Q4 2023 SpringBig Holdings Inc Earnings Call
Okay.
Good afternoon, everyone and welcome to spring bank's fourth quarter and fiscal year 'twenty to 'twenty three earnings conference call.
I'll turn the call over to spring Biggs Investor Relations.
Claire voluntary.
Thank you hi, everyone and thanks for joining our Q4 earnings conference call.
Joining me on the call today are Jeff Harris, our CEO, founder and Chairman and Paul Sykes 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 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 that will be filed with that D. C.
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.
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.
W. Dot investors that spring break 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.
This afternoon's call.
During today's call Paul and I will provide you details on our fourth quarter and full year results update you on our key business initiatives and provide guidance for the first quarter of 2024.
I am happy to report that Sprague has an excellent position, we continue to execute on our sales strategy.
But we are making the right investments to both add value to our clients and at the same time gasoline a long term opportunity in front of us.
Throughout the year, we have experienced some end market challenges, we grew revenues by 5% year on year, and we have diligently reduced our operating expenses by 17% and 31% year on year for the full year and fourth quarter respectively.
We achieved our target of delivering positive adjusted EBITDA before the end of the fiscal year with December being our first profitable month and in Q4, our adjusted EBITDA loss was a modest 200000 compared to $3 2 million in the same quarter last year.
Shortly after the end of the year with secured 8 million and debt financing with a syndicate of lenders, which allows us to move forward with a much stronger and cleaner balance sheet as we look to continue to expand and deliver shareholder value.
Paul will discuss our financial results and our recent debt financing in a moment, but first I would like to highlight some of our accomplishments over the past year.
As a reminder, our retail and branch platform provide merchants and brands with the tool set that they need to create and manage a successful loyalty and digital marketing program, along with instituting a data driven approach to how they connect and engage with their customers.
2023, we have been operating in a challenging end market environment with broader macroeconomic concerns weigh on marketing budgets in digital spend and compression of margins in the cannabis industry, increasing the financial stress on our clients and we.
We have worked diligently to support them in such an environment. That's pleasing that we have continued to grow revenue with full year growth of 5% year on year and with our subscription revenues underpinning this growth and increasing by 14% year on year.
As the cannabis market benefits from an improving macroeconomic environment and potentially rescheduling from schedule one to schedule III, we anticipate an acceleration in growth.
We have also focused our attention on a small number of high potential growth initiatives and while we continue to develop and launch innovative product offerings to enable our clients to retain and grow their customer bases within our core platform. These new initiatives both complement our core it provides discreet new offerings.
We've talked on prior quarterly calls about the launch of subscriptions by spring Bank, which enables our retail clients to offer consumers a chart or a monthly or annual subscription fee the opportunity to earn additional loyalty rewards access to special promotions and other parks as VIP subscribers.
Progress has been at the pace, we expected given this is truly an innovative operating in the market. We have 13 clients that have expanded their contract to incorporate this offering.
Six have already launched their VIP subscriber programs with more than 1800 consumers already subscribing to these programs, we see meaningful potential from both a revenue growth and profitability perspective for both our retail partners at spring Bank.
The IP subscription programs are launched and mature over time.
Our second key initiative was launched in Q4 is our offering a unique gift card payment option that can be used by consumers as a method of payment and store directly from their existing royalty well that will also enable the consumer to uniquely combine the use of loyalty points and the prepaid gift cards.
We expect meaningful revenue from these two initiatives to start accruing in the second half of 2024.
Finally, we continue to expand beyond the candidates vertical with our loyalty and messaging communications platform servicing other regulated industries such as alcohol.
Smoke and CBD.
While these newer initiatives are going to take time to evolve we are confident that in time, they will fuel significant growth to complement the casually believe is present to further expand our existing offerings before I hand over to Paul who will walk through our financial results in detail I want to conclude with my assessment of the current state of spring break.
Great Big is in an excellent position our technology platform is operational in more than 2900 retail locations across the United States and Canada and present in the smartphones of over 35 million marketable consumers.
A significant opportunity in front of us to continue to offer develop innovative technology solutions that enable our clients to retain and grow their customer bases. Our financial position has improved both from the perspective of having cash in our balance sheet and optimize their operating expenses to a level that enables us to generate meaningful and sustainable earnings.
Future without being reliant on revenue growth.
For 2024, our focus is on ensuring successful execution of our key initiatives. So we start realizing some of the significant potential further expanding our subscription revenue generating loyalty and digital messaging platform and continuing to be highly disciplined in our expense management.
