WM TECHNOLOGY, INC. The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and the related notes to those statements included herein. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under "Risk Factors" and elsewhere herein.
Overview
OnJune 16, 2021 ,WM Holding Company, LLC (when referred to in its pre-Business Combination capacity, "Legacy WMH" and following the Business Combination, "WMH LLC ") completed its previously announced business combination (the "Business Combination") withSilver Spike Acquisition Corp ("Silver Spike"). In connection with the closing, Silver Spike changed its name toWM Technology, Inc. As used in this Annual Report on Form 10-K, unless the context requires otherwise, references to the "Company," "we," "us," and "our," and similar references refer toWM Technology, Inc , and its subsidiaries following the Business Combination and to Legacy WMH prior to the Business Combination. Founded in 2008, and headquartered inIrvine, California ,WM Technology, Inc. operates a leading online cannabis marketplace for consumers together with a comprehensive set of eCommerce and compliance software solutions for cannabis businesses, which are sold to both storefront locations and delivery operators ("retailers") and brands inthe United States ,U.S. territories and Canadian legalized cannabis markets. Our comprehensive business-to-consumer ("B2C") and business-to-business ("B2B") suite of products afford cannabis retailers and brands of all sizes integrated tools to compliantly run their businesses and to reach, convert, and retain consumers. Our business primarily consists of our commerce-driven marketplace ("Weedmaps"), and our fully integrated suite of end-to-end Software-as-a-Service ("SaaS") solutions software offering ("Weedmaps for Business"). The Weedmaps marketplace provides cannabis consumers with information regarding cannabis retailers and brands. In addition, the Weedmaps marketplace aggregates data from a variety of sources including retailer point-of-sale solutions to provide consumers with the ability to browse by strain, price, cannabinoids and other information regarding locally available cannabis products, through our website and mobile apps. The marketplace provides consumers with product discovery, access to deals and discounts, and reservation of products for pickup by consumers or delivery to consumers by participating retailers (retailers complete orders and process payments outside of the Weedmaps marketplace as Weedmaps serves only as a portal, passing a consumer's inquiry to the dispensary). The marketplace also provides education and learning information to help newer consumers learn about the types of products to purchase. We believe the size, loyalty and engagement of our user base and the frequency of consumption of cannabis of our user base is highly valuable to our clients and results in clients paying for our services catered towards cannabis retailers, delivery services and brands that streamline front and back-end operations and help manage compliance needs. These tools support cannabis businesses at every stage in the consumer funnel, enabling them to:
•Strategically reach prospective cannabis consumers;
•Manage pickup, delivery and inventory in compliance with local regulations;
•Help improve the customer experience by creating online browsing and ordering functionality on a brand or retailer (including delivery) operator's website and by extending that functionality in-store with kiosks;
•Foster customer loyalty and re-engage with segments of consumers;
•Leverage the Weedmaps for Business products in conjunction with any other preferred software solutions via integrations and application programming interfaces ("APIs"); and
•Make informed marketing and merchandising decisions using performance analytics and consumer and brand insights to promote products to specific consumer groups.
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[[Image Removed: maps-20221231_g3.jpg]]
Our solutions are designed to address these challenges facing cannabis consumers
and businesses. The Weedmaps marketplace allows cannabis users to search for and
browse cannabis products from retailers and brands, and ultimately reserve
products from certain local retailers, in a manner similar to other technology
platforms with breadth and depth of product, brand and retailer selection. With
the development of Weedmaps for Business, we offer an end-to-end platform for
licensed cannabis retailers to comply with state law. We sell a monthly
subscription offering to storefront, delivery and brand clients as well as
upsell and add-on offerings to licensed clients. Our current subscription
package includes:
•WM Listings: A listing page with product menu for a retailer or brand on the
Weedmaps marketplace, enabling our clients to be discovered by the marketplace's
users. This also allows clients to disclose their license information, hours of
operation, contact information, discount policies and other information that may
be required under applicable state law;
•WM Orders: Software for retailers to receive pickup and delivery orders
directly from a Weedmaps listing and connect orders directly with a client's POS
system (for certain POS systems). The marketplace also enables brands to route
customer purchase interest to a retailer that carries the brand's product. After
a dispensary receives the order request from the consumer, the dispensary and
the consumer can continue to communicate, adjust items in the request, and
handle any stock issues, prior to and while the dispensary processes and
fulfills the order;
•WM Store: Customizable orders and menu embed, which allows retailers and brands
to import their Weedmaps listing menu or product reservation functionality to
their own white-labeled WM Store website or separately owned website. WM Store
facilitates customer pickup or delivery orders and enables retailers to reach
more customers by bringing the breadth of the Weedmaps marketplace to a client's
own website;
•WM Connectors: A centralized integration platform, including API tools, for
easier menu management, automatic inventory updates and streamlined order
fulfillment to enable clients to save time and more easily integrate into the WM
Technology ecosystem and integrate with disparate software systems. This creates
business efficiencies and improves the accuracy and timeliness of information
across Weedmaps, creating a more positive experience for consumers and
businesses; and
•WM Insights: An insights and analytics platform for clients leveraging data
across the Weedmaps marketplace and software solutions. WM Insights provides
data and analytics on user engagement and traffic trends to a client's listing
page. For Brand clients, WM Insights allows them to monitor their brand and
product rankings, identify retailers not carrying products and keep track of top
brands and products by category and state.
We also offer other add-on products for additional fees, including:
•WM Ads: Ad solutions on the Weedmaps marketplace designed for clients to amplify their businesses and reach more highly engaged cannabis consumers throughout their buying journey including:
•Featured Listings: Premium placement ad solutions on high visibility locations on the Weedmaps marketplace (desktop and mobile) to amplify our clients' businesses and maximize clients' listings and deal presence.
•WM Deals: Discount and promotion pricing tools that let clients strategically reach prospective price-conscious cannabis customers with deals or discounts to drive conversion. In some jurisdictions, it is required by applicable law to showcase discounts).
•Other WM Ads solutions: Includes banner ads and promotion tiles on the Company's marketplace as well as banner ads that can be tied to keyword searches. These products provide clients with targeted ad solutions in highly visible slots across the Company's digital surfaces.
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•WM AdSuite: Omni-channel (on and off platform) marketing solution with access
to the Weedmaps marketplace and cannabis-friendly off marketplace outlets
including certain publishers, out-of-home units in addition to other media
solutions. These campaigns leverage proprietary first-party Weedmaps data to
target verified cannabis consumers.
•WM CRM: Customer relationship management software allowing clients to reach new consumers, build loyalty, and grow revenue with our compliant app, text and marketing tools. The tools also allow for retargeting and re-engagement of cannabis consumers
•WM Dispatch: Compliant, automated and optimized logistics and fulfillment last-mile delivery software (including driver apps) that helps clients manage their delivery fleets. This product streamlines the delivery experience from in-store to front-door.
