SpringBig Holdings, Inc. (NASDAQ:SBIG) Q4 2023 Earnings Call Transcript
SpringBig Holdings, Inc. (NASDAQ:SBIG) Q4 2023 Earnings Call Transcript March 12, 2024
SpringBig Holdings, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good afternoon, everyone, and welcome to SpringBig's Fourth Quarter and Fiscal Year 2023 Earnings Conference Call. I would now turn the call over to Spring Big's Investor Relations, Claire Bollettieri.
Claire Bollettieri: 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 the SEC.
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.
Jeff Harris: Thanks, Claire. And thank you everyone for joining 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 SpringBig is in an excellent position. We continue to execute on a sound strategy, and I am confident that we are making the right investments to both add value to our clients and at the same time, capturing the long-term opportunity in front of us. While 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 $200,000 compared to $3.2 million in the same quarter last year. Shortly after the end of the year, we secured $8 million in 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 the 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 brands platform provides 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.
Throughout 2023, we have been operating in a challenging end market environment with broader macroeconomic concerns weigh on marketing budgets and digital spend and compression of margins in the cannabis industry increasing the financial stress on our clients, and we have worked diligently to support them. In such an environment, it is 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 1 to Schedule 3, 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 and provide discreet new offerings. We have talked on prior quarterly calls about the launch of subscriptions by SpringBig, which enables our retail clients to offer consumers in return for a monthly or annual subscription fee, the opportunity to earn additional loyalty rewards, access to special promotions and other perks as VIP subscribers. Progress has been at a pace we expected given this is truly an innovative offering in the market. We have 13 clients that have expanded their contracts to incorporate this offering and six have already launched their VIP subscriber programs with more than 1,800 consumers already subscribing to these programs.
We see meaningful potential from both the revenue growth and profitability perspective for both our retail partners and SpringBig as the VIP subscription programs are launched and mature over time. Our second key initiative was launched in Q4 is our offering of 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 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 cannabis vertical with our loyalty and messaging communications platform servicing other regulated industries such as alcohol, vape, smoke and CBD.
While these newer initiatives are going to take time to evolve, we are confident that in time, it will fuel significant growth to complement the potential we 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 status SpringBig. SpringBig is in an excellent position. Our technology platform is operational in more than 2,900 retail locations across the United States and Canada and present in the smartphones of over 35 million marketable consumers. We have a significant opportunity in front of us to continue to offer and 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 having optimized our operating expenses to a level that enables us to generate meaningful and sustainable earnings in the 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.
Paul Sykes: Thank you, Jeff, and thanks again to everyone for joining us. I want to start by talking about the $8 million debt financing we completed in January 2024 before discussing our results for the fourth quarter and 2023 fiscal year and ending 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 note and term loan mature in 2026 and there are 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 $0.15.
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 repurchasing the existing note and transaction costs were $4.6 million. Following this refinancing, SpringBig 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 $0.2 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 for our services and that while we have worked diligently with many clients to support them through the introduction of payment plans, it has inevitably also led to us having no choice in some cases but to cease servicing nonpaying clients. This, of course, impacts our reported revenues and has continued to be a factor during Q4.
Being a technology business, we derive most of our revenue from the recurring subscription contracts. In 2023, 79% of revenue was subscription revenue compared with 73% in the prior year, and we grew our subscription revenues by 14% year-on-year to $22.3 million, and by 10% year-on-year in Q4. The majority of the non-subscription revenue is excess use revenue arising when clients exceed the messaging volume within their subscription. And we also derive revenue from brands clients and other ancillary services. Over time, we anticipate the sensitive revenue which is derived in subscriptions will continue to increase as we replace excess use revenue with larger subscription contracts that are more predictable and higher quality. The byproduct, of course, of this conversion into subscription revenue has been a year-on-year reduction in our excess use revenue by 24% in Q4 and by 28% for the full year.
We ended the fourth quarter the year with 1,298 discrete plan platforms and are installed in more than 2,900 retail locations. While net revenue retention, a measure of the growth in our recurring subscription revenue, excluding the impact of new client acquisitions, was 97% in 2023 compared with 105% in the prior year, a reflection of the challenging market and slightly below our target range of 100% to 110%. Our gross was $4.8 million, representing a margin of 70%, which is lower than recent quarters due to absorbing higher message distribution costs imposed by the telecom operators. For the full year, our gross profit was $21.6 million, representing 8% year-on-year growth and a margin improvement of 2% from 75% from 2022 to 77% in 2023. Moving on to operating expenses.
We have seen the impact of our diligent management expenses now flowing through into our operating results, and 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 were $6.9 million, representing a 31% year-on-year reduction. At the end of the year, our employee count was 83 compared with 126 employees at the end of 2022. Sales, servicing and marketing expenses were $1.8 million for the quarter, representing 26% of total revenue. Sales and marketing expenses decreased by 46% year-on-year due to cost rationalization towards the end of 2022 and during the current year, resulting in lower employee headcount.
Technology and software development expenses were $1.8 million in the quarter representing 26% of total revenue. These expenses decreased 41% year-over-year, with the savings being attributable to lower expenses associated with the use of offshore contractors and a reduction in employee costs. G&A expense was $3.4 million for the quarter, representing 50% of total revenue and a 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 have been implemented throughout the year, and therefore, we have not yet seen the full impact of these initiatives. Our current annual run rate is expected to result in a year-on-year reduction of approximately 30% from 2024 compared with the 2023 operating expenses.
Adjusted EBITDA is our key earnings metric since we believe this most closely equates to operating cash flow. Adjusted EBITDA loss in the fourth quarter was $0.2 million, representing an adjusted EBITDA margin of negative 4%. The adjusted EBITDA loss represents an improvement sequentially compared with the $0.9 million adjusted EBITDA loss in Q3 and is significantly lower than the $3.2 million loss reported in Q4 last year. For the full year, our adjusted EBITDA loss is $3.6 million compared with $12.6 million in 2022 or 71% production. Free cash flow for the fiscal year was negative $3.2 million, comprising primarily $5.3 million cash used in operations, $12.7 million in repayment of our convertible note $4.2 million received from the issuance of stock and our equity raise, which was completed in May and $1.9 million short-term cash advances.
I shall now conclude with our guidance for the first quarter of fiscal 2024. With regard to our outlook, I would include our usual caveat that our clients continue to experience industry specific headwinds and the macroeconomic uncertainties continue to be highly prevalent. For the first quarter of fiscal 2024, we expect total revenue in the range of $6.4 million to $6.7 million and an adjusted EBITDA profit in the range of $0.2 million to $0.4 million. For the full year of fiscal 2024, we expect total revenue in the range of $29 million to $32 million and playing 10% year-on-year growth at the midpoint and an adjusted EBITDA profit in the range of $3.5 million to $5.0 million. With that, I'd like to open it to Q&A. Operator, please poll for questions.
Operator: [Operator Instructions] Our first question comes from the line of Scott Fortune of ROTH. Your line is open.
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