WM Technology(MAPS) - 2023 Q4 - Annual Report

Explanatory Note Restatement Background and Internal Control Considerations Unaudited 2023 financial statements were restated due to improper revenue recognition and a material weakness in internal controls - The company discovered an inadequate policy for revenue recognition concerning cash collections from certain customers on a cash basis, leading to a material misstatement[10] - Unaudited condensed consolidated financial statements for the three, six, and nine months ended March 31, June 30, and September 30, 2023, respectively, were materially misstated and required restatement[10] - The error involved improperly recognizing revenue from cash receipts that should have been classified as credit loss recoveries[10] - Management identified a material weakness in internal controls related to the order-to-cash cycle, which caused the misapplication of revenue recognition policies[12] Part I Item 1. Business WM Technology operates a leading online cannabis marketplace and provides SaaS solutions to cannabis businesses in legalized U.S. markets - The company operates a leading online cannabis marketplace (Weedmaps) and a suite of SaaS solutions (Weedmaps for Business) for cannabis retailers and brands[23][25] - In December 2023, the company sunset its WM AdSuite, WM CRM, and WM Screens product offerings to focus on core marketplace and eCommerce products[32] - As of December 31, 2023, the company operated in over 35 U.S. states and territories, with substantially all revenue generated in the United States[33] Key Business Metrics (FY 2023) | Metric | Value | | :--- | :--- | | Revenue | $188.0 million | | Average monthly paying clients | 5,419 | - Growth strategies include growing the two-sided marketplace, expanding into new and existing markets, enhancing SaaS solutions, and pursuing strategic acquisitions[42][43][44] - The company faces competition from cannabis-focused tech companies like Leafly and Dutchie, as well as general internet search engines like Google and Yelp[45] - As of December 31, 2023, the company had 440 full-time employees and 19 temporary employees[59] - The U.S. government is moving to reclassify cannabis from a Schedule I to a Schedule III controlled substance, which could have significant but currently unknown implications for the industry and the company's clients[65][212] Item 1A. Risk Factors The company faces significant risks including declining revenue, California market concentration, federal cannabis prohibition, and material weaknesses in internal controls - Revenue declined in 2023 compared to 2022, and the company may not be able to generate sufficient revenue to achieve profitability as costs increase[76] - The business is heavily concentrated in California, which generated approximately 52%, 56%, and 61% of revenue for the years 2023, 2022, and 2021, respectively, making it susceptible to market-specific conditions[84] - The company is subject to an SEC investigation following a voluntary report of an internal complaint regarding the calculation of its monthly active users (MAUs) metric[85] - Cannabis remains a prohibited controlled substance under federal law (CSA), and strict enforcement against the company's clients would materially harm the business[89][205] - The company has identified material weaknesses in its internal control over financial reporting as of December 31, 2023, which could prevent the accurate and timely reporting of financial results[182][183] - The restatement of prior quarterly financial statements may harm investor confidence, increase costs, and raise the possibility of legal or regulatory proceedings[189] - As a holding company, its ability to pay taxes and other obligations depends on distributions from its operating subsidiary, WMH LLC[192] - The company is obligated to make potentially substantial payments under a Tax Receivable Agreement (TRA) for certain tax benefits it may receive[198][199] Item 1B. Unresolved Staff Comments The company reports no unresolved staff comments - None[267] Item 1C. Cybersecurity The company maintains a cybersecurity risk management program overseen by its CTO and Board committees, involving threat identification, assessment, and management - The company has implemented information security processes to identify, assess, and manage material cybersecurity risks[268] - The security team is managed by the Chief Technology Officer (CTO) and Senior Director of Information Security[270][277] - The Board of Directors, specifically the Audit and Technology committees, is responsible for overseeing the cybersecurity risk management processes[276] - The company utilizes third-party service providers for functions such as penetration testing, threat intelligence, and cloud data hosting, and has a vendor management program to manage associated risks[273][274] Item 2. Properties The company's executive offices are in Irvine, California, with additional leased spaces in Los Angeles and Denver - The company's main executive offices are located at 41 Discovery, Irvine, California, with the lease expiring in 2025[281] - Additional leased offices are maintained in Los Angeles, California (lease expires 2031) and Denver, Colorado[281] Item 3. Legal Proceedings The company is cooperating with an SEC investigation regarding its Monthly Active Users (MAUs) metric, which could result in penalties - In August 2022, the company voluntarily reported an internal complaint and investigation concerning its Monthly Active Users (MAUs) metric to the SEC[284] - The company has since received two subpoenas from the SEC's Division of Enforcement for information and documents, and several employees have provided testimony[284] - The internal investigation found no impact on the company's GAAP financial results or reported non-GAAP metrics[284] Item 4. Mine Safety Disclosures Not applicable - Not applicable[286] Part II Item 5. 