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spk06: Good day and welcome to the Spring Big 4th Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Ryan Flanagan. Please go ahead.
spk09: 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 reconciliation of gaps and non-gap 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.
spk02: Thanks everyone for joining this afternoon's call. We have a lot of exciting developments to cover. During today's call, Paul and I will provide you details on our fourth quarter and full year results, as well as our guidance for the first quarter and 2023. I'm happy to report that we closed out the year on a high note with revenue prior to a revision and accounting treatment coming in above the midpoint of our guidance, despite persistent macroeconomic headwinds. Growth in the fourth quarter was again driven by subscription revenue, which in Q4 grew 33% year-over-year. Throughout the year, our subscription revenue growth has been consistently strong, culminating in 38% year-on-year growth for 2022. Recall, we are primarily a subscription-based SaaS business, which provides predictability and increases visibility into results. Paul will discuss the fourth quarter in greater detail in a moment. But first, I'd like to highlight some of our accomplishments over the past year, including some noteworthy customer upgrades. I'd then like to lay out our key objectives for 2023. In 2022, we invested to scale the business to the long term. We doubled our commitment to profitable growth, which included a restructuring in Q4, and made material progress on new initiatives. all while successfully completing our IPO in June. While our focus remains on accelerating top-line growth, we also remain committed to driving leverage through a balanced investment approach and reiterate our plan to achieve EBITDA break-even during 2023. I would now like to discuss 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. Given this backdrop, we are encouraged that we added 80 new retail accounts in the fourth quarter reinforcing our view that budget considerations for maintaining and growing existing customers remains less discretionary relative to traditional marketing spend. Our brand platform, which we launched in 2020 to help cannabis brands more easily connect with their consumers, continued to accelerate at a really nice pace in the fourth quarter, and we are encouraged by the runway performance we have observed in the first month of 2023. We're uniquely suited for the selling motion by allowing brands to connect directly with customers through our retail platform, benefiting both the retailer by driving traffic to their locations and for the brand, increasing awareness and influence. Turning to the three areas we have talked about previously as key pillars of our growth. First, a network effect that we feel is a unique and powerful flywheel between our retail and brands platforms. Second, a high growth subscription revenue component that increases predictability in our revenue stream. And third, new initiatives and the opportunity to monetize the troves of data that we've captured. Starting with the network effect, 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. Second, an increasing proportion of our revenue is from recurring subscriptions. Our retail clients enter into subscription contracts for one year or longer, largely tied to messaging volumes. With messages being distributed through multiple channels, And we note a trend of clients increasingly leveraging direct push notifications to consumers who are utilizing mobile apps. The net result is that superior results from campaigns drive platform utilization and a clear pattern of increased subscription contract size, creating a more predictable revenue stream. The third pillar is the intersection of our current business and our targeted set of new product initiatives. As a result of our platform being present in more than 3,000 retail locations, installed in the smartphones of over 35 million marketable cannabis consumers, and our integrations with over 20 point-of-sale systems, we are uniquely positioned to introduce offerings to our client base that provide meaningful growth opportunities for both our client base and Spring Break. At present, we are focused on the introduction of a select group of initiatives, the first being our loyalty-slash-payments initiative, Spring Pay, where consumers of our retail clients can use their loyalty points in conjunction with their preferred store payment options to complete their in-store and online transactions. The retailer benefits from higher transaction values and Spring Pay benefits by facilitating these transactions on behalf of our retail partners. Second, in Q4, we launched a consumer subscription offering, enabling customers to pay a monthly subscription fee to their retailer to receive specific discounts and benefits at their favorite retail locations. SpringViv will manage these subscription programs on behalf of our retail partners and share in the subscription revenue generated from customers that sign up for these offerings. In addition to increasing our recurring revenue stream by tapping into the millions of consumers that are on our database, these programs will increase the stickiness of both the retailers and consumers that are on our platform. with over 900 million first-party data records, which we believe to be among the most complete data sets in the industry. SpringVic is working towards the introduction of various data-driven products that will provide both retailers and brands from both within the industry, as well as those interested in learning more about it to have the meaningful insights needed for better decision-making at their fingertips. This offering will allow us to reach beyond the traditional marketing departments and become entrenched in other areas of our clients' businesses making our offerings even more critical. Additionally, in January, we announced our 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 of the other regulated industry, including alcohol, CBD, and vape stores. Marketing and selling to this audience has already begun with signed contracts from this group already in place. and we are excited with the progress we are seeing with this new group of potential customers outside of the cannabis vertical. We have an abundance of new product opportunities ahead of us and are simultaneously continuing 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. To emphasize this unique power of our platform and give some real-life examples of how we are delivering customer value, I'd like to share a couple of notable recent upgrades with enterprise clients that highlight why customers choose SpringVic. First, one of our largest enterprise clients recently signed a significant upgrade and expansion contract, leveraging SpringVic's digital marketing across their entire tech stack. This client expanded operations across multiple states in 2022, and growth in their tech messaging marketing strategy soon outpaced their existing contract, requiring a material increase in their subscription. This client was already a six-figure contributor to annual subscription revenue, with the resulting contract upgrade representing a four-fold increase and bringing the total value to well over a million dollars annually. Similarly, in the last few weeks, one of the largest MSO operators in the U.S. and also an existing enterprise client, grew its retail location footprint significantly and has continued to leverage SpringVeg as their preferred provider for digital marketing if they open new locations. This MSO's expansion included the implementation of SpringVeg's digital marketing program across their existing markets, displacing their prior provider who faced challenges with the rapid pace of growth that this client was demanding. Our robust integrations and enterprise scalability proved to be the clear differentiator. With this expansion, Spring Big is now live across all of this multi-million dollar annual subscription revenue MSOs and markets. In summary, while 2022 is a challenging year for the cannabis industry and broader economy, we have delivered solid growth, continuing to prove out the value we are delivering to our clients as a leading technology loyalty platform across the cannabis industry. Looking forward, while economic conditions remain uncertain, we have a rich pipeline of revenue generating initiatives and a strong high growth subscription revenue base, which we believe will together deliver accelerating top line growth. I'm incredibly proud of what our team has accomplished and wish to take this opportunity to thank all of our employees, partners, clients, and investors for their continuing support and commitment to the company. With that, I'd like to turn things over to Paul, who will walk through our financial results for the fourth quarter and discuss our initial outlook for 2023 in greater detail. Paul, take it away.
