SpringBig Holdings Inc. Q1 2023 Earnings Call

Good afternoon, everyone and walk out of spring breaks fiscal year 2023 first quarter earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question at that time. Please press star one on your telephone.

As a reminder, today's call is being recorded.

Now I'll turn the conference over to your host spring Bank's Investor Relations Ryan Flanagan, Sir please begin.

Thank you hi, everyone and thanks for joining our Q1 earnings conference call. Joining me on the call today are Jeff Harris, our CEO , founder and chairman and Paul <unk> Our CFO .

Now everyone should have access to our earnings.

Also on our Investor Relations website.

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, which may change over time.

Actual results could differ materially due to a number of risks and uncertainties, including the risk factors outlined in our 10-K filed with the SEC on March 28 2023.

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 of GAAP to non-GAAP financial measures.

Well as additional context on our key operating metrics.

And finally this call in its entirety is being webcast from our Investor Relations website at Www Dot investors got spring Dot com.

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 Jeff.

Thanks, Brian and thanks, everyone and thanks, everyone for joining today's call.

We had a very productive first quarter and I am pleased with our execution to begin the year and with our progress we are making across a number of areas.

During today's call Paul and I will provide you details on our first quarter results update you on key business initiatives and provide guidance for the second quarter and full year 2023.

Jumping right into Q1 results I am pleased to report that we delivered revenue at the midpoint of our guidance range total revenue of $7 2 million representing growth of 16% year over year and 6% quarter over quarter.

An acceleration compared to 2% year over year reported in Q4.

Although broader macroeconomic concerns continue to weigh on marketing budgets in digital spend we continue to see a trend where budget consideration from maintaining and growing existing customers are central tenet of our platform remains somewhat less discretionary.

Growth in the first quarter again was driven by subscription revenue, which in Q1 grew 28% year over year sustaining our momentum from the prior year.

We're primarily a subscription based SaaS business, which provides predictability and increases visibility into results.

We saw continued strength across all of our key performance metrics with our net revenue retention rate remaining within our target range at 100% despite the macro environment.

And also saw growth in the number of locations. While we continue to invest in accelerating topline growth. We are also focused and committed to driving leverage in our executing towards our goal of EBITDA breakeven during 2023.

Turning to the two primary segments in our business, our retail and brands platforms. Our retail platform provides merchants the tools that they need to create and manage a successful digital marketing and loyalty program along with instituting a data driven approach to how they connect and engage with their customers.

The retail landscape across cannabis remains challenging with a pronounced slowdown in store openings inflationary pressures tax considerations and pricing pressure.

Despite this challenging backdrop, we added 108, new retail accounts in the first quarter in line with our historical cadence.

Our brands platform, which helps cannabis brands more easily connect directly with consumers through our retail platform saw a continuation of the momentum we observed exiting 2022.

We're a uniquely suited for the selling motion of directly connecting brands retailers and consumers and during Q1, we saw 70 brands running in excess of 700 campaigns benefiting both the retailer by driving traffic to their store and the brands through increasing awareness and influence.

In previous earnings calls I've talked about the three key pillars of our growth.

First a network effect that we feel is unique and powerful between our retail and brand platforms second a high growth subscription revenue component that increases predictability in our revenue stream and third the new initiatives and opportunities we have to monetize and leverage the fact that our platform is present in more than 3000 retailers.

Patients and installed in the smartphones over 35 million marketable cannabis consumers, we are uniquely positioned to introduce offerings to our client base that provide meaningful growth opportunities for both our clients and spring break.

At present, we are focused on the introduction of a select group of new initiatives, we have launched a subscription offering enabling our retail clients to offer their customers to pay a subscription base VIP loyalty program offering those customers to subscribe the opportunity to receive specific discounts and benefit not available to them.

Wider customer base and in a manner similar to how we currently manage their loyalty programs today spurring big will power the subscription programs on behalf of our retail partners, we will share in the subscription revenue generated from customers enrolling in these programs we.

We are also focused on developing our loyalty slash payments initiative.

<unk>, where consumers of our retail clients can use their loyalty points in conjunction with their preferred store payment options to complete their in store or online transactions safely and securely.

The retailer benefits from increased transaction size due to the inclusion of loyalty rewards and spurring big benefit by facilitating these transactions on behalf of our retail partners.

Finally in January we announced the first integration with a point of sale solution outside of the cannabis industry, which allows us to expand into offering our loyalty and marketing communications platform across some other regulated industries, including alcohol CBD and <unk> stores.

