WM Technology(MAPS) - 2023 Q2 - Quarterly Report

Part I - Financial Information Item 1. Condensed Consolidated Financial Statements This section presents WM Technology, Inc.'s unaudited condensed consolidated financial statements, including Balance Sheets, Statements of Operations, Equity, and Cash Flows, with detailed accounting policy notes Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $47,264 | $54,983 | | Total Assets | $188,742 | $199,035 | | Total Current Liabilities | $32,597 | $46,323 | | Total Liabilities | $68,268 | $84,258 | | Total Stockholders' Equity | $120,474 | $114,777 | Condensed Consolidated Statements of Operations Highlights (in thousands) | Account | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $50,852 | $58,294 | $98,859 | $115,746 | | Operating Income (Loss) | $3,783 | $(13,018) | $(365) | $(27,278) | | Net Income (Loss) | $1,983 | $19,848 | $(1,986) | $(11,385) | | Net Income (Loss) attributable to WM Technology, Inc. | $1,226 | $11,692 | $(1,249) | $(2,201) | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $4,092 | $(3,814) | | Net cash used in investing activities | $(5,806) | $(10,267) | | Net cash used in financing activities | $(2,266) | $(6,092) | | Net decrease in cash | $(3,980) | $(20,173) | | Cash – end of period | $24,603 | $47,604 | Business and Organization - The company operates a leading online cannabis marketplace (Weedmaps) and provides a comprehensive suite of eCommerce and compliance SaaS solutions (Weedmaps for Business) to retailers and brands[33][34] - The business model is based on monthly subscriptions for its core package (WM Listings, WM Orders, WM Store, etc.) and additional fees for add-on products like WM Ads, WM CRM, and WM Dispatch[35][38][39] - As of June 30, 2023, the company actively operated in over 30 U.S. states and territories, with a presence in Canada and non-monetized listings in several European countries[39][41] Summary of Significant Accounting Policies Disaggregation of Revenue (in thousands) | Revenue Source | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | | :--- | :--- | :--- | | Weedmaps for Business and other SaaS solutions | $11,286 | $12,973 | | Featured and deal listings | $35,401 | $40,595 | | Other ad solutions | $4,165 | $4,726 | | Total revenues | $50,852 | $58,294 | - The company determined in Q4 2022 that a full valuation allowance was required against its net deferred tax assets, which impacts the income tax provision. As a result, the company recorded zero income tax provision for the three and six months ended June 30, 2023[108][113] - The company's revenue is primarily derived from monthly subscriptions for access to its marketplace and SaaS solutions, with revenue recognized over the subscription term. Substantially all revenue was generated in the United States[88][96] Fair Value Measurements Warrant Liability at Fair Value (in thousands) | Warrant Type | Fair Value Hierarchy | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | :--- | | Public Warrants | Level 1 | $1,500 | $1,250 | | Private Placement Warrants | Level 3 | $910 | $840 | | Total Warrant Liability | | $2,410 | $2,090 | - The company recorded a non-cash loss of $1.0 million and $0.3 million for the three and six months ended June 30, 2023, respectively, due to the change in fair value of its warrant liabilities. This compares to non-cash gains of $32.2 million and $14.0 million in the same periods of 2022[146] Stock-based Compensation Stock-Based Compensation Expense (in thousands) | Period | 2023 | 2022 | | :--- | :--- | :--- | | Three Months Ended June 30 | $3,709 | $8,094 | | Six Months Ended June 30 | $8,092 | $15,611 | - As of June 30, 2023, total unrecognized stock-based compensation expense for non-vested RSUs was $28.8 million, expected to be recognized over a weighted-average period of 2.1 years[167] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, highlighting a 13% year-over-year revenue decrease for Q2 2023, driven by lower average revenue per client, while achieving operating income through significant expense reductions Key Operating and Financial Metrics Key Metrics Comparison (in thousands, except per client data) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | | :--- | :--- | :--- | | Revenues | $50,852 | $58,294 | | Net income (loss) | $1,983 | $19,848 | | Adjusted EBITDA | $10,227 | $(595) | | Average monthly revenue per paying client | $3,022 | $3,509 | | Average monthly paying clients | 5,609 | 5,537 | - Average monthly paying clients increased by 1% YoY for the three