•WM Screens: In-store digital menu signage and kiosk solution and media management tool enabling clients to enhance the in-store experience, impact omnichannel retail and centralize operations with revenue-driving and customizable digital signage.
We charge a monthly fee to retailer, delivery and brand clients for access to our subscription package, which includes WM Listings, WM Orders,WM Store , WM Connectors and WM Insights. Depending on the market, the other add-on products are available for additional fees. We sell our Weedmaps for Business suite inthe United States , currently offer some of our Weedmaps for Business solutions inCanada and have a limited number of non-monetized listings in several other countries includingAustria ,Germany ,the Netherlands ,Spain andSwitzerland . We operate inthe United States ,Canada and other foreign jurisdictions where medical and/or adult cannabis use is legal under state or national law. As ofDecember 31, 2022 , we actively operated in over 30 U.S. states and territories that have adult-use and/or medical-use regulations in place. We define actively operated markets as thoseU.S. states or territories with greater than$1,000 monthly revenue. Our mission is to power a transparent and inclusive global cannabis economy. Our technology addresses the challenges facing both consumers seeking to understand cannabis products and businesses who serve cannabis users in a legally compliant fashion. Over the past 14 years, Weedmaps has become a premier destination for cannabis consumers to discover and browse information regarding cannabis and cannabis products, permitting product discovery and order-ahead for pickup or delivery by participating retailers. Weedmaps for Business is a set of eCommerce-enablement tools designed to help retailers and brands get the best out of the Weedmaps' consumer experience, create labor efficiencies and manage compliance needs. We hold a strong belief in the importance of enabling safe, legal access to cannabis for consumers worldwide. We believe we offer the only comprehensive software platform that allows cannabis retailers to reach their target audience, quickly and cost effectively, addressing a wide range of needs. We are committed to building the software solutions that power cannabis businesses compliantly in the industry, to advocating for legalization, licensing and social equity of cannabis and to facilitating further learning through partnership with subject matter experts to provide detailed, accurate information about cannabis. We have grown the Weedmaps marketplace to become the premier destination for cannabis consumers to discover and browse information regarding cannabis and cannabis products with 5,457 average monthly paying business clients during the year endedDecember 31, 2022 , on the supply-side of our marketplace. These paying clients include retailers, brands and other client types (such as doctors). Further, these clients, who can choose to purchase multiple listings solutions for each business, had purchased over 9,500 listing pages as ofDecember 31, 2022 . The Weedmaps marketplace provides consumers with information regarding cannabis retailers and brands, as well as the strain, pricing and other information regarding locally available cannabis products, through our website and mobile apps, permitting product discovery and order-ahead for pickup or delivery by participating retailers. Our weedmaps.com website, our iOS Weedmaps mobile application and our Android Weedmaps mobile application also have educational content including news articles, information about cannabis strains, a number of "how-to" guides, policy white-papers and research to allow consumers to educate themselves on cannabis and its history, uses and legal status. While consumers can discover cannabis products, brands and retailers on our website, we neither sell (or fulfill purchases of) cannabis products, nor do we process payments for cannabis transactions across our marketplace or SaaS solutions. As we continue to expand the presence and increase the number of consumers on the Weedmaps marketplace and broaden our offerings, we generate more value for our business clients. As we continue to expand the presence and increase the number of cannabis businesses listed on weedmaps.com, we become a more compelling marketplace for consumers. To capitalize on the growth opportunities of our two-sided marketplace and solutions, we plan to continue making investments in raising brand awareness, increasing penetration within existing markets and expanding to new markets, as well as continuing to develop and monetize new solutions to extend the functionality of our platform. These investments serve to deepen the consumer experience with our platform and continue to provide a high level of support to our business clients. 54 -------------------------------------------------------------------------------- Table of Contents Key Operating and Financial Metrics
We monitor the following key financial and operational metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions.
Years Ended December 31,
2022 2021 2020
(dollars in thousands, except for revenue per paying client)
Revenues $ 215,531 $ 193,146 $ 161,791
Net (loss) income $ (82,651) $ 152,218 $ 38,830
EBITDA(1) $ 107,924 $ 156,042 $ 42,808
Adjusted EBITDA(1) $ (9,633) $ 31,698 $ 42,808
Average monthly revenue per paying client(2) $ 3,291 $ 3,711 $ 3,256
Average monthly paying clients(3) 5,457 4,337 4,140
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(1)For further information about how we calculate EBITDA and Adjusted EBITDA as well as limitations of its use and a reconciliation of EBITDA and Adjusted EBITDA to net income (loss), see "Net Income (Loss) to EBITDA, Adjusted EBITDA and Adjusted EBITDA before Provision for Doubtful Accounts" below. (2)Average monthly revenue per paying client is defined as the average monthly revenue for any particular period divided by the average monthly paying clients in the same respective period. (3)Average monthly paying clients are defined as the average of the number of paying clients billed in a month across a particular period (and for which services were provided).
Revenue
We offer our Weedmaps for Business solution as a monthly subscription package that includes (based on availability within any given market and state-level regulations): (i) a listing page with product menu on weedmaps.com, our iOS Weedmaps mobile application and our Android Weedmaps mobile application, which allows clients to disclose their license information, hours of operation, contact information, discount policies and other information that may be required under applicable state law, (ii) the ability to receive reservations of products for pickup by consumers or delivery to consumers (either on weedmaps.com, on a white labeledWM Store website or third-party websites through our orders and menu embed product), (iii) a customizable menus for brands, retailers and delivery operators to embed on their website, (iv) access to our APIs, including real-time connectivity between Weedmaps for Business to a point-of-sale system ("POS") to streamline workflows and promote compliance through accuracy and (v) analytics dashboards. We also offer add-on and a la carte products and services for additional fees, including advertising and customer relationship management ("CRM") software, among other things (for a description of these services, see Item 1. Business). Finally, we offer a growing set of offerings for brands to reach consumers and retailers as well as manage their brand catalog information. . 55
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Net Income (Loss) to EBITDA, Adjusted EBITDA and Adjusted EBITDA before Provision for Doubtful Accounts
Our financial statements, including net income (loss), are prepared in accordance with accounting principles generally accepted inthe United States of America ("GAAP"). For more information regarding the components within our net income (loss), see "Components of Our Results of Operations" below. Net loss for the year endedDecember 31, 2022 was$82.7 million compared to net income of$152.2 million for the year endedDecember 31, 2021 . The decrease in net income of$234.9 million was primarily due to an increase in operating expense of$83.8 million , which includes severance costs of$8.1 million related to the reduction in force and executive departures that occurred in the second half of 2022, a comparatively unfavorable change in fair value of warrant liability of$141.1 million and an increase in provision from income taxes of$179.7 million resulting from the full valuation recorded against our deferred tax assets, offset by an increase in revenue of$22.4 million , an income from the change in tax receivables agreement liability of$142.4 million resulting from the remeasurement of the Tax Receivable Agreement liability and a decrease in other expense of$5.0 million , which primarily relates to the transaction costs incurred in the year endedDecember 31, 2021 , related to the warrant liability. To provide investors with additional information regarding our financial results, we have disclosed EBITDA, Adjusted EBITDA and Adjusted EBITDA before Provision for Doubtful Accounts, all of which are non-GAAP financial measures that we calculate as net income (loss) before interest, taxes and depreciation and amortization expense in the case of EBITDA and further adjusted to exclude stock-based compensation, change in fair value of warrant liability, change in tax receivable agreement liability, impairment charges, transaction related bonuses, transaction costs, legal settlements and other legal costs, reduction in force and executive departures and other non-cash, unusual and/or infrequent costs in the case of Adjusted EBITDA. Adjusted EBITDA is further adjusted to exclude provision for doubtful accounts for the case of Adjusted EBITDA before Provision for Doubtful Accounts. Below we have provided a reconciliation of net (loss) income (the most directly comparable GAAP financial measure) to EBITDA; from EBITDA to Adjusted EBITDA; and from Adjusted EBITDA to Adjusted EBITDA before Provision for Doubtful Accounts. We present EBITDA, Adjusted EBITDA and Adjusted EBITDA before Provision for Doubtful Accounts because these metrics are a key measure used by our management to evaluate our operating performance, generate future operating plans and make strategic decisions regarding the allocation of investment capacity. Accordingly, we believe that EBITDA, Adjusted EBITDA and Adjusted EBITDA before Provision for Doubtful Accounts provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management.
