Wm Technology, Inc. Q3 FY2021 Earnings Call

Good afternoon, everyone, and welcome to the WM Technology's Inc. Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. I will now like to turn the conference over to your host, Greg Stolowitz with VP, Investor Relations and Corporate Development. Please go ahead.

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

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

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

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

Thank you. Our first question comes from the line of Andrew Carter with Stifel. Your line is open.

Thank you. Good afternoon. I wanted to ask about your projected growth of 28% to 30% in the fourth quarter, with an acceleration into the high thirties next year. Given the tough conditions in your primary markets, what gives you confidence in that growth? Additionally, regarding the two acquisitions you made, do you have any insights on how they could impact revenue per client growth as a tailwind for next year? Any information to help us understand your confidence in next year's revenue would be appreciated.

This is Chris Beals. I'll take the first part of that question. I think, in terms of confidence in where things are going, I think one thing is really interesting is that, what we're exhibiting are a number of counter-cyclical elements to our offering of solutions. We've outperformed sort of what we've seen in the end markets, fairly materially, and we expect to be able to continue to do so. I think the other thing is when you look at the go-forward, there are really two elements that dictate this softening for the cannabis licensed businesses. First, are there structural fixes to it? That’s sort of more licenses being issued. That's the single biggest thing holding back scaling of the licensed industry. Most state legislatures are out of session right now, and local governments are kind of in the holiday period. So that has a slightly longer time period to it. You'll expect legislatures to come back in Q1 and Q2 of next year, and then licenses to issue out from there. Obviously, there are exceptions for jurisdictions with ongoing movements. But then there's behavioral shifting, which can happen on a shorter period. One of the biggest things that we offer is one of the most cost-effective ways for cannabis businesses to effectively reach end consumers and drive sales, that sort of thing. Part of what we're seeing is cannabis businesses during these leaner times start to switch or move spend to areas where they're going to get the highest yield and high efficiency. I believe our marketplace side of our business represents that. The other pieces with the business solution side, especially as augmented by Sprout, CannCurrent, and Cannveya, when you look across our business, that really goes to the heart of how do you achieve key compliance and business efficiency outcomes in a cost-effective, low-labor way. Again, that's something that really solves this pain point for these cannabis businesses. I take a lot of comfort in that. I also take a lot of comfort in the fact that we have a number of things in the pipeline. I believe we may have the largest technology team servicing the cannabis sector. We've had one of our fastest quarters of hiring ever in the history of the Company. That's where I get a lot of my confidence from. For the second part of the question, maybe I'll flip that over to Arden.

Yes. Andrew, in terms of the dynamics that you highlighted in terms of the implied year-over-year revenue growth in Q4 and into next year, obviously Chris went through a lot of what gives us confidence. I also just note that as we've been working through a plan specifically around some of these opportunities that we noted on the call earlier, we have a lot of confidence around areas where we're underpenetrated today. We still have a lot of license share that we can go after. We have client segments that are big parts of the industry that want to work with us, and we want to lean into in terms of new product-driven strategies to get after those opportunities. That drives a lot of our confidence as well. Now specifically around the question that you asked about Sprout, Cannveya, and CannCurrent. We haven't provided a lot of financial disclosure regarding those acquisitions, but here's what excites us about those transactions: these are capabilities that represent meaningful opportunity sets within WM business. We now have a CRM solution where Sprout's existing client base is just a fraction of what we bring to the table. With our clients averaging about $1,000 per month in spend, you look at Cannveya and CannCurrent, again, they had a very small client footprint that we inherited, but their clients were averaging about $500 to $700 area per month. When you think about both solutions, these are add-on opportunities that represent incremental revenue per client opportunities for us heading into next year.

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

Yes, I think as you well know, there's a pretty big delta between public market valuations and private market valuations. I think a lot of cannabis operators who are privately held and who could be targets for us are pretty keenly aware of that. The thing is, and this is something we bring to the table that's incredibly unique, for a lot of these businesses, the excitement about coming under the Weedmaps umbrella is the size, speed, and sophistication of our tech team. The fact that we can get the Post-Merger Integration done quickly and they can start to see traction with their products and thrive and grow, and the synergies from interconnecting their software with ours. The type of targets we look for are lean, hungry, founder-led companies that have fast growth and sophisticated technology. Those are the types of people who are drawn to solving hard problems and scaling quickly. I think, yes, it's natural for folks to look at some of these zesty private valuations, but we hear a healthy amount of skepticism about whether those numbers are real or not. Separately, a lot of these businesses are focused on whether, if they join WM Technology, is this a partnership and is my baby going to thrive in the technology that made the product and offerings? The piece of the post-merger integration and product iteration in integrating Cannveya, CannCurrent, and Sprout since we've acquired them has been breathtaking, and I've been quite happy with it. That’s exactly the type of thing that good inquisitive M&A companies can do.

Our next question comes from the line of DJ Hynes with Canaccord. Your line is open.