To deliver meaningful adjusted EBITDA with that I'd like to turn things over to Paul.
Thank you, Jeff and thanks, again to everyone for joining us.
I want to start by talking about the 8 million dollar debt financing we completed in January 2024.
Before discussing our results for the fourth quarter and 2023 fiscal year, and then with our guidance for both the first quarter and full year of 2024.
On January 24, we announced that we had secured $8 million of debt financing with a syndicate of investors consisting of a $6 4 million, 8% secured convertible note and a $1 6 million, 12% secured term loan.
Both the convertible notes and term loan mature in 2026, and there were no amortization payments prior to maturity.
The convertible notes can be converted into common stock at the option of the investor at any time prior to maturity at a conversion price of 15 cents.
The proceeds were partially used to repurchase the entire existing secured convertible note, including associated warrants, which had been issued at the time, we became a public company in June of 2022 and for a discounted amount of $2 9 million.
The net proceeds after we purchased in the existing note and transaction costs were $4 $6 million.
Following this refinancing spring big has a much stronger and cleaner balance sheet with the capital that will enable us to continue to expand and to deliver shareholder value.
Now turning to our results for the fourth quarter and fiscal 2023.
We are pleased to be able to report a year in which revenues grew 5% year on year to $28 1 million and one in which we were able to show a significant reduction in our adjusted EBITDA loss from $12 $6 million in 2022 to $3 6 million in 2023.
Benefiting from a 2% improvement in gross profit margin to 77% and a 17% year on year reduction in our operating expenses to $29 9 million.
Our Q4, adjusted EBITDA loss was <unk> 2 million compared with $3 2 million in the same quarter last year, reflecting the progress that the company has made along our path towards profitability. During 2023 in December we posted positive adjusted EBITDA for the first.
Time.
Q4 revenue came in at $6 8 million representing growth of 1% year on year, and a 1% decline sequentially.
In our earnings call, we talked about the challenge in the current macro environment of ensuring we receive payment services and that while we have worked diligently with many clients to support them through the introduction of payment plans. It is inevitably also led to us having no choice in some cases, but to see.
Servicing non paying clients.
This of course impacts our reported revenues and has continued to be affected during Q4.
<unk> technology business, we provide most of our revenue.
15.
23, 79% of revenue.
<unk> revenue compared with 73% in the prior year, we grew our subscription revenues.
10% year on year.
92, 3 million grew by 10% year on year.
Cool.
The majority of the non subscription revenue.
Revenue rising one point.
Keep the messaging volumes within their subscription.
We also derived revenue from games claims.
Data services.
Over time, we anticipate sensitive revenue that is designed.
We will continue to increase.
Please.
Revenue with logistics with two clients with a more predictable and higher quality.
The byproduct of course of this conversion into subscription revenue has been a year on year reduction.
This new revenue by 24% in Q4.
28% for the full year.
No.
We ended the fourth quarter year.
1298 to three point.
We have installed in more than 2900 retail locations.
While our net revenue retention we measure.
<unk> subscription revenue.
Removing the impact of new client acquisitions with 97% in 2023 compared with 105% in the prior year.
Fixing of the challenging market.
Slightly below point at day.
100, 110%.
While it is posted in Q4.
For $8 million, representing a margin of 70%, which is lower than recent quarters due to a.
Global brand message distribution costs, we faced by the telecom operators.
For the full year gross profit was 21 6 million, representing 8% year on year growth.
And the margin improvements of 2% and 75% in 'twenty to 'twenty, 2% to 77%.
Great.
Moving on to operating expenses, we have seen the impact of our diligent management of expenses now flowing through into our operating results. We continue to remain highly focused on.
Optimizing the leverage in our business while of course at the same time balancing this with our investments for sustainable growth.
Total operating expenses in Q4 was $6 9 million, representing a 31% year on year reduction.
At the end of the year will employee count was 82, eight compared with 126 employees at the end of 2022.
Sales services and marketing expenses were $1 8 million for the quarter, representing 26% of revenue.
Sales and marketing expenses decreased 46% year on year due to post rationalization towards the end of the.
And during the third year, resulting in lower employee head count.
Technology and software development expenses were $1 <unk>.
$8 million in the quarter, representing 26% deferred revenue.
These expenses decreased 41% year over year with savings being attributable to lower expenses associated with the use of OXXO contractors.
New employee.