Each of EBITDA, Adjusted EBITDA and Adjusted EBITDA before Provision for Doubtful Accounts has limitations as an analytical tool, and you should not consider any of these non-GAAP financial measures in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are as follows:
•although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and EBITDA, Adjusted EBITDA and Adjusted EBITDA before Provision for Doubtful Accounts do not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;
•EBITDA, Adjusted EBITDA and Adjusted EBITDA before Provision for Doubtful Accounts do not reflect changes in, or cash requirements for, our working capital needs; and
•EBITDA, Adjusted EBITDA and Adjusted EBITDA before Provision for Doubtful Accounts do not reflect tax payments that may represent a reduction in cash available to us.
Because of these limitations, you should consider EBITDA, Adjusted EBITDA and
Adjusted EBITDA before Provision for Doubtful Accounts alongside other financial
performance measures, including net income (loss) and our other GAAP results.
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A reconciliation of net (loss) income to non-GAAP EBITDA, Adjusted EBITDA and Adjusted EBITDA before Provision for Doubtful Accounts is as follows:
Years Ended December 31,
2022 2021 2020
(in thousands)
Net (loss) income $ (82,651) $ 152,218 $ 38,830
Provision for (benefit from) income taxes 179,077 (601) -
Depreciation and amortization expenses 11,498 4,425 3,978
EBITDA 107,924 156,042 42,808
Stock-based compensation 23,493 29,324 -
Change in fair value of warrant liability (25,370) (166,518) -
Warrant transaction costs - 5,547 -
Impairment 4,317 2,372 -
Transaction related bonus expense 10,119 2,200 -
Transaction costs 251 2,583 -
Legal settlements and other legal costs 3,909 148 -
Change in tax receivable agreement liability (142,352) - -
Reduction in force and executive departures 8,076 - -
Adjusted EBITDA $ (9,633) $
31,698
Provision for doubtful accounts 17,216 5,487 1,271 Adjusted EBITDA before provision for doubtful accounts$ 7,583 $
37,185
Average Monthly Revenue Per Paying Client
Average monthly revenue per paying client measures how much clients, for the
period of measurement, are willing to pay us for our subscription and additional
offerings and the efficiency of the bid-auction process for our featured
listings placements. We calculate this metric by dividing the average monthly
revenue for any particular period by the average monthly number of paying
clients in the same respective period.
Years Ended December 31,
2022 2021 2020
Average monthly revenue per paying client
Average Monthly Paying Clients
We define average monthly paying clients as the monthly average of clients billed each month over a particular period (and for which services were provided). Our paying clients include both individual cannabis businesses as well as retail websites or businesses within a larger organization that have independent relationships with us, many of whom are owned by holding companies where decision-making is decentralized such that purchasing decisions are made, and relationships with us are located, at a lower organizational level. In addition, any client may choose to purchase multiple listing solutions for each of their retail websites or businesses. Average monthly paying clients for the year endedDecember 31, 2022 increased 26% to 5,457 average monthly paying clients from 4,337 average monthly paying clients in the same period in 2021. The increase in average monthly paying clients in 2022 as compared to the same periods in 2021 was primarily due to new client acquisitions across existing and new states and new clients assumed through acquisitions. This growth was partially offset by a decline in our average monthly revenue per paying client. We expected these pressures given the continued liquidity challenges that clients are facing. Years EndedDecember 31, 2022 2021
2020
Average monthly paying clients 5,457 4,337 4,140
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Quarterly Key Operating Metrics
Three Months Ended
2022 2021 2020
Average monthly revenue per paying client $ 2,888 $ 3,789 $ 3,825
Average monthly paying clients 5,689 4,766 3,863
Factors Affecting Our Performance
Growth of Our
We have historically grown through and intend to focus on continuing to grow through the expansion of our two-sided marketplace, which occurs through growth of the number and type of businesses and consumers that we attract to our platform. We believe that expansion of the number and types of cannabis businesses that choose to list on our platform will continue to make our platform more compelling for consumers and drive traffic and consumer engagement, which in turn will make our platform more valuable to cannabis businesses.
Growth and Retention of Our Paying Clients
Our revenue grows primarily through acquiring and retaining paying clients and increasing the revenue per paying client over time. We have a history of attracting new paying clients and increasing their annual spend with us over time, primarily due to the value they receive once they are onboarded and able to take advantage of the benefits of participating in our two-sided marketplace and leveraging our software solutions. Prices of certain commodity products, including gas prices, are historically volatile and subject to fluctuations arising from changes in domestic and international supply and demand, labor costs, competition, market speculation, government regulations, trade restrictions and tariffs, inflation and the military conflict betweenRussia andUkraine . Increasing prices in the component materials for the goods or services of our clients may impact their ability to maintain or increase their spend with us and their ability to pay their invoices on time. Rapid and significant changes in commodity prices, such as fuel, may negatively affect our revenue if our clients are unable to mitigate inflationary increases through various customer pricing actions and cost reduction initiatives. This could also negatively impact our net dollar retention and our collections on accounts receivable.
