Q2 2023 Nogin Inc Earnings Call

of finding that deal with that business is growing into into seasonally strong, late Q3 and Q4 of depending on when we.

Sign that and have the joint venture structure reinstated where we would recognize revenues on a more normal basis, I'll say, without the product component, you may see increases partially offsetting or wholly offsetting.

Speaker 1: You.

the other business. And so, regardless of that, what you'll see is that as the former business ramps down and as the wholly owned sub is converted into a JV.

the occurrence of those two events will eliminate the product revenues that we have historically recorded. Yeah, so that should happen, I'll expect by the end of the year. I can't tell you it's gonna be Q3 or Q4. By the end of the year, we're hopeful that that- And it's worth trajectory relatively.

Speaker 2: Good day, and welcome to NOGGINS Incorporated's second quarter 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. 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 Noggin are Jonathan Huberman, President and Chief Executive Officer, and Shahryar Ramati, Chief Operating Officer and Chief Financial Officer.

say not to do similar in Q3 versus Q2, plus or minus, but then in Q4, as John said, that should, which is, you know, 20 to zero.

Speaker 2: Before we begin, NOGGMS management team would like to remind everyone that statements made and or answers that may be given to questions asked on this call or may contain inward-looking statements that are subject to risk and uncertainties.

by the end. Okay, great. That's really helpful, guys. That's it for me. Congrats. Good to see you continuing to move the chains. I'll hug you very much. Appreciate the support. Thank you. One moment for our next question, please.

Speaker 2: related to future events and or future financial or business performance of NOGGIN.

Our next question comes from Brian Conslinger with Alliance Global Partners. Your line is now open. Your line is now open.

Speaker 2: Actual results could differ materially from those anticipated in these forward-looking statements. Forward-looking statements include but are not limited to noggin's expectations or prediction of financial and business performance and conditions, the development and adoption of noggin's platform and cost reduction measures, as well as competitive and industry outliers.

Hi, good evening guys. Thanks for taking my questions. Joined a little bit late though, so sorry if I'm covering some of the material you may have discussed. How many brands did you add during the June quarter? And do you still see the opportunity to add six to eight per quarter?

And then more over, how have you started the third quarter in new brand additions?

Yeah, so the number we gave, and I think you missed the beginning. So we've signed over a dozen year-to-date, and we didn't break it down by quarter, but we expect that we'll continue to add more throughout the rest of this quarter and next quarter. One thing that I hadn't mentioned that's...

Speaker 2: Noggin is not under any obligation to expressly disclaim 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.

Speaker 2: In addition, a description of some of the risks and uncertainties that cause actual results to differ materially from those indicated by forward-looking statements on this call can be found in the risk factor section of your annual report form on Form 10K for the year ended December 31st, 2022, filed on March 23rd, 2023.

That's worth mentioning is our average order value has gone up in terms of average booking value, I should say, per customer and the average margin percentage per customer as well, not just because the order of value is off, but because we're really focused on selling our core e-commerce as a service, the CAS businesses we call it.

Speaker 2: On today's call, we will also refer to certain non- GAAP measures , including non-gap revenue and adjusted EBITDA.

which is obviously the highest margin business we have. And to that end, frankly, I've eliminated any compensation for our sales folks for selling anything other than that.

Speaker 2: that we review as important as accessing the performance of our business. These metrics include certain items as discussed in the release under the heading, non- GAAP financial measures. Therefore, the measures should not be considered in isolation or as an alternative to operating income, net income cash flows from operations.

So that's a good way to start from there.

in July and partially into August . I mean, the earnings have been uneven from companies right now. Have you been able to continue to hit on that? Several, you know, additions in the first half of this third quarter. Do you see any changes in marketplace? I would say we're accelerating. Let's put that way.

Speaker 2: You should also be aware that the company's presentation of these measures may not be comparable to similar title measures used by other companies. A reconciliation of each historical non-gap measure to the comparable gap measure is available in our earnings release on Noggins investor relations page at W.

