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spk04: Good afternoon, everyone. Welcome to the Spring Big's third quarter 2022 earnings conference call. I would now like to turn the call over to the Spring Big team.
spk02: Thank you. Hi, everyone, and thanks for joining our Q3 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 websites. 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-Q 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 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.
spk03: Thanks, everyone. for joining this afternoon's call. I'm excited to walk through our operating results, discuss key developments during the third quarter, and the progress we've made against our growth priorities. Our third quarter results reinforce my view that we are widening the gap as the leading technology loyalty platform across the cannabis sector. Although broader macroeconomic concerns have negatively impacted marketing budgets and digital spend, budget consideration for maintaining and growing existing customers, a central tenant of our platform, remains top of mind. Net-net, we continue to see an incredible opportunity ahead to increase our wallet share and ROI for retailers and brands. Now let's dive in and offer a bit more context on our results. We had a strong third quarter. Revenue came in at 7.4 million, representing growth of 22% year over year, and 13% quarter-over-quarter, an acceleration in growth compared to 13% year-over-year in Q2, despite inflationary headwinds facing the consumer, industry-specific margin pressures, and flattish overall revenue growth across our industry. Our growth this quarter was again underpinned by strength in subscription revenue growth, which accelerated to 48% year-over-year from 35% in Q2. Recall, we are primarily a subscription-based SaaS business, which provides predictability and increases visibility into results. We also saw continued strength across all of our key operating metrics, with our net revenue retention rate again significantly above 100%, and growth in both number of clients and locations. While our focus remains on accelerating top-line growth, we also remain committed to driving leverage through a balanced investment approach I would like to reiterate our plan to achieve EBITDA break-even during 2023. I would now like to discuss the two primary segments in our business, our retailer and brands platforms. Our retailer platform provides retailers the tools that they need to create and manage a successful loyalty program along with instituting a data-driven approach to how they connect and engage with their customers. This quarter, we added 90 new retail accounts and continue to see healthy additions of new locations from existing clients, something we are particularly proud of given the challenging environment, which can be characterized by a slower cadence of store openings. Our brands platform, which we launched in 2020 to help cannabis brands more easily connect with their consumers, saw record new customer ads in Q3. We're uniquely suited for the selling motion by allowing brands to connect directly with customers through our retailer platform, benefiting both the retailer by driving traffic to their locations and for the brand, increasing awareness and influence. This quarter, not only did the number of brands running campaigns grow quarter on quarter, but average spend per campaign more than doubled, a testament to the reciprocity between our retailer and brands platforms. Turning to the three areas that we view as key pillars of future growth. First, a network effect that we feel is materially underappreciated. Second, a high growth subscription revenue component that will increase predictability in our revenue stream. And third, an emerging opportunity to monetize the troves of data we have captured. Starting with the network effect, which has become a powerful flywheel between our retail and brands platforms, our purpose-built co-marketing platform, allows brands to target customers who are shopping at retailers who are selling their products through the Spring Big platform. This co-marketing platform is a unique differentiator in the cannabis industry, providing brands the ability to deliver messaging content to consumers and simultaneously incentivizing retailers to use the provided content. Importantly, this form of marketing also provides our retailers with co-op marketing dollars for their campaigns, subsidizing retailer marketing budgets. We continue to add functionality to differentiate our retail and brands platform offerings. For example, in the third quarter, we continued development on our upcoming spring pay solution, which allows consumers to pay directly from their loyalty wallet by simultaneously redeeming their earned points to reduce the amount owed for their purchase, along with paying for the remainder of the transaction with their stored payment options. We think the combination of simplicity