Regulation and Maturation of Cannabis Markets
We believe that we will have significant opportunities for greater growth as more jurisdictions legalize cannabis for medical and/or adult-use and the regulatory environment continues to develop. Thirty-eight states, theDistrict of Columbia ,Puerto Rico , theVirgin Islands andGuam have legalized some form of cannabis use for certain medical purposes. Twenty-one of those states, theDistrict of Columbia ,Guam and Northern Mariana have legalized cannabis for adults for non-medical purposes as well (sometimes referred to as adult or recreational use). Nine additional states have legalized forms of low-potency cannabis, for select medical conditions. Only three states continue to prohibit cannabis entirely. We intend to explore new expansion opportunities as additional jurisdictions legalize cannabis for medical or adult use and leverage our business model informed by our 14-year operating history to enter new markets. We also have a significant opportunity to monetize transactions originating from users engaging with a retailer on the Weedmaps marketplace or tracked via one of our Weedmaps for Business solutions. GivenU.S. federal prohibitions on plant-touching businesses and our current policy not to participate in the chain of commerce associated with the sale of cannabis products, we do not charge take-rates or payment fees for transactions originating from users who engage with a retailer on the Weedmaps platform or tracked via one of our Weedmaps for Business solutions. A change inU.S. federal regulations could result in our ability to engage in such monetization efforts without adverse consequences to our business. Our long-term growth depends on our ability to successfully capitalize on new and existing cannabis markets. Each market must reach a critical mass of both cannabis businesses and consumers for listing subscriptions, advertising placements and other solutions to have meaningful appeal to potential clients. As regulated markets mature and as we incur expenses to attract paying clients and convert non-paying clients to paying clients, we may generate losses in new markets for an extended period. Furthermore, we compete with cannabis-focused and general two-sided marketplaces, internet search engines and various other newspaper, television and media companies and other software providers. We expect competition to intensify in the future as the regulatory regime for cannabis becomes more settled and the legal market for cannabis becomes more accepted, which may encourage new participants to enter the market, including established companies with substantially greater 58
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financial, technical and other resources than existing market participants. Our current and future competitors may also enjoy other competitive advantages, such as greater name recognition, more offerings and larger marketing budgets.
Brand Recognition and Reputation
We believe that maintaining and enhancing our brand identity and our reputation is critical to maintaining and growing our relationships with clients and consumers and to our ability to attract new clients and consumers. Historically, a substantial majority of our marketing spending was on out-of-home advertising on billboards, buses and other non-digital outlets. Starting in 2019, consistent with the overall shift in perceptions regarding cannabis, a number of demand-side digital advertising platforms allowed us to advertise online. We also invested in growing our internal digital performance advertising team. We believe there is an opportunity to improve market efficiency through digital channels and expect to shift our marketing spending accordingly. Over the longer term, we expect to shift and accelerate our marketing spend to additional online and traditional channels, such as broadcast television or radio, as they become available to us. Negative publicity, whether or not justified, relating to events or activities attributed to us, our employees, clients or others associated with any of these parties, may tarnish our reputation and reduce the value of our brand. Given our high visibility and relatively long operating history compared to many of our competitors, we may be more susceptible to the risk of negative publicity. Damage to our reputation and loss of brand equity may reduce demand for our platform and have an adverse effect on our business, operating results and financial condition. Moreover, any attempts to rebuild our reputation and restore the value of our brand may be costly and time consuming, and such efforts may not ultimately be successful. We also believe that the importance of our brand recognition and reputation will continue to increase as competition in our market continues to develop. If our brand promotion activities are not successful, our operating results and growth may be adversely impacted. Investments in Growth
We intend to continue to make focused organic and inorganic investments to grow our revenue and scale operations to support that growth.
Given our long operating history inthe United States and the strength of our network, often businesses will initially list on our platform without targeted sales or marketing efforts by us. However, we plan to accelerate our investments in marketing to maintain and increase our brand awareness through both online and offline channels. We also plan to invest in expanding our business listings thereby enhancing our client and consumer experience, and improving the depth and quality of information provided on our platform. We also intend to continue to invest in several areas to continue enhancing the functionality of our Weedmaps for Business offering. We expect significant near-term investments to enhance our data assets and evolve our current listings and software offerings to our brand clients, among other areas. We anticipate undertaking such investments in order to be positioned to capitalize on the rapidly expanding cannabis market. OnJanuary 14, 2022 , we acquiredEyechronic LLC ("Eyechronic") d/b/a Enlighten, aDelaware limited liability company and a provider of software, digital signage services and multi-media offerings to dispensaries and brands. OnSeptember 29, 2021 , we acquired all of the equity interests ofTransport Logistics Holding Company, LLC ("TLH"), which is the parent company of Cannveya & CannCurrent. Cannveya is a logistics platform that enables the compliant delivery of cannabis and CannCurrent is a technology integrations and connectors platform facilitating custom integrations with third party technology providers.
On
As operating expenses and capital expenditures fluctuate over time, we may accordingly experience short-term, negative impacts to our operating results and cash flows.
Components of Our Results of Operations
Revenues
We offer our Weedmaps for Business solution as a monthly subscription package that includes (based on availability within any given market and state-level regulations): (i) a listing page with product menu on weedmaps.com, our iOS Weedmaps mobile application and our Android Weedmaps mobile application, which allows clients to disclose their license information, hours of operation, contact information, discount policies and other information that may be required under applicable state law, (ii) the ability to receive reservations of products for pickup by consumers or delivery to consumers (either on weedmaps.com, on a white labeledWM Store website or third-party websites through our orders and menu embed product), (iii) a customizable menus for brands, retailers and delivery operators to embed on their website, (iv) access to our APIs, including real-time connectivity between Weedmaps for Business to a point-of-sale system ("POS") to streamline workflows 59 -------------------------------------------------------------------------------- Table of Contents and promote compliance through accuracy and (v) analytics dashboards. We also offer add-on and a la carte products and services for additional fees, including advertising and customer relationship management ("CRM") software, among other things. Finally, we offer a growing set of offerings for brands to reach consumers and retailers as well as manage their brand catalog information. Our subscriptions generally have one-month terms that automatically renew unless notice of cancellation is provided in advance. For clients that pay us in advance for listing and other services, we record deferred revenue and recognized revenue over the applicable subscription term.
Cost of Revenues (Exclusive of Depreciation and Amortization)
Cost of revenues primarily consists of web hosting, internet service and credit card processing costs. Cost of sales is primarily driven by increases in revenue leading to increases in credit card processing and web hosting cost. We expect our cost of revenue to continue to increase on an absolute basis and remain relatively flat as a percentage of revenue as we scale our business and inventory costs related to multi-media offerings
Selling and Marketing Expenses
Selling and marketing expenses consist of salaries and benefits, stock-based compensation expense, travel expense and incentive compensation for our sales and marketing employees. In addition, sales and marketing expenses include business acquisition marketing, events cost and branding and advertising costs. We expect our sales and marketing expenses to increase on an absolute basis as we enter new markets. Over the longer term, we expect sales and marketing expense to increase in a manner consistent with revenue growth, however, we may experience fluctuations in some periods as we enter and develop new markets or have large one-time marketing projects.
