Q1 2023 Nogin Inc Earnings Call
Speaker 1: You.
Speaker 2: Good morning. Welcome to Noggin Inc.'s first quarter of the 2023 earnings conference call. At this time, all participants are in a listen-only mode.
Speaker 2: After the speaker's presentation, there will be a question and answer session. As a reminder, this call is being recorded.
Speaker 2: Joining us today from NAGN are Jonathan Huberman, President and CEO , and Shari Arramati, COO and CFO .
Speaker 2: Before we begin, NOGGIN's management team would like to remind everyone that statements made and or answers that may be given to questions asked on this call are or may contain forward-looking statements that are subject to risk and uncertainties related to future events and or the future financial or business performance of NOGGIN. Actual results could differ materially from those anticipated in these forward-looking statements.
Speaker 2: Four looking statements include, but are not limited to, noggins expectation or prediction of financial and business performance and conditions, the development and adoption of noggins platform and cost reduction measures, as well as competitive and industry outlook.
Speaker 2: Four look-knees statements are subject to risk uncertainties and assumptions, and they are not guarantees of performance.
Speaker 2: NOGGIN is not under any obligation to and expressly disclaims any obligation to update, alter, or otherwise revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. In addition, a description of some of the risks and certainties that could cause actual results to differ materially from those indicated by the forward-looking statement.
Speaker 2: revenue and adjusted EBITDA that we view as important in assessing the performance of our business. These metrics exclude certain items as discussed in the release under the hitting non-GAAP financial measures. Therefore, these measures should not be considered an isolation or as an alternative to operating income, net income, cash flows, and financial
Speaker 2: from operations or any other profitability, liquidity, or performance measures derived in accordance with the GAAP.
Speaker 2: You should be aware that the company's presentation of these measures may not be comparable to some similar to these titled measures used by other companies. A reconciliation of these each historical non-gap measure to the comparable gap measure is available in our earnings release on Noggins Investor Relations page at www.ir.noggins.
Speaker 2: and CEO Jonathan Huberman.
Speaker 3: Welcome. Thank you for joining us this morning for our earnings call. To begin today's discussion I'd like to provide a quick overview of our business and review this quarter's highlights before turning to call over to our COO and CFO Sharia Ramadi to discuss our financial results for the quarter. After that I'll share some closing remarks before opening the call for questions.
And Noggin, we believe that as e-commerce continues to grow and becomes more sophisticated, there is a large market opportunity to help merchants who aim to execute at the level of customer expectations, yet face a common dilemma of increasing complexity as they aim to grow and grow profitably.
Intelligent Commerce, Nogga's Commerce as a Service Platform, provides a headless end-to-end technology platform that merchants can plug into instead of paint to integrate multiple technologies, develop complex and difficult execute capabilities, and have the ability to augment any capability required to enable the success of their Digital Commerce Channel.
This allows Noggin to deliver advanced capabilities that are generally too complex and costly for many brands to buy, build, or manage on their own, and will allow them to avoid the distraction these efforts require and instead focus on their core mission, which is to deliver the best possible product. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you.
with Noggin acting as their trusted partner.
These capabilities include full customer data platform, social commerce abilities, AI, and ML technologies, and the ability to integrate with a wide variety of systems, including legacy platforms or environments, with multiple platforms.
Also, NOGM's leading edge R&D and innovation is built in as a service so that clients are never required to build.
development or technology resources on their own.
Finally, not going to eliminate the need to re-platform because as we build features and tools, they are immediately available to our clients. That's a platform that is inherently future proof.
At Noggin, our revenue model is a percentage rate against ecommerce sales conducted through our Cast platform, which ensures complete alignment between ourselves and our clients.
Further, our onboarding methodology includes understanding our client's strategic and financial objectives, and thus our corresponding efforts are aligned and transparent. Our growth strategy is rooted in three key pillars. One, to develop and continuously advance our innovative and scalable commerce as a service platform that makes enterprise digital commerce accessible to the mid-market and lower mid-market.
Two, to increase sales and marketing efforts to drive our pipeline, including efforts in B2B in addition to our focus on D2C.
And three, to expand our client base into new markets and products throughout e-commerce, increasing the ability to execute industry-specific expertise in addition to the set of value-added horizontal services we offer, inclusive data analytics and consumer insights.
