Equity Research
June 22, 2023
USA | Cannabis
SpringBig | BUY
SBIG | $0.49 | PT: $1.50 ($1.60) | % to PT: +209%
?Updating Numbers: Early 2023 Signs Encouraging
Early signs for SBIG in 2023 are encouraging, with 1Q sales ticking up again, GM's improving, SG&A seeing a further meaningful decline, and the EBITDA loss more than halving. With B/S sheet concerns also addressed from a recent raise/debt restructuring, EBITDA +ve inflection in sight, and the potential for new incremental revenue streams, possible near-term upside is sizeable. PT in to $1.50 on updated US industry estimates. Stay Buy.
CHANGE TO JEFeJEF vs CONS2023202420232024REV*-1%-4%NANAEBITDA-56%-19%NANA2023 ($)Q1AQ2Q3Q4FYEBITDA(1.3)A? (1.0)? (0.4)? 0.1? (2.8)PREV(0.8)0.10.2(1.8)
*Rev. (MM)
At year-end FY22, credits previously booked in COGS were moved to sales
So far so good from a financial perspective in 2023 ... In our last SBIG update we explained how, based on 4Q22 performance and the cash/balance sheet situation at the time, it was fair for sentiment to be dampened. We were much more optimistic into 2023, but at the same time, it was critical they now execute. Based on 1Q23 delivery, so far so good. To this, on a sequential basis, sales grew 6% vs industry retail sales <2%, GM's improved 318bps, SG&A was reduced by 16% on an absolute basis, and has now come in below 100% of sales for the first time, and the adj. EBITDA loss more than halved vs 4Q22 to come in at -$1.3mn. Further, with a quarter end cash balance of $2.6mn, an operating cash inflow of $0.4mn in 1Q23 vs an outflow in 4Q22 of $2.1mn, inflection to +ve EBITDA looking like it will happen in 4Q, a recent $3mn raise adding to the cash balance, and then debt restructuring on the convertible such that $1mn was converted as part of the equity raise, $0.75mn was paid down, and the remaining $6.0mn now only due in equal payments spread over 15 months into March 2025, balance sheet concerns also look to have been addressed. With regard to FY23 outlook, the company continues to see sales of $31mn-$34mn (22% growth at mid-point) and adj. EBITDA of -$3.0mn-$-1.5mn.
... while trends across core metrics continue to be robust: With the company now seemingly on a much better footing financially, focus should turn to longer-term value creation potential. Here, we continue to believe prospects are compelling. First, if we look at trends on a number of core metrics, they are encouraging. In 1Q, net retention was at 100%, 108 new retail customers were added (4Q22 80, 3Q22 90, 2Q22 133, 1Q22 235) and 101 new locations (in >3,000 locations, 223 added 4Q, 135 3Q, 509 2Q), brands running campaigns was 70 (4Q22 80, 3Q22 61, 2Q22 50, 1Q22 46), avg monthly campaigns increased to 238 (4Q22 241, 3Q22 198, 2Q22 156, 1Q22 148), and avg revenue per campaign was $413 (4Q22 $424, 3Q22 $424, 2Q22 $469, 1Q22 $276; 4Q21 $320). On the brand metrics, you also need to factor in seasonality here. Second, there are then the opportunities for incremental revenue streams, such as SpringPay, a consumer subscription offering, and expansion into non-cannabis loyalty, and various data products.
Updating Numbers: FY23 sales unchanged at $31.2mn, with EBITDA loss now -$2.8mn vs -$1.8mn previously. DCF driven PT comes in to $1.50 on updated US industry estimates.
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