Leafly Holdings, Inc. (NASDAQ:LFLY) Q4 2021 Earnings Conference Call March 29, 2022 5:00 PM ET
Company Participants
Keenan Zopf – Investor Relations
Yoko Miyashita – Chief Executive Officer
Suresh Krishnaswamy – Chief Financial Officer
Conference Call Participants
Jason Helfstein – Oppenheimer
Gerald Pascarelli – Cowen
Eric Des Lauriers – Craig-Hallum Capital Group
Pablo Zuanic – Cantor Fitzgerald
Operator
Good afternoon. And thank you for attending today’s Leafly Fourth Quarter and Full Year 2021 Earnings Call. My name is Sam and I will be your moderator for today’s call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. [Operator Instructions]
At this time, I’d now like to turn the conference over to our host, Keenan Zopf with The Blueshirt Group. Keenan, please go ahead.
Keenan Zopf
Good afternoon and welcome to Leafly’s fourth quarter and fiscal year 2021 earnings call. We will be discussing the results announced in our press release issued today.
With me, our Leafly CEO, Yoko Miyashita, and CFO, Suresh Krishnaswamy. Today’s call will contain forward-looking statements, which are pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements regarding the services offered by Leafly and the markets in which Leafly operates, business strategies, performance metrics, industry environment, potential growth opportunities, and Leafly’s projected future results and financial outlook. And can be identified by words, such as expect, anticipate, intend, plan, believe, seek, or will. These statements reflect our views as of today only, and should not be relied upon as representing our views at any subsequent date. And we do not undertake any duty to update these statements. Forward-looking statements by their nature address matters that are subject to risk and uncertainties that could cause actual results to differ materially from expectations, for a discussion of the material risk and other important factors that could affect our actual results.
Please refer to the risk discussed in today’s press release, our proxy statement/prospectus/consent solicitation statement filed by Leafly, formally known as Merida Merger Corp I with the SEC on December 10, 2021. Our proxy statement/prospectus/consent solicitation supplement filed with the SEC on December 22, 2021. Our proxy statement/prospectus/consent solicitation supplement filed with the SEC on January 18, 2022, and our other periodic filings with the SEC.
During the call, we will also discuss non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles. A reconciliation of the GAAP and the non-GAAP result is included in our earnings press release, which has been filed with the SEC and is also available on our website@investor.leafly.com.
With that, let me turn the call over to Yoko.
Yoko Miyashita
Thank you, Keenan. Good afternoon, everyone. Welcome to our first earnings call as a public company. I want to start off by thanking all of you who have supported us over the years, our passionate cannabis community around the world. And most importantly, our entire Leafly team for their hard work and continued dedication to our mission helping people discover cannabis.
In February, we became a publicly traded company and I want to welcome our new shareholders. We look forward to sharing our journey with all of you as we continue to grow and help others thrive in this unique and special industry. 2021 was a record year for Leafly and set the foundation for long-term growth and expanded opportunity. We delivered 18% revenue growth over 2020. With an influx of capital, we increased investments in the second half of 2021, which contributed to our record Q4 revenue of $12.1 million or 30% year-over-year growth.
We added 1,600 retail accounts in 2021, an increase of 44% over 2020. We rebuilt our brand subscriptions product from the Ground Up and launched new advertising products for retailers and brands. We also launched in-app ordering capabilities in our iOS app and reached our 10 millionth app download. To accomplish all this, we invested across the Leafly team growing total head count by 70% over 2020.
I want to take you deeper into where we see the larger opportunities for long-term growth at Leafly. But before I do, for those of you who are new to our story, let me quickly spend a few minutes on what we do and what makes us poised to be a leader in this evolving market. Leafly puts simply is the informed way to shop for cannabis. It’s a marketplace that connects consumers with information and to license brands and retailers. We generate revenue from cannabis retailers and brands through our subscription based marketplace listings and advertising solutions that allow those customers to reach our consumer audience along every step of their cannabis journey.
For consumers, they come to our platform for our rich educational and informational content, including our comprehensive strains database, thousands of news and information articles, over 1 million products strain and store reviews, retailer menus, and online ordering for delivery or pick up through legal retailers.
