WM Technology(MAPS) - 2022 Q4 - Annual Report

Part I Business WM Technology operates a leading online cannabis marketplace and B2B SaaS solutions, connecting consumers with retailers and brands while offering businesses e-commerce and compliance tools - WM Technology operates a B2C online cannabis marketplace (Weedmaps) and a B2B suite of eCommerce and compliance SaaS solutions (Weedmaps for Business)[18][19] - The company's offerings include listing pages (WM Listings), ordering software (WM Orders), embeddable menus (WM Store), API integrations (WM Connectors), analytics (WM Insights), and various advertising solutions (WM Ads)[20][25] - The US state-legal cannabis industry was estimated to be between $25 billion and $30 billion in 2022 and is projected to exceed $70 billion by 2030[21] - As of December 31, 2022, the company actively operated in over 30 U.S. states and territories[26] - The company's growth strategy focuses on growing its two-sided marketplace, expanding in existing and new markets, enhancing its Weedmaps for Business solutions, and pursuing strategic acquisitions[35] - As of December 31, 2022, the company had 580 full-time employees, with 224 in engineering/product, 245 in sales/marketing, and 114 in G&A[50] Risk Factors The company faces significant business, legal, and operational risks, including potential unprofitability, federal cannabis illegality, and a material weakness in internal controls - Business Risks: The company may not achieve profitability as costs increase, is heavily concentrated in the California market (56% of 2022 revenue), and faces intense competition from companies like Leafly, Dutchie, and Jane Technologies[73][83][111] - Legal & Regulatory Risks: Cannabis remains a Schedule I controlled substance under U.S. federal law, with strict enforcement potentially undermining the business model, and clients facing challenges with banking access and unfavorable tax treatment under Section 280E of the Code[87][204][235] - Operational Risks: The company has identified a material weakness in its internal control over financial reporting related to ineffective IT general controls (user access and change-management)[187][407] - Financial Risks: The company has a Tax Receivable Agreement (TRA) which could require substantial payments for tax benefits realized, with potential acceleration in cases like a change of control[197][201] - Litigation Risk: The company has received two subpoenas from the SEC's Division of Enforcement following a voluntary report of an internal complaint regarding the calculation of its monthly active users (MAUs) metric[84][267] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[263] Properties The company maintains executive offices in Irvine and Los Angeles, California, and leases additional space in Denver, Colorado, deemed adequate for current needs - The main executive office is located at 41 Discovery, Irvine, California, with a lease expiring in 2025[264] - A second headquarter space is located in Los Angeles, California, with a lease expiring in 2031[264] Legal Proceedings The company is subject to an SEC investigation regarding its Monthly Active Users (MAU) metric, with an uncertain outcome that could lead to penalties - In August 2022, the company voluntarily reported an internal complaint and subsequent investigation regarding its Monthly Active Users (MAU) metric to the SEC[267] - The company has since received two subpoenas from the SEC's Division of Enforcement for information and documents, and several employees have been subpoenaed for testimony[267] - The company states it is fully cooperating with the SEC investigation, but the outcome is uncertain and could result in penalties, sanctions, or reputational harm[267][268] Mine Safety Disclosures This item is not applicable to the company's business - Not applicable[270] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's Class A Common Stock and Public Warrants trade on Nasdaq, with no cash dividends paid or anticipated, and details provided on outstanding shares and unregistered sales - Class A Common Stock and Public Warrants trade on Nasdaq under symbols 'MAPS' and 'MAPSW'[272] - As of March 10, 2023, there were 92,573,466 Class A and 55,486,361 Class V shares outstanding[272] - The company has not paid dividends and does not expect to in the foreseeable future[274] - No equity securities were purchased by the issuer or affiliated purchasers during the period[283] Management's Discussion and Analysis of Financial Condition and Results of Operations In FY2022, revenue grew 12% to $215.5 million, but the company reported a net loss of $82.7 million and negative Adjusted EBITDA, primarily due to tax provisions, warrant liability changes, and increased operating expenses Key Financial and Operating Metrics (2020-2022) | Metric | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Revenues (in thousands) | $215,531 | $193,146 | $161,791 | | Net (Loss) Income (in thousands) | $(82,651) | $152,218 | $38,830 | | Adjusted EBITDA (in thousands) | $(9,633) | $31,698 | $42,808 | | Avg. Monthly Revenue per Paying Client | $3,291 | $3,711 | $3,256 | | Avg. Monthly Paying Clients | 5,457 | 4,337 | 4,140 | - Revenue increased 12% YoY to $215.5 million in 2022, driven by a 26% increase in average monthly paying clients, partially offset by a decline in average monthly