Product Development Expenses
Product development costs consist of salaries and benefits and stock-based compensation expense for employees, including engineering and technical teams who are responsible for building new products, as well as maintaining and improving existing products. Product development costs that do not meet the criteria for capitalization are expensed as incurred. The majority of our new software development costs have historically been expensed. We believe that continued investment in our platform is important for our growth and expect our product development expenses will increase in a manner consistent with revenue growth as our operations grow.
General and Administrative Expenses
General and administrative expenses consist primarily of payroll, benefit costs and stock-based compensation expense for our employees involved in general corporate functions including our senior leadership team as well as costs associated with the use by these functions of software and facilities and equipment, such as rent, insurance and other occupancy expenses. General and administrative expenses also include provision for doubtful accounts and professional and outside services related to legal and other consulting services. General and administrative expenses are primarily driven by increases in headcount required to support business growth and meeting our obligations as a public company. We expect general and administrative expenses to decline as percentage of revenue as we scale our business and leverage investments in these areas.
Depreciation and Amortization Expenses
Depreciation and amortization expenses primarily consist of depreciation on computer equipment, furniture and fixtures, leasehold improvements, capitalized software development costs and amortization of intangibles. We expect depreciation and amortization expenses to increase on an absolute basis for the foreseeable future as we scale our business.
Other Income (Expense)
Other expense consists primarily of transaction costs related to the warrants, political contributions, interest expense, legal settlements, financing fees and other tax related expenses. Other income (expense) consists primarily of change in fair value of warrant liability and change in tax receivable agreement liability.
Provision for (Benefit from) Income Taxes
We account for income taxes pursuant to the asset and liability method which
requires the recognition of deferred income tax assets and liabilities related
to the expected future tax consequences arising from temporary differences
between the carrying amounts and tax bases of assets and liabilities based on
enacted statutory tax rates applicable to the periods in which the temporary
differences are expected to reverse. Any effects of changes in income tax rates
or laws are included in income tax expense in the period of enactment. A
valuation allowance is recognized if we determine it is more-likely-than-not
that all or a portion of a deferred tax asset will not be recognized. In making
such determination, we consider all available evidence, including scheduled
reversals of deferred tax liabilities, projected future taxable income, tax
planning strategies and recent and expected future results of operation. See
Note 15 to our consolidated financial statements included herein.
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Results of Operations
The following tables set forth our results of operations for the periods presented and express the relationship of certain line items as a percentage of net sales for those periods. The period-to-period comparison of financial results is not necessarily indicative of future results.
Years Ended December 31,
2022 2021 2020
(in thousands)
Revenues $ 215,531 $ 193,146 $ 161,791
Operating expenses:
Cost of revenues (exclusive of depreciation and
amortization shown separately below) 15,407 7,938 7,630
Sales and marketing 82,624 56,119 30,716
Product development 50,520 35,395 27,142
General and administrative 125,104 97,447 51,127
Depreciation and amortization 11,498 4,425 3,978
Total operating expenses 285,153 201,324 120,593
Operating (loss) income (69,622) (8,178) 41,198
Other income (expense)
Change in fair value of warrant liability 25,370 166,518 -
Change in tax receivable agreement liability 142,352 - -
Other expense, net (1,674) (6,723) (2,368)
Income before income taxes 96,426 151,617 38,830
Provision for (benefit from) income taxes 179,077 (601) -
Net (loss) income (82,651) 152,218 38,830
Net income attributable to noncontrolling interests 33,338
91,835 -
Net (loss) income attributable to
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Years Ended December 31,
2022 2021 2020
Revenues 100 % 100 % 100 %
Operating expenses:
Cost of revenues (exclusive of depreciation and
amortization shown separately below) 7 % 4 % 5 %
Sales and marketing 38 % 29 % 19 %
Product development 23 % 18 % 17 %
General and administrative 58 % 50 % 32 %
Depreciation and amortization 5 % 2 % 2 %
Total operating expenses 132 % 104 % 75 %
Operating (loss) income (32) % (4) % 25 %
Other income (expense)
Change in fair value of warrant liability 12 % 86 % 0 %
Change in tax receivable agreement liability 66 % 0 % 0 %
Other expense, net (1) % (3) % (1) %
Income before income taxes 45 % 78 % 24 %
Provision for (benefit from) income taxes 83 % 0 % 0 %
Net (loss) income (38) % 79 % 24 %
Net income attributable to noncontrolling interests 15 % 48 % 0 %
Net (loss) income attributable to WM Technology, Inc. (54) % 31 % 24 %
Comparison of Years Ended
Revenues
Years Ended December 31, Change
2022 2021 ($) (%)
(dollars in thousands)
Revenues $ 215,531 $ 193,146 $ 22,385 12 %
Total revenues increased by $22.4 million , or 12% for the year ended
December 31, 2022 compared to the same period in 2021. The increase was
primarily driven by a 26% increase in average monthly paying clients. Our growth
in average monthly paying clients primarily reflects growth in our featured and
deal listings of $11.1 million , Weedmaps for Business and other SaaS
subscriptions of $8.1 million and other ad solutions of $3.2 million . For the
year ended December 31, 2022 , featured and deal listings, Weedmaps for Business
and other SaaS subscriptions and other ad solutions represented 69%, 24% and 7%
of our total revenues, respectively.
Cost of Revenues (exclusive of depreciation and amortization)
Years Ended December 31, Change
2022 2021 ($) (%)
(dollars in thousands)
Cost of revenues (exclusive of depreciation
and amortization) $ 15,407 $ 7,938 $ 7,469 94 %
Gross margin 93 % 96 %
Cost of revenues was $15.4 million for the year ended December 31, 2022 compared
to $7.9 million for the same period in 2021. The $7.5 million increase was
primarily related to an increase of $5.7 million for cost of revenues associated
with WM CRM and WM AdSuite and an increase of $1.7 million for server costs.
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Sales and Marketing Expenses
Years Ended December 31, Change
2022 2021 ($) (%)
(dollars in thousands)
Sales and marketing expenses $ 82,624 $ 56,119 $ 26,505 47 %
Percentage of revenue 38 % 29 %
Sales and marketing expenses increased by $26.5 million , or 47% for the year
ended December 31, 2022 compared to the same period in 2021. The increase was
primarily related to an increase in personnel-related costs of $25.4 million , an
increase in outside service of $3.5 million and an increase in travel expense of
$0.9 million , offset by decreases in web advertising expense of $2.9 million and
events expense of $0.8 million . The $25.4 million personnel-related costs
include increases in salaries and wages of $15.1 million and payroll tax of $1.0
million , as a result of increased headcount in 2022, bonus expense of $8.9
million and stock-based compensation expense of $0.4 million . The increase in
bonus expense for the year ended December 31, 2022 includes $7.1 million of
bonus expense in connection with prior acquisitions.