Marketing and selling to this expanded audience has already begun and during Q1, we closed four new contracts in non cannabis markets. We are excited to shortly announce additional integrations with point of sale systems that service retailers in industries other than Canada and to partner with them to bring state of the art loyalty and digital communications offerings to the retail clients.

These new initiatives are going to take time to evolve, especially given the current macro environment, but we are confident that in time, they will fuel significant growth to complement the potential. We believe is present in our existing offerings.

We continue to invest significantly in enhancing our core retail platform, adding additional functionality, we continue to see significant growth in our existing business given the long term growth potential of the cannabis industry and the unique power of our platform to deliver exceptional returns to our clients.

With that I'd like to share. An example of how customers are leveraging our platform and why they choose frankly.

A large multistate operators started using spurring big in one state on a trial basis and quickly integrated.

With their point of sale.

SMS and email offerings, recognizing benefits and seeing early success. This multistate operator upgraded our engagement to include all states. They operate in accommodating their loyalty and messaging needs companywide.

As these additional states began to leverage our rich feature set including the use of multiple images and videos referrals feedback and.

And reputation management and at last our audience build platform to target members with pointed messaging based on their shopping habits. As a result, it was quickly evident that feature use without stripping their initial contract and quickly led to an increase in their national contract as evidenced in this expansion a broad set of integrations and enterprise scalar.

<unk> delivered high ROI to this multistate, operator, and we are confident we will continue to grow alongside this large department.

While spring Big services, the full spectrum of clients from the largest multistate operators to single location retailers as sophisticated user who is able to generate substantial ROI from you from utilizing our platform is our sweet spot.

Looking ahead, we plan to sustained focus on the higher end of the market and expect to see incremental benefit from consolidation across the cannabis industry.

Before I hand, it over to Paul who will walk through our financial results for the first quarter in detail I do want to comment on the progress we are making towards our stated goal of EBITDA breakeven during the current year.

Our quarter, one adjusted EBITDA was a loss of $1 3 million, representing a $2 million improvement sequentially due to the combination of revenue growth and the impact of the expense reduction initiatives implemented during Q4 of 2020.

We expect our losses to continue to reduce and believe we are on track to achieve our stated objectives.

Our Q1 performance is highly encouraging overall, we are managing our business efficiently for the factors within our control and recognize the challenging current macro and industry specific realities, we have a rich pipeline of revenue generating initiatives and a strong high growth subscription revenue base.

I'm as confident as ever that our growth strategy is sound with feedback from customers and partners reaffirming that we are making the right investments to capture the long term opportunity in front of us.

With that I'd like to turn things over to Paul who will walk through our financial results for the first quarter in greater detail and discuss our outlook.

Thank you, Jeff and thanks, again to everyone for joining us.

As mentioned, we delivered a solid result in the first quarter characterized by a reacceleration of growth and measured progress towards our stated targets.

I will start by providing a brief overview of our first quarter results before moving on to our guidance for the second quarter and balance of 2023.

Our Q1 revenue came in at $7 2 million representing.

Representing growth of 16%.

Every year and 6% sequentially. This was underpinned by year over year subscription revenue growth of 28% a continuation of the momentum we experienced during 2022.

As a reminder, spring big as a SaaS technology business with 83% of first quarter revenue being derived from primarily annual auto renewing contracts compared with 75% a year ago.

We have seen this percentage increase as we continue to replace excess huge revenue with larger subscription contracts, which are more predictable and of higher quality.

A byproduct of this conversion into subscription revenue is a continuing reduction in excess huge revenue, which in Q1 reduced by 22% year over year.

<unk> revenue grew 56% year over year in Q1 with strong year on year growth in the number of brands running campaigns and the average spend per campaign.

Our topline growth continues to be driven by strong.

Customer demand both in terms of new customer acquisition on the retail and branch platform as well as expansion within the installed base we have.

Ended the first quarter with 1366 discrete client platforms.

Stalled in 3095 retail locations, we have in excess of 35 clients, who have an annual subscription exceeding $100000.

We continue to see strong customer retention, despite the challenging macro environment. Our Q1 net revenue retention was 100% versus one 5% in Q4 and 106% a year ago period recall, we expected this metric to moderate.

To the 100% to 110% range.

As we add more products and functionality to our platform, we see an ongoing opportunity to drive upsell as customers leverage both our retail and brand platforms. The new year has started very strongly in this regard with some significant upgrades.