We continue to make progress on all these fronts as we look to the rest of 2023.
Looking back, we have three primary goals for our first quarter. First, with the consistent significant demand we've been seeing for our solutions, we believe it crucial for us to convert our sales funnel and expand our customer base. We continue to ramp up our sales efforts in the first quarter, signing seven new clients, a record.
business development for quarter for Noggin. We will carry this momentum into the second half of the year and expect to see this trend accelerating further as we continue throughout the year.
We firmly believe that we are just scratching the surface of our overall market opportunity.
Many of our new customers specifically chose our solution because of the combination of our technology platform and our digital marketing expertise.
Attestment to our business's ability to provide both a turnkey solution, including creative, fulfillment, and customer experience for some customers and fit for purpose configured solution for others, all while driving underlying attractive unit economics.
We believe that this mix of services is key to our long-term growth as we're able to get in mind our suite of features and the analytical capabilities bound within our platform to provide an unmatched user experience for our customers.
Second, we've made it our mission to enhance efficiency through a myriad of cost optimization initiatives. When Shariah and I inherited Naga's customer base, we began reevaluating Naga's obligations as laid out in some of our legacy customer contracts.
and quickly realized that a few customer head structures that hampered our profitability. We've worked over the last several months to recalibrate, prioritizing health, profitable revenue growth.
As Sharya will discuss further, this recalibration effort has required us to terminate or wind down a few legacy customer contracts, which may cause some revenue headwinds in the short term and cause full year 2023 revenue to come in lower than full year 2022 revenue. However, we are confident that revenue will accelerate rapidly in 2024, given recent customers continue their short-term potential through September 2021.
significant benefits to our gross margin which we expect
to allow us to be cash flow positive beginning Q2 and to be adjusted EBITDA positive for the second half of the year.
As discussed last quarter, we expect our initial cost and performance improvement program to drive $15 to $20 million cost impact for the full year 2023, and we believe we're positioned well to solidify that impact over the next few quarters while realizing further opportunities as well. And third, it was an important goal of ours in the first quarter to execute a capital raise in order to comfortably manage the capital.
which we believe will help us generate healthy, sustainable revenue growth moving forward, especially in the current economic environment.
Brands are searching for ways to reduce costs while driving improved results, and our platform is uniquely positioned to help customers do just that. With Noggin, high performance and cost effectiveness are never mutually exclusive choices. We're confident in our technology, our team, and our strategy.
and look forward to capitalizing our strong momentum over the rest of 2023. With that, I will turn the call over to our COO and CFO , Shariar Rahmadi, to discuss our first quarter financial results in greater detail. Shariar.
Thank you, John . Turning now to our financial results for the first quarter ended March 31, 2023.
As noted last quarter, our net revenue includes product-related revenue that stems from two previous deals that involved sales-related to first-party inventory purchases.
As that inventory is sold, generated revenue appears within that revenue and our gap results.
Our non-GAAP revenue, however, is revenue generated by the core Commerce as a Service platform and associated services.
We typically view non-gap revenue as a more accurate indicator of the business and expect our gap and non-gap revenues to converge over time.
Gap net revenue in the first quarter of 2020 decreased.
34% to 16.7 million from 25.2 million in the first quarter of 2022.
We believe these adverse revenue impacts to be short-term in nature and are confident that our expected long-term profitability will benefit and necessitated these initiatives. For the first quarter of 2023, non-GAAP revenue and non-GAAP measurement of operating performance decreased 25 percent to 13.9 million from 18.5 million in the comparable year-ago period. The decrease in non-GAAP revenues was primarily due to decreases in CAS and marketing revenues. Operating loss in the first quarter increased to 12 million compared to an operating loss of 10.1 million in the comparable year-ago period. The increase in operating loss was primarily due to restructuring charges.
and optimization efforts as well as the partial period impact of the aforementioned commercial decisions that we expect to continue to materialize throughout the balance of those here and beyond.
Moving to our outlook for 2023.
the 2024 calendar year for non-GAAP revenue and adjust to deep at the margin.
For the full year 2024, we expect non-GAAP revenue growth to be greater than 40% compared to our full year 2023.
results and adjusted EBITDA margin to be
Our margins are expected to continue to improve as we realize the benefits of the aforementioned initiatives.
