MAPS - NASDAQ

Good day, good afternoon, everyone, and welcome to WM Technology Inc.'s First Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to turn the conference over to your host to Tim O'Shea, Director of Relations. Please, go ahead.

Hi, everyone. Thanks for joining us today to discuss our fiscal 2022 first quarter results. We have our CEO, Chris Beals; and our CFO, Arden Lee, with us today. By now, everyone should have access to our earnings announcement. This announcement is also on our Investor Relations website, along with the supporting slide deck. During this call, we'll make forward-looking statements, including statements about our business outlook strategies and long-term goals. These statements are not guarantees of future performance. They are subject to a variety of risks and uncertainties, some of which are beyond our control. Our actual results could differ materially from expectations reflected in any forward-looking statements. For a discussion of risks and other important factors that could affect our actual results, please refer to our SEC filings available on the SEC's website and our Investor Relations website, as well as the risks and other important discussed in today's earnings release. Should any of these risks materialize or should our assumptions prove to be incorrect, actual financial results could differ materially from our projections or those implied by these forward-looking statements. Forward-looking statements represent our beliefs and assumptions only as of the date such statements are made. We undertake no obligation to update any forward-looking statements made during this call to reflect events or circumstances after today or to reflect new information or the occurrence of unanticipated events, except by law. Also during this call, we will discuss certain non-GAAP financial measures which are not intended to be a substitute for our reported GAAP results. While we believe these non-GAAP measures are helpful to investors in understanding our business, they are not intended to be a substitute for our GAAP results. A reconciliation of these measures to our GAAP results can be found in our earnings release. With that, I'd like to turn the call over to Chris.

Thanks, Tim, and hello to everyone on today's call. We had a really strong first quarter and I'm pleased with across a number of key areas. This quarter demonstrated that we're playing offense and creating distance from the pack as the leading technology provider and commerce-driven marketplace in cannabis. And this past 420 holiday provides clear evidence that consumer demand for cannabis remains strong, despite broader macroeconomic concerns impacting other consumer discretionary sectors. We saw not only blow out crowds at 420 events across the country, but also broke our single day record for the highest ever order volume on Weedmaps this 420. Let's get straight into the results. We exceeded goals announced in February. For Q1, we grew revenue by 40% year-over-year and we continued to grow our user and client base uninterrupted in spite of continuing turbulence in some state cannabis markets. The power of the Weedmaps marketplace and the value that we provide, both users and clients, is evidenced by the results we drove and continues to give us confidence in our long-term strategy. It's clear that our strategy is working with business results that reflect the user growth we are driving across the Weedmaps marketplace and the client engagement we're driving through our WM software solutions. Looking at Q1, WM Tech's growth continues to be a result of three areas that I'll walk through today. First, driving deep client engagement for the cannabis retailers and brands we serve across all markets; second innovating and expanding our Weedmaps marketplace to continue to be the center of commerce for cannabis consumers, regardless of shopping demographic; and third, expanding the adoption of WM Business suite of business SaaS tools to enhance the client and user experience of accessing Weedmaps. Let's start with how we drove client engagement in Q1. We focused on delivering outsized value for our clients, as I've talked about before. Our average revenue per paying client is a direct reflection of the returns that our clients are seeing from being on our marketplace, regardless of the continued choppiness in end markets. We continue to expand our reach of clients across markets, with over 250 new paying clients added in the quarter. As new states come online, like Montana, which opened for recreational sales in January and New Mexico, which started recreational sales in April, we've been active in onboarding new clients and educate them on the breadth of the WM Business platform, while helping these retailers reach consumers and transact with them on the marketplace. We've completed the rollout of our Admin 2.0 portal that I spoke to in February. With this update, clients now have a simple to use homepage user interface providing visitor, view and engagement trends in addition to ROAS metrics. This surface also starts laying down the groundwork for self-serve, with elements for how clients can upgrade the quality of their digital presence on Weedmaps, view insight like top products across their listings and enable cross-product adoption and purchase upsell opportunities across our WM Business suite. Things like live menu integration and orders enablement along with featured listings and deal listings. We continue to improve our deals offering with new enablement features to allow clients to publish deals at scale across their listings. We've also created a new promotions hub within Admin 2.0 allowing clients to create and manage all promotions, including online promo codes in-store deals and online deals from one place. We've also rolled out new promotions features within our WM store e-com embed allowing clients to showcase promotions more easily on their own channels powered by WM store. Moving on to our Weedmaps marketplace. Our users are the core of our value proposition with clients. And in Q1, we improved the user experience in our marketplace in several ways as we look to reinforce our positioning as the center for cannabis commerce.