spk00: Thank you, Jeff, and thanks again to everyone for joining us. I will start by reviewing our Q4 and fiscal 2022 results and then move on to guidance for both the first quarter and full year of 2023. Before discussing results, I would like to note that we have made a revision in how we account for credits issued to clients. which are now treated as a reduction in revenue, whereas these were previously included in our cost of revenue. The result is to report a lower revenue figure with no change in either gross profit or net loss, and by implication, a higher gross profit margin. Our 2022 guidance of $27 to $28 million was set prior to implementing this revision in accounting for credits. Our revenue using our prior approach was above the midpoint at 27.6 million. The 2022 revenue adopting the revised approach was 26.6 million, representing 14% year-on-year growth with all periods revised. As Jeff mentioned, Q4 was a quarter of solid execution in a challenging macroeconomic environment. Our Q4 revenue came in at $6.8 million, representing growth of 2% year over year and a 7% decline sequentially from a particularly strong Q3. Our growth was underpinned by year over year subscription revenue growth of 33%, a continuation of the momentum that we have experienced throughout the year, with each individual quarter exceeding 30% growth, resulting in 2022 full-year subscription revenue growth of 38% year-over-year. As a reminder, Spring Big is a SaaS technology business, with 77% of revenue being derived from 12-month auto-renewing contracts, Over time, we expect this percentage to increase further as we continue to replace excess use revenue with larger subscription contracts that are more predictable and higher quality. This has particularly been the case during the past year, and as a consequence, we have seen the percentage of revenue from subscriptions increase from 63% in 2021 to 77%. A byproduct of this conversion into subscription revenue has been a year-on-year reduction in our excess use revenue by 46% in Q4 due to a tough prior year comparison and 29% for the full year. Our brand revenue grew 16% year over year in Q4, with more brands running campaigns and average spend per campaign increasing. And in 2022, revenue increased by 44% compared with 2021. Our top line growth throughout the year has been driven by strong Customer demand, both in terms of new customer acquisition on the retail and brand platform, as well as expansion within the installed base. We ended the fourth quarter and year with 1,319 discrete client platforms and are installed in more than 3,000 retail locations. We have in excess of 35 clients with annual subscriptions exceeding $100,000. While Spring Big services the full spectrum of clients from the largest MSOs to single location retailers, a sophisticated user who is able to generate substantial ROI from utilizing our platform is our sweet spot. And we are well positioned to benefit from consolidation across the cannabis industry. We continue to see solid customer retention. Our Q4 net revenue retention rate was 105% versus 119% in Q3 and 110% in the year-ago period. Recall we expected this metric to moderate to the 100% to 110% range, and that at Q3, the ratio benefited from multiple upgrades by some customers within the trailing 12-month period. 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, and as they expand to utilize the emerging data offerings. The new year has started strongly in this regard with some significant upgrades. Gross profit in Q4 was $5.3 million, representing 6% year-on-year growth, and our gross profit margin for the quarter was 78%. 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. On November the 30th, we announced a series of initiatives, including a workforce reduction to a combination of layoffs and attrition to reduce costs, drive efficiency, and thereby accelerate our path to profitability. These initiatives have now been implemented. Our employee count at the end of the year was 126. Although given timing, the impact of the initiatives on our expenses in Q4 was insignificant, as we move into the new financial year, we have an annualized operating expense base in excess of 20% lower than our expenses in 2022, positioning us well for more profitable growth longer term. Total operating expenses in Q4, excluding a $1.2 million provision for doubtful receivables, decreased by 3% sequentially and grew 17% year over year to $8.8 million. Sales, servicing, and marketing expenses were $3.2 million for the quarter and $12.3 million for the year, representing 46% of total revenue. Sales and marketing expenses increased by 21% year over year due to the full year impact of expanding our operations during the second half of 2021 and increasing travel and attendance at conferences and events post-COVID. We expect to continue to realize leverage in sales and marketing over the longer term as we drive growth and capture the large TAM that is in front of us. Technology and software development expenses were 3.0 million in the quarter and 11.4 million for the year, representing 43% of total revenue. Expenses increased 35% year over year, the increase being attributable to higher headcount, primarily using offshore contract engineering resources to accelerate the pace of developing and enhancing our software platform and developing new complementary product offerings. G&A expense was 3.8 million for the quarter and 12.5 million for the year, representing 47% of total revenue and 150% growth year over year. This expense category includes stock compensation, bad debt, and depreciation expenses, all of which are non-cash expenses and which in total accounted for 1.9 million of the 7.5 million year-over-year increase. The remaining increase is due to higher personnel-related costs and additional expenses related to preparing for and becoming a publicly listed company, including professional fees and insurance costs. Our key earnings metric is adjusted EBITDA, as we believe this most closely relates