Product Development Expenses
Years Ended December 31, Change
2022 2021 ($) (%)
(dollars in thousands)
Product development expenses $ 50,520 $ 35,395 $ 15,125 43 %
Percentage of revenue 23 % 18 %
Product development expenses increased by $15.1 million , or 43% for the year
ended December 31, 2022 compared to the same period in 2021. This increase was
primarily due to increases in personnel-related costs of $13.4 million and
outside services expense of $1.5 million . The increase in personnel-related
costs was primarily due to increased headcount and includes increases in
salaries and wages of $13.8 million and bonus expense of $5.4 million , offset by
an increase in capitalized software development costs of $6.4 million related to
certain costs capitalized for the development or enhancement of our Weedmaps
platform. The increase in bonus expense for the year ended December 31, 2022
includes $2.6 million of bonus expense in connection with prior acquisitions.
General and Administrative Expenses
Years Ended December 31, Change
2022 2021 ($) (%)
(dollars in thousands)
General and administrative expenses
58 % 50 %
General and administrative expenses increased by $27.7 million , or 28% for the
year ended December 31, 2022 compared to the same period in 2021. This increase
was primarily due to an increase in provision for doubtful accounts of $11.7
million , an increase in professional fees of $5.0 million , an increase in
salaries and wages of $4.3 million , an increase in insurance costs of $1.6
million as a result of additional insurance coverage as a public company, an
increase in software expense of $2.8 million , an increase in employee benefits
expense of $2.6 million , an increase in facilities expense of $2.0 million , an
increase in severance expense of $7.0 million related to the reduction in force
and executive departures in the 2022 period and an increase in impairment loss
of $1.9 million . The increase in provision for doubtful accounts included a
higher reserve for at-risk customers that indicated financial difficulties due
to the impact from macroeconomic factors. These increases were partially offset
by decreases in stock-based compensation expense of $6.3 million , rent expense
of $2.4 million , outside
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services expense of $1.1 million and bonus expense of $1.4 million . Stock-based
compensation expense decreased primarily due to a decrease in expense related to
our Class P Units , offset by an increase in expense related to our RSUs.
Depreciation and Amortization Expense
Years Ended December 31, Change
2022 2021 ($) (%)
(dollars in thousands)
Depreciation and amortization expense $ 11,498 $ 4,425 $ 7,073 160 %
Percentage of revenue 5 % 2 %
Depreciation and amortization expense increased by $7.1 million , or 160%, for
the year ended December 31, 2022 , compared to the same period in 2021. The
increase was primarily due to an increase in capitalized software amortization
of $5.1 million , an increase in intangible asset amortization of $1.4 million
and an increase in fixed asset depreciation of $0.6 million . Capitalized
software amortization included accelerated depreciation of $1.1 million related
to discontinued product features of WM Retail in the first quarter of 2022.
Other Income, net
Years Ended December 31, Change
2022 2021 ($) (%)
(dollars in thousands)
Change in fair value of warrant liability $ 25,370 $ 166,518 $ (141,148) (85) %
Change in tax receivable agreement
liability 142,352 - 142,352 100 %
Other expense, net (1,674) (6,723) 5,049 (75) %
Other income, net $ 166,048 $ 159,795 $ 6,253 4 %
Percentage of revenue 77 % 83 %
Other income, net increased by $6.3 million for the year ended December 31, 2022
compared to the same period in 2021. The increase in other income was primarily
due to comparatively unfavorable changes in fair value of warrant liability of
$141.1 million , offset by income from changes in tax receivable agreement
liability of $142.4 million . For more information regarding the tax receivable
agreement liability remeasurement, see Note 15 to our consolidated financial
statements included herein. The decrease in other expense, net of $5.0 million
was primarily due to warrant transaction costs of $5.5 million related to the
Business Combination incurred during 2021.
Provision for (Benefit from) Income Taxes
Years Ended December 31, Change
2022 2021 ($) (%)
(dollars in thousands)
Provision for (benefit from) income taxes $ 179,077 $ (601) $ 179,678 N/M
Percentage of revenue 83 % - %
________________________________
N/M - Not meaningful
Provision for income taxes increased by
Comparison of Years Ended
For a discussion of the Results of Operations for the year ended
Seasonality
Our rapid growth and recent changes in legislation have historically offset
seasonal trends in our business. While seasonality has not had a significant
impact on our results in the past, our clients may experience seasonality in
their businesses
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which in turn can impact the revenue generated from them. Our business may
become more seasonal in the future and historical patterns in our business may
not be a reliable indicator of future performance.
Liquidity and Capital Resources
The following tables show our cash, accounts receivable and working capital as of the dates indicated:
As of December 31,
2022 2021
(in thousands)
Cash $ 28,583 $ 67,777 Accounts receivable, net
$ 8,660 $ 61,134 As ofDecember 31, 2022 andDecember 31, 2021 , we had cash of$28.6 million and$67.8 million , respectively. During the second quarter of fiscal year 2021, we completed the Business Combination, resulting in proceeds of approximately$80.0 million . Our funds are being used for funding our current operations and potential strategic acquisitions in the future. We also intend to increase our capital expenditures to support the organic growth in our business and operations. We expect to fund our near-term capital expenditures from cash provided by operating activities. We believe that our existing cash and cash generated from operations will be sufficient to meet our anticipated cash needs for at least the next 12 months. However, our liquidity assumptions may prove to be incorrect, and we could exhaust our available financial resources sooner than we currently expect. We may seek to raise additional funds at any time through equity, equity-linked or debt financing arrangements. Our future capital requirements and the adequacy of available funds will depend on many factors. We may not be able to secure additional financing to meet our operating requirements on acceptable terms, or at all.
Sources of Liquidity
We primarily finance our operations and capital expenditures through cash flows generated by operations.
To the extent existing cash and investments and cash from operations are not
sufficient to fund future activities, we may need to raise additional funds. We
may seek to raise additional funds through equity, equity-linked or debt
financings. If we raise additional funds through the incurrence of indebtedness,
such indebtedness may have rights that are senior to holders of our equity
securities and could contain covenants that restrict operations. Any additional
equity financing may be dilutive to stockholders. We may enter into investment
or acquisition transactions in the future, which could require us to seek
additional equity financing, incur indebtedness, or use cash resources.