I noted last quarter, how we've increased the discoverability and transactability of deals and promotions for these users seeking value. Regarding convenience, we're piloting several new user enhancements including express reorder and order again features allowing users to easily select products they previously purchased, along with order type preferences, which allows users to more easily filter through available delivery and pickup options in their region. We also continue to test menu personalization leveraging our first party user affinity data. We expect to ramp these tests across more users and regions as the results to our user engagements and conversion actions have been validating. Now let's talk through how we're expanding the adoption of our WM Business platform. The WM Business platform anchors our client experience in accessing the Weedmaps marketplace. The more solutions they leverage, the easier it is to drive consumer conversion. In turn, client utilization of these solutions drives a more fluid marketplace experience and a higher propensity to adopt additional WM Business platform solutions. Why that's the case is that is client to use more solutions across the WM Business platform this translates to things like more up-to-date menus, more accurate product information and more omnichannel shopping options across multiple brands and retailers on the marketplace, all to the benefit of our users.

In Q1, we continue to expand our value-add integrations and now have menu integration with the key point-of-sale companies serving cannabis. Nearly 70% of menus on Weedmaps are now supported by menu integrations ensuring real-time inventory and accuracy of product information. We're also focusing on expanding our orders integration with these same point-of-sale partners as well.

Additionally, as we start to have point-of-sale partners integrate and market parts of the WM Business platform, navigating the inherent conflicts of being both the partner and competitors become increasingly challenging. Looking forward, I see an emerging opportunity position in the WM Business platform as a SaaS vendor to cannabis point-of-sale and ERP providers.