Lack of education and understanding of the cannabis plant is a barrier to adoption. The plant itself is complicated and social stigma and concerns around product safety also persist as we transition out of a century of prohibition. Our educational and informational content breaks down these barriers for consumers and connects them with products and strange that match their needs from licensed brands and local retailers.
Our content for strategy allows us to attract consumers to our platform, even before a market legalizes, a competitive advantage uniquely attributable to our trusted content and cannabis coverage. We believe Leafly can drive a more reliable shopping experience by helping consumers understand what they’re buying and how to consume it.
As they learn browse and shop, we have the opportunity to develop a personalization and curation engine unmatched in the industry. This provides a compelling reason for licensed retailers and brands to access our platform where they can leverage our traffic, our proprietary insights, and our technology for customer acquisition, e-commerce ordering tools and our digital advertising solutions to build their businesses.
The legal cannabis industry is estimated to be $40 billion to $50 billion in sales by 2025, which is double the market size of 2020. By 2030, cannabis is estimated to grow to $70 billion with some estimates as high as $100 billion in sales. While many look forward to federal legalization as a dependency for growth, our business model allows us to monetize the growing interest and cannabis shopping activity today, while looking forward to the acceleration that legalization may provide. Our addressable market expands with each legalization moment and to fully unlock, it requires solving several challenges present in the industry today.
First, this is an industry and transition and the rules vary state by state, which means brands and retailers must build their businesses from scratch in each new state. Second, they lack the power of traditional advertising channels to attract consumers and drive new customer growth.
Today, approximately 53% of legal retailers in North America are paying subscribers on the Leafly platform. This has given us the ability to develop a competitive marketplace in legal markets across North America, whereby retailers are paying a subscription fee to be listed on our platform. Once listed on the platform, we deliver additional value through a suite of advertising products, technical tools, and technical integrations that support and simplify customer acquisition and online ordering.
On the brand side, we are just starting to gain market penetration in a total addressable market that significantly outsizes the current retailer CAM in North America, which by our estimates is as large as 18,000 brands. The investments we’ve made to date have delivered proven top line results and expanded our subscriber base of retailers and brands, and we will continue to invest in three key areas. First, continued growth in our subscriber base. Second, new products and tools for increased monetization, and third, increased consumer engagement, which in turn drives ROI for our retailers and brands.
So let’s talk about growth in our subscriber base. Cannabis is the local market business that requires local go-to-market teams. We price strategically in line with the stage of market development to bring subscribers on to our platform quickly. As these markets mature and competition increases, these markets share gains position Leafly well to increase monetization from retailers as competition for new customers increases, and we’re staffed to execute this acquisition strategy now at a local market level.
Our customer success teams are also now better resource to drive increased adoption of the platform tools we offer, including order enabled capabilities and advertising add ons. This land and expand strategy sets retailers and brands up to achieve the best performance from the Leafly marketplace, attracting more customers and realizing greater ROI.
On the brand side, we rebuilt our brand subscription offering from the Ground Up in June of 2021, allowing us to go after the large untapped TAM. Our investments in our sales and marketing teams focused at local markets are positioning us well to help us grow our brands and retailer subscriber base.
Now on to improvements to our advertising platform and tools. We’re focused on expanding monetization beyond subscription fees. In H2 of 2021, we launched new advertising products for brands and retailers, including menu merchandising, which enables brands to advertise directly on retailer menus and auction based bidding for retailers for premium ad placements. These performance ad products are critical to serve the needs of our brands and retail clients.
Revenue from these additional ad products are expected to be a meaningful driver of revenue growth for us in 2022. To properly serve the demand from retailers and brands for advertising opportunities will continue to invest in our advertising platform over the course of the year ahead. Investments include improved auction bidding capabilities with self-serve features more performance retail ad units and improvements to our promotion capabilities.
We’re also investing in our B2B services and tools that make engagement with the Leafly platform, more efficient and valuable for our retail and brand customers. This includes shortening the time to value and enabling businesses to acquire consumers at scale. Our B2B strategy has been focused on building lightweight tools to make it easier for our retail and brands partners, to engage with our consumer audience, and we’ll continue to invest to reduce friction for our customers.
