Q3 2023 SpringBig Holdings Inc Earnings Call
Okay.
Hello, and work with the Spring Bank third quarter 2023 earnings Conference call.
At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
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Now I'd like to hand, the conference over to Claire voluntary you may begin.
Thank you hi, everyone and thanks for joining our Q3 earnings conference call joining.
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.
This 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 planned 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.
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 that spring Big 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 Q.
Q3 was a solid quarter in which despite the very challenging end market conditions, we can she needs to make progress towards our stated priority for this year are reaching positive adjusted EBITDA.
During today's call Paul and I will provide you details on our third quarter results.
Get you on key business initiatives and provide guidance for the balance of 2023.
Let me start by addressing upfront some of the end market challenges that we have experienced throughout the year.
Which seem to have become more acute over this last quarter.
A broader macroeconomic concerns continue to weigh on marketing budgets in digital spend.
Headwinds caused by lower revenue growth and a compression of margins in the cannabis industry have also increased the financial stress on many of our clients.
In an environment, where cash is king this has emerged as a challenge of ensuring timely or in some cases any payment for our services.
It continues to work diligently with many clients to support them through the introduction of payment plans, but inevitably this difficult economic climate also has led to us having no choice in some cases, such as she's servicing not paying clients.
This impacts our revenues, which reduced by 5% year on year in the quarter to $6 9 million.
Given the prevailing economic conditions in the prior year quarter being a particularly tough comparable we view this.
Solid performance and are particularly pleased that our subscription revenue continues to grow with 13% and 19% year on year growth in the quarter and year to date, respectively.
Our commitment towards the stated goal of EBITDA breakeven during 'twenty three is as strong as ever and we have now tantalizingly close to reaching that objective.
Continued to derive greater efficiencies across the company, enabling us to reduce our operating expenses, we completed a reduction in force a few weeks ago, reducing our employee roster to 89, representing almost halving of employees compared with the peak in June of last year.
When taken together with non employee related expense savings, we anticipate our operating expenses in Q4. This year will be approximately 40% lower than Q4 last year.
We are now operating at an expense level that should enable us to deliver positive EBITDA, even in the absence of meaningful revenue growth and given our gross margin profile in the high 70% range as we do deliver revenue growth, we can reasonably anticipate a rapid expansion in EBITDA.
Turning to our revenue growth initiatives.
Continue to develop and launch innovative product offerings to enable our clients to retain and grow their customer basis last quarter. We reported the launch of a VIP loyalty program subscriptions by spurring big subscriptions.
Subscriptions by spurring big enables our retail clients to offer consumers in return for a monthly or annual subscription fee. The.
The opportunity to earn additional loyalty rewards access to special promotions and other perks as VIP subscribers.
<unk> has been at a pace that we expected in Q3, we had 20 clients expand their contracts to incorporate this new offering and four have already launched their VIP subscription programs. We have a strong pipeline of client interest in it just they both an acceleration of clients committing to this program and of course those are already signed up rolling out their VIP subscribers.
Cyber programs.
We see meaningful potential from both a revenue growth and profitability standpoint for both our retail partners and spring break.
As these VIP subscription programs get launched and mature overtime.
Our second key initiative, which we also see as having meaningful potential and expect to launch during Q4 is our offering of a unique gift card payment option that can be used by consumers as a method of payment in store directly from their existing loyalty wallet and will also enable the consumer to uniquely combine the use of loyalty points and the prepaid gift card.
And third we continue to expand beyond the cannabis vertical with our loyalty and messaging communications platform servicing other regulated industries, such as alcohol date smoked in CBD.
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, we should not overlook the continuing growth in our core as mentioned earlier, we grew our subscription revenues by 13% year on year in Q3, and we added 89, new clients during the quarter before.
Before I hand over to Paul who will walk through our financial results for the third quarter in detail I do want to comment on the state of spring Bank.
We are managing our business efficiently for the factors within our control and recognize the challenging current macro and industry specific realities. We are delivering on our reach rich pipeline of revenue generating initiatives and we have a strong high growth recurring subscription revenue base spurring big is in an excellent position our technology.
For them is operational in more than 2900 retail locations across the United States and Canada.
And present in the smartphones have over 35 million marketable consumers we.
We now have our operating expenses optimized at a level that will enable us to generate meaningful profitability in the future.