I'm pleased to welcome the Enlighten team to WM Technology and look forward to scaling our solutions together. It's an incredibly synergistic acquisition. For instance, we're already pairing it with WM store to do a jointly powered in-store experience. Moving forward, the acquisition positions us to be a tremendous partner to retailers and point-of-sale providers where you can ingest and cleanse point-of-sale data one time enrich it from our brand information catalogs and have that data power engaging and transactable -- consumers across the Weedmaps marketplace, web e-commerce, and in-store kiosk experiences. This example of yet another value-add solution we can provide to our software partners. Looking back over what we delivered this quarter, I think it's important to highlight a very key differentiator and competitive advantage for WM Technology. With an engineering product and design organization that numbers nearly 300, we have what I believe to be the largest software development team focusing on the cannabis space and not only that been incredibly successful at attracting marquee talent from top-tier companies across the technology space who are attracted to the size of the opportunity we have, our culture and our commitment to supporting a just and socially conscious cannabis industry. In the first quarter alone we grew our engineering product and design headcount by roughly 15% versus where we were at the end of Q4. The end result of having a technical delivery team of our size, that is leaned in and passionate is an incredible pace of software and future delivery. And we saw that this last quarter as we delivered new solutions at the fastest pace I've seen during my time here at WM Technology. When I talked back if I read about us playing offense with our balance sheet and cash flow, a big part of that focus was in continuing to invest in the incredible engineering product and design team we have that is such a critical piece of our success. Looking forward, I'm excited by the work our teams are doing and the opportunities that we have in front of us. We are creating the new within cannabis technology and driving innovations in ways that will be more visible over the course of this year. Let me touch on something I'm incredibly excited about. We're piloting a new in-app messaging feature allowing our CRM clients to reach their followers on the Weedmaps marketplace with things like exclusive deals and product promotions. How this works is that clients with Sprout, the CRM solution we acquired in Q3, we'll be able to conduct marketing campaigns targeting their followers on Weedmaps and have these users directly receive campaigns within their inbox on the Weedmaps iOS and Android apps. This beta essentially allows our clients to reach their shoppers as they're making purchasing decisions on Weedmaps, leading to higher conversion and lower cost to the client than other channels and options -- unlocks a potentially large growth flywheel for our marketplace businesses increase their use of in-app messaging and incentivize their customers to follow on Weedmaps, which in turn drives more end user engagement across our marketplace. I'll turn now to another area that I believe is game changing for our brands clients. We recently launched a new insight solution in the beta providing brands clients with powerful and actionable intelligence on brand and product rankings, retailer placements and performance, and product pricing insights, all of which is powered by our proprietary first -- data. This brand's insights product means an acute pain point for cannabis brands that we don't believe is being served anywhere today. Apart from these areas, we're also rolling out scheduled orders functionality allowing users to receive orders that set delivery windows and continuing to work towards rolling out dynamic delivery or what's otherwise known as ice-cream truck model, capabilities for our clients with delivery operations. And we continue to unlock valuable integrations for our clients such as menu and orders integration with LeafLogix and BioTrack that are rolling out in the near future. We've also prepared to launch a new WM Business offering in Canada, centered around our WM store, WM Dispatch and Enlighten solutions, they'll also include new payments functionality. Our learnings on payments in Canada will inform the approach we take in the US, whenever regulations enable us to monetize payments. Our teams also continue to be laser-focused on what we call Winning the Big East, which is our initiative focused on owning critical new East Coast states coming online. While it's still very early days, Weedmaps is resonating with clients in the tri-state area. We've already onboarded over 40% of licensees in New Jersey for instance. We continue to be bullish about these markets. Though as a reminder, the revenue contribution we expect from New Jersey this year is not material given the nascency of the market. Finally, I'd be remiss if I didn't take a moment to talk about another historic 420 holiday and what the success of that holiday means not only for WM Technology but the broader cannabis industry itself. I've seen estimates that this year's 420 drove over $150 million in legal sales, which is an increase of over 35% from last year. In New Jersey, -- lines on opening day of rec sales the day after 420. On Weedmaps, we've had our highest volumes of orders placed this past 420, eclipsing prior all-time highs with double-digit growth in volume versus last year's 420. Heading into 420, we launched our new Tumbleweed series in April featuring Killer Mike, which is being broadcast by VICE TV. It is a multipart docu series that features local cannabis culture across cities like Las Vegas, San Francisco, Chicago and New York. We coupled Tumbleweeds with the content integration within the Weedmaps app that has allowed our users to access exclusive content, merchandise, and promotions related to Tumbleweeds. Our Tumbleweeds content integration launched on 420 and contributed 27% increase in app downloads during the 420 week versus historical weekly averages. Since the start of this year, we've seen states with a combined population of 10 million residents, legalize adult recreational use and that excludes states like New York with over 20 million residents. I think it's important to call this out and remind everyone what an exciting time we're at in this country, let alone the world with respect to cannabis -- and I think it serves to highlight what we've been saying all along, which is that consumer demand for cannabis remains healthy. In fact the healthiest it's ever been. And while we at WM Technology continued to lead the push to continue to make legalized cannabis more accessible it's up to our federal state and local governments to do their share to increase license density so that we drive more consumer demand away from non-licensed operators to licensed channels. With that, I'll now turn the call over to Arden, our CFO.