and potential of spring pay, which offers the consumer the ability to use both loyalty points and a stored payment option within the consumer's loyalty wallet, presents a compelling value proposition to customers, particularly given the tight restrictions governing cannabis payment processing. In addition, leveraging our expertise in helping retailers and brands connect with their customers in restricted marketing industries, We are excited to announce that we have completed integration work with our first non-cannabis point of sale, offering a seamless loyalty program and data-driven communications platform to industries outside of the cannabis vertical. We continue to believe that our platform has the unique ability for retailers to boost foot traffic and drive a material increase in average ticket size, and we will continue to identify opportunities in other fast-growing markets where loyalty programs may be underrepresented or faith constraints. Second, the core component of our revenue, which is high growth subscriptions. As we have cited in the past, our retail clients enter into subscription contracts for one year or longer, largely tied to messaging volumes. Superior results from campaigns are driving excess use, often leading to expansion in contract size well before renewal. This clear pattern of increased subscription contract size is creating a more predictable revenue stream and we expect visibility into results to continue and increase over the long term. This quarter, we introduced our first consumer subscription program in partnership with Kind Plus, a subscribe and save offering, whereby customers pay a monthly subscription fee to receive specific discounts at certain retail locations. In addition to increasing our recurring revenue stream, these programs increase the stickiness of consumers on our platform. Third, I'd like to discuss the data opportunity. We currently have nearly 900 million records, which we believe to be among the most complete data sets in the industry. We have made material progress with our data normalization initiative and looking ahead, we intend to market our data to third party companies in order to make data driven decisions. By reaching beyond the traditional marketing departments and entrenched in other areas of their businesses, our offering becomes less discretionary with our clients. With that, let me share some examples of how customers are leveraging our platform with a few key wins and upsells from the quarter. First, demonstrative of our ability to expand within our customer base, in Q3, one of our key enterprise clients migrated tens of thousands of its members to the Spring Big database from another provider. This customer is now texting its aggregate membership daily, and in some cases, multiple times a day. As a result, ARR increased by $600,000 from this client, demonstrating the expansion and upsell opportunity that has become a natural part of the selling motion as our clients realize the embedded value of our platform. Second, in a competitive win with a large-scale operator in the Northwest, our data availability proved a differentiating factor. As our client compared solutions, our capabilities in data warehousing were simply unmatched by other vendors, as was our compliance framework, giving this client added comfort with regards to regulations around the enrollment and opt-out processes. Lastly, a large retailer in Northern California expressed frustrations around text deliverability with multiple other vendors that they had cycled through prior to choosing SpringVic. Our hands-on approach to account management, proven ability to consistently deliver text, and capacity to run an omni-channel communication strategy, including email and an app, set us apart as a partner that could grow alongside them. Thematically, I think it's important to note that we are mindful of legislative changes at the state and federal levels and the impact that they may have on our business. Namely, we are incrementally more positive on the potential for passage of the Safe Banking Act in the lame duck session and the White House directive on rescheduling cannabis, which could have major implications for the 280E tax code and capital markets access. Acknowledging these regulatory changes will take time, we remain cautiously optimistic. Looking ahead, we are managing our business efficiently to the factors within our control and recognize the current macro uncertainties. That said, it is clear to me that our growth strategy remains robust as we continue to leverage the network effect flywheel between retailers and brands, with additional targeted opportunities to monetize our data. We are pleased with the cadence of our new logo ads, while new products widen the feature gap between us and our competition. Lastly, feedback from customers and partners reaffirms 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 and discuss our outlook. Paul, take it away.