months ended June 30, 2023, primarily due to new client acquisitions. However, average monthly revenue per paying client declined due to reduced spending in established markets amid client liquidity challenges[210][213] Results of Operations Comparison of Three Months Ended June 30, 2023 and 2022 (in thousands) | Line Item | 2023 | 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenues | $50,852 | $58,294 | $(7,442) | (13)% | | Total operating expenses | $47,069 | $71,312 | $(24,243) | (34)% | | Operating income (loss) | $3,783 | $(13,018) | $16,801 | N/M | - Sales and marketing expenses for Q2 2023 decreased by $9.6 million (43%) YoY, driven by a $6.4 million reduction in personnel-related costs from lower headcount and bonuses[244] - General and administrative expenses for Q2 2023 decreased by $10.4 million (35%) YoY, primarily due to lower personnel-related costs ($4.9 million), insurance expense ($1.7 million), and professional services ($1.8 million)[246] Liquidity and Capital Resources Liquidity Position (in thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Cash | $24,603 | $28,583 | | Working capital | $14,667 | $8,660 | - Net cash provided by operating activities was $4.1 million for the six months ended June 30, 2023, a significant improvement from the $3.8 million used in the same period of 2022. This was despite a $13.5 million decrease in accounts payable and accrued expenses, which included an $8.5 million payout related to a prior acquisition[270][272][273] - The company believes existing cash and cash generated from operations will be sufficient to meet its anticipated cash needs for at least the next 12 months[267] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company states that this section is not applicable, indicating no material quantitative or qualitative disclosures about market risk are required for this reporting period - The company has determined that there are no applicable quantitative and qualitative disclosures about market risk to report for this period[293] Item 4. Controls and Procedures Management concluded that as of June 30, 2023, the company's disclosure controls and procedures were not effective due to a material weakness in IT general controls, with remediation expected by year-end 2023 - Disclosure controls and procedures were concluded to be ineffective as of June 30, 2023, due to a material weakness in internal control over financial reporting[294] - The material weakness relates to ineffective IT general controls (ITGCs) in user access and program change-management over certain financial reporting systems. This weakness did not result in any identified misstatements[295][296] - Management has implemented remediation measures, including removing direct production access for certain users and enhancing monitoring. The company expects remediation to be complete by the end of the year ending December 31, 2023[297] Part II - Other Information Item 1. Legal Proceedings The company is cooperating with an SEC investigation initiated after a voluntary report of an internal complaint regarding the calculation of its historical Monthly Active Users (MAUs) metric, involving subpoenas for information and testimony - The company is cooperating with an SEC investigation that began after it voluntarily reported an internal complaint about the calculation of its Monthly Active Users (MAU) metric[302] - The SEC's Division of Enforcement has issued two subpoenas for information and documents, and has also subpoenaed current and former employees for testimony[302] - The company states that the original internal investigation found no impact on its GAAP financial results or currently disclosed non-GAAP metrics[302] Item 1A. Risk Factors A key risk factor is the company's dependence on banking relationships, as financial institutions may be reluctant to serve businesses associated with the cannabis industry, potentially impacting financial services access - A primary risk is the difficulty in maintaining banking relationships due to the company's connection to the cannabis industry, despite not selling cannabis products directly[305] - Banks may be reluctant to serve the company because of its name and revenue sources, which could jeopardize payroll, client payments, and access to credit[306][309] - Recent actions by Visa and Mastercard to prohibit cannabis sale transactions on their networks could extend to cannabis-related businesses, potentially terminating the company's merchant processing relationships and adversely affecting business[309]