The second half of the year should be more than 12. Well I know, well the 12 includes up to today. So I wouldn't say that but I don't want to project what number it's going to be. I'm just saying it is accelerating. We really, as I think we talked about last quarter,

We really didn't start getting these new wins until March, when we changed the sales team, got some more technology under our belt, and really focused on moving beyond just the core fashion and apparel. And since then... So, I're really excited to be introducing this show to ourunighters this weekend!

Speaker 2: will be available via the link provided in today's earnings release, as well as our website at www.noggin.com. Now, I would like to turn the call over to Noggin's president and chief executive officer, Jonathan Huverman. Please go ahead, sir.

We've been on a very good track. Okay, now the $27 million of bookings, do I think about that as e-commerce revenue that's annual from those brands, plus some expensive and proven place based on your platform? And the feature of the Mac is that. No, so what's that? Well, the way it is, that's what a bookings.

Speaker 3: Thank you. Welcome everyone, and thank you for joining us this afternoon for Q2 2023 Financial Update and Earnings Call. Thank you.

Speaker 3: The demand for our solutions is strong, and we continue to add new customers and penetrate new verticals.

Speaker 3: Year to date, we have secured more than $27 million in bookings with over a dozen new accounts, compared to seeing only $3 million of new revenue this year from deals booked in 2022. its."

metric is for us is our expected first 12 months revenue that we generate from that once they go live. So if we sell someone today and they go live in 60 days, for me to say, so let's just call it end of October . So from end of October to the following

Speaker 3: Regarding industry diversification, approximately 60% of the bookings came from new verticals for us, including food, home decor, publishing, outdoor gear, consumer electronics, and business-to-business accounts.

Speaker 3: Our progress in the B2B sector is especially exciting as it opens up a very large and virtually untapped market for us.

beginning of October , that would be the whatever revenue we expect to get would be our bookings. Now that these are not one year contracts. I don't think we've signed any one year contracts as far as I'm aware of every year contract. And so it's not like at the end of 12 months, number stops, you know, you'd assume it's accelerating, right? So

Speaker 3: As I mentioned on last quarter's call, we have also opened up a new channel to market via a partnership agreement with RSN, a multi-billion dollar global consulting firm, which we have now officially kicked off and is already yielding good prospects, adding to our already well stock new business pipeline.

Speaker 3: As for the top line this quarter, reported 12.7 million in revenue for Q2.

The way I look at it is if you think about that $27 million number is that that's what incremental to where we exit this year.

Speaker 3: Over 100% of the year-over-year reduction was due to three accounts. The largest decline was with the business where we sell products. As previously mentioned, this line of business has an unprofitable for us and we are in the process of winding it down, which hopefully will be accomplished before the end of this year.

we would expect to have next year already effectively baked in.

I understand that. Let me ask you a different way so you understand it differently. I understand $27 million is incremental revenue from you. That based on you added 12 brands, right? And they do some level of revenue and you get the fees off of that. So it's based on some expectations of the revenue maybe they did in the last 12 months plus.

Speaker 3: In addition to this, we are in negotiations with a potential new partner regarding the JV we have and the wholly-owned sub that previously wasn't a JV, both of which contributed to the year-over-year sales decline.

Speaker 3: If these negotiations are successful, these two properties would become self-sustaining and healthy with good growth prospects.

Speaker 3: The other significant contributor to the sales decline was the loss of one customer who was sold to a new owner who has their own homegrown e-commerce platform.

Speaker 3: As we drive bookings,

Speaker 3: We are equally mindful of reducing costs wherever possible.

either investors or my board. But sometimes it's what they're doing today without any growth and then growth works in our favor. So really is the best guess on our part based on understanding the customer of what we think will happen on doors. Again, through what we believe is the lens of conservatism. Thank you. Just a couple of things on one of those customers as an example is actually one of what we want done is absolutely right here. We have been signing in here the first new to this in the practice.

