Q3 2022 Nogin Inc Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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Good afternoon, welcome to Noggin Inc's third quarter 2022 earnings conference call. At this time, all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session.
As a reminder, this call is being recorded joining us today from marketing or Jonathan Superman Co C E O.
New Gen co CEO and sharp.
Our yard raw Ramadi C O O N C F O.
Before we begin logins management team would like to remind everyone that statements made and or answers that maybe given to questions asked on this call are or may contain forward looking statements that are subject to risks and uncertainties related to future events and the future financial or business performance.
Of Noggin.
Actual results could differ materially from those anticipated in these forward looking statements forward looking statements include but are not limited to darden's expectation or predictions, a financial and business performance and conditions, the development and adoption of logins platform and cost reduction measures as well as kipp.
Competitive and industry outlook.
Forward looking statements are subject to risks uncertainties and assumptions and they are not guarantees of performance Naga is not under any obligation to and expressly disclaims any.
Obligation to update alter or otherwise for VI revise any forward looking statements, whether as a result of new information future events or otherwise except as required by law.
In addition to a description of <unk>.
Some of the rest of uncertainties that could cause actual results to differ materially from those indicated by forward looking statements on this call can be found in the risk factors section of our quarterly report on Form 10-Q for the quarter ended September 30th 2022 to be filed with the SEC later today and another.
Fillings with the S E C.
On today's call. We will also refer to certain non-GAAP measures, including non-GAAP revenue and adjusted EBITDA that we view as important in assessing the performance of our business. These metrics exclude certain items as discussed in our release under the heading non-GAAP financial measures. Therefore.
These measures should not be considered in isolation or as an alternative to operating income net income cash flow from operations or any other profitability liquidity or performance measures derived in accordance with GAAP.
You should be aware that that's.
The company's presentation of these measures may not be comparable to similar titled measures used by other companies a reconciliation of each non-GAAP measure to the comparable GAAP measure is available in our earnings release and our quarterly report on Form 10-Q.
Quarter ended September 30th 2022, one log of the Investor Relations page at Www Dot I R Dot Noggin Dot com <unk>.
Finally, I would like to remind everyone that a webcast replay of this call will be available via the link provided in todays earnings release as well as on our website at Www Dot Noggin Dot com now I'd like to turn the call over to <unk> co CEO , John since you've ever been.
Thank you.
Welcome everyone and thank you for joining us this afternoon on our first earnings call.
Begin today's discussion I'd like to provide a quick overview of our business and review our quarterly highlights before turning the call over to our COO and CFO Sherri, our rough Marty to both discuss our financial results for the quarter and provide our outlook for the rest of 2022 and 2023.
After that I'll share some closing remarks before opening the call for questions.
As retail e-commerce continues to grow and become more sophisticated and there is a large market opportunity to help merchants, who need robust e-commerce sophistication, but lack the expertise capital and personnel to manage it all now.
Commerce as a service platform satisfies this need in a few ways first <unk>.
Im going to provide the headless end to end technology platform that merchants can plug into instead of paying to integrate multiple technologies. This helps merchants save money focus on their core business and accelerate their time to market.
Second Noggin delivers advanced capabilities. There are generally two complex and costly for many brands to buy build or manage on their own. These capabilities include a robust customer.
Social commerce abilities and AI integrations.
The benefits of these capabilities allow our customers to uniquely and intelligent engage with their customers or prospects throughout their E Commerce journey.
And to increase sales and profitability.
Third noggin includes leading edge R&D and innovation as a service to their clients are never required to expand resources on their E. Commerce operations further NOG and eliminates the need to re platform because as we build new features and tools you are immediately available to our clients.
Therefore, as we grow and continue to scale, our e-commerce product and service offerings, our clients' E Commerce operations are able to scale in parallel.
And lastly, noggin drives identifiable incremental performance for our customers based on insights from our robust proprietary data asset insights unavailable to most outside of the <unk> platform.