I remain as confident as ever that our strategy is sound with feedback from our clients 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 third quarter in greater detail and discuss our outlook.
Thank you, Jeff and thanks, again to everyone for joining us.
We delivered a solid result in the third quarter with further reductions in our adjusted EBITDA loss as we continued to move along our path towards profitability.
The progress was a little slower than we would have liked but as Jeff mentioned earlier, we have experienced some cash collectability challenges that had suddenly necessitated some tough decisions and impacted near term performance for the benefit of our longer term business health.
I will start by providing a brief overview of our third quarter results before moving on to our guidance for the balance of the year.
Our Q3 revenue came in at $6 9 million representing.
Representing a year on year decline of 5%.
It should be noted that the prior year quarter, with particularly strong comparable caused by high excess used revenue last year.
Our year to date revenue of $21 3 million, representing 7% year on year growth.
Our Q3 subscription revenues grew 13% year on year to $5 8 million, representing now 84% of total revenue.
<unk> subscription revenues have increased by 19% to $17 2 million or 81% of total revenue.
Spring break is a SaaS technology business with now more than 80% of our revenue being derived from primarily annual auto renewing contracts compared with 72% of revenue last year.
We have seen this percentage increase as we continue to replace excess used revenue with larger subscription contracts that are more predictable and higher quality.
Given the tendency for clients to upgrade subscriptions, we continued to see declines in excess use revenue.
While primarily the decline is due to clients upgraded so that the <unk>.
Scriptures better match their activity level to some extent given the prevailing economic conditions. We are also seeing downward pressure due to clients being more diligent in ensuring the monitor expense within budgeted subscription amounts.
As mentioned excess revenues were particularly high in Q3 last year. In fact, they were at an all time peak of $1 7 million and therefore, the decline is particularly acute this quarter at 55%.
To date decline in excess revenue is 30%.
Ground revenue in Q3 was slightly higher sequentially and <unk> 2 million and year to date has increased by 5%, albeit in the quarter, we had a 12% year on year decline due to timing of brand campaigns Varian.
Our topline growth continues to be driven by strong customer demand both in terms of new customer acquisition on the retail platform as well as expansion within the installed base.
In Q3, we added 89, new customers with annualized subscription revenue of <unk> 7 million and a further <unk> 9 million in annualized subscription revenue was added through customers upgrading their subscriptions.
We ended the third quarter with 1356 discrete client platforms in use and are installed in.
2941 retail locations across the United States and Canada.
Gross profit in Q3 was $5 3 million, representing a 5% year on year decline in line with the revenue movement in our gross profit margin for the quarter was consistent year on year at 77%.
Moving onto 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.
At the start of Q4, we reduced our employee roster eliminating approximately 20 positions.
Our current employee count is 89.
Total operating expenses in Q3 were eight north million.
$6 9 million, excluding the onetime cost of settling a litigation claim.
$6 9 million represents a 24% year on year reduction and 13% sequentially.
Sales service and marketing expenses were $1 9 million for the quarter, representing 27% of total revenue.
Sales and marketing expenses decreased by 39% year on year due to cost rationalization towards the end of 2022 and during the current year, resulting in lower employment head count.
Technology and software development expenses were $1 9 million in the quarter, representing 28% of total revenues.
These expenses also decreased by 32% year over year with savings being attributable to lower expenses associated with the offshore contractors and a reduction in employee costs.
G&A expense was $4 2 million for the quarter, representing 61% of total revenue and a 31% year over year increase.
However, as mentioned earlier this includes a $1 1 million nonrecurring costs relating to the settlement of a litigation claim. Excluding these costs G&A expense was $3 1 million, representing 46% of total revenue and a 2% year on year reduction.
Our key earnings metric is adjusted EBITDA as we believe this most closely equates to operating cash flow.
Adjusted EBITDA loss in the third quarter with no point $9 million.
Representing an adjusted EBITDA margin of negative 13%.
The adjusted EBITDA loss.
It presents an improvement sequentially compared with the $1 1 million adjusted EBITDA loss in Q2, and a significantly lower than the $3 4 million loss reported in Q3 last year.
For the first nine months of the fiscal year, our adjusted EBITDA loss is $3 4 million compared with $9 4 million during the same period last year.
A 64% improvement.
Free cash flow for the first nine months of the fiscal year was negative $3 3 million, comprising primarily $3 6 million cash used in operations.
$4 3 million repayment of our convertible note.