Cash Flows
Years Ended December 31,
2022 2021 2020
(in thousands)
Net cash (used in) provided by operating activities
$ (17,768) $
(30,435)
Cash from operating activities consists primarily of net (loss) income adjusted for certain non-cash items, including depreciation and amortization, change in fair value of warrant liability, change in tax receivable agreement liability, impairment loss, stock-based compensation, provision for doubtful accounts, deferred taxes and the effect of changes in working capital. Net cash used in operating activities for the year endedDecember 31, 2022 was$11.6 million , which resulted from net loss of$82.7 million , together with a net cash inflows of$3.2 million from changes in operating assets and liabilities and non-cash items of$67.9 million , consisting of depreciation and amortization of$11.5 million , fair value of warrant liability of$25.4 million , impairment loss of$4.3 million , stock-based compensation expense of$23.5 million , tax receivable agreement remeasurement of$142.4 million , changes in deferred tax assets of$179.1 million and provision for doubtful accounts of$17.2 million . The net cash inflows from changes in operating assets and liabilities were primarily due to an increase in accounts receivable of$16.3 million , a decrease in deferred revenue of$1.9 million , partially offset by a decrease in prepaid expenses and other assets of$7.2 million and an increase in accounts payable and accrued expenses of$14.1 million . The changes in operating assets and liabilities are mostly due to fluctuations in timing of cash receipts and payments. 65
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Net cash provided by operating activities for the year endedDecember 31, 2021 was$30.2 million , which resulted from net income of$152.2 million , together with net cash inflows of$3.7 million from changes in operating assets and liabilities and non-cash items of$125.8 million , consisting of depreciation and amortization of$4.4 million , fair value of warrant liability of$166.5 million , impairment loss of$2.4 million , stock-based compensation expense of$29.3 million , changes in deferred tax assets of$0.8 million and provision for doubtful accounts of$5.5 million . The net cash inflows from changes in operating assets and liabilities were primarily due to an increase in accounts receivables of$13.6 million , an increase in accounts payable and accrued expenses of$6.6 million , partially offset by a decrease in prepaid expenses and other current assets of$7.9 million and an increase in deferred revenue of$2.8 million . The changes in operating assets and liabilities are mostly due to fluctuations in timing of cash receipts and payments. Net cash provided by operating activities for the year endedDecember 31, 2020 was$39.2 million , which resulted from net income of$38.8 million , together with net cash outflows of$4.8 million from changes in operating assets and liabilities and non-cash items of$5.2 million , consisting of depreciation and amortization of$4.0 million and provision for doubtful accounts of$1.3 million . The net cash outflows from changes in operating assets and liabilities were primarily due to an increase in accounts receivables of$6.8 million , a decrease in accounts payable and accrued expenses of$0.3 million and an increase in prepaid expenses and other current assets of$3.0 million . These changes were partially offset by an increase in deferred rent of$3.7 million , an increase in deferred revenue of$0.9 million and a decrease in other assets of$0.7 million . The changes in operating assets and liabilities are mostly due to fluctuations in timing of cash receipt and payments.
Net cash used in investing activities for the year endedDecember 31, 2022 was$17.8 million , which resulted from$0.7 million net cash paid for acquisitions,$16.1 million cash paid for purchases of property and equipment, including certain capitalized software development cost, and$1.0 million cash paid for an acquisition holdback release. Net cash used in investing activities for the year endedDecember 31, 2021 was$30.4 million , which resulted from$16.0 million net cash paid for acquisitions,$7.9 million cash paid for purchases of property and equipment, including certain capitalized software development cost, and$6.5 million cash paid for other investments.
Net cash used in investing activities for the year ended
Net cash from financing activities for the year endedDecember 31, 2021 was$48.1 million , which resulted from net proceeds from the Business Combination of$80.0 million , offset by$19.0 million of distribution payments to members ofWMH LLC ,$7.1 million for repayment of insurance premium financing,$5.6 million paid for the repurchase of ClassB Units and$0.2 million for repayments of notes payable to members. Net cash used in financing activities for the year endedDecember 31, 2020 was$23.0 million , which resulted from$22.0 million of distribution payments to members ofWMH LLC ,$0.6 million for repayment of insurance premium financing and$0.4 million paid for the repurchase of ClassB Units .
Contractual Obligations and Commitments
We have non-cancellable contractual agreements primarily related to leases. As
of
As of
As ofDecember 31, 2022 , our tax receivable agreement liability ("TRA") was$0.5 million . We expect that the payments we will be required to make under the tax receivable agreement will not be substantial, and therefore, in conjunction with the recording of a full valuation allowance on the related TRA deferred tax assets, we have also written off the remainder of the TRA liabilities as ofDecember 31, 2022 . We will continue to evaluate the realization of the TRA tax attributes, and in the future, we may conclude that the TRA liability is probable of payment, and if the TRA is reinstated, the payments would be substantial. Assuming a reinstatement of the TRA liability, there are several assumptions that would be relevant such as, no material changes in relevant tax law, that there are no future redemptions or exchanges of Class A Units and that we earn sufficient taxable income to realize all tax benefits that are subject to the tax receivable agreement, the tax savings associated with acquisitions of common units in the 66 -------------------------------------------------------------------------------- Table of Contents Business Combination would aggregate to approximately$166.3 million , as ofDecember 31, 2022 , over 15 years from Closing Date. Under this scenario, we would be required to pay to the Class A Unit holders approximately 85% of such amount, or$141.3 million , as ofDecember 31, 2022 , over the 15-year period from the Closing Date. The actual amounts we will be required to pay may materially differ from these hypothetical amounts, because potential future tax savings that we will be deemed to realize, and the tax receivable agreement payments made by us, will be calculated based in part on the market value of the Class A Common Stock at the time of each redemption or exchange under the Exchange Agreement and the prevailing applicable tax rates applicable to us over the life of the tax receivable agreement and will depend on us generating sufficient taxable income to realize the tax benefits that are subject to the tax receivable agreement. Payments under the tax receivable agreement are not conditioned on the Class A Unit holders' continued ownership of us. See Note 15 to our consolidated financial statements included herein.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates. We believe that the assumptions and estimates associated with revenue recognition, income taxes, stock-based compensation, capitalized software development costs, provision for doubtful accounts, goodwill and intangible assets and fair value measurements to have the greatest potential impact on our consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates. For further information on all of our significant accounting policies, see Note 2 to our consolidated financial statements included herein. Revenue Recognition Our revenues are derived primarily from monthly subscriptions and additional offerings for access to the Weedmaps marketplace and SaaS solutions. We recognize revenue when the fundamental criteria for revenue recognition are met. We recognize revenue by applying the following steps: the contract with the customer is identified; the performance obligations in the contract are identified; the transaction price is determined; the transaction price is allocated to the performance obligations in the contract; and revenue is recognized when (or as) we satisfy these performance obligations in an amount that reflects the consideration we expect to be entitled to in exchange for those services. We exclude sales taxes and other similar taxes from the measurement of the transaction price. The determination of the performance obligations and the timing of satisfaction of such obligations either over time or at a point-in-time requires us to make significant judgement and estimates. Substantially all of our revenue is generated by providing standard listing subscription services and other paid listing subscriptions services, including featured listings, placements, promoted deals, nearby listings, other display advertising as well as customer relationship management and delivery and logistic services. These arrangements are recognized over-time, generally during a month-to-month subscription period as the products are provided.