Our product roadmap in 2022 includes additional improvements in our POS integrations to automate menus in order management and improvements in our product catalog for greater standardization. I’ll note that we generate rich data on our platform and continue to innovate to help our brand and retail customers make smarter decisions based on that data, finally, on to building a stickier consumer experience.
Development of our valuable audience starts with our content first strategy. We believe that because of the unique attributes and complexity of cannabis, our cultivation of a more educated consumer base will generate outsized returns on investment for our brands and retailer customers over time.
In 2022, we are poised to deliver a consumer shopping experience that harnesses the breadth of premium editorial content we have created over the last 12 years and delivers greater curation and personalization. We are building a more meaningful value proposition for consumers to create an account on Leafly. We’re also focused on delivering richer experience through our native app where some of our most engaged consumers interact with Leafly.
We’ll also look to reward our most loyal customers with loyalty programs. We expect to generate increased ROI for retailers and brands through these investments in our consumer experience. The added benefits of our consumer facing investments is that unlike much of our work on the retailer and brand side, which needs to be done on a hyper local level, the consumer side improvements are easily scalable across legal markets. So investments may here will scale and have benefits across the entire Leafly platform.
In summary, we couldn’t be more excited about the prospects for Leafly and the prospects ahead of us for cannabis. We are eagerly awaiting recreational sales and sizeable East Coast markets and our please to see continued discussions around federal legalization. We’re so delighted to have you along with us on this journey, as we seek to help millions more discover cannabis.
I’ll now turn the call over to Suresh to provide you with details on our financial performance.
Suresh Krishnaswamy
Thank you, Yoko, and welcome everyone. I want to thank all of you for your continued support. This is an exciting time for Leafly. Over the years, we’ve connected millions of consumers with the information they seek and connected them with retailers and brands that meet their needs. We’ve established a playbook in top markets and are now focused on expanding the reach of our marketplace across North America.
Yoko just outlined our strategic initiatives and key investment areas for 2022. With this as a backdrop, I’ll spend the majority of my comments today focused on the strength of our business model and how we scale over time. Before I jump into the financials, let me spend a few minutes on our business model. It’s important to understand that a large portion of our revenue is subscription based. The majority of this revenue today comes from retail accounts who pay a monthly subscription to be listed on our platform. With newly launched products in 2021, we’re scaling a subscription revenue model for brands as well.
We have multiple tiers of subscription services for both brands and retailers and contracts are evergreen with a strong track record of continuous auto renewals. As Yoko mentioned, investments are already underway to further increase retailer accounts in existing key markets where we can increase penetration and expand our monetization opportunities.
In addition, there’s significant opportunity to bring new brands to the Leafly platform with approximately 18,000 brands that exist today. We further increase monetization from these retail accounts and brands through advertising add-ons. And this revenue is in addition to monthly subscriptions. This increased monetization comes from additional value we provide through products like auction based bidding for advertising, offsite audience extension, and new features and functionality like technology integrations and order enablement.
Our subscription plus advertising add-on model allows us to scale and monetize these activities today while creating what we believe to be a durable and expandable model as we grow. Today, we break out revenue by retail accounts and brands, which gives transparency into our growth within each addressable market. In addition, investments are tied to growth in each of these segments. As recently launched products mature over time, we believe our business model can become more predictable.
Now on to the financials. At a high level, in 2021, we delivered $43 million of revenue in line with projections. This represented 18% year-over-year revenue growth driven by significant investments in the second half of the year. In Q4, we saw growth in new subscribers, strong holiday activations and benefits from products like sponsored ads, which led to year-over-year revenue growth of 30% compared to Q4 of the previous year.
In the fourth quarter, we delivered revenue of $12.1 million. Revenue from retail was $9.1 million, up 18% year-over-year and revenue from brands with $3 million, up 87% year-over-year.
Revenue from retail in 2021 was $33.6 million, an increase of 14% over 2020 as we continued to add retail accounts. We added 1,600 retail accounts in 2021, a year-over-year increase of 44%. Many of these accounts were added in lower population on lower demand markets at a lower price point, a strategic decision to more quickly grow the number of subscribers on our platform. This contributed to a lower average revenue per account or ARPA of $636, a decline of $99 from 2020. This tradeoff is expected to benefit us as our growing base of retailers provide opportunities for greater monetization in the future as they adopt our advertising products and online ordering capabilities.
