Q3 2021 WM Technology Inc Earnings Call
Good afternoon, everyone and welcome to the W. M Technologies, 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.
If you require any further assistance. Please press star then zero.
I'd now like to turn the conference over to your host, Greg Stoller, which C P Investor Relations and corporate development. Please go ahead.
Yeah.
Hi, everyone. Thanks for joining our Q3 2021 earnings conference call, we have Chris <unk>, our CEO and Lee our CFO with US today by now everyone should have acts.
Our earnings announcement. This announcement is also on our Investor Relations website, along with its 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 predictions and expectations as of today may change over time.
Our actual results could differ materially due 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 will discuss certain non-GAAP financial measures. These non-GAAP measures are not intended to be a substitute for our GAAP results. Please refer to our earnings release on our Investor Relations website for a reconciliation.
<unk> of GAAP to non-GAAP financial measures as well as additional context on our key operating metrics and finally this call in its entirety.
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 and the developments during the third quarter before we begin we want to honor all of the veterans and 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 sacrifice.
And service.
Dramatically I want to note at the outset, something very critical with the recent introduction of a Republican 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 is one that is coming closer than ever access.
<unk> rate, however, federal legalization should not be confused with steep deregulation, even in a world with federal legalization that disparate state cannabis regimes, we see today will likely continue to evolve in the fashion. We currently say this is quite similar to the differences we see amongst states for a number of highly regulated goods, where the states have a vested interest in both public health.
And the state economy Nonetheless.
Nonetheless, it bears repeating that federal legalization opens an incredible array of exciting product and monetization opportunities for W. M technology, and Conversely, the continuing patchwork of state regulation underscores the need for the scalable flexible technology solutions, we provide to enable businesses to scale across jurisdictions.
And so the thing I really want to highlight here is that how we are 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 of that federal legalization will bring to our business. While also reaping the greatest benefits now in the era prior to federal legalization.
Moving to our business and technology delivered a strong third quarter as we saw a year over year growth significantly outpaced cannabis end 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.
Growing at 9% year over year on a reported basis and 46% year over year, when excluding Canada from last year's numbers I won't 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 demonstrated the strength and resiliency of the weed maps marketplace and the Wm business offering as we achieved double digit growth. Despite deceleration in our client and markets as reported in third party data for example, California, which is our largest market saw a lower end market retail sales in Q3 versus.
As 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 that there's 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 return to in office work across 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 in the pace of license issuance remains sluggish, which is contributing to a thriving illicit market.
Further there's been a lot rent in the press about how producers are dealing with the current supply glut by in some cases diverting product to unlicensed market channels at significant price discounts, which is only further fueling the consumer demand shift.
As a reminder, <unk> 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 at <unk>.
Creating promotional deals on we'd maps, allowing clients to target users seeking promotions with higher velocity, we introduced self serve AD tools in several additional markets to allow our clients and easier setup process to run more targeted AD campaigns across our platform.
We drove wider availability of menu and orders integrations with third party peer point of sale providers to ensure easier menu setup and orders and Wm store enablement. So that clients can more easily convert user traffic to transactions, whether it be on the weed map site or on their own owned and operated domains. The order of integration is also greatly simplified workflows for REIT.
Taylor by directly and putting the orders into the retailers point of sale, we 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 in <unk>.
Tended 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 weed maps user experience by increasing the accuracy of menu and product information across our marketplace and surfacing deals and promotions and more intuitive ways for end users we enabled online order.
<unk> functionality in our iOS app within days of Apple lifting these app store restrictions.
We launched our second annual best of weed maps marketing program heading into Q3, recognizing retailers, who meet quality thresholds and delivering great shopping experiences on we'd maps with nearly 100% increase in retailer clients being recognized for excellence in user service, providing a win win for both our users and then recognizing clients.
While it's difficult to predict whether the end market dynamics. We saw in Q3 have bottomed out we remain more bullish than ever and our growth opportunities and strategic positioning to capture both user and client driven growth.