to operating cash flow. Adjusted EBITDA loss in the quarter and for the year was 3.2 million and 12.6 million, respectively, in both cases representing an adjusted EBITDA margin of approximately negative 48%. Free cash flow was negative 3.3 million in Q4, comprising 2.3 million cash used in operations and 1 million cash repayment of our convertible note. Turning to our balance sheet, we ended the year with 3.5 million in cash, cash equivalents and marketable securities, and 2.9 million in receivables. In addition to having a clear path to profitability, we are also committed to ensuring our balance sheet supports our growth objectives and are considering a potential supplemental capital raise. Before turning to 2023 guidance, to summarize the past year, our revenue increased 14% year over year in a challenging macro environment. And prior to the revenue accounting revision, came in above the midpoint of our guided range, which was set two quarters ago when we announced our first quarterly earnings as a public company. Our subscription revenues, which are highly valued given their recurring nature and our high net retention, increased 38% and now represent 77% of total revenue, benefiting from healthy renewals, upgrades, and new logo additions. And in addition, we have good momentum in our brand's platform. Our growth margins improved year-on-year to 75%, and through recent cost-saving initiatives, we have right-sized our operating expense structure to accelerate our path to profitability. With the results of the quarter and year behind us, I would now like to discuss our outlook for the first quarter and full year 2023. Reflecting increased predictability in our model due to a higher proportion of our revenue being from recurring subscriptions and to provide greater transparency, we are expanding our guidance to include both quarterly and annual revenue and adjusted EBITDA. Before offering guidance, I would like to 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 glut of 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 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. Looking ahead, we expect a continuation of strong growth in subscription revenue, increasing brand adoption, and the emergence of sales from new initiatives to drive top-line acceleration in 2023. and we reiterate our expectation of reaching the critical milestone of positive adjusted EBITDA within the fiscal year. For the first quarter of fiscal 2023, we expect total revenue in the range 7.1 to 7.4 million, implying a midpoint of 17% year-on-year growth. we're expecting an adjusted EBITDA loss in the range of $1.4 to $1.2 million for the first quarter of 2023. For the full year of fiscal 2023, we expect total revenue in the range $31 million to $34 million, implying modest top-line acceleration at the low end of the range, and the near doubling of our growth rate at the high end. We expect an adjusted EBITDA loss in the range 3 million to 1.5 million. Note the midpoint of the quarterly and annual adjusted EBITDA implies the majority of our full year loss will fall in Q1. In summary, Our Q4 and 2022 fiscal year results underscore the strength and resilience of the Spring Big Model. As we look ahead to 2023, while macro and industry dynamics remain a factor, we remain focused on the significant opportunity ahead of us and are committed to fiscal discipline and driving compelling returns for our shareholders. With that, I would like to open it up for Q&A. Operator, please poll for questions.
spk06: Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. One moment while we compile the Q&A roster. And our first question comes from the line of Owen Bennett with Jefferies. Your line is open.
spk10: Good evening, Jen. Hope all well. I had a couple of questions, please. First one is, I know you said that the business has been encouragingly resilient, but I was hoping you could get a bit more specific on how the current industry pressures have impacted your business most. And I'm curious to hear how this is different across the smaller mom and pop like retailers and then the larger MSOs. Thank you.
spk02: Sure. So in terms of sales velocity, we haven't necessarily seen a slowdown in new accounts coming in. As we mentioned, we saw 80 accounts coming in in the fourth quarter, and we're continuing to see that same pace as we move forward into 2023. So we haven't seen a slowdown there. churn has been reduced a lot so therefore from a churn standpoint it's been a banner fourth quarter where we had lower churn in the fourth quarter than we've had in a long time which is great um so from those two perspectives we're seeing continued movement i think we're probably seeing how where and how the pressure is affecting our clients is they are staying closer to their subscription budget so therefore although we are seeing some overage revenue Owen, we are not necessarily seeing it in the same abundance that we saw it before. And that's the result of two things. That's the result of, number one, us working hard to get our clients into the right subscription so they're paying the right price for the usage that they need and the usage that they want. And we're also seeing it where they're being more careful of managing those budgets where they're not necessarily going over as they did a year or two ago when they were not necessarily caring as much about their budgets, they're definitely more mindful of their budgets today.
spk10: Great. That was really helpful. And then my second question is just where are we exactly with recognizing actual revenue from the incremental business areas? Obviously, you've spoken about providing data before, and then you mentioned today's TBD liquor stores. and vape shops. I know you mentioned you've signed some contracts, but just wanted to know when you might actually recognize revenue there. And then also possibly, is it possible to get a potential PAM? Do you think for these different areas over the next couple of years, that would be helpful as well? Thank you.