We also saw strength from brands as we introduce new products. Revenue from brands in 2021 was $9.4 million, an increase of 38% over 2020. Average monthly active users or MAUs in 2021 were 10 million down from 11.5 million in 2020 when we saw a peak in consumer activity on our platform, as they were driven to e-commerce solutions as a result of the pandemics lockdowns. As the broader economy started to reopen in 2021, we saw a normalization in traffic to Leafly properties.
Now turning to gross margins. Leafly is asset light with a proven scaling business model and strong gross margins. Total gross margin in the fourth quarter was 88%, an increase over 85% in Q4 2020, primarily driven by the increase in revenue. On a full year basis, total gross margin was 88%, an increase over 86% in 2020.
Moving on to operating expenses. The business was operating at nearly breakeven levels at the end of 2020. In 2021, following our convertible note financing at the end of June, we started making investments primarily in advertising and marketing and in building out our sales and marketing and senior leadership teams. We expect our sales and marketing investments to drive top line growth in 2022 and beyond as new sales employees complete their ramp and are fully onboarded.
Total operating expenses in the fourth quarter were $15.1 million, an increase from $8.9 million in Q4 2020. Sales and marketing expenses were up $3.1 million in Q4. Product and engineering expenses were up $1.1 million and G&A expenses were up $2.1 million. The increase in G&A includes additional expenses for D&O insurance costs for coverage relating to Merida’s operations prior to the business combination.
For the full year, total operating expenses were $48.7 million, approximately $4 million less than we originally anticipated spending in 2021. This compares to $40.7 million in 2020.
As investments significantly increased over 2021, GAAP net loss in the fourth quarter was $5.1 million, compared to a net loss of $1 million in the previous year. Full year net loss was $12 million compared to a net loss of $10 million in the previous year and included $1.3 million and $0.6 million respectively in interest expense on convertible notes.
Adjusted EBITDA loss in Q4 was $4.1 million. And for the full year, adjusted EBITDA loss was $9.4 million. This is compared to losses of $0.6 million and $7.9 million for the same periods in 2020.
Now turning to the balance sheet. We ended the year with $28.6 million in cash. We added cash in February 2022 through our business combination with Merida and the related issuance of convertible notes. We’re excited about the investments that we’re making and are poised to execute well in 2022 and beyond. And now that we’re a NASDAQ traded public company, we’re in a much better position to capitalize on the excitement in the cannabis space.
And now on to our 2022 guidance. The cannabis industry remains right with opportunity for growth, but it also remains dynamic both in current legal markets and newer markets as they become legalized. For example, regulatory hurdles in a few existing markets are impacting our short-term growth outlook as the backlog of perspective retailers awaiting licenses gets cleared.
We’re also taking into consideration a slower than expected hiring pace for engineering talent. Our investments in both sales and engineering talent are underway, and we expect them to gain traction and drive higher revenue growth in the second half of the year.
We anticipate revenue growth from the following areas: Growth in our retail and brand subscription base driven by our local market strategy and improved B2B tools and increased monetization driven by investments in our advertising products and ad platform. For the full year 2022, we are revising our revenue projections to between $53 million and $58 million representing 29% growth over 2021 at the midpoint.
As a reminder, this guidance does not factor in any new markets that have not begun legalized sales, including the largest East Coast markets like New York and New Jersey that are in the process of setting up their adult use recreational markets. With the revised revenue projections, we’ve been very thoughtful of about our operating expenses.
For the full year, we expect adjusted EBITDA loss to be between $31 million and $26 million. This includes an estimated $8.5 million to $9.5 million in annual public company costs and the additional investments in head count, marketing and product initiatives that Yoko outlined earlier.
Going forward, our plan is to provide full year guidance along with additional color and transparency throughout the year as to how we’re attracting. Due to the timing of this call, we felt it was appropriate to provide an indication that we’re tracking to approximately $11.3 million in revenue for Q1 2022.
So in closing, we’re very pleased with our performance in 2021, and look forward to expanding our marketplace. We remain committed to investing with a disciplined approach and the focus on driving top line growth. We will continue to invest in platform enhancements that serve our consumers, retailers, and brands. We see opportunities in existing markets and as more markets become legalized and timetables for sales in newly legalized markets become clear our TAM expands making our planned investments all the more critical for long-term growth.