spk00: Thank you, Jeff, and thanks again to everyone for joining us. As mentioned, we delivered another strong performance in the third quarter, both financially and operationally. I'll start by providing a brief overview of our third quarter results before moving on to our guidance for the balance of 2022. Our Q3 revenue came in at 7.4 million, representing growth of 22% year over year and 13% sequentially. underpinned by year-over-year subscription revenue growth of 48%, continuing the strong start to the year following the 35% year-over-year subscription revenue growth in each of Q1 and Q2. As a reminder, Spring Big is a SAS technology business with 73% of current year revenue being derived from 12-month auto-renewing contracts. Over time, we expect this percentage to continue to increase as excess youth revenue is replaced with larger subscription contracts that are both more predictable and higher quality. But note a near-term impact from lower excess spend given macro challenges. Against this backdrop, excess use in Q3 was down 24% year over year, reflecting a tough prior year comparison from a large customer that we cited last quarter, but increased 30% sequentially, and we expect continued improvement. At the end of Q3, our monthly subscription run rate has increased by 41% year over year. Our brands revenue grew 61% year over year, with more brands running campaigns and average spend per campaign increasing by 11%. Top line growth was driven by strong customer demand, both in terms of new customer acquisition on our retail and brands platforms, as well as expansion of the installed base. We ended the second quarter with 1,390 discrete client platforms, a figure that has consistently grown quarter over quarter for more than 13 quarters, reflecting the continued growing market demand for our platform. We continue to see solid customer retention. Our Q3 net revenue retention rate was 119% versus 114% in Q2 and 85% in the year-ago period. While we are pleased with the retention rate this quarter, we do expect this metric to moderate to the expected 100% to 110% sustainable range exiting the year, as we currently benefit from multiple upgrades by some customers within the trailing 12-month period, whereas we would more typically expect only one upgrade each year. As we add more products and functionality to our platform, we see continuing opportunities to drive upsell as customers leverage both the retail and brands platform and expand to utilize our emerging data offerings. 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 growth. Total operating expenses decreased 8% sequentially and grew 52% year over year to 9.1 million in Q3. We ended the quarter with total headcount of approximately 162 employees. The sequential reduction in Q3 operating expenses was achieved despite higher expenses relating to being a public company. And as these public company costs start to normalize, Together with our sharp focus on expense efficiencies, we expect to see further sequential reductions. Sales, servicing, and marketing expenses were 3.1 million for the quarter, representing 41% of total revenue. Sales and marketing expenses reduced by 1% sequentially and increased 20% year over year. We expect to continue to realize leverage in sales and marketing over the longer term as we drive growth and capture a large TAM that is in front of us. Technology and software development expenses were $2.8 million in the quarter, representing 38% of total revenue. Expenses reduced 3% sequentially and increased 47% year-over-year. The year-over-year growth in this line item is due to our continued investment, adding a rich menu of additional capabilities to our platform and developing new complementary product offerings. G&A expense was $3.2 million for the quarter, representing 43% of total revenue and 115% growth year over year. In Q3, we incurred fees of $1.3 million related directly to being a public company, of which approximately $0.7 million are expected to be recurring, and the balance were one-off in nature. The year-on-year growth in G&A expense excluding these public company costs was 32% due primarily to investments in headcount and infrastructure. Our adjusted EBITDA loss in the quarter was 3.5 million, representing an adjusted EBITDA margin of negative 47% and an 800 basis point improvement over the prior quarter. Free cash flow was negative 7.4 million in Q3, higher than our adjusted EBITDA loss, primarily due to payment of merger-related costs. Finally, turning to our balance sheet, we ended the third quarter with 6.8 million in cash, cash equivalents and marketable securities, and 4.7 million in receivables. With Q3 behind us, I would now like to discuss our outlook for the balance of the year. While there is renewed optimism around federal legalization efforts and new states continue to open and issue licenses, cannabis and markets continue to experience industry-specific headwinds. Where in more mature markets across the country, a glut of product continues to have a negative impact on retail pricing, coupled with a material slowdown in discretionary spending by consumers. We view both these issues as transitory and think that the current trends do not reflect the intrinsic growth rate of the industry. With that as a backdrop and given our performance in Q3, we are confident in tightening our range for the full year and expect total revenue of 27.0 to 28.0 million with a midpoint unchanged from our prior guidance. This guidance implies a Q4 revenue range of 6.6 to 7.6 million, equating to a midpoint of 3% year-on-year growth. Given uncertainty in the current macro environment, we think it's prudent to expect review and scrutiny on digital marketing spend through the holiday period. And we believe the potential variability in excess youth revenue that this may cause is appropriately reflected in the implied Q4 revenue range. While, of course, factoring in that approximately three quarters of our revenue is derived from more stable, predictable subscriptions. Looking ahead to 2023, we expect the continuing strong growth in subscription revenue, increasing brand adoption, and the emergence of data sales and other initiatives to drive top-line acceleration, and we anticipate reaching the milestone of positive EBITDA during the year 2023. We plan to provide formal guidance for next year when we report our 2022 full-year results. In summary, we had a very strong Q3, and I am proud of the entire Spring Big team for their focused execution and commitment to driving positive customer outcomes. We remain very excited about the significant opportunity in front of us. With that, I'd like to open it up for Q&A. Operator, please poll for questions.