spk02: Sure. So in terms of non-cannabis, so as we mentioned, non-cannabis sales have started. We have a number of contracts in already. So revenue is already starting to be generated there. What we're learning when it comes to the non-cannabis side is these referrals are coming in from the non-cannabis point of sale, Conbase or Corona, that we integrated with. And they are ramping up their communication to their clients. They have about 2,500 clients, so they're ramping up their communication to their clients about the integration that we have with them and how it can impact their business. So those leads are starting to come in. Demos are happening and deals are getting signed. In addition to that, we're talking to at least two or three other point of sales that we're in integration discussions with. So therefore, as those evolve, we'll actually have a much larger universe of clients in the non-cannabis space to solicit, work with, and sign up. So that's happening on that side. on the other areas so we've been we've been working on kind of like our payments facilitation as a product as i mentioned before and that product is in market we already have contracts out we have a couple of contracts in so our ability to help both retailers and their consumers leverage loyalty along with payments is already happening we probably expect revenue from those to start next month with an acceleration in the May-June timeframe as we're looking ahead at some of the contracts and when they actually want to launch. And then the third area that we're excited about is the subscription area that we talked about where we've already launched that. But we actually have an enhanced offering that's already been pitched to clients, and we're seeing great receptivity for those. So, therefore, we expect to start seeing subscription revenue in Q2, and for those payments and subscriptions to meaningfully grow from Q2 onwards.
spk00: Hey, Owen.
spk02: Thanks for joining.
spk00: Hey. If I can just add to that, in terms of revenue, it's As Jeff alluded to, it's going to be very much back-end loaded this year. I wouldn't assume there's a huge amount. Business development in this area is great. The momentum is good. But it's going to take time for meaningful revenues to accumulate. So very much back-end of the year. Well, thanks, Janice.
spk12: That was really helpful. Appreciate the time. Thank you, Owen.
spk06: Thank you. One moment for our next question. And that will come from the line of Scott Fortune with Ross MKM. Your line is open.
spk11: Good afternoon, and thanks for the questions here. Just want to follow up a little bit, color. You have over 3,000 retail locations now on the platform. Can you provide a little more color as far as the guidance for this year? And it sounds like you're sticking with the 80-whatever range to kind of move forward from a client base? And what are we seeing from the penetration on the MSOs versus the independent kind of health on the size of these clients going forward for you in your guidance here going forward in 2023? Yeah, sure.
spk02: So, you know, we've been tracking somewhere between 80 to 90 new clients a month. I'm sorry, a quarter. And we're not seeing that necessarily slow down. The first quarter is right on track. In looking at the numbers of where we are today, we expect to be between 80 to 90 new clients again in the first quarter. And we've been tracking that way for the last few quarters. So that's kind of the range that we're looking at in terms of clients. In terms of our average revenue per client, we are seeing that tick up in the first quarter. So we're seeing it just at about a thousand dollars i think with some of the last few sales that we brought in is probably just over a thousand dollars in terms of the average revenue per month per client so we're we're seeing uh renewed interest from what i'll call larger mid-size operators and we are definitely seeing uh renewed interest from some of the the larger operators whether they be msos or single state operators we have a number of of major opportunities in place we had one big expansion from an mso where you know, the pickup that we had with that client was the equivalent of probably a bunch of other MSOs if you would get them independently. And we are seeing, like, renewed excitement for some of the things that we're offering from the MSO community in addition to what I'll call the larger mid-tier.
spk11: I appreciate that, guys. And just follow up on that. Are there states that are really starting to accelerate for you as we see some of the new adult youth states come on board, you know, regardless of New York and Mexico and there, but there are other states you can call out that have been starting to adopt your technology and the loyalty platform here?
spk02: Yeah, so we are actually seeing a lot of activity in New Mexico. We're seeing a lot of activity in Missouri. We are seeing a lot of renewed activity in Colorado and Arizona. So those are markets that we're seeing renewed activity in. We continue to see strong activity in Washington. We're seeing strong activity in California. So it's a combination, Scott, of some of the newer adult use markets where we're gaining a lot of traction, as well as some of the more mature markets that, you know, ebb and flow a little bit. And right now they're flowing in our direction in terms of new business coming in.
spk11: I appreciate that. And then last one for me, you know, there's emphasis on brands and building out that as far as, you know, the brand campaigns. Can you provide a little bit more color on the outlook of brands as a percentage of revenue as that ramps up here into 2023? I guess the number of brands on the platform is a large opportunity with over 5,000 or brands out there, a ton of brands to monetize from that standpoint. Just to update on the brand side of the revenue side of it.
spk02: Yeah, so we're seeing, again, we're seeing some nice traction on the brand side. We don't expect the brand's business in 2023. We expect it to be somewhere between 5% and 10% of revenue in 2023. We expect it to continue to accelerate in 2024. We are introducing a couple of additional products on the brand side. So right now, as you know, we provide a co-marketing platform that allows brands to serve up content to offer up to retailers that are selling their products. So the retailer sends the message with that content to get interest from their consumers to come in and buy that brand. In addition to that, we are just launching a new offering where we're going to facilitate the ability for brands to sponsor bonus point promotions at retailers. We already have a number of brands and a number of retailers interested. So we think that that's going to be a nice addition where we're going to facilitate the ability for a brand to sponsor bonus points. And when they do, they will fund the bonus points that are earned at the retailer. So the retailer really has no downside to participating in those bonus point promotions. And the brand themselves gets excited because they get the ability to influence the customer purchasing behavior in the store by offering those bonus points. So we're going to be starting to add additional products, but I would, I would still stay within the – it's going to be within 5% to 10% of our revenue, and we continue to expect that to grow as brands, you know, kind of continue to figure out how they're going to leverage their marketing spend in this space and how those brands start to return.
spk11: I appreciate the color. Thanks, and congratulations once again. Thank you. Thanks, Scott.
spk06: Thank you for participating in today's question and answer session. I would now like to turn the call back over to Mr. Jeff Harris for any closing remarks.
spk02: Thank you all for being a part of the earnings call, and we're excited for 23 and look forward to continuing the conversation with everyone. Have a great evening.