With that, I’ll turn the call over to the operator and open it up for questions. Thank you.
Question-and-Answer Session
Operator
Thank you, Suresh. [Operator Instructions] My first question comes from the line of Jason Helfstein of Oppenheimer. Jason, you may proceed with your question.
Jason Helfstein
Thanks. Maybe talk about the factor that you have in your control, the impediments to growth. So you did talk about R&D spending maybe a little less because it’s harder to hire people. However, you could deploy that money on the sales side, but just talk about how much is this putting more bodies on the Street relative to other factors that impede the customer from getting online. And then for the customers who are online, how are you kind of separating the new customers versus boosting revenue from existing customers? Thank you.
Suresh Krishnaswamy
Sure. I’ll answer that question from the financial, and then I’ll let Yoko chime in on some of the impacts we’re seeing in the industry as it relates to our forecast. So, to be clear, nothing has changed about our long-term growth outlook and our opportunities as a company. We see this as more of a delay in the implementation of our plan. So as we look ahead to this year, and some of the things that you raised, Jason, here are some of the key factors that impact our current expectations for this year.
We added key roles to our senior leadership team late in 2021, and into the first quarter of 2022. So at this point we have better visibility into the year. We’ve taken another look at the business. And one of the things we’ve done is reorganized across both sales and product to position for growth this year and over the long term. And we’ve also tied revenue to specific growth initiatives that we’ve modeled from the Ground Up.
So on the revenue side, there’s buckets that include monetization of existing customers, as well as new products on our roadmap. And we’re investing in both of these areas. On the hiring side, it’s a tough labor market. And the pace of hiring is slower than we anticipated six months ago, especially for technical roles. For many of the hires that we’ve made in sales still on quarter ramp and in PDE [ph] still ramping up to full contribution. So that’s another factor that we see. So this is delayed the launch and scaling of many of the new products on our roadmap. But we continue to make good progress and we feel good about the investments we’re making in these revised estimates.
Yoko Miyashita
That’s a really awesome response. Nothing to add there, Suresh.
Jason Helfstein
Thank you.
Operator
Thank you, Jason. Our next question is from Gerald Pascarelli of Cowen. Gerald, please proceed.
Gerald Pascarelli
Hi, good evening, and thank you very much for the questions. Just on the top line guide. I think it’s clear and you laid it out pretty clearly that you expect it to be a back halfway to year, given the $11.3 million kind of run rate that you’re doing in 1Q, but when you look at the range between 53 million and 58 million, are there any, I guess like what’s driving the low end versus the high end. Is it going to be like a combination of increased subscription or increased subscription fees and retail and or increased advertising, maybe a combination of both, I’m just trying to understand what’s embedded into the low end and the high end of your guide? Any color you can provide there would be helpful. Thanks.
Suresh Krishnaswamy
Yes, sure, Gerald. We feel quite good about the guidance we’re putting out today. It’s really all about execution on the initiatives we’ve talked about, right. And just going back to Q4, we had good success with launches in Q4 around new products like menu merchandising. And we look forward to building on those. And now in Q1, we’ve launched new products like delivery Gateway and bidding portal. And we’re very positive about those initiatives adding to revenues this year.
So we have a lot of new products planned and we have a product roadmap and we need to execute. We talked about the timing of hiring talent. That’s something that we’re very focused on. In addition to once we get them in how long they take to get up to ramp. And the other factor is regulation. That could be a big swing factor in the near to medium term. That’s a bit tough to predict. But I’d say overall we’re very confident that we have visibility into the guidance that we’re providing today.
Yoko Miyashita
Let me just add a little bit of color on the regulation. Sorry, Gerald, go ahead.
Gerald Pascarelli
Sure thanks. No, no, no, please Yoko, go ahead.
Yoko Miyashita
No, I just wanted to just layer on a bit on the regulation headwinds and tailwinds, right? That cause – that can cause these swings so quickly. We’ve talked about in our risk factors and openly about our challenges in states like Florida, where we’ve challenged the Department of Health position on online ordering through marketplaces, right? That is a significantly large medical market. And the ability to turn on ordering for our customers has the ability to swing us in the positive.