Thanks, Chris and hello to everyone -- call. Today's environment continues to be incredibly dynamic. The human tragedy overseas and inflation fears at home are driving concerns on the health of consumer and discretionary spending. And while these dynamics are weighing on the business outlook for many companies, the same does not hold true for WM Tech. Consumer demand for cannabis remains strong, access to licensed cannabis products continues to improve and the visibility of our opportunities is only getting clearer with each quarter that goes by. These dynamics were borne out in our Q1 results. We delivered $57 million in revenue which is 40% growth versus last year and approximately $1.5 million higher than the top end of our guidance. While we completed the Enlighten acquisition in Q1, we recognized less than $1 million of incremental revenue from that transaction during the quarter. We now have over 5,000 average monthly paying clients with over 250 new paying clients added -- 28% growth versus last year. Our average monthly revenue per paying client of approximately $3,800 is 9% higher versus last year. And we continued to grow our user base with over 50% growth in monthly active users versus last year. Our Q1 performance is proof of the value that we continue to deliver to both our users and clients and the scale advantages we have versus other technology solutions providers in cannabis. Moving down the P&L. Our Q1 -- 93% reflects the investments that we're making as we expand our new client solutions such as our new multichannel Weedmaps ad network offering along with several of our data initiatives. Our reported operating expenses after cost of revenues and before D&A expense came in at $64 million for the quarter. Our reported OpEx includes $7.5 million in stock-based compensation along with $2.3 million in other non-recurring charges related to our recent transactions. Based on these charges is available in our earnings release and earnings slide deck and will be in our Form 10-Q. Excluding these items, our non-GAAP adjusted OpEx for the quarter came in at $54 million or a 78% increase versus last year. Our Q1 adjusted OpEx increase was driven by continued investments in our go-to-market teams, our engineering product and design orgs as well as incremental expense that we incurred from the acquisition of Enlighten. We also continue to see elevated levels of expense due to clients who continue to struggle in the current environment, which impacted our adjusted EBITDA by $3 million for the quarter. Our Q1 adjusted EBITDA given the above factors was a loss of $1 million. As a reminder, we anticipated our first half adjusted EBITDA margins would be breakeven to slightly positive reflecting the strategic investments for 2023 and beyond that we discussed back in February. With the opportunities we are seeing beyond this year, we believe the pull-forward of these investments accelerates our dominance in key areas. Our reported net loss was $31 million, which includes an $18 million change in the fair value of our warrant liability resulting from the change in our accounting following the SEC statement earlier last year on accounting for these types of warrants. Our fully diluted share count across just our Class A and B share classes was 144 million at the end of the quarter. A reconciliation of adjusted EBITDA to net income as well as the details of our share classes and share count calculation are provided in our earnings release and quarterly results presentation that were posted to our Investor Relations site. We ended the quarter with $56 million in cash and zero debt. We continue to believe that our highest returns on capital will come from investing in opportunities to drive growth whether organically or via investments like the Enlighten transaction. We also continue to be on the receiving end of more partnership and acquisition proposals and have the ability to be very selective and disciplined in how we think about strategic investments. As we look ahead to Q2, our outlook on 2022 remains unchanged. We continue to expect 2022 revenue to grow to $255 million to $265 million, which represents 32% to 37% growth over our fiscal 2021 actual results. While we see the potential for upside from increasing visibility on new state openings, traction against our innovation pipeline and our recent acquisition of Enlighten, we are also -- macro volatility that is weighing on the health of the consumer along with the continued business challenges facing our clients across a number of end markets. We expect to drive consistent revenue growth across our subscription-like products in line with our prior guidance. As a reminder, over 90% of our revenue continues to be recurring in nature. We continue to drive higher levels of spend across clients, where we see return dynamics support of a net dollar expansion growth. We are also expanding our client base as evidenced by our growth in paying clients this past quarter. And we continue to see progress against the opportunities we have with underpenetrated clients and across new solutions. And while our guidance for the year did not assume material growth from new East Coast markets, or Canada monetization we're making progress on building our relevance in New Jersey and are rolling out a new product-driven strategy in Canada as Chris spoke to earlier. We also are evaluating a freemium strategy to scale adoption of our – acquisition with a focus on installs versus revenue. So do not expect that transaction to materially change our outlook for the year. On February's call, I noted that, we expect our growth to be more consistent throughout this year versus what we saw in fiscal 2021 given the absence of planned shifts in the business. To that end, our outlook for Q2 revenue is in the range of $60 million to $63 million. Moving on to margin, again, our outlook remains unchanged. We continue to expect fiscal 2022 adjusted EBITDA in the range of $15 million to $20 million, which includes our investments in support of fiscal 2023 priorities. We also continue to expect our adjusted EBITDA margins for the first half will be breakeven to slightly positive as we front load investments against growth opportunities for the back half of this year, as well as the fiscal 2023 strategic opportunities we spoke to in February. Adjusted EBITDA profitability is core to our DNA as a company, we have always maintained positive adjusted EBITDA annually throughout our 10-plus year history, and we'll continue to maintain rigorous cost discipline in areas that are not points of strategic differentiation for us as a company. In closing, our strategy is working, our teams are executing and the cannabis end markets continue to strengthen. As we play offense, our scale advantages, within the cannabis tech ecosystem are creating a gravitational pull that is benefiting Weedmaps in our WM Business platform. And against that backdrop, WM Tech represents a differentiated and insulated story versus the broader technology space in today's macro environment. With that, let's open it up for questions.

Thank you, sir. [Operator Instructions] I show our first question comes from the line of Tom Champion from Piper Sandler. Please go ahead.

Thank you. Good afternoon, guys, and congrats on the strong results. Can you just provide a little more context and detail on what you're seeing in the end markets? I think at the macro level, investors are debating inflation and other cost increases. And I'm just curious, what you're seeing out there both with the consumer and your licensed clients. Overall, it just seems like a lot of uncertainty. And I'm wondering, if that plays into your 2Q guide after a very strong start to the year in 1Q. And then one more, if I can please, Chris, it seems like there is a long list of product improvements that you discussed in the script, maybe if you could isolate one or two that you think will really drive the results most? What moves the needle here? Thanks, guys.