<unk> expense was $3 4 million for the quarter.
So 50% of total revenue, 9% year over year reduction.
For the full year operating expenses were 29 9 million, representing a year on year reduction of 17%.
While operating expense reduction initiatives.
Implemented throughout the year.
Therefore, we have not yet seen the full impact of these initiatives.
Two in terms of your win rate is expected to result in a year on year the book to Bill.
Ultimately, 30% in 2024 compared with between 33 operating expenses.
Adjusted EBITDA as our key earnings metrics as we believe this mix plus the equates to operating cash flow.
Adjusted EBITDA loss in the fourth quarter was <unk> 2 million, representing an adjusted EBITDA margin was negative 4%.
The adjusted EBITDA loss represents an improvement sequentially compared with the loss was $9 million adjusted EBITDA loss in Q Lee, let me significantly low.
Three 2 million loss.
We posted in Q4 last year.
For the full year, while adjusted EBITDA loss of $3 6 million compared with $12 6, million% to 71% prediction.
Free cash flow for the fiscal year was negative $3 2 million comprising primarily one 3 million cash used in operations was $7 million repayments.
Nope.
$4 2 million received from the issuance of stock genomic too.
Which was completed in May.
One 9 million short term consequences.
This will now conclude with our guidance for the first quarter of fiscal 'twenty principle.
We began an outflow.
Would include our usual caveats.
Our clients continue to experience.
Specific headwinds in the macro economic uncertainty continues to be highly turbulence.
For the first quarter of fiscal 2024, we expect total revenue in the range of six 4% to $6 7 million.
EBITDA in the range of $2 million to $4 million.
For the full year fiscal 'twenty to 'twenty four we expect total revenue in the range of $29 million to $32 million claim.
Claim 10% year on year growth at the midpoint.
Adjusted EBITDA profit in the range of three five points.
<unk>.
With that I'd like to open the Q&A operator, please poll for questions.
Thank you, ladies and gentlemen, if you'd like to ask a question. Please press star one on your telephone again, if you'd like to ask a question. Please press star one one.
One moment, while we poll for questions.
Our first question comes from the line of Scott Roth of Froth, Scott Fortune of Roth. Your line is open.
Thank you and good afternoon.
Just wanted to follow up real quick on the guidance here looking at your 2020 for guidance.
We're expecting kind of a sequential decline in one queue you factor a little bit on the macro side of that there's some seasonality in there, but just wanted to get sense for that means a much bigger ramp in the second half of 'twenty, four but kind of help us understand.
The <unk> kind of softness from that standpoint, continuing challenges for clients or adding new customers here in the current environment environment, and what sales initiatives or programs are going to account for kind of a stronger second half of 'twenty four cadence just kind of unpack that a little bit that'd be helpful.
Hey, Scott Thanks for the question.
Two to address the Q1 decline.
So obviously, there's still a little bit of seasonality.
We revenues tend to be a little higher in holiday periods and so in Q4, we get obviously all the traditional holiday season in Q2, we have things like.
For 'twenty and some some tubing this summer very few.
In Q1.
So we've tried to factor that in.
And then secondly.
There is no risk.
All this ongoing sort of challenges in the macro environment and so we don't we don't want to assume this is too much of an uptick in Q1.
In terms of.
The second half of the year and as you rightly say there is a an acceleration in growth as the addresses that that really is the impact of it.
The seasonality that I, just talked to but also the impact of some of the newer products coming on board, particularly the VIP subscription product.
Which we launched.
In the second half of two.
2020, and he's already getting good momentum in the in the marketplace and we've already got nearly 2000 consumers subscribe into those programs across a number of retailers.
And many more retailers already signed up to launch their subscription programs and then the second initiative.
Is the the ability to his gift count by spring breaks, which is the ability for retailers to have a e-commerce payment option within the mobile wallet.
That will allow consumers to combine payments with loyalty points and the use of the prepaid discount. So there's there's two will will drive some revenue growth in the second half.
For the year.
And with some seasonality so that's.
That's why we get these the profile that we do to through 2024.
Thank you I appreciate the detail and just kind of follow up on obviously the overall weakness here just can provide an update on what you're seeing from the new business side last couple of quarters, obviously theres been attrition of accounts have been tough time pain, we see that in California as more retailers that go.
Our business or nothing there.
Those are taxes from that standpoint, but just kind of a kind of a little more visibility on the new account side.
That said are you kind of I mean regionalize it.