Realize operating leverage associated with the revenue growth.
and favorable mix driven by certain key customer wins that will have larger components of technology revenue.
As we execute against our strategy over the course of this year, we expect to drive improved results and look forward to providing incremental updates going forward.
That completes my summary. I now like to turn the call back over to John .
That completes my summary. I'd now like to turn the call back over to John . Thanks, Charter.
All together, as we grow and continue to scale our product and service offerings, our clients' e-commerce operations will scale in parallel. Our modern approach to commerce allows brands and sellers to grow more profitably and without upfront costs, while still focusing their efforts on their core businesses instead of
the resource intensive nuances of e-commerce. With our focus on cost optimization over the past few months, we believe we've positioned ourselves to grow profitably as well. Here at Noggin, 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.
And with our expanding pipeline of business across a number of industries that are interested in our solution, we are confident in our roadmap for sustainable growth in the coming quarters. Operators, please open the call for Q&A.
Thank you. At this time, we'll open the line for questions. The company requests that each participant limit their comments to one question and one follow-up.
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. Please stand by while we compile the Q&A roster. Now our first question will come from Jeff Van Zenderen with V-Raleigh. Your line is now open. Hi, I'm Breakthrough Information and I'm the writer of your next había-que vencido question and I would love to know what you're most curious about. My question is, what's the best secret of your life that you keep but never tell anyone about it? Well, it depends on what question you're asking. I think the key to it is the knowledge that you're looking for. You're not asking if you feel on your route and if the steer to the right path.
Hi, good morning, everyone. I wonder if you can speak a little bit more about – I know you had a record number of new customer wins this quarter, but maybe just talk a little bit more about the pipeline of that new business.
Maybe what it looks like in terms of concentration of various components that you offer, how much is the full cast service?
and perhaps variation thereof. And then maybe you can give us a little more on the timing of when those new clients that have signed will convert to meaningful contribution to revenues.
I'll take the first part and Shari, you take the second. So in terms of the pipeline, it's a very strong pipeline we have currently.
The coverage of our forecast is pretty significant and a lot of near-term opportunities so it gives us the confidence in the projections we've made. In terms of concentration on two fronts, one industries and two product...
So on the industry side, historically, we've been fashion and apparel dominant. That is changing. It's not that we're not being successful. There we are. And a big, a sizable portion of our pipeline is in that space. We've diversified out dramatically from just that space of fashion and apparel into the markets.
both D to C, as you've seen with some of our recent wins, like Giordano's and Heartbrand beef in the food industry, but also into place into B to B, which you're seeing some, you're seeing some,
deals that we've discussed and others that are being signed soon. On the B2B side, we're a little bit more difficult for us to get our customers to allow us to put up preferences on those because they see as a competitive differentiation.
and so they prefer to keep it quiet who they are and what they're doing. We're seeing a tremendous amount of opportunity and closing rate is pretty high on the B2B side. In terms of the...
suite of products that we offer, all of our customers...
going forward or buying at least the cash. And historically, for those that don't understand, we had one set of offerings that was combined between our commerce as a service, the technology platform that is the marketing services and fulfillment services. Historically, you had to buy all of it. We've...
We've disassociated that where we will allow people to, of course, buy our cast software. All of our deals come with the cast. And then the marketing fulfillment, most people are buying, the vast majority are buying marketing and most are buying fulfillment. Some aren't buying fulfillment.
come in two flavors, one the B2B guys who have very strong fulfillment arms, but also places where they have, you know, fulfillment needs that are somewhat specialized. So for instance, Giordano's Pizza, they use co-packers with the cold chain space to do the fulfillment, which is a very, very important thing.
Clearly it's not something we want to invest behind.
So, Shari, do you want to answer the second half of the question? Sure. So, with respect to the customers that we signed, there are a group of them that will begin to contribute to revenue in the next few months.
Q2 because, you know, meaningfully at close to full run rate, if not full run rate, because of the nature of those agreements and the time to onboard them and have them running on our platform. So, we're looking forward to that. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you.
And another group of those customers are nearly evenly split in terms of number that will be onboarding throughout Q2 but whose revenues will be higher.
more material in Q3 and in Q4. And the customers that fall into that category have disproportionately large revenue potential even relative to many of our existing customers. One thing I'd like to add, especially for
that we're in, you'll be reading shortly about a customer we've won that is a very large, sophisticated omni-channel customer that we managed to take live in less than two weeks.