spk04: Thank you. if you have a question at this time please press star 1 1 on your touchtone telephone one moment while we compile the q a roster our first question comes from the line of owen bennett with jeffries your line is open please go ahead good evening jen so far well um my first question just relates to your customer mix and
spk01: any traction you're getting with MSOs. And then within that, I'm just curious to hear, obviously MSOs now are trying to sell more of their own brands through their own stores. I was just wondering if that's having any knock-on effect on your business, i.e. are they using your platform more to try and drive more store to those retail stores and therefore more profitability? That's my first question. Thanks.
spk03: So, hey Owen, it's Jeff. Good to talk to you. Now, we're continuing to see strong momentum from MSOs. We're continuing to see them allocate the spend that we've expected them to allocate to Spring Big and to helping them drive more customers in more often and spend more money. So, we haven't seen a slowdown from our larger clients in that regard. And in fact, with some of our MSOs, we're actually seeing increased spend Simply because, you know, as the economy gets a bit tougher, they're trying to make sure that they get their share. So one of the nice differences or the nice opportunities that we have, because our platform is more focused on helping them drive existing customer visit and spend as compared to bringing in new customers, we're not necessarily, we're not seeing a slowdown in their spend. And in fact, we're seeing continued momentum there. Thanks, Jeff.
spk01: Second question, I know you said you guys would give formal guidance at year end, but just curious to get a bit more details, if possible, around the data opportunity and exactly kind of who you're planning to sell that data to, what sort of data you'd be selling exactly, and how would that be charged? It would be a yearly subscription fee like we do for your other offerings. Thank you.
spk03: Yeah, so on the data side, we're continuing to make sure that the data is cleansed and normalized so we're in the best position to sell it. So we've been working for the past few months on we've already captured the normalization on the category side, and now we're focused on capturing the normalization on the brand level of the data. And then next, we're going to be focusing on capturing it on the strain and the weight of the products that are being sold within the store so we believe we're still a few months away from really tightening it up to be able to sell it but once once we believe that it's ready to be sold we expect it to be an annual subscription and we expect the markets to be obviously the cannabis brand market in particular the non-cannabis brand market and possibly some financial institutions as well so we see it as an annual subscription but we think we're still a few months away because we want to make sure that the data is really in the best shape possible to provide the most value possible for the potential buyer set. Great.
spk01: Thanks, Jeff. I just need to get one more. You recently launched the CBD integration on Shopify. Can you maybe talk a bit more about that and how meaningful you think that could potentially be?
spk03: Yeah. So it was actually a very meaningful integration. We're the first company of our kind to be able to integrate with Shopify in the way that we did. And we're already seeing real benefits where we're actually getting a number of inbounds from CBD companies. We think CBD is a great market extension. It's, again, another restricted marketing industry, so we think there's a great extension there. We already have a number of CBD companies and clients on our roster, but we think the integration with Shopify is going to really help us accelerate that, as well as the integration that we just finished with the first non-cannabis point of sale. We believe that that's also going to help us, especially in the areas of liquor, vape, smoke shops, where there's thousands and thousands of stores that are looking for support. And we believe SpringVid can be that support. So we're really excited about Shopify and what it's hopefully going to be able to help us accomplish in the CBD market, as well as the other integration that we just finished.
spk01: Very thanks, Jeff. Appreciate the time.
spk03: Thank you.
spk04: Thank you, and I'm showing no further questions, and I'd like to turn the conference back over to Jeff for any further remarks.
spk03: No, thank you all very much for joining. We appreciate it and look forward to speaking with you next quarter. Have a great evening.
spk05: This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great evening. Thanks, operator.
spk04: You're welcome. And I'm sorry about the end of that. I got to read the chat. I was saying whose name I was, and I saw Jeff's name and Owen's name both there at the same time. And I was like, wait a minute, Owen's who just asked questions.
spk02: That's quite all right. Will we get a list of the attendees later this evening?
spk04: Yes. As soon as I get it stopped and everything and they get it compiled together, they'll send it over to your rep, and then they should send it over to you guys.
spk05: Fantastic. Thank you so much for your help.
spk04: You're welcome. You have a great rest of your day.
spk01: You too. Bye-bye.
spk04: Bye.
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