Mature market is still tough in New York coming on with legal retailers kind of kind of SaaS through kind of the growth opportunity or the states that are looking positive for for adding.
New retailers on that.
On that standpoint, and then I have one follow on to that that'd be great.
You've almost answered the question yeah, the mature states continue to beta.
If you read too comes comes on from some of the newer states and the states.
The transition from medicinal to recreational.
Added 396, new clients during the past year. So that's a nice segue Jamie it is a fairly constant rate to between 30% to 35 clients added in each and every month during the year, so, but we see still seem too much chair.
Dosing, particularly at the lower end a lot of clients where they.
Financially challenged and we.
We've talked about before that while we try to help them, we put them on payment plans and we try to help them through this challenging period in.
The industry is doing too at times, we also have to.
Suspend them and stop the service because theyre not going to pay us at the end of the day, we put no alternative.
Got it.
Then just kind of follow up on that are you are you seeing any paused outreach from kind of the large msos. Obviously, the big Msos are really reporting meaningful cash flow generation and that's not even counting the potential elimination to HPE write as cash flow generation comes from a lot of these larger clients of <unk>.
<unk>.
It's kind of a sense for they want to drive growth right.
Adding to the program or are ramping up your new initiatives from that standpoint, just kind of a little bit of color from your large clients that R. R.
They have pretty good cash flow from that standpoint.
See the main major msos that are our clients.
And we got plenty of the top 10.
They continued to expand their spend with us we've.
We've seen growth received interest from them in some of the newer products.
A lot of time also.
<unk> to be the mobile app rather than a net.
Whats notifications.
Rather than being reliant on on text messaging.
Just push obviously didn't get better deliverability and there is more cost effective so we're in a we're seeing we've seen the 8-K.
And there's big Msos continuing to Greg.
So overall the marketing budgets are still pretty tight we just haven't seen that open up and kind of waiting for the potential rescheduling to for that to occur and intense.
And we feel that.
If we get rescheduled.
Two key issues go away, then that could be a big boost.
They want me to be the larger msos, but also obviously to the smaller retailers as well.
Okay.
A portion of that additional cash injection into the industry.
Will flow into marketing budgets.
Appreciate the update I'll jump back in the queue.
Thank you one moment please.
Our next question comes from the line of Casey Ryan of West Park Capital. Your line is open.
Good afternoon, gentlemen, thanks for the update today.
I just had a couple quick questions, Scott certainly got Merck with the relevant ones, but.
On the messaging cost I guess, the gross margin Paul you May I may have missed this in your commentary but.
Is that sort of a number that does that get passed on.
I'm going to call it that sort of increased messaging cost as we move into 'twenty four is that sort of a permanent state.
Our gross margins, which is fine if it is but.
Maybe you can remind me of that if I wasn't paying close enough at times.
It's an additional additional costs the messaging costs have gone up as carriers some carriers have increased net costs.
To date, we've not passed that arm. So so we've been absorbing that that additional cost as we think about pricing going forward and we we think about our margins then.
Some of it will logically get pushed.
Understood some of the Wellington will have to absorb it.
But at the same time, we tried to promote.
Alternative distribution methods.
As I mentioned.
In response to Scott's question.
The more people can be using push notifications and which don't have the associated carrying costs.
Deliverability, and then that that's better for us.
And so as planned.
Interestingly, we've also seen an increased use of email.
They may see Matt may seem subtle like antiquated as a message nowadays.
Again, you get.
More cost effective.
Embedded deliverability.
We now have about 40% as our messages are going out via either email push notifications, so that at any time, which will impact that.
Gross margin.
Yeah, well, it's sort of interesting I guess it sort of.
So the dip from Q3 to Q4, I mean can we infer that that's that.
That sort of equal to on a dollar basis equal to what the net price increases is that sort of a fair thing for us to do to say.
Yes.
It is okay. Okay. Good thats helpful.
Okay, well then.
Terms of.
Customers right and sort of cash flow situations I think bad debt expense was lower $707 32 in the quarter.
Versus a 1 million one or something in the year ago period, So that looks like the trend is in the right direction, but.
Tell me if you've moved to.
I guess I've heard others in the industry suggest that some people have moved to sort of upfront.
Payments for certain customers right.
So.
That has the same effect sort of cutting people off in <unk>.
Being tougher, but but but have in some cases has spring bank driven.