I think it was 10 days from start to finish. So I think our ability to get someone up and running is frankly unparalleled in the industry.
Maybe just one last point there, if I may, John , and it's just along the lines of your second point on David's question on the Michelin guide, which were, I mean, these were pieces of imagery that were going out to make a pretty obvious visual indication of the elevated levels of? so I thought maybe I don't spend a lot of time on those today but I also want
Previous calls we mentioned a partnership that we were working on with a global technology consulting firm. And we're happy to say that we have signed that agreement and again expect to be.
and did so just days ago and expect to be able to announce that in the near term. And I think you'll have a good sense of how that partnership connects with advanced spin in the marketplace.
Sure. So as we have a platform that has incredibly robust analytical insights and consumer insights around what our both visitors and retention customers are doing on site, we really been seeking the best set of tools to...
to magnify and monetize the value of those and the related investments in those. And we've had familiarity with Hawk and known them and worked with them in various capacities in the past and sat down to discuss a more strategic approach.
they're working together to really maximize the acquisition marketing side of efforts given the combination of their scale and capabilities and team in that regard and the operating build the leverage they can provide with respect to the size of their platform to the efforts that we're conducting there.
We have our team, which was transferred over to their business. So it's the same group of people that were working with in Noggin previously. However, that's just been augmented tremendously by additional expertise and staff and scale.
within their organization, which has come to us with nominal incremental cost, and actually expect that that potential even is at no incremental cost over time.
The other thing that that partnership gives us is the ability to demonstrate working with a top tier digital agency whereby NOGG is offering the platform that we have and the data that we...
make available for acquisition and retention marketing creates a new channel for us, whereby we can work very closely with the strategic partner to prove the thesis and get the plumbing of those dynamics worked out and then scale that to.
to the dozens of other large national agencies that operate potentially as channel partners for NOG.
Dan, just to add one more thing, as we discussed in the prepared remarks, we expect we're going to be growing pretty dramatically, and a lot of that growth is driven by our pipeline that you asked about. On the performance marketing side, where Hawk helps us out, that requires scale.
and they can provide the scale very quickly. And as they need to hire more people, it's any more effective for them to do it, given that's their core business and for us to try to build that up as sort of an ancillary piece of our business. And so I think that's one of the concerns we had is are we able to keep up with our growth if we don't do something like this? And so hence we did.
Okay, great. Thanks for taking my questions. I'll take the rest up there.
Thank you very much. Thank you. As a reminder to ask a question at this time please press star 1 1 on your touchstone telephone.
Our next question comes from the line of Brian Kentzlinger with Alliance Global Partners. Your line is now open.
Hi there, this is Sturgis on for Brian . Thanks for taking my questions.
Thank you. So congratulations on adding those seven new brands. That's really great to hear. Could you quantify your total customer count and where you expect it to be at year end?
So our customer count, we don't normally give exact numbers because it fluctuates here and there. But when we inherited the business, we heard about...
So our customer count, we don't normally give exact numbers because it fluctuates here and there. When we inherited the business, we were at about 2 dozen.
We are now roughly double that. And if you look at the number of deals, as we discussed in our previous call, we expected to sign eight new deals between mid-March and early April . Obviously, we talked about the seven-week.
Signed in mid-March because that's when the quarter ended. We did sign additional we did sign
at least one more past that in that timeframe. You know, I expect if you look at the quantification doing eight to 10 new deals a quarter, new brands is probably a good way to look at it.
So basically keeping up the pace we're on, if not accelerating. As Sharar mentioned, we literally over the weekend signed the relationship with the large consulting company that we've previously discussed and will be coming, the name and our relationship will be coming public shortly, more public.
We honestly, with the pipeline we have talked to you about, doesn't include anything from then.
So, you know, I expect that's what we've been doing organically and organics accelerating. Whatever they bring is incremental that and obviously we have pretty high expectations from them. Otherwise, we wouldn't spend as much effort getting them fined. So that's sort of where we are today. Yes, me and another quarter.