Many industry observers of size cannabis as a 20% to $25 billion of license market in the U S. Today. However, these are the same observers that note that license demand is only a fraction of the total market. It's rare to have such a visible total addressable market where growth is not only a function of new consumer demand, but also shifting existing consumer demand across <unk>.
<unk>. This total addressable market will get unlocked with the continued license issuance of 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 licenses.
<unk> enabled delivery and reduce irrational restrictions on how our clients can operate.
Based on this policy work, we still believe there is 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 is clear evidence of that dynamic we grew our average revenue per paying client by close to 20% year over.
Year, along with a 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 seeing awareness of the <unk> brand with.
Consumers through efforts like the Kevin to ramp partnership that we announced in August is also 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 outsized presence on the east coast.
And yet remain underserved segments of the Wm business suite. These clients are looking for ways to maximize their presence with consumers improve the ability to quantitatively understand their operations and reduce their operating and compliance costs.
<unk> as we speak with are seeking a one stop shop to optimize the return on investment across all marketing channels, leveraging data and providing ways to re target their users they need the bespoke tech solutions to handle complex integrations across disparate systems as a result of consolidating acquisitions of multiple retailers and trying to change back office workflows brands, we see.
What they are looking for ways to go direct to consumer to tell their brand story, they want to spend scalable and compliance 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 business isn't.
Consumers.
To meet these needs Wm technology has been developing capabilities based on client feedback and are incredibly excited to begin piloting these solutions in Q4.
We've developed a pilot program for clients seeking full service multi channel solution spanning both weed maps and off we'd mass channels as many of you know marketing today and cannabis is extremely burdensome given compliance that can change from region to region fragmented incomplete data sources, but don't talk to each other and multiple channels to manage for this program are aiming to accomplish three.
Goals first we're leveraging our first party consumer data and market sales data to help reduce some friction in the burden on cannabis retailers attempting to re shifting consumer basis or specific consumer segments second we're using this offering to establish ourselves as a consultative marketing partner to alert to larger enterprise clients were 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 also will 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 tooling for brands to easily effectively an actionable and 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 re targeting functionalities. In addition to these tools, we're working towards a partnership with cookies co founder burner 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 burner will not only be a great experience for our users, but a tremendous opportunity for brands and for that matter of 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 head count across our regional go to market teams and within our engineering product and design teams with over 75, new hires in Q3.
Noted last quarter, we're continuing to see dialogue from integration partners 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.
Subscription in September we also signed and closed on the acquisitions of <unk> and concurrent Canvey as a premium logistics compliance software solution that not only facilitates compliant fulfillment of delivery orders, but also helps handle complex workflows like dynamic delivery, sometimes referred to as ice cream truck model, which is currently a huge pain.
Point from any delivery operators, Ken current is a service that builds custom integrations and connectors across different tech solutions based on customized workflows, one way to think of it would be as a power tool to speed connectors and industry with a lot of complex regulatory driven integrations and Apis.
Boot camp and concurrent will be offered as premium up sells to Wm business as well these.
These acquisitions fill critical gaps in the <unk> business solutions that will allow us to better serve our existing clients and to better target the MSL and brand client opportunities I mentioned earlier.
I 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 eat and product integration and go to market efforts I expect.
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 <unk> business portfolio of solutions will approach. These solutions in a disciplined manner as we evaluate how we can drive inorganic growth for Wm technology.
While our end markets remain fluid what is absolutely clear is that the long term opportunity for <unk> technology has never been more tangible and our ability to get 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 by the direction W. M is taking and doubling down on providing more proof.
Sectional and integrated solutions to help them run their business, we're investing behind things like our data Lake and sophistication of our technological architecture to enable us to accelerate the pace of bringing products to market based on feedback from our clients.
Also increasing the pace of hiring for what was already I believe the largest engineering team for any technology company in the sector, we're 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 and the conversations I'm, having with our existing and potential clients quite loudly and clearly to the role that <unk> technology occupies in Canada. We are 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 that we maps 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 that maps marketplace and 28% when excluding users attributed to learn section of our website, which we didn't track into 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 you last quarter, we've seen a slowdown in consumer spend within licensed channels throughout this year versus the peak volumes achieved in Q3 of 2020 and 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 license versus non licensed channels.