Thanks guys. I appreciate all the color, a lot of stuff to unpack here. I'm going to start with Arden and then a follow-up for Chris. I have a blunt question on the numbers. Look, do we need to see a change in the consumer demand environment for you to hit the preliminary view you laid out for next year?

For us, we don't think about it as needing to see a change in the consumer demand environment. Again, our view is that consumer demand remains very strong. It's a matter of kind of behavioral shifts across different channels. A lot of that tends to be based on the data that we're seeing in the client conversations we’re having, very much a moment-in-time type aspect. The other things to keep in mind is, listen, we're continuing to see license issuance, right? What encourages consumer demand across licensed channels is more retail density. We had a lot of licenses issued earlier in the year. We didn't see as much as we'd like to have seen over the last quarter. But as folks get back in the year and legislative sessions, we fully expect to see more of that come our way.

Yes.

The other thing I'd say is, for us, as you think about our solution set, one of the things that we noted on the call is the fact that our clients with the margin performance that we saw, with the client growth that we saw, we still have clients that want to maintain presence on the platform. It's critical for clients to be very visible with consumers right now. And so, while they haven't been spending in terms of revenue per client as much as we'd like to see, we are still seeing clients very much wanting to maintain a physical presence on Weedmaps to get in front of the consumer.

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

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

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

Good afternoon. Chris, you sound possibly more positive on the long-term. I appreciate the comments. I'm wondering if you could just spend a little more time on the demand shift to non-licensed channels. Just curious when you started to see this impact emerge in the quarter? I mean the third quarter ended up more or less in line with our expectations. Is it correct to think of this as mostly a Q4 impact? Curious if you could size it, guesstimate it, and any thought on how long it'll take for the market to kind of normalize or is this a one-quarter impact one, two, three, just any thought around that would be helpful. Thank you.

I think one thing that aids us in being able to observe and see these things is our distributed reach and the fact that we offer fairly ubiquitous tooling everywhere. We get to see the data and what the data shows ahead of a lot of folks. I'd say kind of coming out of Labor Day, we started to hear some rumblings and see a little bit of stuff in the data indicating that it felt like consumer volumes were softening. On the flip side, I think as you saw in the numbers that we add, you start to see increased gaps of our performance exceeding what we were seeing on the ground. I think that's again representative of our ubiquitous nature, but also the fact that we've been doing a lot of work to aid consumer ease of product discoverability, including the iOS app coming on. What we were seeing was some product getting diverted into the illicit market from legal channels up the supply chain, and consumers starting to see similar quality products at a cheaper price in a different place. However, the thing I would notice is I think there are behavioral shifts that are starting to counteract this, and that we'll start to see sort of a current out periods. A lot of cannabis businesses weren't extremely tight and ROI-focused or ROCE-focused on their marketing and ad spend. You'll start to see them look to the most efficient way that I can attract and retain consumers. Businesses haven't spent a lot of time educating consumers on why they should come to the legal market versus the illegal market. I don't think overnight this is going to resolve itself, but I think that you have a number of factors moving toward solving it. We've seen temporal periods of this happening in the past. When California made the transition to the Prop 64 adult-use regime, the transition took time to settle. I think this too will settle out in a similar fashion. It's just a matter of those steps being taken.

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

Hi, this is Aaron Timson filling in for Pat. First, I want to discuss the opportunity in Canada. Is the plan still to start monetization and onboarding clients there this quarter or early next year? Additionally, can you share your insights on the changes you've observed in the Canadian marketplace over the past year and any further developments that could enhance its functionality?

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

Our next question comes from Connor Passarella with Truist Securities.

Connor here on for Terry. Just wanted to start with one on legalization regulatory. So, there's been several new state legalization bills announced: South Dakota, Maryland, Ohio, just to name a few. Would announcements like some of the last 90 days be important for us?

I think, for me, the ones that jump out are—for instance, with Governor Cuomo leaving in New York, making steps to get a cannabis commission and that cannabis infrastructure back in place. With him stepping down, a lot of the cannabis or sort of people who will be tapped to be regulatory folks for cannabis left with him. There’s been some really interesting movement with New York moving to rebuild that infrastructure under the new governor. In terms of what Maryland's doing, there's some promise. Maryland's always been a strong market for a medicinal market. I think they needed a bit more on the retail density side, but there's been fairly robust consumer demand, and they have been quite responsive to consumer convenience requirements. I think we'll see Maryland move a bit more speedily because the folks that are looking to Virginia to the South and New Jersey to the North realize that if they don’t move towards recreational and things like that, consumers will simply cross state borders for that. So I think that’s one to really keep a close eye on. Separately, I think by all indications, New Mexico is moving from the legislative phase to the implementation phase at a good rapid pace, and then, separately, Montana had a pretty draconian set of laws that could have crippled the adult-use market, and those were stripped away in clean-up legislation. I think you're going to see a normalized market start to emerge there, which will be really good.

Okay, great. I appreciate the color there. One quick follow-up for me. I know you've spoken a little bit about it before, but how has the iOS change in allowing in-app orders affected order volume thus far? And do you have any updates around the Google PlayStore potentially making some more changes?

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

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

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