Our modern approach to commerce allows brands and sellers to grow more profitably and without upfront costs, while still allowing them to focus their efforts on their strengths instead of the complicated and resource intensive nuances of e-commerce.
<unk> business model includes take your percentage of brand E. Commerce sales conducted through our <unk> platform, which ensures complete alignment between ourselves and our clients our growth strategy is rooted in three key pillars.
Develop and continuously advance our innovative and scalable commerce as a service platform.
Increased sales and marketing effort to drive our brand pipeline and.
And expand our client base and to new markets and products throughout E Commerce.
We continue to make progress on all of these fronts as we look to the remainder of 2022 and beyond.
I would now like to take a few minutes to reflect on this past quarter overall, our third quarter was an opportunity to improve the performance of the business and strengthen our partner relationships.
In closing our business combination in August we have begun comprehensive cost reduction and performance improvement initiatives. The results of these are already showing success as we expect these initiatives will enable us to significantly grow our <unk> business in 2023, while also enabling us to reach EBITDA profitability during 2023.
Our third quarter performance issues were largely largely driven by two legacy deals that required us to purchase inventory both signed in 2021 during a volatile period of COVID-19 impacts and supply chain disruption.
While our cash business remained healthy these anomalous deal had a significant impact on our 2022 results due in large part to pandemic induced supply chain issues now that the bulk of the impact is behind US we expect to return to our previous rate of revenue growth over the next few quarters and as I said earlier EBITDA profitability.
In 2023.
As for the platform itself I'm happy to report that we unveiled version of intelligent commerce.
The arrival of machine learning customer segmentation, and smart sort merchandising capabilities to the Noggin Commerce platform, we expect that Naga and clients will be able to elevate their customer experience and increase potential profits with new segmentation and merchandising capabilities. We.
We are steadily onboarding customers onto this tool and expect them to drive significantly differentiated performance for our new and existing brands.
In addition, our sales efforts are driving a robust pipeline, including eight new grant assigned to the intelligent commerce platform during the quarter.
In total we believe that our efforts in the third quarter will allow us to get back to executing effectively on our growth strategy, especially in the current economic environment brands are searching for ways to reduce cost while driving improved results and we believe that our platform is uniquely positioned to help customers do that with noggin high performers.
And cost effectiveness are never mutually exclusive choices.
We are confident in our technology, our team and our strategy and look forward to generating strong momentum through the fourth quarter and enter 2023 with that I'll turn the call over to our COO and CFO <unk> <unk> to discuss our third quarter financial resort results and updated outlook in greater detail charter.
Thank you John .
Turning now to our financial results for the third quarter ended September 32022.
As John mentioned, our net revenue includes product related revenues. It stems from two previous deals that involve sales related to first party inventory purchases.
As that inventory is sold Jenny.
<unk> generated revenue appears within net revenues and our GAAP results. Our non-GAAP revenue. However is generated by the core commerce as a service platform and associated services.
We typically view non-GAAP revenue was a more accurate indicator of the business and expect our GAAP and non-GAAP revenues to converge over time.
GAAP net revenue in the third quarter decreased 22% to $21 million from $26 9 million in the <unk>.
Comparable year ago period the.
The decrease in net revenue was primarily due to a decrease in net product revenue during the period caused by the aforementioned nonrecurring supply chain issues associated with two of our customer agreements.
GAAP net revenue for the first nine months of 2022 increased 20% to $66 5 million from $55 2 million in the comparable year ago period.
The increase in year to date net revenue was primarily due to increases there.
Net product revenue and net revenue from related parties during the period, which were only included in partial year results in 2021.
non-GAAP revenue and.
non-GAAP measurement of operating performance decreased 11% to $15 9 million from $17 $8 million in the comparable year ago period.
The decrease in non-GAAP revenue was primarily due to decreased product revenue grew the platform in the quarter drill.
