Q2 Recap – Backlog Exploding Higher w Blowout Q3 in the PipeWhat can I say, they absolutely crushed it in Q2. I feel like I have to follow up here as there are a couple of facts in the short term and in the release the give hints into future growth that are still nowhere near priced into the stock.
Let’s Start with Q2 then broaden out;
Revenue $3,020,274 USD up 51% YoY A couple points I would like to make here;
1)
Gross Profit Margins -- Under the hood it looks even better – with gross margins expanding up to 73% up from 65% so on a net gross profit dollar basis, gross profit dollars were up 68% YoY
2)
Revenue Mix -- International Footprint Just taking off – we talked before how they have Fortune 500 brands with access to markets across the globe. They are just starting to lean into it and to allocate Sales & Marketing resources which should start to take off. If you look at Q2 Revenue breakdown its still 80/20 United States/International. With United States revenue up 25% YoY & International up 94% YoY accelerating to a revenue growth rate in Q2 of 153% revenue growth.
3)
Net Book:Bill Ratio – I will touch on the incredible backlog number they are carrying into the back half of the year in a little bit but I just want to point out how impressive they were able to put up a step change in the revenue growth rate in the current quarter at the same time backlog still grew 27% on a QoQ basis on top of the very impressive 157% YoY figure. Showing this is not a flash in a pan but more of a prolonged inflection point in growth.
Profitability EBITDA $460,254 USD up 1,282% YoY Impressive period, shows how this business has reached a critical scale in growth. As now, fixed costs are now covered and gross profit dollars are starting to flow down the income statement. The beauty of these SaaS especially these PaaS style business models. I focus real hard on one number and I would guide everybody take a hard look at this figure for these names that say they are growing, but are they growing profitably or just throwing money at the problem. Net Gross Profit Dollars YoY : Net OpEx Expense Dollars YoY = $883,823:$349,158 = 2.53 Meaning for each incremental dollar of spending on a YoY basis they are adding 2.53 dollars of gross profit – You would be amazed at how many companies have a negative ratio in this metric and I think a positive ratio is so critical for these small cap tech businesses to really start to scale and to scale consistently. Its all about getting more and more returns for each incremental dollar of spending and SPN is crushing it on this metric since they right sized the business and we are now really starting to see it take off. Backlog Backlog $9,500,000 up 157% YoY Nothing to say here but absolutely amazing. I thought the blowout Q2 was going to mean eating into the backlog growth we have seen the last 3Qs but they just keep delivering more and more bookings. Even backward looking.
Backlog as of June 30 was greater than the trailing twelve months before the just reported Q2. This marks the 4 consecutive Q of QoQ growth rate in the backlog at the same time revenue & gross profit growth has grown on a QoQ at the same time. This is so critical; the future bookings of the business continue to outpace what is being recognized of revenue even as this grows on a YoY basis.
One more point, I have hit on this with these inflective growth names over and over and the holy grail that I look for of 3 consecutive Qs of accelerating growth rates. Well, we just got that BUY single in the backlog figure.
Backlog Growth YoY – Q2: 157%, Q1: 60%, Q4: 49% Once is an occurrence, twice is a coincidence & three times is a trend. Liftoff. Looking Forward & Recent Developments Further Acceleration in the Growth Rate “In the coming quarter as we keep EBITDA positive but double down on top line growth, we plan on sacrificing a few points of margin to gain this bigger market share and build our presence in new industries. We will also continue to break into new geographic markets and establish a direct presence to service more of our existing Fortune 500 clients across the globe. Today with just 3 of our clients we are executing programs in over 39 countries so there is a lot of room for us to grow. The significant growth in our bookings backlog should also give investors confidence that our revenue growth will continue to expand over the coming quarters as our bookings materialize into recognized revenue” They are doubling down on growth; you have seen it backlog already and from comment above directly from the press release the growth is going to be huge for continuing to drive this trend. Personally, I think Q3 is going to be even stronger than Q2.
On the back of the Tourism Manitoba contract that is going to hit in Q3 you are looking at a Q that could be pushing $3.5-4.0M USD in revenue which would equate to anywhere from a 60-100% growth rate YoY depending how revenue falls from a recognition basis.
Recent Ad Consolidation is Coming I come back to the CEO’s comments in a recent interview he did here (see link)
(15) Snipp Interactive (SPN-TSX.V) Interview with CEO Atul Sabharwal - YouTube Talking directly how a next unlock in growth could be integrating in/onto an ad engine to utilize all the 1
st party purchase data they are gathering….
And on cue, financially struggling customer acquisition data acquisition player EL.V got in no better way to say it taken under by DGTL.V the other week.
And you don’t have to look much further than DAC.V another one that has a terrible
Net Gross Profit Dollars : Net OpEx Expense Dollars Ratio that still has found no traction (even though it trades at something like twice the valuation of SPN.V which is so ridiculous) and is going to be out of money by the end of the year on the pace they are burning cash.
There used to be three of them – SPN.V EL.V DAC.V…. Snipp has proven it solutions has product market fit and is accelerating out of COVID when the other two are done. Snipp has the leverage here and that is why I think why the really are leaning into growth and will to sacrifice a point or two on margin to go capture market share.
What’s It Worth I will always just finish up on a heat check on valuation because I think the step change in future growth following that massive BEAT on Backlog growth in Q2 for future growth is no where near in the stock.
I believe growth is accelerating on a next twelve month basis I believe they could do as much as $15M USD in revenue if they are willing to sacrifice a little margin like the CEO stated in the Q2 release.
With $2.25M USD or $3.0M CAD cash on the balance sheet and my NTM target of $15M USD has a currently EV/Sales valuation of 1.3x EV/Sales with a 50% revenue growth rate.
That is way too low. You put a 4.0-5.0x EV/Sales valuation on it you are looking at 0.30-0.40/share target for 190% upside at the midpoint without even stretching the valuation to a more per number I think at 5-8x EV/Sales figure.
Added more last week on that earnings announcement; due your own work put this is quickly growing into one of my highest conviction ideas with the backlog growth a thesis check on and to add a degree of certainty in the growth rate – I think its cheaper today than it was two week ago given the acceleration in Backlog and the durability of future revenue growth that they laid out and the collapse of EL & DAC