We also know about challenges in Illinois, where you’ve got about 185 licenses tied up in litigation. We’re ready, we’ve got a strong foothold in that market. And our platform is set up to onboard these partners as soon as they – those licenses get issued and become available. So I think it’s those things here that have visibility to move things pretty quickly and we are prepped and ready to execute on our playbook as those licenses get issued.
Gerald Pascarelli
Got it. Thank you. Suresh and Yoko, that’s a super helpful color there. If I could squeeze another one in, would love to get your thoughts just on your outlook for consumer traffic to the platform in particular as knock on wood, but it seems like consumer mobility is continuing to pick up certainly from 4Q levels. So as you look out like to over the course of 2022, how do you think about that relationship between more consumer mobility versus traffic to your specific platform? Any color there would be great. Thank you.
Yoko Miyashita
Yes, no, and we really look at this in sort of two vectors, right? We saw an unusual amount of traffic with at the peak of COVID, the reasons why people were locked in their homes, some markets you could only online order and we saw a natural site come with that. We’ve also seen with those post-COVID peak’s traffics normalized, and people wanting to go back into stores for shopping, but for us traffic and the consumer need has not changed, which is that ability to match them to the products and strains that are right for their needs. So I think if we think about traffic, we’re focused really on building and really getting better at answering that question for consumers.
So, historically very SEO focused business, very top of funnel, but we’re continuing to refine the kind of content that really powers and answers that underlying consumer need.
Gerald Pascarelli
Perfect. Thank you very much for the color. I will hop back into the queue.
Operator
Thank you, Gerald. [Operator Instructions] Our next question is from Eric Des Lauriers of Craig-Hallum Capital Group. Eric, please proceed.
Eric Des Lauriers
Great. Thank you for taking my questions. So as we look out, you clearly have a lot of white space to increase the number of retail accounts. And at the same time, we are seeing competition within markets pretty steadily increasing, which as you guys have pointed out leads to increase customer acquisition spend. So, long term that sort of increase in both accounts and ARPA is pretty clear. Just wondering if you could provide a bit more color on how you expect that growth between accounts versus ARPA to shake out in the near term. And maybe how some of those challenges like you mentioned in Florida or Illinois might impact that? Thank you.
Suresh Krishnaswamy
Yes, sure. So we came off from a very good Q4 in terms of adding retail accounts when we look at that continuing. As we look at the market and the ARPA that we’re releasing really it’s an average of what we’re seeing at the local market level. And it’s important to understand that our playbook and what we’ve had success at is really looking at markets at the local market level and seeing the level of penetration that they’re at where they are along the curve. And we made a strategic decision last year to go after the accounts and sign them up. And we’re certainly expecting with our product roadmap and investments this year that we’re going to start seeing in the markets that we target the ARPA going up.
So I think, it’s – Eric, it’s growth on growth both fronts. We’re certainly going and looking to add retail accounts. I mean, we’ve more than doubled the size of our sales team. Just since August we’ve hired over 20 customer support managers to support the local market strategy. And I think we’re going to see as we roll out, our strategy, which really has been to land and expand this year, we’re going to see the expand phase. And we’re going to basically see opportunities for monetization in a lot of the new products in our roadmap.
Yoko Miyashita
Let me just pull on a couple of threads to illustrate this point. We mentioned that we launched bidding and we launched bidding in some of our strongest markets. And what we’re seeing are as a result of that, we are able to move our ARPA upwards in those targeted markets. Now back to marketplace and establishing it, you’ve got to have the right market context. I.e., there’s got to be sufficient competition for the marketplace model to work, and we have to get a sufficient concentration of both retailers and consumers on platform to drive that kind of dynamic. But we see it happening, which is why we’re investing in tools to augment and make it, make us go faster on the bidding piece.
The other thing you asked specifically about Florida and Illinois, those are strong markets, we’ve got great footholds in each, and we would see regulation tailwinds help us drive that forward. Illinois in particular, very excited about the work we were able to do over 2021 to start increasing that. And that’s – let me give you a little color on what that took from a local market framework that was calling every single retailer to understand what their impediments were for coming onto the Leafly platform and order enabling. In many cases, those were, hey, we don’t like the friction of having to maintain a menu through our Jane menu and also having to upload on Leafly. What did we do in that instance? We integrated Jane as a menu partner, it’s that kind of tactical hand to hand combat at the local market level that allows us to execute, win market share, and then increase spend through over time.
