maryland move, uh, a bit more speedily because the folks there are looking to Virginia to the south and New Jersey to the north. And I think realizing the fact that if they don't sort of move towards recreational and adult use and things like that, that consumers will simply just cross state borders and move to get that. So I think that's one to really keep a close eye on. Separately, I think, by all indications, I think New Mexico is is moving from the legislative phase to the kind of the implementation phase in a good, rapid pacing. And then separately, Montana had a pretty draconian set of laws that I think were really meant to somewhat cripple the adult use market, and those were stripped away in cleanup legislation. And so I think you're going to see a normalized market start to emerge there, which will be really good.

Okay, great. Appreciate the color there. One quick follow-up for me. I know you spoke a little bit about it before, but how has the iOS change of allowing in-app orders affected order volumes thus far, and do you have any updates around the Google Play Store potentially making similar changes?

Yeah, I'll split this with Arden. I'll take the Google Play piece. On the Google side, behind the scenes, we work closely with Apple around that policy change and also around sort of our app being able to be in the App Store. I think unlike sort of apps for sort of single retailers or sort of more niche small players. Just given the volume of retailers and brands that are on the site, I think we had to work to show that our vetting and compliance processes to ensure folks were licensed were up to snuff. I think on the Android or the Google App Store side, I think there – I think they've been a little bit more liberal on things that nod towards ordering and kickouts, but in terms of allowing in-app ordering, it doesn't feel like anything's happened quite yet there, but we continue to sort of work with our counterparts there to see what we can get done. In terms of the second party, or what was the first part of your question? Yeah, I can take that.

Yeah, so listen, we don't disclose actual order volume, but here's what I'd say is we saw a meaningful increase increase in, for example, iOS app downloads as a result of the changes that we made to the tune of what's called high teens on a percentage basis month over month. As you might imagine, we've seen pretty healthy order volumes correspond with that, and so that's been pretty encouraging for us as we think about sending more kind of traffic on behalf of our clients during this operating environment that we're in.

Great. Thank you, guys.

Thank you. I'm sure no further questions in the queue. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone have a wonderful day.