$4 2 million received from the issuance of stock in our equity raise completed last may and from the exercise of stock options and a further <unk> 8 million from short term cash advances.
I shall now turn to our stated guidance for the balance of the year.
With regard to our outlook I would include our usual caveat our clients continue to experience industry specific headwinds coupled with a slowdown in discretionary spending by consumers given the general macro environment.
In addition, we are experiencing increasing receivables challenges, which has mentioned impact revenue and earnings as we implement a strict policy towards nonpayment.
For the full year for fiscal 2023, we expect total revenues of 28 to $28 5 million, implying 6% year on year growth at the midpoint and an adjusted EBITDA loss, which for the full year, we expect to remain approximately at the current year.
To date amount of $3 4 million.
In Q4, we expected our adjusted EBITDA to be approximately at breakeven with positive adjusted EBITDA in the latter months of the quarter.
And with that I would like to open it up to Q&A.
Operator, please poll for questions.
Thank you.
Ladies and gentlemen, as a reminder to ask a question. Please press star one on your telephone and then wait to hear your name announced.
To withdraw your question. Please press star one again.
Please standby, while we compile the Q&A roster.
Okay.
Our first question comes from the line of Scott fortunate with Ross Your line is open.
Yes, good afternoon, and thank you for taking the questions.
Real quick just kind of on the topline, obviously 89, new accounts, you're still growing in council a bit slower than past that seems like a lot.
Got it.
The pressure has come from the upgrading these existing clients.
Just kind of step us through.
Obviously, you provide a little bit color, but more of the what are you seeing from the customers on the operating side of things and then.
It's a central indicating how long you.
Turn will take four.
To kind of revive or.
Renewed growth.
<unk> subscription type of things.
Color on that that would be great sure.
So on the new business side, so the new business philosophy that velocity is pretty much where it's been the last few quarters as we've always talked about.
We're usually adding between 85 to 105 customers every quarter.
And that was consistent in Q3 Q3 is always a little bit softer a little bit on the lower end of that number just because of the vacation schedule in August so there is not.
Along with what I'll call a quarterly selling season that there is usually in other quarters in terms of upgrades upgrades continue to.
To be strong we continue to move customers that.
A.
And cadence that has a percentage of subscription as a percentage of acreage that we move more of those to see subscription I think through Q3.
We've upgraded over $5 $5 million in annual contract value I think in Q3, we upgraded close to 900000. So we had some big upgrades in the first two quarter. So those were kind of.
Take it off the table so to speak for the remainder of the year because while we upgrade then we operate them for 12 months, but we had a successful upgrade quarter as well now with the upgrade so basically what we're doing is where we are moving more of our more of our clients' spend to subscription stand as compared to excess so it doesn't necessarily mean that they're going to.
Spend a lot more money with us although over time, they will and I believe it does mean, though that a larger percentage of revenue that we're seeing is locked into subscription that's a contract I hope that answered the question.
Yes.
Helpful from that standpoint, and then obviously the other pressure and we've seen as an industry for a little while now but you can get really experience here in this quarter what was the client account you've had.
Clients come off here your subscription a little bit, but just kind of step us through.
The pressure of continuing to write off other clients, who are not being able to pay kind of where do you. What's your sense of where we're at in that challenge is as Youre looking at.
<unk> grew 24 here.
We've been we've been aggressively.
Working through that cycle and what we're seeing is the.
The pressure is really on the low to the low mid end of our customer base.
There are some outliers that are in the med Ed we're not seeing anyone on the higher end of our customer base that is struggling with being able to fulfill their commitments financially based on the invoices that they get I think they are pretty aware of what their invoices youre going to be in and they are fulfilling those commitments.
With that an issue I think what we're really seeing the issue is on the lower and the Midland. So the decision that we made.
A couple of few months ago is to get much more aggressive because not only is it an issue of keeping customers on the books that aren't paying their bills. So that's one issue that you have but the other issue you have is the is the cycles of the <unk>.
People working those accounts to try to get them paid so we've gotten much more aggressive in terms of if theyre not paying by a certain date.
We suspend their services that does bring a lot of them back to the table by the way. So it is helping us to kind of reengage with customers and get them back to the table to pay what they owe so their systems can get turned on but there are just a larger percentage of customers than we've seen in the past that just cannot afford to pay their bill so they just can't pay it.