spk06: Thank you for participating. This concludes today's program. You may now disconnect. Hello. you Thank you. Thank you. Thank you. Good day and welcome to the Spring Big 4th Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Ryan Flanagan. Please go ahead.
spk09: 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 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.
spk02: Thanks, everyone, for joining this afternoon's call. We have a lot of exciting developments to cover. During today's call, Paul and I will provide you details on our fourth quarter and full year results, as well as our guidance for the first quarter and 2023. I'm happy to report that we closed out the year on a high note with revenue prior to a revision and accounting treatment coming in above the midpoint of our guidance, despite persistent macroeconomic headwinds. Growth in the fourth quarter was again driven by subscription revenue, which in Q4 grew 33% year-over-year. Throughout the year, our subscription revenue growth has been consistently strong, culminating in 38% year-on-year growth for 2022. Recall, we are primarily a subscription-based SaaS business, which provides predictability and increases visibility into results. Paul will discuss the fourth quarter in greater detail in a moment. But first, I'd like to highlight some of our accomplishments over the past year, including some noteworthy customer upgrades. I'd then like to lay out our key objectives for 2023. In 2022, we invested to scale the business for the long term. We doubled our commitment to profitable growth, which included a restructuring in Q4, and made material progress on new initiatives. all while successfully completing our IPO in June. While our focus remains on accelerating top-line growth, we also remain committed to driving leverage through a balanced investment approach and reiterate our plan to achieve EBITDA break-even during 2023. I would now like to discuss 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. Given this backdrop, we are encouraged that we added 80 new retail accounts in the fourth quarter reinforcing our view that budget considerations for maintaining and growing existing customers remains less discretionary relative to traditional marketing spend. Our brand platform, which we launched in 2020 to help cannabis brands more easily connect with their consumers, continued to accelerate at a really nice pace in the fourth quarter, and we are encouraged by the runway performance we have observed in the first month of 2023. We're uniquely suited for the selling motion by allowing brands to connect directly with customers to our retail platform, benefiting both the retailer by driving traffic to their locations and for the brand, increasing awareness and influence. Turning to the three areas we have talked about previously as key pillars of our growth. First, a network effect that we feel is a unique and powerful flywheel between our retail and brands platforms. Second, a high growth subscription revenue component that increases predictability in our revenue stream, and third, new initiatives and the opportunity to monetize the troves of data that we've captured. Starting with the network effect, 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. Second, an increasing proportion of our revenue is from recurring subscriptions. Our retail clients enter into subscription contracts for one year or longer, largely tied to messaging volumes. With messages being distributed through multiple channels, And we note a trend of clients increasingly leveraging direct push notifications to consumers who are utilizing mobile apps. The net result is that superior results from campaigns drive platform utilization and a clear pattern of increased subscription contract size, creating a more predictable revenue stream. The third pillar is the intersection of our current business and our targeted set of new product initiatives. As a result of our platform being present in more than 3,000 retail locations, installed in the smartphones of over 35 million marketable cannabis consumers, and our integrations with over 20 point-of-sale systems, we are uniquely positioned to introduce offerings to our client base that provide meaningful growth opportunities for both our client base and Springfield. At present, we are focused on the introduction of a select group of initiatives, the first being our loyalty-slash-payment initiative, SpringPay, where consumers of our retail clients can use their loyalty points in conjunction with their preferred store payment options to complete their in-store and online transactions. The retailer benefits from higher transaction values and SpringVic benefits by facilitating these transactions on behalf of our retail partners. Second, in Q4, we launched a consumer subscription offering, enabling customers to pay a monthly subscription fee to their retailer to receive specific discounts and benefits at their favorite retail locations. SpringViv will manage these subscription programs on behalf of our retail partners and share in the subscription revenue generated from customers that sign up for these offerings. In addition to increasing our recurring revenue stream by tapping into the millions of consumers that are on our database, these programs will increase the stickiness of both the retailers and consumers that are on our platform. with over 900 million first-party data records, which we believe to be among the most complete data sets in the industry. SpringVic is working towards the introduction of various data-driven products that will provide both retailers and brands from both within the industry as well as those interested in learning more about it to have the meaningful insights needed for better decision-making at their fingertips. This offering will allow us to reach beyond the traditional marketing departments and become entrenched in other areas of our clients' businesses making our offerings even more critical. Additionally, in January, we announced our 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 of the other regulated industries, including alcohol, DVD, and vape stores. Marketing and selling to this audience has already begun with signed contracts from this group already in place. and we are excited with the progress we are seeing with this new group of potential customers outside of the cannabis vertical. We have an abundance of new product opportunities ahead of us and are simultaneously continuing 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. To emphasize this unique power of our platform and give some real-life examples of how we are delivering customer value, I'd like to share a couple of notable recent upgrades with enterprise clients that highlight why customers choose SpringVic. First, one of our largest enterprise clients recently signed a significant upgrade and expansion contract, leveraging SpringVic's digital marketing across their entire tech stack. This client expanded operations across multiple states in 2022, and growth in their tech messaging marketing strategy soon outpaced their existing contract, requiring a material increase in their subscription. This client was already a six-figure contributor to annual subscription revenue, with the resulting contract upgrade representing a four-fold increase and bringing the total value to well over $1 million annually. Similarly, in the last few weeks, one of the largest MSO operators in the U.S., and also an existing enterprise client whose retail location footprint significantly and has continued to leverage SpringVeg as their preferred provider for digital marketing if they open new locations. This MSO's expansion included the implementation of SpringVeg's digital marketing program across their existing markets, displacing their prior provider who faced challenges with the rapid pace of growth that this client was demanding. Our robust integrations and enterprise scalability proved to be the clear differentiator. With this expansion, Spring Big is now live across all of this multimillion-dollar annual subscription revenue MSOs and markets. In summary, while 2022 is a challenging year for the cannabis industry and broader economy, we have delivered solid growth, continuing to prove out the value we are delivering to our clients as a leading technology loyalty platform across the cannabis industry. Looking forward, while economic conditions remain uncertain, we have a rich pipeline of revenue-generating initiatives and a strong high-growth subscription revenue base, which we believe will together deliver accelerating top-line growth. I'm incredibly proud of what our team has accomplished and wish to take this opportunity to thank all of our employees, partners, clients, and investors for their continuing support and commitment to the company. With that, I'd like to turn things over to Paul, who will walk through our financial results for the fourth quarter and discuss our initial outlook for 2023 in greater detail. Paul, take it away.