Yeah. Great. Great. So I think first of all the thing to highlight is cannabis demand in the aggregate level continues up into the right. And we're seeing sort of the number of people who are reporting consuming monthly in the US continuing to increase after states legalize. It's materially higher in Canada in some cases roughly – it's higher than it is here. So it's not just people – new people consuming cannabis, it's increase in the frequency in which people are consuming cannabis. Separately, we had several states come online. As states come online, the speed with which they open varies. And so that's been an incredibly strong trend. One thing that's interesting in the data that, we're seeing is we are seeing an increase in consumers choosing to shop through a centralized specialized marketplace namely us. And so our growth rates, our return user rates and sort of our performance, if you look at something like 420, had increasingly outpaced what we're seeing for in cannabis retailers. So we're seeing a differentiated story. And part of that is that, we're seeing a reduction in people's aversion to ordering cannabis online and having it delivered to their house. And we are the best way to browse, shop, look for cannabis and then easily compare deals and pricing. We mentioned the price sensitivity and have it come to your house. And so we're seeing that come to bear. I think one thing that's interesting is also as we're seeing the number of retailers increase in states. We're seeing in some cases same-store sales in those states decrease, not because of what's often talked about which is the move to illicit market, which is there are more options for consumers and consumers are increasingly getting choosier about what store they frequent and the sort of friction in terms of them wanting to look at a new store has been greatly lowered. So I would say overall there are the bumps and undoubtedly, I think as long as tax rates remain high and you have areas in legalized states where you have to drive a long distance to get to a legal store, you're going to see outsized illicit market rates. That still continues to be the case. The good news is that decreasing as a factor of time and separately the dominance of our marketplace is increasing as a factor of time, which is the key piece.

Thanks, Chris

Thank you. Our next question comes from the line of Andrew Carter from Stifel. Please go ahead.

Thanks guys. Can you all hear me okay?

Yeah.

Yeah.

Okay. Good. First question I wanted to ask about kind of backing up on the end markets question. You're up 40% in the quarter. We had some of your key markets up fairly flat. Are you seeing any major differences because I mean you're in Colorado, you're in Oklahoma, you're in California the three of those I think Oklahoma is under the most pressure. Are you seeing any major differences where you're seeing the kind of end market declines really kind of reduce the investment by retailers or impact your businesses?

I think to some degree, it's sort of -- I'd say it's a bit more revised within the state so sort of generalizing that to an entire state has been -- is a bit difficult. I would say this, I would say a lot -- there's a fair -- there's more normalization to the behavior across a bunch of different states that I think is being given credit in a lot of the trade coverage. I think these factors have a bit more commonality than is being talked about. I think -- that being said, I think that tax season hit especially hard in California this April where a lot of businesses sort of had a very large sort of state tax bill come due and that sort of caught a few people flat-footed where maybe it was a newer cycle for them or that sort of thing. That being said, there's some really good news on the horizon there, which is California looks likely poised to implement pretty material tax reduction and tax reform in cannabis. And if that stays in the trailer bill, that would take effect in July, which would frankly free up more capital for them to use on other things like, SaaS solutions with us, like augmenting their presence and visibility within the marketplace and that sort of thing. But yes to sum it up, I think more commonality than people give credit for, but I think on the flip side, I think we're seeing some -- we're seeing reduction and maybe a bit of a bottoming in the sort of volatility.

The only thing I'd add Andrew on top of what Chris said is listen, in some of those markets that you noted, yes, operators are struggling to a certain extent. But we think this is actually playing to our advantage in some ways because we do get the sense that some of these operators are shifting the mix of their spend and we're the net beneficiary of that, right. So perfect case in point. You take California our home state. That's a market where our revenue per client trends continued to show growth versus last quarter and that's one area of upside surprise that we had in Q1.

Okay. Thanks. Building on that question about the kind of struggles of retailers, I know that you noted the bad debt expense, I think you gave it a $3 million cash flow statement it was $2.75 million. So as a percentage of revenue that's gone up three quarters in a row. And the second side of it is that your AR has consistently gone up. I think it's 28 days trailing 12 37 in the quarter. Can you give us any comfort around the aging? Has this peaked or just anything that we're going to -- that you might just be clients could be losing a lot of gains. Anything you can give us some incremental cover as this has been the peak?