Speaker 3: We have implemented several expense reduction initiatives, including exiting unprofitable contracts that are already having a meaningful impact on our bottom line, resulting in a $1.8 million quarterly improvement in our adjusted EBITDA despite the revenue decline.

Speaker 3: We expect the total of this accumulated cost reductions to be materially in excess of the $15 to $20 million in annual cost savings we discussed last quarter.

Speaker 3: Char Yor will cover the specifics in the financial review.

Speaker 3: The twin focus on profitability and growth will continue for the foreseeable future, especially as we drive efficiency, utilizing our technology across our own business to serve our clients. One other item I'd like to briefly touch on, but will leave to Shara to expound on, is our new additions in both senior talent and our tech platform.

and it's generally been three. And secondly, the largest of the deals from a GMB and customer size perspective with actually signed a five year initial term deal with and the bookings that we have included in the 27 million.

Speaker 3: We continue to top grade our ranks relentlessly and I'm very pleased with the new management changes that we have made over the last few months.

Speaker 3: As for a tech platform, we continue to innovate and are adding features of functionality that are helping our customers run their business more efficiently and grow their revenues and gain unique insights into their current customers and prospects alike. Thank you.

only assume over the first 12 months that 50% of their current activity is moved over onto the platform.

so

Speaker 3: In total, we expect our efforts to pursue only profitable sales and discontinued support and performance of certain unprofitable channels and customers. We'll provide us with healthy, sustainable, and margin-accretive revenue growth moving forward.

Speaker 3: Given the current economic environment, companies are consistently searching for ways to reduce costs while driving improved results, and our platform is uniquely positioned to help our customers do just that.

Speaker 4: So turning now to our financial results for the second quarter ended June 30th, 2023. As we've noted previously in our court of the calls, our net revenue during the year-to-date period included product related revenues that stems from two previous deals where we made first party inventory purchases and recognized first party inventory sales. As we continue to make progress towards the elimination of those activities, the zone alluded to earlier, the presentation of our financial statements in this release, and going forward will be exclusively on a gap basis. Net revenue in the second quarter of 2023 decreased 37.4% to 12.7 million from 20.4 million in the second quarter of 22.

Speaker 4: The decrease in net revenues primarily due to continued reductions in revenue related to an unprofitable customer with product sales and reductions in revenue associated with one JV and another wholly owned subsidiary that we expect to convert into a JV before the end of the current court.

Speaker 4: We expect the JV and wholly owned sub, both of which have been ongoing headwinds to revenue for the past year, to quickly become tailwinds for our business, generating profitable revenues as soon as the end of the third quarter.

Speaker 4: And quite certainly within the fourth quarter of 2023, pending the successful consummation of our new partnership.

Speaker 4: Further, during the quarter, we added a nominal revenue contribution from new customers.

Speaker 4: However, the run rate contribution from new customers

Speaker 4: has been accelerating over the course of the current quarter and is expected to continue to accelerate throughout the end of the calendar year.

Speaker 4: especially as we enter a seasonally strong Q4 2023. Operating loss in the second quarter increased to $10.4 million relative to an operating loss of $5.8 million in the year-ago period and compared to $12 million of an operating loss in Q1.

Speaker 4: The increase in operating last year over year was primarily due to expenses incurred in conjunction with our warehouse consolidation activities. Sufferd's costs related to certain evictions, as well as the recording.

Speaker 4: So the $2.2 million legal expense included in our operating losses.

Speaker 4: The sequential improvement has a result of increased realized savings from previously executed cost reduction activities, as well as contribution to the availability related to the reduction of unprofitable revenue.

Speaker 4: Adjusted EBITDA loss decreased to $7.5 million compared to an adjusted EBITDA loss of $9.3 million in the comparable year ago period. The improvement in adjusted EBITDA loss was driven in part by a cost optimization initiative as well as the partial period impact of the aforementioned commercial decisions.

Speaker 4: that we expect to continue to materialize throughout the balance of the air in the eye.