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 are listed on Nasdaq, with significant shares outstanding and no anticipated cash dividends - Class A Common Stock and Public Warrants trade on Nasdaq under symbols "MAPS" and "MAPSW"[288] Shares Outstanding (as of May 13, 2024) | Class | Shares Outstanding | | :--- | :--- | | Class A Common Stock | 95,051,735 | | Class V Common Stock | 55,486,361 | - The company has not paid any cash dividends to date and does not anticipate declaring any in the foreseeable future[290] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations In FY2023, net revenue decreased to $188.0 million, but net loss narrowed significantly to $15.7 million, and Adjusted EBITDA turned positive due to cost reductions FY 2023 vs. FY 2022 Financial Highlights | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Net Revenue | $188.0 million | $215.5 million | | Net Loss | $(15.7) million | $(82.7) million | | Adjusted EBITDA | $36.9 million | $(9.6) million | | Avg. Monthly Paying Clients | 5,419 | 5,457 | | Avg. Monthly Revenue per Client | $2,891 | $3,291 | - The 13% decrease in net revenue was primarily driven by a $23.1 million decline in revenue from Featured Listings and WM Deal products[338] - Total costs and expenses decreased by 28% year-over-year, mainly due to workforce reductions that lowered personnel-related costs in sales & marketing (-43%), product development (-29%), and general & administrative (-38%)[340][341] - Asset impairment charges increased significantly to $24.4 million in 2023 from $4.3 million in 2022, primarily related to an operating lease, intangible assets from sunsetted products, and an equity investment[347] Cash Flow Summary (in thousands) | Cash Flow | 2023 | 2022 | | :--- | :--- | :--- | | Net cash from operating activities | $22,928 | $(11,621) | | Net cash used in investing activities | $(11,871) | $(17,768) | | Net cash used in financing activities | $(5,290) | $(9,805) | - As of December 31, 2023, the company had cash of $34.4 million and working capital of $17.8 million, with no long-term debt[298][358] Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company's exposure to market risks like foreign currency, interest rates, and inflation is currently considered immaterial due to its U.S.-centric operations and cash-only portfolio - The company's exposure to foreign currency fluctuation is considered insignificant as operations are primarily within the United States[398] - Interest rate risk is minimal as the company's portfolio consists only of cash, making its fair value insensitive to interest rate changes[400] - The company has cash balances at five financial institutions that exceed the FDIC insurance limit, but management believes the risk of loss is not significant[401] - Management does not believe that inflation has had a material effect on the business, financial condition, or results of operations[402] Item 8. Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for fiscal years 2021-2023, including independent auditor reports and detailed financial disclosures - This item incorporates by reference the company's consolidated financial statements and supplementary data, which begin on page F-1 of the report[403] Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[404] Item 9A. Controls and Procedures Management concluded that disclosure controls were ineffective as of December 31, 2023, due to multiple material weaknesses in internal control over financial reporting, leading to prior financial statement restatements - Management concluded that disclosure controls and procedures were not effective as of December 31, 2023[406] - Multiple material weaknesses were identified, including deficiencies in the control environment, risk assessment, and monitoring activities at the entity level[411] - Specific material weaknesses include ineffective IT general controls for change management and access controls, and ineffective process-level controls for the order-to-cash and procure-to-pay cycles[412][413] - The material weakness in the order-to-cash cycle resulted in the restatement of the unaudited financial statements for the first three quarters of 2023[413] - The company has started the process of developing and implementing a remediation plan to address these weaknesses[414] Item 9B. Other Information The company reports no other information - None[415] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable - Not applicable[416] Part III Item 10. Directors, Executive Officers