Hopefully, it'll be an even bigger number. I think also the data that is you see us going throughout the year, I think you'll see that some of the brands that we'll be signing and some of the relationships that we'll be developing will – I think we'll see what happens and the ones that we will be advertising later in the year.
will be larger in size and scale than some of the clients that we've had historically. So in addition to the ordinal numeral value of the clients, where we can will give as much color as to some of those.
be larger in size and scale than some of the clients that we've had historically. So in addition to the ordinal, numeral value of the clients, where we can will give as much color as to some of those larger relationships.
And one space that I mentioned earlier talking about we branch out of food and B2B, another space that we've signed but have not announced yet is in consumer electronics as well.
which could be a very interesting channel for us. Great, thank you so much guys. One other question.
Given the challenging economy, are customers generally reluctant to move forward with a direct consumer strategy to see pressure from that area, or is the prospect of a high margin direct channel appealing to help offset likely pressured sales? Well, it's the latter, not the former. Yes, obviously it's in a market like this where
People are customers, our clients are challenged in the retail segment having high profit, easy to target direct to consumer and easy because they outsource to us and we do it for them. So you're not have to, it's completely OPEX, it's all OPEX, there's no CAPEX, it's scalable also as we take as.
mentioned, we take a percentage of revenue, so it's just of the e-commerce that we do, so it's all incremental to them. There's huge demand. And as people look to cut costs.
But on OpEx on their side in terms of headcount, this is a way for them to drive a revenue stream that's, again, inexpensive for them to do and very additive to their top and bottom line.
So I think it's the market, and we talked about this, I think six months ago, we said if we head into a recession or a recession-like environment, that we believe it's going to be positive for us overall, even though at some level, some are, if overall consumer spending comes down, that may hit individuals.
customers at each individual level, but it'll bring so many more customers to us that additive nature is going to help us dramatically. I think we're seeing that. Shari, do you have anything to add? One of the customers that we...
that we signed this quarter actually became profitable by virtue of the agreement with us.
The amount of cost savings that they were able to realize in their brand not only would bring them revenue growth but would actually bring them immediate profitability. When I say immediate I mean that within a 60 day time frame so perhaps short term.
And the other channel to think about is one that, as we've mentioned B2B recently, just to unpack that for a quick second here is, manufacturers, distributors, companies that have not a first party relationship to their end customer.
are ones where the incrementality of the profit and the margin associated with the revenue stream that is created and the nuances that they're able to execute, whether it's E&O disposition, whether it's new product launch acceleration.
or frankly whether it's just without one or two more parties in the chain consuming margin, those companies in economic...
economically challenging environment or volatile environment, C, D to C as we've explained and shared with them as an attractive hedge or an additive vector to their aggregate profitability. And we've had that conversation directly with companies. That conversation is also below.
resonated profoundly and rapidly with private equity firms as a channel who viscerally understand all dimensions of that equation.
Yeah, sure, you missed my – because we didn't talk – I didn't mention this earlier in the pipeline. You may just want to talk about the success we're having in private equity. We have – some of the customers that we've signed this quarter have come from the private equity channel. In addition, we have a material number of –
opportunities in the pipeline that are coming from private equity, both mid-market firms as well as some larger firms where they seek to build a digital commerce channel within their portfolio companies but don't want to incur the one-time cost of management distraction.
the uncertainty around success, frankly not have the best practices, and all of the associated things that come with that coupled with obviously a time constrained holding period. And so at the moment we've reached out to a small group of firms to...
to be able to scale and test and hone our strategy there. The results have been...
fantastic, near overwhelming and we built and are building the ability to really scale there because honestly we see no ceiling in what's available in that channel and we see smaller pillars equipment, so also we see our
incredibly rational, incredibly sophisticated folks in that industry that by virtue of their ownership and engagement with the C-suite and ourselves also have a very short time to revenue.
in building D to C or B to B commerce. And one of the beauties of the private equity channel is because of the tight.
relationship between ownership and management, our sales cycle is an order of magnitude shorter. All right, thank you so much, guys. Really excited to see the progress moving forward.
Thank you. At this time, this concludes our question and answer session. I now like to turn the call back over to Mr. Huberman for closing remarks.
Okay, well, thanks everyone for joining us. I appreciate it and look forward to talking in soon.
Have a good day. Thank you for joining us today for NOGGIN's first quarter 2023 earnings conference call. You may now disconnect.