Eric Des Lauriers
Okay, great. That’s very helpful. And I think that makes a lot of sense basically increasing the number of accounts that you have increased in that penetration and then that sort of ARPA will fall. Can you just I guess just more high level just along those lines, how should we think of the operating leverage that you see within specific markets, when that ARPA really increases and then just kind of taking a step back, given these investments that you’re making in sales and marketing and such today, the overall operating leverage that you see sort of that maturity here? Thank you.
Suresh Krishnaswamy
Yes, sure. We’ve been very disciplined in thinking through sort of what are the investments we need and the timing in by local market and part of the sales reorg that we’re going through is really to be able to make those decisions and target local markets depending on the states they’re at. So certainly in markets where we have high penetration, we’re seeing high ARPA, we are seeing better leverage on the pricing side.
And when you roll all of that up, I can give you a few data points just looking at OpEx sort of X stock-based comp. I mean, for 2022, we’re looking at about 61% OpEx growth at the midpoint. And sales and marketing was about 40% of total OpEx in 2021. And we see that share growing this year. So there is going to be more investment. I think as we start seeing in the second half of the year revenue from these initiatives pick up we’re forecasting better leverage in terms of margins. And I think we’re going to lead in the markets that we have higher penetration with. And our plan is definitely to increase penetration and get the market to be more competitive through a combination of just adding more retailers on our platform and just driving more value to them through products and realizing that value through services like delivery and bidding.
Eric Des Lauriers
Okay, great. It’s very helpful color. Thank you very much.
Suresh Krishnaswamy
Sure. Thanks.
Yoko Miyashita
Thank you.
Operator
Thank you, Eric. We’ll now take our last question from Pablo Zuanic of Cantor Fitzgerald. Pablo, please proceed.
Pablo Zuanic
Yes, thank you. So look, it’s a very simplistic question, but you are guiding for a decline in sequential sales 1Q right, 11 point something compared to 12.1 in the fourth quarter. So if you can explain that and as you do that, maybe talk about, customer stickiness especially in the retailer side in terms of subscriptions. But also whether you’re having to adjust prices for the subscriptions in a per market basis, right. I understand you talked about to enter new market. You may offer a lower subscription package, but I’m wondering in existing state, whereas we need any adjustments to subscription pricing on the retailer side. I’ll have a follow up, but if you can answer that first. Thank you.
Suresh Krishnaswamy
Yes, sure. Absolutely. So, just big picture here. We anticipate growth throughout the year, right, particularly in the second half of the year. When you look at Q4, we had the benefit of increased holiday inventory targeted to brands. In Q1 just doesn’t have that, right? So we have seen a modestly lower growth rate year-over-year and based on our product roadmap and as our investments take hold, we do expect growth to pick up in the second half of the year.
We also had success in Q4 launching new products like menu merchandising. That’s something that we’re going to continue to build this year, right. And in Q1, as I just mentioned, we rolled out a delivery gateway and bidding portal as well. So we have a product roadmap. We’re very confident that as we progress through the year, we’re going to roll new products out and that’s going to increase the leverage we have and increase monetization.
In terms of stickiness and revenue mix, I can say that most of our revenues come from existing customers. That’s the subscription model. And it’s fair to say that the acceleration is going to be driven by increased monetization of new product, new increased monetization from that existing customer base, as well as newer products. So we feel like we have reasonable visibility into the quarter.
Yoko Miyashita
I just want to layer on a couple of comments there. You talked about stickiness and in our top market stickiness and pricing, there is a correlation. So first and foremost, the subscription prices we have are very market driven. They’re not just market driven. They’re driven at the zone level, and we are talking 3,000 plus pricing zones on our platform. But in our top markets, and we’ve this is publicly disclosed. Arizona is a great market for us. We see not just the kind of stickiness, the retention levels you would want to see, but it becomes a situation where if you are a retailer in Arizona, you cannot afford to not be on the Leafly platform.