and Corporate Governance This section details the company's directors and executive officers, highlighting the board's independent majority, its four standing committees, and adopted governance policies - Douglas Francis, a co-founder, serves as Executive Chair and Principal Executive Officer[419] - The Board of Directors has determined that six of its directors are independent under Nasdaq listing standards[428][429] - Brenda Freeman serves as the lead independent director, providing a balance to the combined role of Executive Chair and principal executive officer[431][433] - The Board has four standing committees: Audit, Compensation, Nominating and Corporate Governance, and Technology, each with a specific charter and responsibilities[439] - The company has adopted a Code of Conduct applicable to all employees, officers, and directors, as well as Corporate Governance Guidelines[457][458] Item 11. Executive Compensation The 2023 executive compensation program for NEOs included base salary, cash bonuses, and performance-based equity awards, with a significant variable component tied to revenue and Adjusted EBITDA targets - The Named Executive Officers for 2023 were Douglas Francis, Brian Camire, and Duncan Grazier[466] 2023 NEO Base Salaries and Bonuses | Named Executive Officer | 2023 Base Salary | 2023 Target Bonus | Actual 2023 Cash Bonus | | :--- | :--- | :--- | :--- | | Douglas Francis | $1,020,000 | N/A | $700,000 (Signing Bonus) | | Brian Camire | $410,000 | $205,000 | $181,425 | | Duncan Grazier | $408,171 (blended) | $212,500 | $188,062 | - The 2023 short-term incentive plan for Messrs. Camire and Grazier was based on Revenue and Adjusted EBITDA goals, achieving 66.5% of target. The Compensation Committee approved a discretionary increase, bringing the total payout to 88.5% of target[490] - In September 2023, Mr. Grazier and Mr. Camire received RSU awards with grant date fair values of $914,718 and $865,218, respectively, which vest quarterly over three years[496][498][499] - Performance-based RSU (PRSU) awards granted in 2021 for the 2022-2023 performance period vested at 25% of target, as the company did not achieve the threshold Revenue CAGR metric but did achieve the Adjusted EBITDA Margin metric[505] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters As of May 13, 2024, directors and executive officers collectively owned 23.2% of total voting power, with co-founders holding significant individual stakes Beneficial Ownership and Voting Power (as of May 13, 2024) | Name of Beneficial Owner | Combined % of Total Voting Power | | :--- | :--- | | All Directors and Executive Officers (10 Individuals) | 23.2% | | Douglas Francis (Executive Chair) | 18.4% | | Justin Hartfield (Co-founder) | 19.5% | | Tony Aquila (Director) | 3.5% | | Morgan Stanley | 4.0% | | James J. Pallotta | 3.3% | - The beneficial ownership percentages are based on 150,538,096 shares of Class A and Class V Common Stock outstanding[550] Item 13. Certain Relationships and Related Transactions, and Director Independence This section details related party transactions, including the Tax Receivable Agreement requiring 85% of tax savings to original unitholders, and 2023 transactions with Executive Chair Douglas Francis's affiliated entities - The company has a Tax Receivable Agreement (TRA) requiring it to pay 85% of the cash savings from certain tax benefits to the original Class A Unit holders[575] - In 2023, Shield Management Group, LLC, an entity majority-owned by Executive Chair Douglas Francis, paid the company $427,797 for listing products and brand promotion[586] - In 2023, Glasir Group, LLC, a business owned by Mr. Francis and his spouse, paid the company $169,095 for a sublease of its Irvine office space[587] - The company holds a promissory note from Silver Spike Holdings, an affiliate of a board member, for $1.1 million in reimbursable transaction costs from the 2021 business combination. The remaining balance was $0.7 million as of year-end 2023[584] - The Board has adopted a written Related Person Transactions Policy, requiring Audit Committee review and approval of transactions exceeding $120,000 involving a related person[589] Item 14. Principal Accountant Fees and Services Moss Adams LLP billed $2,124,250 in aggregate fees for FY2023, a significant increase from 2022, primarily for audit and audit-related services pre-approved by the Audit Committee Accountant Fees (in thousands) | Fee Type | 2023 | 2022 | | :--- | :--- | :--- | | Audit Fees | $2,066,100 | $842,400 | | Audit-Related Fees | $58,150 | $19,440 | | Total Fees | $2,124,250 | $861,840 | - All fees were pre-approved by the Audit Committee in accordance with its policy[596][597] Part IV Item 15. Exhibits and Financial Statement Schedules This section lists all financial statements, schedules, and various exhibits filed with the Annual Report, including key corporate and contractual documents - This item lists all financial statements, schedules, and exhibits filed with the Form 10-K[600][603] - All financial statement schedules were omitted as they were not applicable or the required information was included elsewhere[602] Item 16. Form 10-K Summary Not applicable - Not applicable[606]