Q2 2023 SpringBig Holdings Inc Earnings Call

[music].

Okay.

Good afternoon, everyone and welcome to spring next fiscal year 2023 second quarter earnings Conference call.

I would now like to turn the call over to spring Bank's Investor Relations Clare Blood Geri. Please go ahead.

Thank you hi, everyone and thanks for joining our Q2 earnings conference call.

Joining me on the call today are Jeff Harris, our CEO , founder and chairman and Paul <unk> Our CFO .

By now everyone should have access to our earnings announcement.

Announcement is 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.

Our 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.

As 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 bag 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, Claire and thanks to everyone for once again, joining our quarterly earnings call.

We had a solid second quarter and market conditions that continue to be challenging and I continue to be impressed with the way our teams throughout the company are performing and what the progress we are making across a number of areas.

During today's call Paul and I will provide you details on our second quarter results update you on key business initiatives and provide guidance for the third quarter and full year 2020.

Jumping right into Q2 results I am pleased to report that we delivered revenue of $7 $2 million representing growth of 12% year over year.

The broader macroeconomic concerns continue to weigh on marketing budgets and digital spend we can.

Chin industry, a trend whereby budget consideration for maintaining and growing existing customers a central tenet of our platform.

Somewhat less discretionary.

Growth in the second quarter was again driven by subscription revenue, which in Q2 grew 19% year on year. We are primarily a subscription based vertical SaaS business, which provides predictability and increases visibility into results.

We saw continued strength across all of our key performance metrics, we added 105, new customers in the quarter, maintaining the cadence of recent quarters.

Revenue retention rate remained within our target range at 100%.

The macro environment, and we continue to develop and launch innovative new product offerings, while we continue to invest in growing our top line. We are also focused and committed to driving leverage and are continuing to execute towards our goal of EBITDA breakeven during 2023, which is now tantalizingly close.

We have two primary segments in our business, our retail and brands platforms. Our retail platform provides merchants with tools that they need to create and manage a successful digital marketing and loyalty program along with instituting a data driven approach to how to connect and engage with their customers. Our branch platform helps cannabis brands more easily connect directly with <unk>.

Consumers through our retail platform, where a uniquely suited for the selling motion of directly connecting brands retailers and consumers and during the first half of the year. We have seen 74 brands are in excess of 1200 campaigns and increase of 36% compared with last year.

Benefiting both the retailer by driving traffic to their store and the brand through increased awareness and equals.

Since becoming a publicly listed company in June of last year I have repeatedly talked about the three key pillars of our growth first a network effect that we feel is a unique and powerful flywheel between our retail and brands platforms.

A high growth subscription revenue component that increases predictability in our revenue stream.

Third the new initiatives and opportunities, we have to monetize and leverage the fact that our platform is present.

Already 100 retail locations.

Present in the smartphones of over 35 million marketable consumers.

We're uniquely positioned to introduce offerings to our client base that provide meaningful growth opportunities for both our clients and spring back.

And as confident as ever that our strategy is sound with feedback from our clients and partners. We are currently that we are making the right investments to capture the walk term opportunity in front of us.

We continue to develop and launch innovative SaaS based offerings to enable our clients to retain and grow their customer basis.

Including our most recent launch of our VIP loyalty program subscriptions by Steinbeck.

Subscriptions by spring break enables our retail clients to offer consumers in return for a monthly or annual subscription the opportunity to earn additional loyalty rewards access special promotions and other perks as VIP subscribers. This program operating in conjunction with other spring Big loyalty and digital communications offerings was launched in June .

And we are already seeing meaningful interests of our clients with several having expanded their contracts to incorporate this new offering and a few having already launched with VIP subscriber programs.

We see meaningful potential from both a revenue growth and a profitability standpoint for both our retail partners on spring back as these VIP subscription programs get launched and mature over time.

As discussed in previous calls we are also expanding our offerings to beyond the cannabis market with clients, including alcohol base and spoke stores and developing products that will enable our clients to offer their consumers the ability to combine the redemption of loyalty reward with historic payment method at the point of sale.

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

Sure I hand over to Paul who will walk.

Walk through our financial results for the second quarter in detail I do want to comment on the excellent progress we are making towards our stated goal of EBITDA breakeven during the current year.

Our Q2, adjusted EBITDA was a loss of $1 1 million and with the combination of revenue growth and impact of the expense reduction initiatives, we expect a significant reduction in losses during Q3 or.

For the second half of the fiscal year, we are expecting to generate positive adjusted EBITDA.

Our Q2 performance is 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 hydro up subscription revenue base with that I'd like to turn things over to Paul who will walk through our <unk>.

Actual results for the second quarter in greater detail and discuss our outlook Paul.

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

As mentioned, we delivered a solid result in the second quarter with further reduction in our adjusted EBITDA loss as we continued to move along the path towards profitability.

A key objective for the company during the current fiscal year.

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

Third quarter and balance of 2023.

Our Q2 revenue came in at $7 2 million representing growth of 12% year over year underpinned by year over year subscription revenue growth of 19%.