revenue per paying client[346] - Net loss for 2022 was $82.7 million, compared to a net income of $152.2 million in 2021, primarily due to a full valuation allowance against deferred tax assets, an unfavorable change in warrant liability fair value, and increased operating expenses[306] - Total operating expenses increased to $285.2 million in 2022 from $201.3 million in 2021, driven by higher Sales & Marketing ($26.5 million increase) and General & Administrative ($27.7 million increase) costs[344][348][350] - Cash and cash equivalents decreased from $67.8 million at year-end 2021 to $28.6 million at year-end 2022[360] - The company acquired Eyechronic LLC (d/b/a Enlighten) in January 2022 for approximately $29.4 million[331] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to foreign currency, interest rate, and inflation risks, but management currently deems these exposures immaterial to its financial condition - The company has operations in the U.S. and foreign jurisdictions, exposing it to foreign currency, interest rate, and inflation risks[393] - Exposure to foreign currency fluctuation is considered immaterial as related costs are not a significant portion of total expenses[394] - The company's portfolio is deemed insensitive to interest rate changes as it only holds cash, not cash equivalents or other investments[395][396] - Management does not believe inflation has had a material effect on the business, financial condition, or results of operations for the periods presented[397] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements, including balance sheets, statements of operations, equity, and cash flows, along with the auditor's report noting a material weakness in internal controls Consolidated Balance Sheet Highlights (As of Dec 31) | (in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | Assets | | | | Cash | $28,583 | $67,777 | | Total Current Assets | $54,983 | $98,934 | | Goodwill | $68,368 | $45,295 | | Total Assets | $199,035 | $365,144 | | Liabilities & Equity | | | | Total Current Liabilities | $46,323 | $37,800 | | Tax Receivable Agreement Liability | $500 | $128,567 | | Warrant Liability | $2,090 | $27,460 | | Total Liabilities | $84,258 | $233,204 | | Total Stockholders' Equity | $114,777 | $131,940 | Consolidated Statement of Operations Highlights (Year Ended Dec 31) | (in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | Revenues | $215,531 | $193,146 | | Total Operating Expenses | $285,153 | $201,324 | | Operating (Loss) Income | $(69,622) | $(8,178) | | Change in Fair Value of Warrant Liability | $25,370 | $166,518 | | Change in Tax Receivable Agreement Liability | $142,352 | $— | | Provision for (Benefit from) Income Taxes | $179,077 | $(601) | | Net (Loss) Income | $(82,651) | $152,218 | Consolidated Statement of Cash Flows Highlights (Year Ended Dec 31) | (in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(11,621) | $30,190 | | Net cash used in investing activities | $(17,768) | $(30,435) | | Net cash (used in) provided by financing activities | $(9,805) | $48,103 | | Net (decrease) increase in cash | $(39,194) | $47,858 | - The Independent Auditor's Report identified a material weakness in internal control over financial reporting related to ineffective IT general controls (user access and program change-management)[438][440] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants regarding accounting principles, financial disclosure, or auditing procedures - None[400] Controls and Procedures Management concluded that disclosure controls were ineffective as of December 31, 2022, due to a material weakness in IT general controls, with remediation efforts underway - Management concluded that disclosure controls and procedures were not effective as of December 31, 2022[401] - A material weakness was identified in internal control over financial reporting related to ineffective IT general controls (ITGCs) for user access and program change-management[407] - Specific control deficiencies included lack of segregation of duties, developers with administrative rights, and ineffective logging and monitoring of system changes[407] - Remediation actions are underway, including removing inappropriate access and enhancing monitoring, with completion expected before the end of 2023[408] Other Information The company reports no other information for this item - None[410] Part III Directors, Executive Compensation, Security Ownership, and Accountant Fees Information for Items 10 through 14, covering directors, executive compensation, security ownership, and accountant fees, is incorporated by reference from the forthcoming 2023 Proxy Statement - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the forthcoming 2023 Proxy Statement[413][414][415][416][417] Part IV Exhibits and Financial Statement Schedules This section lists all financial statements and exhibits filed with the Annual Report, including key corporate documents and material contracts, with financial statement schedules omitted - This section lists all financial statements and exhibits filed with the 10-K[419] - All financial statement schedules have been omitted because they were not required or applicable[421] - Filed exhibits include key corporate documents, material contracts, and certifications[422][423] Form 10-K Summary This item is not applicable - Not applicable[425]