Further adding to this shift is the 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 testament to the power of our operating model and the ROI, we delivered 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 in our prior cohorts it.
It's also worth noting that despite the increases in our revenue per client metric. We remain one of the most cost efficient channels for candidates businesses to reach consumers and engage them to transact.
Moving down the 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 expand 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 after cost of revenues and prior to DNA expense came in at $44 million for the quarter.
Our reported Opex includes $4 million in stock based compensation and $1 million in additional nonrecurring charges related to the sprout kanban concurrent 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 head count in our regional teams sales leadership and sales enablement teams as well as strategic marketing investments.
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 cost 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 56% 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, we're at 20% margin rate. 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 cost mentioned above again, a reminder, that our adjusted EBITDA as prior to $6 million and noncash costs.
Comprised of 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 statements 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 report net income as well as net income.
And EPS attributable to Wm Technology, Inc.
With our up sea structure, we had unit holders and our operating entity Wm holding company. In addition to shareholders and our publicly traded entity Wm Technology, Inc, which results in several classes of shares that comprise our share count.
As of September 30, we had $65 7 million outstanding shares of class a common stock, which have voting an economic interest in Wm Technology, Inc. And include shares that we issued to the founders of the recent acquisitions I spoke to earlier.
We also have $65 5 million class B shares outstanding which have voting interest in <unk> Technology, Inc. But no economic interests. These V shares are paired with units at hold economic interest in our operating entity and those paired share units are exchangeable one for one into 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 invested as of September 30th held largely by current and former employees that can also be exchanged into shares of class a common stock.
Finally, as you can see in our filings the company adopted in the equity incentive plan and as part of that plan, we have about 243000 vested restricted stock units.
Our basic share count is that some of those for sure types and totaled 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 will 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 continue to be debt free.
Our business continues to generate significant cash flow and 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 scout and can be a concurrent acquisitions.
As Chris noted, we continue to be on the receiving end of promising inbounds from integration partners, who are weighing their strategic options and we continue to have active dialogue on bolt on opportunities that could accelerate our growth 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 in our end markets with new states opening and licenses flowing but on the slower cadence than the industry would like to see.
Adding to these uncertainties are the consumer demand shifts from license to non licensed channels as producers work through the supply glut 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 currently estimate 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 <unk> to low <unk> 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 a reported basis and mid <unk> for the U S alone.
On the investment side, we are accelerating investments in Q4, as we look towards next year growth opportunities in new market openings. We are working towards the integration of the sprout and can be concurrent platforms as we look to scale both 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 head count across our regional revenue in engineering product and design teams to support the focus growth 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 were $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.
Currently working through our annual operating plans and we will 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 <unk> 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 as crisp to earlier, but will maintain cost discipline across other areas that art points, a 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're having the market opportunities for Wm Tech that we are seeing the ongoing planning by our teams and the investments we're making today that will allow us to capitalize growth in 2022.
Our confidence in our growth is also a function of a long term opportunity we have across our end markets our existing U S States, where we do business continued to be underscored with just under 9000 licenses today.
We believe this number will grow by at least another 9000 licenses to reach minimum levels of appropriate density, which we define as one store per 10000 residents and that growth is just within our existing states is the entire U S achieved that level of minimum acceptable store density today's license count will grow by a factor of four.
<unk>.
As Chris noted this growth is not a question of if but when.
While license issuance has been more sporadic than we'd like to see we are leading the change to our policy efforts to accelerate issuance increased 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 Eitan.
Before we go to the Q&A session I'd like to comment on the unique opportunity of the <unk> technology leadership team and I had on October 12 to ring. The opening bell at NASDAQ is especially meaningful moments are industry reflects on how far we've come over the last 50 years since President Nixon first declared the infamous war on drugs, but also served as a reminder of the road we have ahead of us.
Throughout our 13 year history, we'd maps, we've worked to not only be a leader in the cannabis technology and solutions 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 of this cost and when we have a long way to go in terms of record expunged meant license issuance and states to actually allow the will of their voters and open up medical and <unk>.