Sprint is a vertical SaaS technology business with 79% of our second quarter and year to date revenue now being derived from primarily annual auto renewing contracts compared with 73% in the first half of last year.

We have seen this percentage increase as we continue to replace excess used revenue with larger subscription contracts.

With more predictable and higher quality.

Our excess use revenues reduced by 7% a byproduct of our success in converting revenue into subscriptions and in the current macro environment also a sign of clients being more careful in managing expenditures within the budget.

Although plans revenue reduced by 15% year over year in Q2. This was primarily due to timing of campaigns. After a strong Q1, which grew 56% in Q3, which has started strongly.

Year to date <unk> revenue has increased by 16% and the number of campaigns has increased by 36%.

Yes.

Our topline growth continues to be driven by strong customer demand both in terms of new customer acquisition on the retail and brand platform as well as expansion within the installed base.

In Q2, we added 105, new customers with annualized subscription revenue of <unk> 9 million.

A further $1 5 million in annualized subscription revenue was added through 81 customers upgrading their subscriptions.

We ended the second quarter with 1439 discrete client platforms in use and our installed in 3187 retail locations across the United States and Canada.

We continue to see solid customer retention, despite the challenging macro environment.

Our Q2 net revenue retention rate was 100% consistent with the rate reported last quarter, although lower than the 114% in the year ago period.

Recall, we expect 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 with existing customers. The recent launch of subscriptions by spring Bank is a good example.

Gross profit in Q2, with $5 7 million, representing 24% year over year growth.

And our gross profit margin for the quarter was 80% compared with 71% a year ago.

The year on year improvement in gross margin of almost 900 basis points is due to higher yielding services, including an increase in mix of push notifications within our messaging volumes, which grew in total 20% year on year in Q2.

Moving on to operating expenses.

We remain highly focused on improving the leverage in our business while at the same time balancing this with our investments for sustainable growth.

Total operating expenses in Q2 was $7 5 million, representing a 24% year on year reduction and a 1% reduction sequentially.

Sales service and marketing expenses were $2 2 million for the quarter.

Representing 30% of total revenue.

Sales and marketing expenses decreased by 30% year over year due to cost rationalization measures towards the end of 2022, resulting in lower employee head count.

Technology and software development expenses were two point.

Zero million dollars in the quarter, representing 28% of revenue.

These expenses also decreased 30% year over year with savings being attributable to lower expenses associated with the use of offshore contractors and a reduction in employee costs.

G&A expense was $3 2 million for the quarter, representing 45% of total revenue and a 16% year over year reduction.

Stock compensation expense in the quarter was <unk> 2 million compared with $1 million in the same quarter last year and this is the primary cause for the reduction.

Excluding the noncash stock compensation expense, our general and administrative expense increased by 8% Q3, carrying a full quarter impact of the additional expenses associated with being a public company.

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

Adjusted EBITDA loss in the second quarter with $1 1 million.

Representing an adjusted EBITDA margin of negative 16%.

The adjusted EBITDA loss represents an improvement sequentially compared with the $1 $3 million adjusted EBITDA loss in Q1 and is significantly lower than the $3 4 million adjusted EBITDA loss reported in Q2 last year.

For the first six months of the fiscal year, our adjusted EBITDA loss is $2 5 million compared with $5 9 million during the same period last year.

Free cash flow for the first half of the fiscal year with negative $2 8 million comprising negative $2 6 million cash used in operations.

$4 2 million repayment of our convertible note.

$4 million received from the issuance of stock in our equity raise completed at the end of May and from the exercise of stock options.

I shall now turn to our updated guidance for the balance of the year.

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

Our clients continue to experience industry specific headwinds coupled with a slowdown in discretionary spending by consumers given the general macro environment.

Although we continue to view these issues as transitory and think that current trends do not reflect the intrinsic long term growth rate of the industry. We have prudently consider these factored in building our guidance.

For the third quarter of fiscal 2023, we expect total revenue in the range of $7 2 million to $7 5 million.

We expect an adjusted EBITDA loss in the range of <unk> three to <unk> $7 million for the third quarter of 2023.

For the full year for fiscal 2023, we expect total revenue of 29 million to $31 million.

A 13% year on year growth at the midpoint.

Adjusted EBITDA loss in the range of one five to $2 5 million.

The implication of our full year adjusted EBITDA guidance is the following a first half adjusted EBITDA loss of $2 5 million, we expect to generate positive adjusted EBITDA for the second half of the year.

With that I would like to open it up for Q&A operator, please poll for questions.

Ladies and gentlemen, I'd like to ask a question at this time, you will need to press star one on your telephone and wait for your name to be announced please standby, while we compile the Q&A roster.

Okay.

You May I have a question coming from the line of Scott Fortune with Rod your.

Your line is open.

Yes, good afternoon, and thanks for the question.

Real quick follow up on your 'twenty three guidance here in 2930 $1 million and using the <unk> range gain 15% year over year growth here, what is implied I know, it's a challenging candidates market right now.

Consumer stand what's implied in your guidance as far as new initiatives.

That's going to take some time to play out, but just kind of get a sense for that and the EBITDA guidance improvement and is there additional cost efficiencies and expense savings could you treat.