spk00: Thank you, Jeff, and thanks again to everyone for joining us. I will start by reviewing our Q4 and fiscal 2022 results and then move on to guidance for both the first quarter and full year of 2023. Before discussing results, I would like to note that we have made a revision in how we account for credits issued to clients. which are now treated as a reduction in revenue, whereas these were previously included in our cost of revenue. The result is to report a lower revenue figure with no change in either gross profit or net loss, and by implication, a higher gross profit margin. Our 2022 guidance of $27 to $28 million was set prior to implementing this revision in accounting for credits. Our revenue using our prior approach was above the midpoint at 27.6 million. The 2022 revenue adopting the revised approach was 26.6 million, representing 14% year-on-year growth with all periods revised. As Jeff mentioned, Q4 was a quarter of solid execution in a challenging macroeconomic environment. Our Q4 revenue came in at $6.8 million, representing growth of 2% year over year and a 7% decline sequentially from a particularly strong Q3. Our growth was underpinned by year over year subscription revenue growth of 33%, a continuation of the momentum that we have experienced throughout the year with each individual quarter exceeding 30% growth, resulting in 2022 full-year subscription revenue growth of 38% year-over-year. As a reminder, Spring Big is a SaaS technology business with 77% of revenue being derived from 12-month auto-renewing contracts Over time, we expect this percentage to increase further as we continue to replace excess use revenue with larger subscription contracts that are more predictable and higher quality. This has particularly been the case during the past year, and as a consequence, we have seen the percentage of revenue from subscriptions increase from 63% in 2021 to 77%. A byproduct of this conversion into subscription revenue has been a year-on-year reduction in our excess use revenue by 46% in Q4 due to a tough prior year comparison and 29% for the full year. Our brand revenue grew 16% year over year in Q4, with more brands running campaigns and average spend per campaign increasing. And in 2022, revenue increased by 44% compared with 2021. Our top line growth throughout the year has been driven by strong customer demand, both in terms of new customer acquisition on the retail and brand platform, as well as expansion within the installed base. We ended the fourth quarter and year with 1,319 discrete client platforms and are installed in more than 3,000 retail locations. We have in excess of 35 clients with annual subscriptions exceeding $100,000. While Spring Big services the full spectrum of clients from the largest MSOs to single location retailers, a sophisticated user who is able to generate substantial ROI from utilizing our platform is our sweet spot. And we are well positioned to benefit from consolidation across the cannabis industry. We continue to see solid customer retention. Our Q4 net revenue retention rate was 105% versus 119% in Q3 and 110% in the year-ago period. Recall we expected this metric to moderate to the 100% to 110% range, and that at Q3, the ratio benefited from multiple upgrades by some customers within the trailing 12-month period. 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, and as they expand to utilize the emerging data offerings. The new year has started strongly in this regard with some significant upgrades. Gross profit in Q4 was $5.3 million, representing 6% year-on-year growth, and our gross profit margin for the quarter was 78%. 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. On November the 30th, we announced a series of initiatives, including a workforce reduction to a combination of layoffs and attrition to reduce costs, drive efficiency, and thereby accelerate our path to profitability. These initiatives have now been implemented. Our employee count at the end of the year was 126. Although given timing, the impact of the initiatives on our expenses in Q4 was insignificant, as we move into the new financial year, we have an annualized operating expense base in excess of 20% lower than our expenses in 2022, positioning us well for more profitable growth longer term. Total operating expenses in Q4, excluding a $1.2 million provision for doubtful receivables, decreased by 3% sequentially and grew 17% year over year to 8.8 million. Sales, servicing, and marketing expenses were 3.2 million for the quarter and 12.3 million for the year, representing 46% of total revenue. Sales and marketing expenses increased by 21% year over year due to the full year impact of expanding our operations during the second half of 2021 and increasing travel and attendance at conferences and events post-COVID. We expect to continue to realize leverage in sales and marketing over the longer term as we drive growth and capture the large TAM that is in front of us. Technology and software development expenses were 3.0 million in the quarter and 11.4 million for the year, representing 43% of total revenue. Expenses increased 35% year over year, the increase being attributable to higher headcount, primarily using offshore contract engineering resources to accelerate the pace of developing and enhancing our software platform and developing new complementary product offerings. G&A expense was 3.8 million for the quarter and 12.5 million for the year, representing 47% of total revenue and 150% growth year over year. This expense category includes stock compensation, bad debt and depreciation expenses, all of which are non-cash expenses and which in total accounted for 1.9 million of the 7.5 million year-over-year increase. The remaining increase is due to higher personnel-related costs and additional expenses related to preparing for and becoming a publicly listed company, including professional fees and insurance costs. Our key earnings metric is adjusted EBITDA, as we believe this most closely relates to operating