Accretion we use.
This year has been an historic one for the industry on many levels just last week with the news of the state's Reform Act. We now have the potential for debate on legislation from both sides of the aisle in Washington, as we head into 2022 Im optimistic of the progress we have made as a country and of 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.
Ladies and gentlemen to ask a question you will need to press Star then one on your telephone.
Withdraw your question press the pound key.
Next I wanted to ask a question.
Please standby, while we compile the Q&A roster.
Our first question comes from the line of Andrew Carter with Stifel. Your line is open.
Thanks, Good afternoon, I wanted to ask so I think youre laying out pro forma 2833% growth in the fourth quarter accelerating in the high <unk> next year, I guess could you would that kind of acceleration and knowing that the industry end markets at least your primary are still going to be tough and what gives you confidence in that on the one side and if I could also ask with the.
Two acquisitions, you made any kind of insights and what that could mean into revenue per client growth.
When next year anything to help us there on kind of given confidence in the revenue for next year.
So.
This is Chris feels I'll take the first part of that question I mean, I think in terms of confidence in where things are going I think one thing is really interesting is that I think what we're exhibiting or a number of countercyclical elements to our offering of solutions. So 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 I think there's really two elements to what sort of dictate this.
Sort of softening for the in cannabis license businesses. I think one is is there a structural fixes to it and that sort of more licenses being issued that's the single biggest thing holding back scaling of the license industry. Most state legislatures are out of session right now local governments are kind of in the holiday period. So that has a slightly longer time period to it youll expect.
Legislators to come back sort of in Q1 into Q2 of next year, and then licenses to issue out from there obviously other exceptions for jurisdiction is already a movement, but then there's behavioral shifting which can happen on a shorter period and one of the one of the biggest things that we offer is one of the most cost effective ways for cannabis businesses too.
Effectively reach end consumers drive sales that sort of thing and so I think part of what we're seeing is cannabis businesses.
During these leaner times start to switch or move spend to areas, where theyre going to get the highest yield in the highest efficiency and I believe our marketplace side of our business represents that the other piece is as with the business solutions side with especially as augmented by sprout by can current buy can vein. When you look across our business suite that really goes to the <unk>.
How do you do key compliance and sort of business efficiency outcomes in a cost effective low labor way and so again, that's something that really solves this pain point for these end businesses.
A lot of comfort in that and then I also take a lot of comfort in the fact that I think we alluded to.
Small chunk of the things we have in pipeline I think we have what I believe to be maybe 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 and so.
This piece of our speed the pace and speed of R. R.
Our offerings, new bringing new things to market is only accelerating we have a number of interesting things in beta some of which we talked about just a bit ago, and so that's where I get a lot of my confidence from I think for the second part of the question, maybe I'll flip that over to Artem, yes.
Andrew in terms of the.
Dynamics that you highlighted in terms of implied.
Year over year revenue growth in Q4 and into next year.
Chris went through a lot of kind of what gives us confidence I'd also just note that as we've been working through our 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 right. We still have a lot of licensees share that we can get after.
We have client segments that are big parts of the industry that want to work with us that we want.
To lean into in terms of new product.
Driven strategies to get after those opportunities and so that drives a lot of our confidence as well specifically around the question that you asked around.
Sprout and can be a concurrent listen we haven't provided any a lot of financial disclosure around these acquisitions, but here's what excites us about about both transactions, which is these are capabilities that fill meaningful opportunity sets within wm business right. So when we now have a CRM.
<unk>, where what I'd say is.
With the existing sprout client base that they had granted their client base in terms of what came over versus.
Where we are as a company is just a fraction of what we bring to the table, but with those clients, they're averaging about let's call. It 1000 bucks per month and spent.
You look at what.
On the campaign concurrent side again, very small quiet footprint that we inherited product market fit across all the regions, where we do business there.
Their clients, we're spending on average in the kind of 5% to 700 area per month rate and so when you think about both solutions. These are add on opportunities.
That solve pain points for our clients that represent incremental revenue per client opportunities for us heading into next year.
