By Thomas Kerr, CFA
READ THE FULL SPGC RESEARCH REPORT
On January 27, 2025, Sacks Parente Golf (NASDAQ:SPGC) provided preliminary financial results for the 4th quarter of 2024 and full year 2024.
- Revenue is expected to be between $1.1 million – $1.3 million in the 4th quarter of 2024, an increase of 882% at the midpoint of the range from revenue of $117,000 in the 4th quarter of 2023.
- Gross margin is expected to increase from 36% in the 4th quarter of 2023 to 72-74% in the 4th quarter of 2024. This is driven by increased sales and efficiencies in the manufacturing process in calendar 2024.
- Full year 2024 revenue is expected to increase from $349,000 in fiscal 2023 to $3.4 million – $3.6 million, which represents almost 10-fold growth.
- Full year 2024 gross margin is expected to increase from 35% in fiscal 2023 to 65-67%, driven by increased volume in manufacturing in calendar 2024.
Public Offering
On December 13, 2024, the company closed on a public offering which raised gross proceeds of $8.4 million. Net proceeds were approximately $7.68 million.
The offering consisted of 7,000,000 Common Units, each consisting of:
(1) share of Common Stock,
(1) Series A Common Warrant to purchase one (1) share of Common Stock per warrant,
(1) Series B Common Warrant to purchase one (1) share of Common Stock per warrant.
The public offering price per Common Unit is $1.20. The initial exercise price of each Series A Common Warrant is $2.40 per share of common stock. The initial exercise price of each Series B Common Warrant is $2.40 per share of common stock. Proceeds will be used for general corporate purposes to support the rapid growth of the company. The new share count is estimated at 8.9 million shares currently.
New Chief Financial Officer
On January 6, 2025, the company announced the hiring of Ryan Stearns as its new CFO. Stearns has recently served as CFO of a professional consulting firm specializing in healthcare, fintech, and SaaS. There, he was responsible for securing $130 million in financing and successfully guiding the company through its first financial audit. Prior to that role, Stearns served as the CFO of a life science company, where he managed a diverse biotech portfolio and helped scale the company from a $12 million startup to a $500 million valuation. Earlier in his career, as CFO of a large business service company, Stearns led a $185 million acquisition and implemented cost-saving initiatives that delivered $5 million in annual cost savings.
New Line of Newton Shafts
On January 16, 2025, the company announced it will be showcasing a new line of Newton shafts at the 2025 PGA Show in Orlando, FL which took place January 21-24, 2025.
Newton Fast Motion Shafts: These shafts are designed for golfers who want a lighter shaft that enhances swing speed while maintaining control and precision. They are built for golfers who are looking to add distance without sacrificing stability. The Newton Fast Motion shafts are constructed with advanced high-modulus Toray carbon fibers which are known for their strength-to-weight ratio. This innovative design reduces shaft weight by approximately 10 grams compared to the Motion series, enabling faster swing speed while maintaining tight dispersions and stability.
Newton Motion LD Shafts: The Newton Motion LD Shaft was developed in response to trends observed on the World Long Drive Tour (WLD), where competitors have increasingly turned to more flexible shafts to achieve greater speed and farther distance. Traditionally, long drivers on the WLD Tour relied on stiff shafts, but recent experimentation has shown that a balance of flexibility and strength delivers superior results. The Newton Motion LD Shafts blend the best of both worlds: The high flexibility of the 1-dot shaft, which is Newton Motion’s most flexible design, and the stability and lower spin of a 7-dot shaft, which is the stiffest. By combining these two extremes, NEWTON GOLF Company has created a shaft that delivers the speed players want with the control they need.
Also on display at the show will be the current full Newton Gravity putter line, including the Classic, the DEUCE, the DUKE, the DRAC and the PRISM. These putters highlight the brand’s signature patented Ultra Low Balance Point (ULBP) and Center of Gravity (CG) technology.
Valuation and Estimates
Our primary valuation tool utilizes a Discounted Cash Flow process. Based on growth and profitability projections, our DCF-based valuation target is approximately $3.00 per share. The price has been adjusted to account for the public offering mentioned above. Our target price may be conservative as it utilizes a high discount rate of 15.0% due to the unpredictability of earnings, higher prevailing interest rates, and the timeline for reaching net profitability on an annual basis.
We update our estimates based on the release of preliminary financial results. Our 2024 full year revenue estimate is $3.46 million and our 2024 EPS estimate is a loss of ($2.64). For 2025, our revenue estimate is $5.19 million and our EPS estimate is ($0.33). We expect the company to reach cash flow breakeven in 2026.
With revenue expectations of $5.19 million in 2025 and an annualized expected burn rate of $3.0-$4.0 million in 2025, we believe the company is fully funded until cash flow breakeven at some point in 2026.
With a market cap of $2.6 million, no debt, and an estimated cash balance in the $6.0-$7.0 million range, we believe the company is trading at a negative Enterprise Value.
The current EV appears to be irrational and more reflective of the ongoing microcap stock malaise as opposed to company fundamentals.
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