cash flow. Adjusted EBITDA loss in the quarter and for the year was 3.2 million and 12.6 million, respectively, in both cases representing an adjusted EBITDA margin of approximately negative 48%. Free cash flow was negative 3.3 million in Q4, comprising 2.3 million cash used in operations and 1 million cash repayment of our convertible note. Turning to our balance sheet, we ended the year with 3.5 million in cash, cash equivalents and marketable securities, and 2.9 million in receivables. In addition to having a clear path to profitability, we are also committed to ensuring our balance sheet supports our growth objectives and are considering a potential supplemental capital raise. Before turning to 2023 guidance, to summarize the past year, our revenue increased 14% year over year in a challenging macro environment. And prior to the revenue accounting revision, came in above the midpoint of our guided range, which was set two quarters ago when we announced our first quarterly earnings as a public company. Our subscription revenues, which are highly valued given their recurring nature and our high net retention, increased 38 percent and now represent 77 percent of total revenue, benefiting from healthy renewals, upgrades, and new logo additions. In addition, we have good momentum in our brand's platform. Our growth margins improved year-on-year to 75 percent, and through recent cost-saving initiatives, we have right-sized our operating expense structure to accelerate our path to profitability. With the results of the quarter and year behind us, I would now like to discuss our outlook for the first quarter and full year 2023. Reflecting increased predictability in our model due to a higher proportion of our revenue being from recurring subscriptions and to provide greater transparency, we are expanding our guidance to include both quarterly and annual revenue and adjusted EBITDA. Before offering guidance, I would like to 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 glutted 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 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. Looking ahead, we expect a continuation of strong growth in subscription revenue, increasing brand adoption, and the emergence of sales from new initiatives to drive top-line acceleration in 2023. And we reiterate our expectation of reaching the critical milestone of positive adjusted EBITDA within the fiscal year. For the first quarter of fiscal 2023, we expect total revenue in the range 7.1 to 7.4 million, implying a midpoint of 17% year-on-year growth. We're expecting an adjusted EBITDA loss in the range of $1.4 to $1.2 million, for the first quarter of 2023 for the full year of fiscal 2023 we expect total revenue in the range 31 million to 34 million dollars implying modest top line acceleration at the low end of the range and the near doubling of our growth rate at the high end We expect an adjusted EBITDA loss in the range 3 million to 1.5 million. Note the midpoint of the quarterly and annual adjusted EBITDA implies the majority of our full year loss will fall in Q1. In summary, Our Q4 and 2022 fiscal year results underscore the strength and resilience of the Spring Big Model. As we look ahead to 2023, while macro and industry dynamics remain a factor, we remain focused on the significant opportunity ahead of us and are committed to fiscal discipline and driving compelling returns for our shareholders. With that, I would like to open it up for Q&A. Operator, please poll for questions.
spk06: Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. One moment while we compile the Q&A roster. And our first question comes from the line of Owen Bennett with Jefferies. Your line is open.
spk10: Good evening, Jen. Hope all well. I had a couple of questions, please. First one is, I know you said that the business has been encouragingly resilient, but I was hoping you could get a bit more specific on how the current industry pressures have impacted your business most. And I'm curious to hear how this is different across the smaller mom and pop like retailers and then the larger MSOs. Thank you.
spk02: Sure. So in terms of sales velocity, we haven't necessarily seen a slowdown in new accounts coming in. As we mentioned, we saw 80 accounts coming in in the fourth quarter, and we're continuing to see that same pace as we move forward into 2023. So we haven't seen a slowdown there. churn has been reduced a lot so therefore from a churn standpoint it's been a banner fourth quarter where we had lower churn in the fourth quarter than we've had in a long time which is great um so from those two perspectives we're seeing continued movement i think we're probably seeing how where and how the pressure is affecting our clients is they are staying closer to their subscription budget so therefore although we are seeing some overage revenue Owen, we are not necessarily seeing it in the same abundance that we saw it before. And that's the result of two things. That's the result of, number one, us working hard to get our clients into the right subscription so they're paying the right price for the usage that they need and the usage that they want. And we're also seeing it where they're being more careful of managing those budgets where they're not necessarily going over as they did a year or two ago when they were not necessarily caring as much about their budgets. They're definitely more mindful of their budgets today.
spk10: Great. That was really helpful. And then my second question is just where are we exactly with recognizing actual revenue from the incremental business areas? Obviously, you've spoken about providing data before, and then you mentioned today's TBD liquor stores. and vape shops. I know you mentioned you've signed some contracts, but just wanted to know when you might actually recognize revenue there. And then also possibly, is it possible to get a potential PAM? Do you think for these different areas over the next couple of years, that would be helpful as well? Thank you.