Driven by previously noted supply chain challenges.
non-GAAP revenue over the first nine months of 2022 increased 15% to $53 1 million from $43 $5 million in the comparable year ago period.
The increase in non-GAAP revenue was primarily due to an increase in cask shipping and marketing.
Operating loss in the third quarter increased to $11 9 million compared to an operating loss of $2 $3 million in the comparable year ago period operating.
Operating loss for the first nine months of 2022 increased to $27.6 million compared with an operating loss of $5 $4 million in the comparable year ago period.
The increase in operating loss over both periods was primarily due to an increase in operating costs and expenses. This increase was largely driven by the losses associated with the previously mentioned product.
From 2021 that were adversely affected by supply chain challenges as well as discounted pricing in Q3 2022.
The company expects fourth quarter GAAP net loss to range between negative $4 5 million to negative $6 5 million and adjusted for adjusted EBITDA to improve to a range between negative 3.0 to 5.0.
Before I turn the call back over to John I'll now take a few minutes to provide an update on our financial outlook.
For 2022, moving forward Noggin expects to provide annual guidance for net revenue non-GAAP revenue and adjusted EBITDA.
We expect the Companys financial results for the fourth quarter to be positively impacted by existing customer sales and new customer agreements and the initial results of our comprehensive cost reduction and performance improvement program.
Our cost and performance related initiatives are expected to produce meaningful results in Q4, including an approximate $2 million benefit to adjusted EBITDA.
The goal of the cost and performance improvement program is to drive continuous efficiency throughout our business, while simultaneously achieving or exceeding internal and customer kpis.
In addition, we are providing the following financial outlook for our full year 2022.
We expect net revenue to range between $93 million and $96 million and expect non-GAAP revenue to range between $72 million before.
We're also updating our financial forecast for the 2023 calendar years.
We now expect net revenue to range between 97, and $100 million and non-GAAP revenue to range between 88 to 95, which would imply 18% to 25% year over year growth.
We also expect net income to improve and adjusted EBITDA to be positive for the full year 2023.
We anticipate that the impact of the company's cost and performance improvement program for the full year 2023 will be between $15 million to $20 million.
And expect to have the majority of initially identified initiatives complete by the end of the 2023 court.
While this program will initially include a combination of cost actions and operating efficiencies and is key to achieving our 2023 adjusted EBITDA guidance. Its benefits are expected to continue beyond 2023, and allow us to grow with the benefits of significantly increased operating leverage in the future.
We look forward to updating you on the status of these specific efforts and activities in the quarter.
That completes my summary, I'd now like to turn the call back over to John Thanks.
Thanks sure.
Now again, we are excited about the future and confident in our ability to execute against our growth strategy moving forward our traditional commerce as a service business is strong we believe the growth of e-commerce combined with our expanding pipeline of business across a myriad of industries interested in our solution positions us well for <unk>.
Growth and profitability with that said operator, please open the call for Q&A.
Thank you at this time, we will open the line for questions. The company requests that you.
So that each participant limit their comments to one question and one follow up to ask a question you will need to press star one one on your telephone please standby, while we compile the Q&A roster.
Okay.
Yeah.
Our first question comes from Samad Samana with Jefferies. Your line is open.
Hi, Thanks.
Get that good to see your first public quarter as the company.
But to get to know now I'll get better. So maybe a couple of questions just as I think about the new deals signed in the quarter. As you mentioned there is a challenging macro backdrop. So just how should we think about maybe the size of those deals versus what you were expecting and just.
What's the what's the imperative that's driving customers to still re platform in this type of environment.
Alright.
Sure you want to mention the size and Jan wants you to talk about.
Howard getting these wins.
Sure happy to.
The customer size ranges from deals that are.
In the single digit millions to deals that are a bit longer than that.
Flexion of those in terms of.
<unk> is an end market is a bit more diversified.
And then some of our historical wins with with the Onboarding of customers that are in.
In the consumer products.
Industry as well as some of those that are more.