Yes, yes sure. I'll take that. So listen, as I mentioned before, specifically in California, listen there are operators that are struggling and I don't think it's any secret that a lot of the operators are internally telling their folks if it's not rent taxes or utilities then just pay whoever is screaming the loudest, right? And so, listen, over the course of the -- we unfortunately had to turn some clients off. We also had to put a number of clients onto payment plans. We do think the worst is behind us. That's evidenced by the dialogue that we're having with these clients that have seen some operating challenges. It's also informed by some of the third-party data that's out there as well as the only data -- the data that we're tracking on our marketplace, a lot of that data shows that there was some strengthening of trends exiting Q1 and Q2. And at the end of the day, we want to be there for our clients. Our platform is uniquely positioned to help our clients specifically the ones that are struggling to weather the storm and make it to the other side. And so, we do think that the work that we're doing to get these clients in the payment plans will pay off. Like I said, we do you think that the worst is behind us. We do think that we'll see some reversal of trend in [Audio Gap] the ability for post-order chat when you consider the fact that we have logistics software and the ability to sort of better manage those orders. And then, sort of your menu-ing is rendered easy to manage, it's real time based on what you have in stock. Generally, I'm pretty -- I think what we're seeing is it's cheaper and easier to fulfill orders coming from our digital marketplace. When you're going after sort of yields when margins are tightening, we're providing software that helps you do mission-critical things for servicing customers, getting them service more quickly we're dealing with compliance more cost effectively. And then when you look at things like our CRM, when you look at the things like being able to promote yourself within the marketplace, the fastest area of growth for Amazon for instance, it's cheaper and easier to reacquire or to put people back into the marketplace to purchase more from you. And so, that's a really kind of compelling triple play when it comes to businesses -- doubly so when its businesses in times of uncertainty.

Appreciate the color. Thanks guys.

Thank you. Our next question comes from the line of Pablo

Hello everyone. I got disconnected, so I'm sorry if my question was asked already. One very simple one. If we try to think in terms of the concept of same-store sales, but for your own average monthly spend per client, how would you think about that? And the reason I ask that, in year-on-year terms, you added about 800 retailers. The average spend per month increased, right from about $100, $3,700 to $3,800. But I'm assuming, that all those new clients that came in whether in New Mexico, Oklahoma or whatever are starting at a much lower rate. So. you probably have a very good -- you have probably a decent lift on average spend on your existing client base. Any quick thoughts on that?

Yes, I can take that Pablo. So yes you're, right. Most of our new client growth is coming in what we call our emerging regions. These are markets where either they're newer states that have opened up like in New Mexico or Montana, or they're states that have been up and running for a while where we're just underpenetrated where we're working our way up the share penetration curve. You're also right, that in some of these emerging regions they tend to be lower revenue per client states versus kind of more -- some of our more mature regions. Now with that being said, I'd highlight some of what we've talked about in the past as a company around some of our curves. So for example, when you look at the different classes of clients across all regions, our clients generally within their regions are coming on to the platform at higher levels of spend over time. And what we've also seen across -- and this is pretty consistent across regions within cohorts, is that that spend curve is steepening in terms of how they increase their spend over time, the longer they're with us on the platform. What does that mean in terms of a kind of comparable sales growth type metric? It's really, region-specific. It's a function, of the dynamics of that market. It's a function, of the type of cohort trends that we're seeing. It's a function, of whether that market is a new market that's just opening up or it's an existing market and whether we're fully penetrated, or whether we're somewhat underpenetrated. What I will say though is, again, pretty consistently with newer vintages of clients coming out of the platform they're just spending more month one and spending more at a greater rate of acceleration over time than prior cohorts.

And just a big follow-up, Arden. I know you said in the call, that 90% of your revenue is recurring, but I saw the subscription number was a lot less than that and ads are still a big part of your revenue base and ads are not so recovering necessarily, right? People are bidding against each other they may drop out the next month, if they want. I mean, can you expand or give more color on that 90%?

Yes. So I'll circle back to what we talked about in February. So when we talk about recurring revenue streams, we're of course including WM business subscription fees, which for Q1 came in at about 20% of our revenue mix. What we're also including though is our featured listing solution as well as our promoted deals listing solution. And while those are somewhat advertising in nature, in terms of generating awareness, on behalf of our clients, the way that clients purchase those solutions they're essentially purchasing them over a subscription-like period. They're not necessarily paying based on impressions or clicks or on a performance basis. And so when you think about the contribution of revenue across featured listings, across our deal listings as well as our WM business subscription products, that's about 90% of our revenue in Q1 and those are all recurring in nature.