Speaker 4: The rate of these losses was reduced over the course of the second quarter.

Speaker 4: Moving to our outlook for 2020-23. As of today, and based on our progress year to date, and as John noted, we've seen steady strong demand for our unique cash offers with nearly $27 million in new bookings in 2023 today.

Speaker 4: We expect to drive growth via both existing customer sales as well as new customer agreements.

Speaker 4: both of which will have a positive impact on our ability to increase revenue over time.

Speaker 4: Further, his worth noting that the profitability of the aforementioned bookings

Speaker 4: as well as the enhancements to cost to serve driven through the utilization of our technology and data assets.

Speaker 4: With respect to our cost profile, we recognize further benefits from actions taken during the Q2 period and a taken actions since.

Speaker 4: During the current quarter, we expect to recognize in excess of $500,000 per month of savings related to a number of actions taken.

Speaker 4: including a facility consolidation that not only benefits our cost profile, but reduces the national average shipping cost our customers incur.

Speaker 4: And we've reduced headcount in area where we have driven other forms of efficiency.

Speaker 4: One example of the latter is through the reorganization of our branding, which not only takes direct responsibility for our customers' e-commerce KPIs, but is now organized by industry vertical.

Speaker 4: Distribes efficiency and improves customer outcomes as we're not only able to leverage our human capital, but also the manner in which we utilize our rich data assets to benefit clusters of similar businesses.

We've staffed those vertical sector roles with many of our current top performers and new hires we have made come to us with backgrounds from top tier investment banking, management consulting and private equity backgrounds.

All trademarks will be focused on software, e-commerce, or other forms of analytical work highly conducive to success in a role where they're responsible for driving P&L performance for one or more of our brands.

This allows us to provide focused and dedicated training for our next level team members, giving them skills that will benefit them throughout their careers and building a solid bench.

I'd also like to take the opportunity to discuss some of the talent we've brought to the business over the last quarter. First, we're exceptionally pleased to have a new CTO, Shobkon, who joined us from his previous role, a CTO of Rugg's USA, where I had the pleasure of working closely with him while I was COO of that business.

Shaw was a key driver of success for the business at Rux USA, playing the critical role in its growth of several hundred percent in both Revenue and Ibadot over a few short years.

with revenue over that timeframe, going over $300 million. With Shaw, we gain a leader who has a broad range of expertise on working with a small group of our internal warmers to build some technology assets that once completed, will generate massive value for our customers and create revenue opportunities previously unavailable to us.

and discounted earlier, and will be our primary focus from a technology development standpoint. We'll continue to provide updates through press releases and through future calls as we develop those assets and those capabilities.

Overall, we now have a flat-error organization where accountability and ownership are in transit can clearly place and with the team that possesses high talent in all of the critical areas required for us to produce strong results with efficiency and quality going forward.

For the full year 2023 and for 2024, given the state of our core business, the bookings mentioned earlier and the cost actions generated.

We expect net revenue to range between 50 million and 55 million for the full year 2023. And we expect to be adjusted EBITDAV positive during Q4 as a result of the seasonality of our same store business, the ramp of new customer related revenues, and the realization of cost savings from all activities to date. These revenue and adjusted EBITDAV projections would be incrementally benefited.

We're also setting our financial forecast for the 2024 calendar year for net revenue and adjusted EBITDA on March.

For the full year 2024, net revenue growth in excess of 40% compared to full year 2023.

Adjusted EBITDA margins to be in the range of 10 to 15%. Emergence are expected to continue to improve as we realize the benefits of the aforementioned cost and initiatives. Realize operating knowledge associated with revenue growth and benefit from the favorable Nix Pro file of customer wins to have greater reliance and emphasis on the poor technology and services platform we provide our clients.

As we execute against our strategy over the course of this year, we expect to have continued results.

the drive towards…

profitability and sustain operational solidity from going forward.

Now complete my summary. I'd like to turn the call back over to John .

