SpringBig Holdings, Inc. (NASDAQ:SBIG) Q1 2023 Earnings Conference Call May 4, 2023 5:00 PM ET
Ryan Flanagan – Investor Relations
Jeff Harris – Chief Executive Officer, Founder and Chairman
Paul Sykes – Chief Financial Officer
Conference Call Participants
Good afternoon everyone, and welcome to SpringBig’s Fiscal Year 2023 First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] As a reminder, today’s call is being recorded.
I would now like to turn the conference over to your host, SpringBig’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 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 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.investors.springbig.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, Ryan, 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 represented 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 and digital spend, we continue to see a trend where budget consideration from maintaining and growing existing customers, a central tenant of our platform remained 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 top line growth, we are also focused and committed to driving leverage and are 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 continuation of the momentum we observed exiting 2022.
We’re 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 brand 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 brands 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 3,000 retail locations and installed in the smartphones of 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 SpringBig. At present, we are focused on the introduction of select group of new initiatives. We have launched a subscriptions offering enabling our retail clients to offer their customers to pay a subscription-based VIP loyalty program, offering those customers to subscribe the opportunity to receive specific discounts and benefits not available to their wider customer base. And in a manner similar to how we currently manage their loyalty programs today, SpringBig will power these subscription programs on behalf of our retail partners. We will share in the subscription revenue generated from customers enrolling into these programs.
We are also focused on developing our loyalty/payments initiative, Spring Pay, where consumers of our retail clients can use their loyalty points in conjunction with their preferred stored payment option to complete their in-store or online transaction safely and securely. The retailer benefits from increased transaction size due to the inclusion of loyalty rewards and SpringBig benefits 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 vape 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 and industries other than cannabis 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 SpringBig. A large multi-state operator started using SpringBig 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 multi-state operator upgraded our engagement to include all states they operate in accommodating their loyalty and messaging needs company-wide. As these additional states began to leverage our rich feature set, including the use of multiple images and videos, referrals, feedback 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 was outstripping their initial contract and quickly led to an increase in their national contract. As evidence in this expansion, a broad set of integrations and enterprise scalability delivered high ROI to this multi-state operator and we are confident we will continue to grow alongside this large partner. While SpringBig service is the full spectrum of clients from the largest multi-state operators to single location retailers, a sophisticated user, who is able to generate substantial ROI from utilizing our platform, is our sweet spot. Looking ahead, we plan to sustain 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 the 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 initiative implemented during Q4 of 2022. We expect our losses to continue to reduce and believe we are on track to achieve our stated objective. 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 growth of 16% year-over-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, SpringBig is 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 use 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 use revenue, which in Q1 reduced by 22% year-over-year. Brand’s 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 top-line growth continues to be driven by strong customer demand, both in terms of new customer acquisition on the retail and brands platform, as well as expansion within the installed base. We ended the first quarter with 1,366 discrete client platforms and are installed in 3,095 retail locations. We have in excess of 35 clients, who have an annual subscription exceeding $100,000. We continue to see strong customer retention despite the challenging macro environment. Our Q1 net revenue retention was 100% versus 105% in Q4 and 106% a year ago period. Recall we expected this metric to moderate to 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 brands platforms. The new year has started very strongly in this regard with some significant upgrades. Gross profit in Q1 was $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 in 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 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 for doubtful receivables taken in Q4. Year-on-year total operating expenses in Q1 increased by only 3%.
Sales, servicing and marketing expenses were $2.5 million for the quarter, representing 35% of total revenue. Sales and marketing expenses decreased by 15% year-over-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 was $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 $0.4 million cash provided by operations, $1.5 million cash outflow relating to the repayment of our convertible note and $0.1 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 during the quarter.
Turning to our balance sheet. We ended the quarter with $2.6 million in cash, cash equivalents and 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-1 on April the 20th and anticipate completing the raise in the amount of up to $5 million prior to the end of May. With regard to our outlook, I would include our usual caveat. While new states continue to open and issue licenses, cannabis end markets continue to experience industry specific headwinds where in certain mature markets across the country, a glitter 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. Although 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 in building our guidance.
For the second quarter of fiscal 2023, we expect total revenue in the range $7.3 million 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 $900,000 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 million 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 H1 adjusted EBITDA loss will be in the range $2.2 million to $2.5 million with the majority of our losses arising in this first half of the year. And thereafter for the second half of the year, we anticipated adjusted EBITDA being in the range of $0.7 million profit to $0.5 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. Operator, please pull for questions.
I’m showing no questions at this time. I’ll 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 for participating. You may now disconnect. Have a great day.
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