That's helpful Second I wanted to switch <unk> switch gears, a little bit and just kind of talk to medically about kind of where the industry is we've seen the private flows the two private rounds.
The big ones the 100.
Sorry.
$100 million raised in the $350 million raised as well as as we've seen some seen some companies try to go. This background. So I guess I'll just ask that is part of the thesis here is to be attractively positioned to build versus buy does this latest activity the enthusiasm in the private market, perhaps irrational approaches of the Spacs concern you or contribute.
In your conversations to any like stars in their eyes lofty expectations from potential sellers.
Yes, I think thats.
As you well know there is a pretty big delta between public market valuations and private market valuations and I think a lot of cannabis operators, who are privately held and who could be targets for us are pretty keenly aware of that but the thing is and this is something we bring to the table. That's incredibly unique is for a lot of these businesses are a lot of excitement with coming under.
We'd maps umbrella is the size the speed and the sophistication of our tech team and the fact that we can get the PMI post merger integration. After a transaction done quickly and they can start to see traction with their products sort of seeing their businesses thrive and grow in and the synergies from interconnecting their software with ours and so the type of folks or the type of.
Targets, we look for are.
Leanne, Hungary entrepreneurs sort of founder led companies that have fast growth and really I think sophisticated technology and those are the type of people who are drawn to how can I solve hard problems, how can I scale quickly and thats really a unique fit for us and why we're such an attractive landing spot for companies like that I think yes.
It's natural for folks to look at some of these kind of zesty private valuations, but we hear a healthy amount of skepticism about.
Whether those numbers are real or not.
Separately I think a lot of these businesses at the end of the day are really focused on if I come if I joined Wm technology is this a partnership and as my my sort of my baby going to thrive in that the technology, they've made the product and the offerings and I think.
In that regard I think the piece I'd be remiss, if I didn't say the pace of the post merger integration and sort of the product iteration and integration of <unk> and current and sprouts since we've acquired them less than just a few months ago.
It's been frankly, breathtaking I've been quite happy with it and I think that's exactly the type of thing that good acquisitive M&A companies, our M&A focus companies can do.
Thanks, that's great perspective, I'll pass it along.
Thank you.
Our next question comes from the line of DJ Hynes with.
With Canaccord your line is open.
Hey, Thanks, guys.
I appreciate all the color locked up unpack here.
I'll start with Arden and then a follow up for Chris.
A blunt question on the numbers, but.
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.
Yeah. So for US we don't 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 that we're having a very much a moment in time type aspect.
The other thing to keep in mind is listen we're continuing to see license issuance rate what encourages consumer demand across licensed channels is more retail density right. We have a lot of.
License issuance earlier in the year, we didn't see as much as we would've liked to have seen over the last quarter.
But as folks get back in the new year and into Legislative sessions.
We fully expect to see more of that.
Come our way and that in and of itself will drive more consumer demand across licensed channels as well.
Yoga, let's say is 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 be very visible with consumers right now and so while they haven't been spending in terms of rent per client as.
As much as we would like to see we're still seeing clients very much wanting to maintain a visible presence.
We may have to get very front of mind with the consumer.
Yeah, Yeah helpful color.
And then Chris a follow up for you I was just wondering if you could 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 have been Super successful right I think you've touched on.
<unk> brands being an important part of this strategy can you just maybe double click on the investments youre, making there and what needs to happen. So we'd managed to be successful in these new markets.
Yes, so I mean, I think to be honest I think what people might tend to focus on California, we've been incredibly successful in a number of other markets across the U S and I think the east coast markets, probably won't fall cleanly and the paradigm for a single other market and that's normal that's what we see everywhere.
So we've been investing fairly heavily in physical on the ground presence in east coast and the East Coast and also teams that are dedicated to just the east coast the.
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 and so I think that's an intentional targeting of kind of the enterprise segment, where there might be big but their tech stack is.
Often massey and convoluted.
And Thats exactly where we can come in both by building to what they have as well as in certain parts of our solution set.
And so that's how we think about that but it's worth noting that.