I guess sort of cash flow sort of a negative in terms of people pay you upfront for services or have you shrunk the like Cerberus term like youll sort of give somebody to sort of confirm service with and then be billed I'm sort of curious about what youre doing in terms of <unk>.
Payment duration.
Because some people have said Oh, yes, two or three or four years ago people would give us something on a quarter to pay right three months, but that that's been steadily shrinking as they'll have the long tail issue with cash flow from smaller players.
We've says to the to the launch of <unk>.
Players.
We are supplying to two.
Stay with quite tight.
<unk>.
I think there's it's changed that much over the last year or so.
What we have done is implement a system or.
Making sure that the particularly the smaller clients.
Prepaid so.
Before usage.
Correct Okay.
Yeah.
That actually has a benefit to the client as well in that and some of these as you know <unk> been relatively small businesses.
These three pain it helps them manage their budgets.
Uh-huh PKI right. If you if you have access to our platform and can send out so I'd say endless messages.
And then you get to Bill us towards <unk>.
And I've certainly spent X times, what I thought I was going to spend.
That's not good.
Client.
It's not good for us because at the end of the day, we built in an unhappy clients.
By implementing a <unk> payment.
H.
It means where we're helping them to manage budgets on a month to month basis.
Right Okay. Okay. Good.
So sort of that structure has that been sort of fully implemented meaning is there more to go in terms of telling some people hey, we're moving to a prepaid model or how do we sort of completed a lot of that work in terms of adjusting our sort of payment plan.
Bill.
Largely we have largely completed that.
We transitioned to that for the customers, we were going to transition and we did.
Fix some January.
Okay, Okay got super that.
Great progress on I think.
Hopefully the bad debt expense and sort of showing a positive trend there so.
In terms of the revenue guidance and this is for for both.
Cannot be achieved with with just the existing client base, meaning it doesn't rely on new customer adds or is there some expectation for sort of a normal customer adds to sort of support that.
And my expectation is the normal customer labs.
The way too.
30, 30 to 35 months, who will continue.
Hum.
We will get some some reduction in material that we've.
<unk> seen.
Through the last year or so.
Yeah.
Hopefully, we'll be on the cautious side of my revenue guidance.
Right. Okay. Good good that's good to hear.
And then the last question sort of.
Sort of outside.
I'm not sure what we want to call it as non Canada or sort of.
Alcohol tobacco smoke kind of segment.
Can you comment if there were any commercial revenues tied to that segment just at all even if it was $1 in Q4, I'm just I'm not looking for a number I'm just curious if we're commercially generating some revenues, yes, yes, we all we've got about 10 contracts.
In that broad known non cannabis cancer.
And so that generating revenue.
No it's not a significant number yes.
If it becomes a significant number of it at some point, obviously, we'll start breaking that out.
We've also.
Starts with marketing co marketing a significant integration.
With eight point of sale system into non cannabis space.
That is is driving so much celebration in that area.
In Q1 of 2024.
We're quite optimistic about growth in that space.
Okay Super.
And one more question realizing we're early days here.
The shape of the revenues look similar in like I'm just that.
If a non Canada clients. They have five locations on account of client has five locations does the spend and the margin profile just look the same and in my mind simply I'm thinking well it's software.
To further communications.
Loyalty should be could could be the same profile, but maybe there is a reason why it's not quite the same profile, but I'm just curious of generally your expectation is.
From a from a revenue and margin profile that candidates are non counter folks similar <unk> different if theres a way to describe that I think it's relatively similar.
I would expect that the outside of tenant base and the <unk>.
Revenue is a plan there was with similar in every other aspect, but for the market the revenue would be slightly lower.
The reason I say that is there is specific challenges in the cannabis space as you know around communicating with with your consumer.
That drives many of the cannabis retailers to message more than people probably will outside of cannabis.
<unk> got a <unk> 10 decline so I think on the average revenue for non cannabis plant will be slightly lower than it is in the cannabis space.
Right, Okay got it well. Thank you. Thank you for the encouraging outlook.
We're looking forward to a good year. So thanks for your time, okay. Thanks, Thanks Casey.
Thank you I'm showing no further questions at this time ill turn the call back over to Paul Sykes for any closing remarks.
Thank you and thank you everyone for joining our call and for your continuing support and spring break.
We're certainly excited about the next year and what's ahead of us when we look forward to updating you we don't progress as the year progresses.
Thanks, again and have a good evening.
Thank you ladies and gentlemen, this does conclude today's conference. Thank you all participating you may now disconnect have a great day.
[music].