Thank you. And one last one, if I may. From what Chris said, it seems that you're having second thoughts, in terms of, some of the funnels that you were thinking of entering or the new verticals you are entering, that maybe it's better to partner with some of those potential competitors and necessarily create a new vertical. Can you give more color on that? I don't know, if there's a change, if there's a bit of a pebble there in the way you're thinking about it, or it was always -- that was always the plan to partner with some of -- in those other verticals. Thank you.

I think a better way of thinking of it is, we've always had a partner strategy. One of my strategic goals, since I came in as CEO, is to build SaaS and marketplace solutions that are not just leveraged by in-licensees, but that are leveraged by software providers and other sort of ancillary providers to the cannabis space. And I think, it's been an area that we've invested heavily in over the last several years, with the acquisitions we've done. They were intentionally structured in a way that the WM platform fits seamlessly, and sort of wraps things like ERPs and POSs and other sort of mission-critical systems to the cannabis sector. And so for that regard, I think it's – frankly, what you're seeing is a culmination or a sort of I think blossoming of that strategy, and the fact that we have a number of sort of partner software companies that basically want to augment their solution and resell parts of the WM platform on to their clients or we're seeing this manifest, with sort of the menu and online ordering integrations having evolutionary pathways where we're talking about deeper integrations around our deal engine and things like that.

Chris, I want to add one more if I may. And I'm sorry for maybe there are other people waiting on the line. But I keep thinking of the loyalty providers, right? I mean I think what's interesting about this industry is that if I go and buy milk at Walmart and pay cash, nobody knows I was there. Here in dispensary you have to keying in on the point-of-sale terminal your ID and pretty much everything right? They have all the information. But when I think about that it seems to me that the payment, the POS providers, and the loyalty guys have a lot more data than you necessarily, right? And I wonder if that puts you at a disadvantage in a certain way. Do you follow what I mean?

Yes. No. Yes, I would say actually the opposite in that we get a broader set of data and that we see people who are transacting, who are not transacting, also for orders to compliantly come in from our system we do collect IDs. And one of the things we're talking about with POSs and our partner POSs is actually potentially powering that check-in step in doing the ID verification and authentication. It's also worth noting that with the Enlighten acquisition that we did, one of the things that we're very focused on is starting to take our personalization engine and looking at what consumers purchase and turn it into information that guys budtenders on what to recommend to people in store. So, I'd say two things; one is we generally have a much broader set of data than they do; and two, I think we're about to start injecting that data more into sort of the physical presence at stores.

Got it. Thank you.

Thank you. I show our next question comes from the line of David Hynes from Canaccord. Please go ahead.

Hey guys. This is Luke on for DJ. Thanks for taking the question. So, Arden, you mentioned your growth in ARPU was an area of upside surprise in the quarter. Could you just expand or contextualize other areas where you were maybe surprised to the -- or alternatively didn't see things materialize quite how you had hoped?

Yes sure. So, on -- just to go in no particular order on areas of upside in Q1, so we mentioned that our revenue per client, specifically in California and some of our other kind of, more mature markets showed upside relative to what we were planning for that informed our original guide for Q1. I'd say also that we saw on the margin some incremental positive new client growth in our emerging regions versus what we were baking on. And then lastly I'd say new solutions scaling quicker than we expected. So, whether it's kind of our multichannel media offering which we're calling our WM Ad Network some of the assumptions that we made in our forecast and our outlook around the SaaS solutions, specifically Sprout and Cannveya, there was incremental -- So, long story short, taking a step back, what I'd say is there was pretty kind of balanced growth across regions; in emerging regions more new client acquisition; in our kind of, mature regions, specifically, California, a bit more on revenue per client; and then on the margin a little bit more on some of these newer solutions that we talked about last quarter.

Excellent, that's helpful. And then can you guys just expand on sort of the freemium you mentioned you're considering and maybe just the opportunities that might create for you?

Sorry, can you repeat that again the premium offering?

Freemium with the Enlighten, I think that you mentioned.