And that’s what we look to when we’re looking for that ability. And that is reflected in our pricing power that we have in markets like that. The flip side of that is a nascent emerging market or a market with low concentration of retailers. You can’t price at that same price point. So how do you price for the market conditions? And that is what our local market strategy is all about understanding those unique attributes of each market and designing our go-to-market accordingly.
Pablo Zuanic
All right. Thank you, Yoko. And then maybe just a follow up, and this is more maybe a background question. But I know you’ve talked about your exposure to the Eastern U.S., but when you talk about 5,200 plus accounts, right. 20 plus accounts in New Jersey, 100 in Pennsylvania. I mean, if I start doing the numbers I suppose a lot of those accounts have to be coming from Oklahoma, Michigan, California, right. So I’m just trying to understand if you can give more color in terms of revenue exposure by region. And if you can’t at least, talk about the dynamics that those customers are facing, right.
I mean, if I’m a Massachusetts and I’m a retailer and I’m facing more competition, am I spending more on your platform? What are there more alternatives also that are coming to me? I’m just trying to get a better sense of regional mix for the company. If you can share that, and then just the dynamics you are facing there, because again, I mean, something 200 sounds like a great number, right. But that means California and Oklahoma have to be a big chunk also in terms of revenues. Thanks.
Yoko Miyashita
Yes. And if you read our disclosures, you’ll see our top three revenue markets, California, Oregon and Arizona disclosed. But like those are revenue figures and that does not necessarily reflect our TAM penetration. So I think you’ve picked up a really interesting nuance within this business and the states. Yes, you’ve got significant representation in Oklahoma, but as you know, huge massive number retailers in that market service a much smaller medical population. What kind of dynamics does that drive on our marketplace? And frankly, we could actually get specific and show you. And like, there are dynamics that are unique to pricing zones within Oklahoma. So again, it goes back to understanding what’s happening in a particular market and serving those needs. You mentioned Michigan, you mentioned California still are some structural challenges, right with bringing a lot of that legacy spend into the licensed market.
Those are, California’s a great one, frankly, under penetrated for us. So that does give us opportunity. And there is, from us – from our perspective, it’s making sure we have the right product set to implement our land and expand strategy. And I think that’s one of the nuances that we haven’t even gotten to talk about today, which is, hey, California delivery market. How are you going to go after that, need a really strong delivery product, something that will be rolling out in 2022?
What else can I say, East Coast, New Jersey, as you mentioned, all that two stores in New Jersey in the medical space already on platform today, how do we go after them? We make sure we have the right product set including dual menus for all those med providers who will be the first to sell and rec and make sure they’re on platform with the tools they need to reach our consumer audience.
Pablo Zuanic
Got it. Thank you. And one last one if I may just so that on the 18,000 brands, that sounds of course like a big number. Can you talk about what type of penetration do you have there? Are you talking about 200 brands in your platform or close to 18,000 just on color there, if you can?
Yoko Miyashita
Yes. And just to break that brand number down to you, remember we serve both the THC infused as well as the non-infused brands, which is how we get to a significant number. And frankly, it could be higher than that based on some of the reporting we see. We are in early days, but why we get excited about this new brand subscription product is because the challenges they face are very similar to retailers. They’re trying to reach that engaged audience. They are trying to find advertising channels to connect with consumers, and by really providing this low entry point subscription.
And again, there are different pricing points depending on size and scale and where you are in what market, what that does give brands is that ability to build that presence and profile, and then leverage all of the advertising products that we have been adding to get in front of the retail customer – the consumer. And that, you hear us talking about menu merchandising. I want to be super clear about the language we use here. Those are sponsored ads. Those are sponsored ads on retailer menus and that kind of bottom of funnel engagement with a high intent shopper is incredibly valuable for that brand’s audience.
Pablo Zuanic
Thank you.
Yoko Miyashita
Thanks, Pablo.
Operator
Thank you, Pablo. At this time, I’ll now hand the conference back over to Yoko for any closing remarks.
Yoko Miyashita
Thank you, Sam. And thank you everyone for joining us for our first earnings call. We look forward to speaking with you again for our Q1 earnings.
Operator
That concludes the Leafly fourth quarter and full year 2021 earnings call. Thank you all for your participation. You may now disconnect your lines.
Be the first to comment