And what's happening if that's the case, we are suspending their services turning off their ability to use the platform and sending them to collections to get paid.
Because on the one hand, we don't want to take the cycles on our side from.
From an accounting standpoint to manage that process and number two we want to make sure that we're not.
Counting on revenue that were suspect it's going to get paid so we're getting we're getting more aggressive I do think we're getting through.
A lot of them over the last few months. So I think I wouldn't say, we're in the eighth inning, but we're definitely not in the second inning, we're probably somewhere in the fifth or sixth inning of this process.
Basically cleaning out customers that quite frankly are just not healthy customers there.
They're not paying their bills are not healthy so we're probably in the fifth or sixth inning of cleaning out the unhealthy customers and we're adding in new customers and all of the new customers that we're adding in to avoid this issue in the future. We are putting them on a prepaid system. So therefore, we don't have to worry about going to collect from them.
We are actually going to make sure that they are prepaying for their services. So before they get to use the platform level before they get to send out messages. They paid and if in fact, they run out message credits from their subscription and they need to buy more during the month to fulfill whatever marketing needs that they have they will have to buy those.
That it's upfront so as we clean out kind of like these accounts that just werent paying their bills and we add in all of these new accounts.
This issue will greatly be diminished because removing all of these types of customers to prepaid accounts.
Yes.
It's helpful Avi Scott.
Scott.
May get a little bit of pressure on revenue, but we'll certainly see some pickup in the bad debt expense, we have been experiencing so so we will have lost higher quality of revenue.
Yes.
Industry.
Fortunately.
You guys can't control that but.
But that you can from there that's great and then one last question for me.
You provide a little bit of color on the adoption.
Subscriptions based screen, Greg and that loyalty VIP loyalty base.
Whats kind of really drive that.
Ramp and then how should we start looking at that kind of cadence or the opportunity from there.
Revenue standpoint going into 2020 forward just to kind of put a little more color of the opportunity there as we go forward, yes sure. So.
Subscription standpoint, the key for us is focusing on our customer base that have larger consumer basis. So we have a.
We have two additional programs that are launching.
One is launching next week one is launching the week after that just have much larger consumer basis. Because this is this is a play on larger consumer basis, because some percentage of that consumer base is going to join the VIP program of retailers VIP program. So we've had over 20 clients signed contracts we have four.
Programs.
That are actually active right now it is taking a little while for retailers to kind of think through and build out what their VIP programs going to look look like and then in addition to that.
They need to make sure that they have the time to train their retail staff because this actually gets sold in store for the most part I mean, there is some additional marketing that happens in social media and on the website of our retailers' E Commerce site.
But from the the majority of these subscriptions are good consumer subscription is going to be sold in stores. So while we are realizing it does take a little bit longer from once a client signs the contract till they have all their ducks in a row to launch, but we've been focusing on getting our larger retailers. So we haven't necessarily focused on our largest MSA.
As yet because we want a little bit more time to prove out what we're seeing from subscriptions, but we are definitely moving up market in terms of the the prospects that we're calling on the clients that are signing contracts and the programs that are launching the two programs that are launching in the next couple of weeks have consumer databases that are much larger than the ones that we have in place. So.
And we have more on the docket that are coming coming through in the next couple of months. So.
Again, we believe that.
2024, we're going to see substantial revenue growth in subscriptions, we've been pretty conservative in our projections as we thought about them for next year, but we believe that there is really.
Financial opportunity there as we start getting larger clients interested in running this program.
Got it. Thank you for the detail I will jump back in the queue.
Thank you.
Please standby for our next question.
Our next question comes from the line of Casey Ryan with West Park Capital. Your line is open.
Thank you good afternoon everybody.
So I'm wondering if you can give a little clarity or color about.
Yeah.
With some of the customer weaknesses geographic enough to call out or do you say it does national on sort of consistent across states.
We are impacted by certain states may be contributing more to the market.
Currently.
<unk>.
And sort of what do we make them.
More states that are seeing sort of good activity.
Do you also see that like yes, we're seeing good activity in.
That have come online and doing well, Missouri, Maryland that kind of thing.
I'm curious if you could add any geographic layer to the commentary yes sure. So I think in terms of the in terms of the customers that we believe are struggling and struggling financially and struggling to be able to meet their financial commitments.
Yes.
I wouldn't say, it's completely concentrated in a few states, but you are definitely seeing states like California Stakes states like Colorado.