Gross profit in Q1, with $5 8 million, representing 28% year on year growth and our gross profit margin for the quarter was 81% compared with 73% a year ago.

The year on year improvement in gross margin of almost 800 basis points is due to higher yield and services, including an increasing mix of push notifications within our messaging volumes and higher contribution from brand revenue, which carries a lighter cost profile.

Moving on to our operating expenses, we remain highly focused on improving the leverage in our business while at the same time balancing this with our investments for growth in.

In Q1, we benefited from the entire quarter of lower run rate expenses. Following a series of initiatives, we implemented in November including a workforce reduction through a combination of layoffs and attrition to reduce costs drive efficiency, and therefore accelerate our path to profitability.

Total operating expenses in Q1 were $7 5 million, representing a 24% sequential reduction or 16%, excluding the impact of the additional million dollars provision.

Provision for doubtful receivables taken in Q4.

Year on year total operating expenses in Q1 increased by only 3%.

Sales service and marketing expenses were $2 5 million for the quarter, representing 35% of total revenue.

Sales and marketing expenses decreased by 15%.

For the year due to the aforementioned cost rationalization, resulting in lower employee costs.

Technology and software development expenses were $2 3 million in the quarter, representing 32% of total revenue.

Expenses decreased 12% year over year with savings being attributable to lower expenses associated with offshore contractors and a slight reduction in employee costs.

G&A expense was $2 8 million for the quarter, representing 39% of total revenue and 57% growth year over year. This growth is due to the additional expenses associated with being a public company, including increases in directors and officers insurance premiums.

And higher legal and audit related costs.

Our key earnings metric is adjusted EBITDA as we believe this most closely equates to operating cash flow.

Adjusted EBITDA loss in the first quarter with $1 3 million, representing an adjusted EBITDA margin of negative 19%.

The adjusted EBITDA loss was at the midpoint of our guidance and represents a significant improvement sequentially when compared with the $3 3 million adjusted EBITDA loss in Q4 of 2022.

Free cash flow was negative $1 million in Q1, comprising.

<unk> 4 million cash provided by operations.

$1 5 million cash outflow relate.

Relating to the repayment of our convertible note.

<unk> $1 million received from the exercise of stock options.

We received 2 million relating to a refundable employee retention payroll tax credits under the cares Act do you have in the quarter.

Turning to our balance sheet, we ended the quarter with $2 6 million in cash cash equivalents in marketable securities and $3 2 million in receivables.

Before providing our updated guidance I would like to update you on our proposed equity raise we filed a preliminary prospectus on form S. One on April 20th and anticipate completing the rate and the amount of up to $5 million prior to the end of May.

With regard to our outlook I would include our usual caveat.

New States continue to open an issue licenses cannabis end markets continue to experience industry specific headwinds where in certain mature markets across the country. A lots of product continues to have a negative impact on retail pricing coupled with a material slowdown in discretionary spending.

By consumers given the general macro environment.

So we continue to view these issues as transitory and think that current trends do not reflect the intrinsic growth rate of the industry. We have prudently considered these factors and building our guidance.

For the second quarter fiscal 2023, we expect total revenue in the range seven three to $7 6 million, implying a midpoint, a 15% year over year growth and 4% sequential growth.

We expect an adjusted EBITDA loss in the range of 900000 to $1 2 million for the second quarter of 2023.

For the full year of fiscal 2023, we are reaffirming our revenue guidance of 31% to $34 million and adjusted EBITDA loss in the range of $3 million to $1 5 million.

The implication of our Q2 and full year guidance is that H, one adjusted EBITDA loss will be in the range to $2 million to $5 million with the majority of our losses arising in this first half of the year.

Thereafter for the second half of the year, we anticipate adjusted EBITDA being in the range of <unk> 7 million profit to <unk> 5 million loss.

We reiterate our expectation of reaching the critical milestone of positive adjusted EBITDA within the current fiscal year.

And with that I would like to open it up for Q&A.

Please poll for questions.

Thank you again, ladies and gentlemen would you like to ask a question. Please press star one on your telephone again to ask a question. Please press star 111 moment. Please.

Again, if you would like to ask a question. Please press star one line one moment.

I'm showing no questions at this time I will turn the call over to Jeff Harris CEO for any closing remarks. Thank you all very much for joining our Q1 conference call look forward to communicating with everybody next quarter have a great evening everyone. Thank you.

Thank you ladies and gentlemen, this does conclude today's conference call. Thank you all participating you may now disconnect have a great day.

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