spk02: Sure. So in terms of non-cannabis, so as we mentioned, non-cannabis sales have started. We have a number of contracts in already. So revenue is already starting to be generated there. What we're learning when it comes to the non-cannabis side is these referrals are coming in from the non-cannabis point of sale, Conbase or Corona, that we integrated with. And they are ramping up their communication to their clients. They have about 2,500 clients, so they're ramping up their communication to their clients about the integration that we have with them and how it can impact their business. So those leads are starting to come in. Demos are happening and deals are getting signed. In addition to that, we're talking to at least two or three other point of sales that we're in integration discussions with. So therefore, as those evolve, we'll actually have a much larger universe of clients in the non-cannabis space to solicit, work with, and sign up. So that's happening on that side. the other areas so we've been we've been working on kind of like our payments facilitation as a product as I mentioned before and that product is in market we already have contracts out we have a couple of contracts in so our ability to help both retailers and their consumers leverage loyalty along with payments is already happening we probably expect revenue from those to start next month with an acceleration in the May-June timeframe as we're looking ahead at some of the contracts and when they actually want to launch. And then the third area that we're excited about is the subscription area that we talked about where we've already launched that. But we actually have an enhanced offering that's already been pitched to clients, and we're seeing great receptivity for those. So, therefore, we expect to start seeing subscription revenue in Q2, and for those payments and subscriptions to meaningfully grow from Q2 onward.
spk00: Hey, Owen. Hey. If I can just add to that, in terms of revenue, it As Jeff alluded to, it's going to be very much back-end loaded this year. I wouldn't assume there's a huge amount. Business development in this area is great. The momentum is good. But it's going to take time for meaningful revenues to accumulate. So very much back-end of the year. Well, thanks, Janice.
spk12: That was really helpful. Appreciate the time. Thank you, Owen.
spk06: Thank you. One moment for our next question. And that will come from the line of Scott Fortune with Ross MKM. Your line is open.
spk11: Good afternoon, and thanks for the questions here. Just want to follow up a little bit, color. You have over 3,000 retail locations now on the platform. Can you provide a little more color as far as the guidance for this year? And you sound like you're sticking with the 80-whatever range to kind of move forward from a client base? And what are we seeing from the penetration on the MSOs versus the independent kind of health on the size of these clients going forward for you in your guidance here going forward in 2023?
spk02: Yeah, sure. So, you know, we've been tracking somewhere between 80 to 90 new clients a month. I'm sorry, a quarter. And we're not seeing that necessarily slow down. The first quarter is right on track. And looking at the numbers of where we are today, we expect to be between 80 to 90 new clients again in the first quarter. And we've been tracking that way for the last few quarters. So that's kind of the range that we're looking at in terms of clients. In terms of our average revenue per client, we are seeing that pick up in the first quarter. So we're seeing it just at about a thousand dollars i think with some of the last few sales that we brought in is probably just over a thousand dollars in terms of the average revenue per month per client so we're we're seeing uh renewed interest from what i'll call larger mid-size operators and we are definitely seeing uh renewed interest from some of the the larger operators whether they be msos or single state operators we have a number of of major opportunities in place we had one big expansion from an mso where You know, the pickup that we had with that client was the equivalent of probably a bunch of other MSOs if you would get them independently. And we are seeing, like, renewed excitement for some of the things that we're offering from the MSO community in addition to what I'll call the larger mid-tier. I appreciate that, guys.
spk11: And just to follow up on that, are there states that are really starting to accelerate for you as we see some of the new adult youth states come on board, you know, regardless of New York and Mexico and there, but there are other states you can call out that have been starting to adopt your technology and the loyalty platform here?
spk02: Yeah, so we are actually seeing a lot of activity in New Mexico. We're seeing a lot of activity in Missouri. We are seeing a lot of renewed activity in Colorado and Arizona. So those are markets that we're seeing renewed activity in. We continue to see strong activity in Washington. We're seeing strong activity in California. So it's a combination, Scott, of some of the newer adult use markets where we're gaining a lot of traction, as well as some of the more mature markets that, you know, ebb and flow a little bit. And right now they're flowing in our direction in terms of new business coming in.
spk11: I appreciate that. And then last one for me, you know, there's emphasis on brands and building out that as far as, you know, the brand campaigns. Can you provide a little bit more color on the outlook of brands as a percentage of revenue as that ramps up here into 2023? I guess the number of brands on the platform is a large opportunity with over 5,000 or brands out there, the ton of brands to monetize from that standpoint. Just to update on the brand side of the revenue side of it.
spk02: yeah so we're seeing again we're seeing some nice traction on the brand side we don't expect the brand's business in 2023 we expect it to be somewhere between five and ten percent of revenue in 2023 we expect it to continue to accelerate in 2024. we are introducing a couple of additional products on the brand side so right now as you know we provide a co-marketing platform that allows brands to serve up content to offer up to retailers that are selling their products. So the retailer sends the message with that content to get interest from their consumers to come in and buy that brand. In addition to that, we are just launching a new offering where we're going to facilitate the ability for brands to sponsor bonus point promotions at retailers. We already have a number of brands and a number of retailers interested. So we think that that's going to be a nice addition where we're going to facilitate the ability for a brand to sponsor bonus points. And when they do, they will fund the bonus points that are earned at the retailer. So the retailer really has no downside to participating in those bonus point promotions. And the brand themselves gets excited because they get the ability to influence the customer purchasing behavior in the store by offering those bonus points. So we're going to be starting to add additional products. But I would I would still stay within the – it's going to be within 5% to 10% of our revenue, and we continue to expect that to grow as brands kind of continue to figure out how they're going to leverage their marketing spend in this space and how those brands start to return.
spk11: I appreciate the color. Thanks, and congratulations once again. Thank you. Thanks, Scott.
spk06: Thank you for participating in today's question and answer session. I would now like to turn the call back over to Mr. Jeff Harris for any closing remarks.
spk02: Thank you all for being a part of the earnings call, and we're excited for 23 and look forward to continuing the conversation with everyone. Have a great evening.
spk06: Thank you for participating. This concludes today's program. You may now disconnect.
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