From initiation is from the initiation does that too to continue to improve the savings on that side and operating leverage.

The sense of the guidance and what's in that.

Hey, Thanks, Scott Thanks for the question.

Hi, It's Paul Sykes.

In terms of the revenue guidance and we just feel theres a lot of uncertainty around at the moment.

So in the first half of the year.

We have grown 14% year on year at.

The midpoint of the guidance gives us 13% for the full year.

Obviously as you will appreciate the the fourth quarter.

Being in any retail business fourth quarter is.

Typically the largest most important quarter.

Of the year, particularly with all the holiday events that happened there.

So we just wanted to be on the cautious side.

We're not we're not assuming anything changes.

And the current status quo.

In terms of new initiatives.

As you say quite rightly they take a while too.

To get momentum, we've recently launched as we we said in the in the call. We've recently launched subscriptions by spring break and which we think is really crucial.

Crucial initiative and potentially one that is very significant moving forward.

But in that individual consumers subscribe.

Monthly they pay a subscription.

Obviously, although we've got clients now.

Live with those programs, it's going to take time to accumulate the massive.

Consumers subscriptions, so we see the revenue impact of that.

Slight revenue impact coming through in <unk>.

In 2023, but primarily the revenue impact is going to be in 2024.

In terms of the EBITDA guidance.

Yes, we continue to manage our costs efficiently.

We continue to make some rationalizations in our expense base in <unk>.

Got a few of those that are going to come through in terms of the full quarter effect in Q3, and obviously into Q4 as well.

Thanks, I appreciate the detail and then a follow up.

The address the sales philosophy Joanne during this challenging time trained and the number of new ads. Congrats yet you had a 105.

Your customers coming.

Coming from current existing states or states and then when you look at the obviously there is a balance sheet question sort of a lot of it is kansas retailer, especially the smaller ones and from that standpoint.

These cuts made basically you're going deeper into the larger customers and ourselves.

And can you update us on the churning side for the smaller customers just a little more color on new clients and adjusting.

Great days for towards larger clients.

We're focusing on.

Yes, I would say, we're definitely go in going deeper into the into the large clients.

And thats reflected in upgrades.

We have done in the second quarter 81 upgrades contributed $1 5 million of incremental annual revenue.

As opposed to 105 clients and they contributed.

100000.

Incremental revenue so that.

That indicates.

In a way how we enter clients on a relatively low base.

They get used to the platform.

Using the platform they build their database of loyalty customers and then they pay typically upgrades fairly quickly.

Sure.

That is what we're seeing so we're seeing a good a good mix across across the country I wouldn't say, there's any particular states, where we where we're getting more new client wins in than others.

It's across the board.

Some of it some new clients.

Changing changes in vendor and stuff like that.

And.

They're coming to screen bigger than where we are upgrading them.

We're certainly going deeper and in expanding our relationships with the larger msos.

In terms of your question on churn Scott.

<unk>, particularly at the lower end of the spectrum with smaller smaller retailers.

Obviously, given the market conditions and the challenges there is quite a quite a reasonable amount of churn.

In dollar terms, it's not huge but put in in terms of number of clients six.

The churn happening at the moment.

I appreciate it.

Sam Martin Senior account for 24, Youll continue to be within that range of adding anywhere from AAV <unk> and 'twenty.

Customers.

New store licenses, New states will really start to come on board in 'twenty, four but yes.

Using that customer base is the last question is can you dig deeper maybe Jeff.

The recent launch of subscriptions by spurring big.

Who did you want that too.

That kind of business that potential opportunity just kind of metrics around that.

Your excitement around that opportunity too to drive more loyalty.

<unk> from that standpoint.

Yes.

The exciting thing about subscriptions by spring break is that it's a noga too by which our retail clients can.

Can can get even even greater leverage in buying some of their most loyal customers. Because these are customers who are going to to pay pay it.

Our subscription on a monthly O&M new basis.

Like exists in many many retail sectors.

And they are going to get so that subscription VIP status.

Which will give them additional discounts additional.

And yes.

From the Retailer's perspective will result in them ideally spending more and more dollars in the store.

And we only launched it in late late in June .

And we've already got.

<unk> got about eight eight different retail clients have signed up to launch the program, obviously theres a little bit of a lag between sign up and actually getting the program live and we've got two programs already live.

In the first couple of weeks, we got about 200 consumers already already signed up so.

It's going to take time to get traction and have a significant impact on our revenues but.

I think the signs from the first in a month or two months in the market who are incredibly encouraging.

Thank you I appreciate the color and congrats on your pathway to get to EBITDA positive.

Great. Thank you Scott.

Thank you.

I see no further questions in queue at this time I will now turn the call back over to Mr. Paul <unk> for any closing remarks.

Thank you and thank you to everyone for attending today's call and for your continuing support of spring Bank.

I think we're making good progress, particularly along our path towards profitability.

Very much look forward to being able to update you on this continuing progress.

Our call next quarter, Thank you and good evening.

Ladies and gentlemen that does conclude our conference for today. Thank you for your participation you may now disconnect.

Okay.

[music].