New York, New Jersey, Massachusetts number of these other states all of social equity programs that there'll be rolling out and those those programs as they are rolled out in other states have.
Most entirely been Smbs, we're seeing Illinois on the cusp of issuing those licenses and so I think what we've seen in the past, which is these are very sort of.
Large.
Sort of limited number of operator markets I don't think we will continue to be the case going forward or I feel fairly confident of that and just a question of the time in which those new licenses rollout 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 sort of paradigm that plays out in each market.
So yes 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 is as an 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.
Super helpful. Thank you guys.
Yeah.
Thank you.
Our next question comes from the line of Tom Champion with Piper Sandler Your line is open.
Thanks, guys good.
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.
The demand shift to non licensed channels just curious.
When you started to see this impact emerge in the quarter.
<unk> third quarter ended up more or less in line with our expectations as it is it correct to think of this as.
Mostly <unk>.
<unk> impact curious if you could size it guesstimate it and any thought on how long it will take for the market to kind of normalize or.
Is this a one quarter impact.
Q3, just any any thought around that would be helpful. Thank you.
Yes. So you can keep it I think one thing that AIDS us in sort of being able to observe and see these things is given our distributed reach and the fact that we offer fairly ubiquitous tooling everywhere that we get to see the data and sort of what the data shows ahead of a lot of folks and I would say kind of coming out of labor day.
We started to hear some rumblings and see a little bit of stuff in the data kind of indicating that it felt like sort of consumer sort of volumes. We're softening on the flip side I think as you saw in the numbers, we add youll start to see increased gapping of our performance exceeding what we're seeing on the ground I think thats again representative of sort of our ubiquitous.
Sure, but also the fact that.
We're aiding that we've been doing a lot of work to sort of aid consumer EES product discover ability the iOS app coming on but.
So I think.
For retailers I think really what we're seeing and what sort of started to seem to play or what started to play out was.
Some product getting diverted into the illicit market from legal channels up supply chain and sort of.
Consumers starting to see.
I think similar quality product at a cheaper price in a different place. However, the thing I would note is as I think that there are behavioral shifts that are starting to counteract this and that will start to see sort of occur in out periods.
I think one is just being honest I think a lot of cannabis businesses werent extremely tight and ROI focused or ROE as focused on their marketing and AD spend and I think that naturally youll start to see them look to what's the most efficient way that I can attract and attained obtained consumers.
I think a lot of operators didn't spend a lot of time educating consumers on why they should come to the legal market versus the illegal market and so these are things that you start to see businesses react too.
I think in terms of the out periods I think.
As I alluded to before the probably the closest thing to a silver bullet for this is more retail licenses.
A lot of what drives US is just not enough retail channels to handle the supply that's being produced but then also the fact that it's inconvenient for our consumer to drive a long distance or have limited selection because there aren't enough retailers.
That will take some time to solve but these behavioral shifts will happen more quickly I think.
This story varies from state to state I think there are some states that have performed better than others, but we will see them kind of continued rack. So I don't think overnight this is going to.
Resolve itself, but I think that you have.
Number of factors that are moving towards sort of solving it and we've seen temporary periods of this happening in the past I think frankly, when California made the transition to the prop 64 adult use regime. It took time for things to settle out and I think this this too will settle out in a similar fashion. It's just a matter of sort of those steps being taken.
Got it that's really helpful.
Thank you.
Our next question comes from the line of Pat Walraven with JMP Securities. Your line is open.
Hi, this is their intention on per pad well first off I wanted to touch on the opportunity in Canada is the plan. There is still to begin re monetize and clients later this quarter or early next year and secondly can you talk about the changes you've seen in the Canadian marketplace over the last year as well as further changes that will make it a more fully functional market.
Yes, so I think where we're piloting some stuff around.
Multichannel marketing, but then also more performance based ads and that sort of thing that should be better tailored to the Canadian market I think one of the things that was interesting in the Canadian market and obviously, we have a team that's on the ground. There we've had a long standing sort of physical presence in Canada.
And so we've been working closely with a lot of the folks there I think it's been tough because.
But a lot of people weren't expecting was.