Income Taxes
As a result of the Business Combination,WM Technology, Inc. became the sole managing member ofWMH LLC , which is treated as a partnership forU.S. federal and most applicable state and local income tax purposes. As a partnership,WMH LLC is not subject toU.S. federal and certain state and local income taxes. Accordingly, no provision forU.S. federal and state income taxes has been recorded in the financial statements for the period ofJanuary 1 to June 16, 2021 as this period was prior to the Business Combination. Any taxable income or loss generated byWMH LLC is passed through to and included in the taxable income or loss of its members, includingWM Technology, Inc. following the Business Combination, on a pro rata basis.WM Technology, Inc. is subject toU.S. federal income taxes, in addition to state and local income taxes with respect to its allocable share of any taxable income ofWMH LLC following the Business Combination. We are also subject to taxes in foreign jurisdictions. Tax laws and regulations are complex and periodically changing and the determination of our provision for income taxes, including our taxable income, deferred tax assets and tax receivable agreement liability, requires us to make significant judgment, assumptions and estimates. In connection with the Business Combination, we entered into a tax receivable agreement ("TRA") with continuing members that provides for a payment to the continuing members of 85% of the amount of tax benefits, if any, thatWM Technology, Inc. realizes, or is deemed to realize, as a result of redemptions or exchanges of WMH Units. In connection with such potential future tax benefits resulting from the Business Combination, we have established a deferred tax asset for the additional tax basis and a corresponding TRA liability of 85% of the expected benefit. The remaining 15% is recorded within paid-in capital. To date, no payments have been made with respect to the TRA. Our calculation of the TRA asset and liability requires estimates of its future qualified taxable income over the term of the TRA as a basis to determine if the related tax benefits are expected to be realized. 67
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Based on the weight of all available evidence, both positive and negative, we determined during the fourth quarter of 2022 that a full valuation allowance is required against our net deferred tax assets. Payment under the tax receivable agreement liability is not probable resulting from the full valuation allowance and accordingly, the liability was reversed. As ofDecember 31, 2022 , total net deferred tax assets and TRA liability were zero and$0.5 million , respectively. As a result of the TRA liability remeasurement, we recognized an income of$142.4 million from the change in TRA liability on the accompanying consolidated statement of operations. See Note 15 to our consolidated financial statements included herein. Stock-based Compensation We measure fair value of employee stock-based compensation awards on the date of grant and allocate the related expense over the requisite service period. The fair value of restricted stock units ("RSUs") and performance-based restricted stock units ("PRSUs") is equal to the market price of our Class A common stock on the date of grant. The fair value of the ClassP Units is measured using the Black-Scholes-Merton valuation model. When awards include a performance condition that impacts the vesting of the award, we record compensation cost when it becomes probable that the performance condition will be met. The level of achievement of such goals in the performance-based restricted stock awards may cause the actual number of units that ultimately vest to range from 0% to 200% of the original units granted. Forfeitures of stock-based awards are recognized as they occur. For the years endedDecember 31, 2022 and 2021, we recognized stock-based compensation expense of$23.5 million and$29.3 million , respectively. See Note 13 to our consolidated financial statements included herein.
Capitalized Software Development Costs
We capitalize certain costs related to the development and enhancement of the Weedmaps platform and SaaS solutions. In accordance with authoritative guidance, we began to capitalize these costs when preliminary development efforts were successfully completed, management has authorized and committed project funding, and it was probable that the project would be completed and the software would be used as intended. Such costs are amortized when placed in service, on a straight-line basis over the estimated useful life of the related asset, generally estimated to be three years. Costs incurred prior to meeting these criteria together with costs incurred for training and maintenance are expensed as incurred and recorded in product development expenses on our consolidated statements of operations. Costs incurred for enhancements that were expected to result in additional features or functionality are capitalized and expensed over the estimated useful life of the enhancements, generally three years. The accounting for website and internal-use software costs requires us to make significant judgement, assumptions and estimates related to the timing and amount of recognized capitalized software development costs. For the years endedDecember 31, 2022 and 2021, we capitalized$15.5 million and$7.4 million of costs related to the development of software applications.
Accounts Receivable
We measure credit losses on our trade accounts receivable using the current
expected credit loss model under Accounting Standards Codification ("ASC") 326
Financial Instruments - Credit Losses, which is based on the expected losses
rather than incurred losses. Under the credit loss model, lifetime expected
credit losses are measured and recognized at each reporting date based on
historical, current and forecast information.
We calculate the expected credit losses on a pool basis for those trade
receivables that have similar risk characteristics. For those trade receivables
that do not share similar risk characteristics, the allowance for expected
credit losses is calculated on an individual basis. Risk characteristics
relevant to our accounts receivable include balance of customer account and
aging status. We had an allowance for doubtful accounts of $12.2 million and
$5.2 million as of December 31, 2022 and December 31, 2021 , respectively. See
Note 2 to our consolidated financial statements included herein.
Assets and liabilities acquired from acquisitions are recorded at their estimated fair values. The excess of the purchase price over the estimated fair values of the net assets acquired, including identifiable intangible assets, is recorded as goodwill. The accounting for goodwill and intangible assets requires us to make significant judgement, estimates and assumptions. Significant estimates and assumptions in valuing acquired intangible assets and liabilities include projected cash flows attributable to the assets or liabilities, asset useful lives and discount rates.Goodwill is not amortized and is subject to annual impairment testing, or between annual tests if an event or change in circumstance occurs that would more likely than not reduce the fair value of a reporting unit below its carrying value. Intangible assets deemed to have finite lives are amortized on a straight-line basis over their estimated useful lives, where the useful life is the period over which the asset is expected to contribute directly, or indirectly, to our future cash flows. Intangible assets are reviewed for impairment on an interim basis when certain events or circumstances exist. For amortizable intangible assets, impairment exists when the carrying amount of the intangible asset exceeds its fair value. At least annually, the remaining useful life is evaluated. See Note 8 to our consolidated financial statements included herein. 68
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Fair Value Measurements
In connection with the Business Combination, we assumed 12,499,993 Public Warrants and 7,000,000 Private Placement Warrants. As ofDecember 31, 2022 , 12,499,973 of the Public Warrant and all of the Private Placement Warrants remained outstanding . The warrants are measured at fair value under ASC 820 - Fair Value Measurements. The fair value of the Public Warrants is classified as Level 1 financial instruments and is based on the publicly listed trading price of our Public Warrants. The fair value of the Private Warrants is determined with Level 3 inputs using the Black-Scholes model. The fair value of the Private Placement Warrants may change significantly as additional data is obtained. In evaluating this information, considerable judgment is required to interpret the data used to develop the assumptions and estimates. The estimates of fair value may not be indicative of the amounts that could be realized in a current market exchange. Accordingly, the use of different market assumptions and/or different valuation techniques may have a material effect on the estimated fair value, and such changes could materially impact our results of operations in future periods. As ofDecember 31, 2022 andDecember 31, 2021 , warrant liability was$2.1 million and$27.5 million , respectively. See Note 5 to our consolidated financial statements included herein.
Recent Accounting Pronouncements
See Note 2 to our consolidated financial statements included herein.
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