Historical fashion apparel sector.
Yeah.
And I think in terms of motivation this is Jan.
Yeah.
There is still a large segment of the market that.
Needs to continue their growth.
And they are stalling out on the level of functionality that they maybe had in the SMB.
And the ability to.
Grade enterprise with nothing upfront instead of $1 million to $2 million and being able to get live in 60 to 90 days instead of 12 to 18 months.
Rather compelling so it allows them to kind of do more accelerate growth, but with less.
Upfront capital S personnel.
Less complexity.
And I'll just add one other thing some odd and we alluded to this in the commentary is that with the impending recession and people looking to cut costs and drive higher margin.
Our solution helps people drive their sales to their usually their highest margin channel, which is around e-commerce platform and at typically a lower cost.
Virtue of the way our platform works as well as the reduced need for folks to manage that.
The customer side.
Great and maybe just a follow up question for the team just you provided an updated outlook for 2023.
Maybe how are you thinking about.
Whether it's what's the embedded assumptions around cash contribution versus marketing and shipping and I guess, what gives the comfort around the 2023 guidance at this stage can generating that theres a lot of uncertainty out there.
So sure I want to talk about the first phase I'll talk about the second.
Sure. So in terms of the complexion of the incoming business I think it looks similar to the profile of the split that we have that you see today.
From a non-GAAP perspective, as those new deals don't involve obviously any product revenues.
GAAP and non-GAAP impacts will be the same.
Sean.
Yes. So the question is how confident are right well.
Very large chunk of that growth.
We expect to come from our current customers and we have relatively high confidence in that and then in terms of the incremental for new customers.
We also think that.
It's eminently doable lets put it that way.
And I think to clarify.
John statement.
Our business the deals that we have signed let's say over the last six months. We may have only received one to two months or three months of revenue.
Whereas next year, we will get a full 12 months of revenue. So you can think of that in terms of the growth of existing clients year over year as well as clients that.
This year, we only got a few months of revenue in next year, we will get the full 12.
Great. Thanks for taking my questions.
Thank you.
Okay.
Thank you one moment.
Our next question comes from Parker Lane with Stifel. Your line is open.
Hi, This is Max check around for Parker. Thanks for taking my questions first off I'm curious.
Alright, what's how are you seeing in e-commerce versus brick and mortar sales over the last 12 months and is there any trend there force you to change your three to five year expectations for how large e-commerce to grow over that timeframe.
Yeah.
John you want to answer that one.
Sure.
So we continue to see that the take.
Great and the E Commerce channel is growing.
And we don't see sort of physical stores opening up.
<unk> negatively affecting online store sales I think.
From a segmentation standpoint, theres a portion of the market, where there are lots of goods and services when people are back to work and sort of in.
In the saddle and go into the malls, where they purchase.
It became a new customer file and it feeds e-commerce and it creates a flywheel effect that doesn't have us changing sort of what we see as possible online for the next three to five years.
Okay great.
And then secondly regarding the new brands that you signed this quarter was there any change in your go to market strategy that led to that success and how is your marketing changed at all since going public.
Yes, it's a great question I think the reality is.
Because it.
It's been so recent that we have gotten public.
Really scaling up those efforts now and the incremental benefits of scaling up these efforts is significant.
And we're just beginning in terms of that.
For us really the shift is from.
Expanding beyond a single vertical.
Selling into multiple verticals and what's exciting is a fair number of our new shingles are in those new customer verticals.
Sure.
Okay terrific. Thank you very much thank.
Thank you thank.
Thank you.
At this time. This concludes our question and answer session I would like to turn the call back over to Mr. Huber meant for his closing remarks.
Well, thanks again, everyone for joining us today is truly an exciting time to be with noggin.
I want to thank our dedicated employees for their ongoing contributions as well as our investors for their continued support operator.
Thank you for joining us today for Noggin third quarter 2022 earnings Conference call you may now disconnect.
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