That have retailers that seem to be struggling more you are not necessarily seeing the same struggles in the northeast.
And on the east side in the eastern half of the Mississippi Youre seeing more of it on the west.
And youre seeing it more from the more mature.
Markets that have been around for a while where there just a lot of stores in there our struggles in those geographical markets, but I would say, California is a market that we're seeing it I would say Colin.
Colorado is another market that we're seeing it to a lesser extent we're.
We're seeing Oregon.
And to a lesser extent that that we're seeing Washington, but but I would say, it's primarily focused on <unk>.
States that have been around for longer that have.
A larger group of retailers that are competing with each other.
On the West coast. So on that we're seeing that in terms of states that seem to be doing well.
We seem to be new Mexico seems to be doing very well, we're seeing a nice pickup in activity there were seeing a nice pickup of activity.
In Missouri, So some of the newer states that are coming online.
Stores seem to be well funded and we seem to be.
Doing well both from a customer acquisition standpoint, but a customer retention standpoint as well.
Thanks.
Very helpful.
Would you be able to sort of frame the non cannabis opportunity because I think it sounds exciting and it's something that we've been excited about that.
But not wanted to overstate, what it's what its potential is I guess.
How should we think about it as sort of a.
<unk>.
On adjacent Tam for.
Yes sure. So so if you think about the four before kind of verticals that we're focusing on kind of like as a next step into non cannabis our liquor smoke bake CVD theres, probably when you think about those four.
Probably north of 100000 retail locations in the U S and Canada.
That are theoretically the Tam if you think about location based Tam that would be hit location based Tam that would be available.
Now finished the integration with our second point of sale.
And the non Canada space the name of the point of sales called Lightspeed, It's very well known point of sale and they have thousands of customers.
And those four vertical so we are going to start co marketing with them.
We're going to do kind of like a light co marketing between now and the end of the year and then we're going to be doing heavy co marketing with them. So.
We are expecting our non cannabis.
Location count to grow pretty significantly probably as you think about it we're going to do heavy marketing in Q1, starting in Q2.
I don't know exactly we don't have an exact count of how many of locations Lightspeed has in these four markets, but we know it's in the thousands and we know that Theres a real need for those verticals to get support from a company likes Greg. So we're excited about that.
And we're continuing to look at other point of sales that we can integrate with that have good presence in this market. So.
Again, just the size of those markets are so much larger but then on the other hand, the cadence of communication for those markets are not necessarily as frequent as cannabis retailer. So we're not necessarily expecting as we're probably expecting about 75% to 80%.
Of the revenue that we would usually see from as compared to a cannabis location, but over time, we believe that there is as much there is potential to have as many non Canada stores on our platform as of our Canada stores.
Got it that's really helpful.
And just one more on that sort of adjacent space.
Does it matter how many pos's were worth of just that were worth enough to sort of get a sizable piece of that 101000 store count. So it doesn't necessarily mean, the more the merrier because the what I mean by that is that our platform works best when we're integrated with the point of sale. So therefore, the retailer can match.
Managed their spring big.
Loyalty program from within the point of sale so.
With both COO.
Corona, which is a comp based point of sale that we that we integrated with earlier in the year that we have a number of non cannabis clients with them with lightspeed.
The loyalty program in particular can be managed by the retail staff of that retailer from within the point of sale. So there is there is a two way communication that's happening between our platform and the point of sale. So it makes it easy for them. So yes, having having the <unk> really tried to focus on create.
Adding a unique integration of unique 360 degree integration with point of sales because we understand that it makes it a much tighter and more seamless opportunity for the retailer, which will keep them around much longer. So we're focused on developing relationships with point of sales that we believe can we can add value to them and they can add value.
To us and by doing so by having that integration market to their customers in a way that we believe is going to be a really positive experience for the retail.
Okay that's terrific.
Just to clarify to make sure I heard it correctly, you were saying sort of Q2 of 'twenty four would be a time, where maybe we can start getting customer counts kind of rise in that segment. I think is correct in giving them time to co market. Okay, correct, 100%. Okay got it. Thank you very much that's it for me. Thank you.
Thank you.
Ladies and gentlemen at this time I would now like to turn the call back over to Jeff for closing remarks.
Thank you all very much for joining we appreciate you spending the time with us.
There are any questions follow up with us afterwards have a great night Bye bye, ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect.
Okay.
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