Freemium, yes. So, with that, what we're doing is looking to -- and it's a strategy we've employed and we're started --. But basically looking given that clients are really hungry for sort of value and that there's basically this sort of blossoming platform effect we see where business is using one piece of the platform are more likely to use other pieces, or are likely to be stickier effectively employing a strategy where they're able to sort of use it on an initial period for free and a longer-term contract is one strategy this and then they sort of pay in the out period, or increasingly kind of change the costing structure where sort of the base usage of the software is free and then there's sort of incremental up-sells or tolling-based up-sells for using other things. I think, one natural example of this is, if you look at the CRM space rethinking about what the recurring SaaS fee is versus the incremental campaign based fee is. And I think this sort of reflects a strong desire by us in increasing penetration, but also a high ROI for growing that penetration.

Great. Thank you.

I’ll show our last question comes from Scott Fortune from ROTH Capital Partners. Please go ahead.

Hey, you've got Nick on for Scott. And I apologize if this question has been asked, but I got cut off I think a little earlier than others. But you mentioned an upside surprise in California, could you just unpack what you saw in California specifically and what it contributed to the quarter in terms of mix and just your overall growth outlook in that market specifically? Thank you.

Yes. So, California, it was as I mentioned before relative to our own outlook and assumptions for Q1. We saw a bit more growth on spend per client, and so what drove that, it's everything that we've talked mentioning before. In this -- on the margin, I think, as I mentioned before, we're the net beneficiary of clients revisiting their mix of spend, reallocating to channels that are working. And in that instance, we win that conversation all day long. When there's acute focus on returns from our clients, we can showcase the ROAS that we're delivering for them the solutions that we have across our platform and a straightforward conversation to get greater share of wallet in certain respects. Listen, California continues to be a gross market. We expect to continue growing within California. There continues to be modest license issuance not at the pace that I think everyone is expecting or hoping for, but we continue to get our fair share of new licenses that are coming out in the market. We continue to really beat the drum around the value that we're delivering for our clients, as they look to kind of revisit their mix of spend across vendors. We have more solutions that we're bringing to market as Chris spoke to. We have some exciting new features specifically for delivery clients. And as folks know California is very heavy delivery market, and so it's still a very much a growth market. And as the industry turns the corner, we expect a lot of the work that we've done with clients in terms of getting them through this rough spot will pay to that.

I think, structurally, it's worth noting that California, I think, is really going to be -- in terms of how cannabis retailers do business, it traditionally has been a bellwether state and it will be for others. And I think some of the trends that we're seeing in California which are fitting really well in our solution set are what we'll see in other places a movement towards smaller and more nimble footprints. A much stronger -- and towards that end we're piloting with Enlighten and WM store our in-store kiosk ordering solution, improving the ability of people in the store to recommend products. That's something we're attacking with our recommendation engine and looking to find ways where we can start putting recommendations in front of budtender eyes. Not adopting delivery is a failing strategy, and so we're seeing California retailers who have not -- who in cases have not done delivery realizing they need to embrace delivery. We're attacking that with Cannveya with the direct orders integrations with POS. We're seeing an increase in the competition on pricing. We're attacking that with the deals engine with a better price compare features in the marketplace as well as in the e-com embed. The ability to more nimbly switch out brands and SKUs and products and educate people with that. We're attacking that with our brand solutions, and we're trying to see those same trends appear in other states. And so I think the interesting thing is from the solutions we provide the benefit and the profitability we drive for these retailers, I think that we're seeing some interesting trends emerge in California in terms of how retailers and brands operate and we're seeing that increasingly move over to other states.

Got it. I appreciate that color. And then one if I may, just around the East. With New Jersey rec sales underway here, you mentioned onboarding about 40% of clients there with other states to potentially follow. Are you looking to accelerate your investment cadence there, or are you still comfortable with your time lines you have in place? Thank you.

So we generally have front-loaded a lot of our investments for this year as evidenced by us reaffirming our positive EBITDA guidance. And so I think the pacing for there -- a lot of the, sort of, in terms of -- and the relationship building that's frankly been in the works for some time now. So I would say we're on track and on schedule there. We're working closely with a number of the groups out there. I think the interesting thing to watch in New Jersey is well there's currently about 12 retailers conducting recreational sales that number should greatly increase. But the other thing is there's a fair amount of supply constraint because those retailers are required to make sure they have sufficient supply for the medical side. And so I'd say right now it's from a supply and how recreational market is actually functioning. It's very nascent.

Got it. I appreciate the color.