Canada pulling back on the allowance of sort of curbside pickup and delivery and those convenience factors made a big difference, especially in Ontario, where you can get that from the provincial stores I think you're starting to see a <unk>.
More skeptical look at the fact that the provincial sort of regulators are deciding what product stores make Harry So I think that will start to see a change on the delivery piece first and then I think we'll start to see a change on the other pieces later.
No two bones.
Not minting words, I think the Canadian market is in a difficult place right now and I think that there are a lot of folks thinking about how they're going to fix that but I think at the end of the day.
As you look at the number of retailers, increasing and then needing to sort of think more creatively of ways to reach consumers.
That's really a problem that our platform and the fact that we're a software provider and can move fairly nimbly is designed to solve.
That being said I think that.
To get back to your question, Yes, we are sort of beginning.
The first steps towards monetization in Canada again, this quarter, but I'm really hopeful and we're doing work to see what we can do to try and sort of help solve the broader systemic problems in Canada that are hindering the market from fund functioning as well as it could.
Great. Thank you very much.
Thank you.
As a reminder, ladies and gentlemen, Thats star one to ask the question.
Our next question comes from the line of condo Pasteurella, What choice Securities. Your line is open.
Hi, Chris.
Conor here on for Terry Thanks for taking my questions guys. Just wanted to start with one on legalization regulatory so there has been several new state legalization bills announced South Dakota, Maryland, Ohio to name a few which announcements over the last 90 days do you think are most important perhaps.
Yeah I think.
For me the ones that jump out are.
For instance, with Governor Cuomo, leaving in New York than making steps to get sort of a cannabis commission in sort of that cannabis infrastructure back in place I think with him stepping down a lot of the a lot of the candidates.
People, who are going to be tapped to be regulatory folks for cannabis kind of left with them.
So I think there's been some really interesting movement with New York moving to sort of.
Rebuild that infrastructure under the new Governor.
In terms of what Maryland is doing I think theres. Some promise there, Maryland has always been a very strong market for medicinal market I think they are needed.
A bit more on the retail density side, but there has been fairly robust consumer demand and they've been I think responsive to consumer convenience requirements.
I think we will see Maryland move.
A bit more speedily, because the folks they're looking to Virginia to the south and New Jersey to the North and I think realizing the fact that if they don't sort of move towards recreational and thing of adult use and things like that that consumers will simply just cross state borders and move to get that so I think thats.
I wanted to really keep a close eye on.
Separately I think.
By all indications I think new Mexico is.
Is moving from the legislative phase to the kind of the implementation phase and a.
And a good rapid pacing and then separately Montana had a pretty.
Draconian set of laws, but I think were really meant to somewhat cripple the adult use market and those were stripped away and clean up.
Clean up legislation and so I think youre 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 spoke a little bit about it before but how is the iOS change of allowing an app orders affected order volumes, thus far and do you have any updates around the Google play store potentially making similar changes.
Yes, yes.
I'll split this with Arden.
The Google play piece on the Google side.
And it seems we work closely with Apple around that policy change and also around sort of our app being able to be in the App store I think unlike sort of apps for sort of single retailers are sort of more niche small players just given the volume of retailers and brands that are on the site I think we have to work to show that our vetting and <unk>.
Science processes to ensure folks were licensed we're up to snuff.
I think on the Android, Google App store side.
I think there.
I think they've been a little bit more liberal on things that nod towards ordering and kick outs, but in terms of allowing and app ordering.
It doesn't feel like anything has happened quite yet there, but we continue to sort of work with our counterparts. There to see what we can get done.
In terms of the second part of your what was the first part of your question.
And then I can take that.
So listen.
Disclose actual order volume, but here's what I'd say is we saw a meaningful increase in for example, iOS app downloads as a result of the changes that we made.
To the tune of let's call it high teens on a percentage basis month over month.
As you might imagine we've seen pretty healthy order volumes correspond with that and so that's been pretty encouraging for us as we think about.
Sending more traffic on behalf for our clients.
During the during this operating environment that we're in.
Great. Thank you guys.
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.
Yes.
Yes.
Yes.
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