Thanks, Sharier. We are excited about the future and confident in our ability to execute against our growth strategy moving forward. Our commerce as a service business is strong. And with our expanding pipeline of businesses across a number of industries that are interested in our solutions, we are confident in our roadmap for profitable growth in the coming quarters.

Operator, would that please open the call for Q&A? As a reminder to ask a question, please press star 111 when you're telephone and wait for your name to be announced.

Please stand by while we compile the Q&A roster.

And also, the company's request that each participant limit their comments to one question and one follow-up.

Please stand by what we compiled the Q&A roster.

The first question comes from Jeff Bansenderen with V. Riley, your line is open.

Hi everyone. I apologize in advance kind of a multi-part question here, but just to add to the clarity, John , maybe you can just speak about the specific lines of business that you're exiting that you won't have going forward. Maybe just remind us when those will not be go forward anymore. I felt like some of them are still in there.

you exit those lines.

And kind of the, you know, one and one we'll see a clean P&L. Thanks. All right. So let's start there and you can have your follow up in the ultimately much apartment second. So the lines of business, there's three ways to think about it. One is you know, there's one company that we've been the... Natchee.

But we expect, I'm expecting any aggressive. We believe we will be able to exit before the end of this year. And so that's moving towards a little bit. Shara going to the more details on terms of savings. And savings is two part. It's one is there's op-ex saving, but also there was negative margin associated with some of that.

So by not saying things that are losing your money, you lose less money. So that's one, I'll let him go to more detail in a second. The second piece is we have, as you know, one JV, and we have one business that's not wholly owned, that used to be in a JV. And those two were the process of,

finding a partner to work to take those over as the JV partner. One we've placed in the current JV partner, we hope and the other one would be would be coming in the one that we're wholly owned on. Both of those, that.

That group is the one who we signed an L.O.I. with and is upcoming to fruition. They are in this space, this is their business. They will be much more successful at it and will be responsible for providing the capital required to inventory and running the business. And we'll just speak back to doing what we do, doing the e-commerce for them and generating our e-commerce.

will create equity value by thinking in the near term that driving the top line for those businesses is really what we're looking for a partner to do and we'll make money both ways in terms of one. So we normally make money in two over time creating enterprise value.

So in the third I mentioned, it was one customer we had that exited the

very beginning, the first week of Q2, they've been sold to a new company who has their own.

And maybe this is a good point to just kind of transfer the discussion over to the new business that you booked. Sounds like you've got some pretty substantial new wins there. Maybe just talk about when some of those new contracts are gonna come on board and then kind of the outlook there. What you're seeing in new business so far on Q3 and how it's looking for 2024. Sure, so first off the number of gave you a year to date. So it's more than just Q2, the 27 plus million. But that it really the new business started coming in for the most part.

and Q3 and Q4 respect all of the business one to date to be live before the end of Q4. And then the second half of your question, how do things look? We still have a significant amount of pipeline that we're working for to sell this quarter and then in the future. Okay, great to hear. Thanks, so I'll take the rest offline. Thank you, appreciate it. Thank you. One moment for our next question, please. Our next question comes from the line of Jack Van there RD with Maxim Group. Your line is now open. Okay, great. Hey guys, I appreciate your update.

Good to hear you're on track to – with the continued streamlining of the business and you're going to exit, it sounds like, at positive EBITDA, at least at an annual run rate. So I guess my question would be in the press release you indicated you're experiencing win rates of 80 percent on new proposals for the CAF service business.

Yeah, that sounds exceptionally strong. So I guess the obvious question is, is this sustainable? And then what is the kind of key to this level of win rate success? Is it the quality and cost efficient? Is it the platform or the more of low hanging fruit relationships and whatnot? Just security here is off there. I don't think it's low hanging fruit.

It would have been there previously if it had been. I think it's a combination of a few they most sure add onto the ones that I come up with. I think the first thing is a broadening and narrowing of our focus in two different ways, broadening beyond fashion, which is sort of fashion and accessories, had been the vast majority of not.

the entirety of what the company had been targeting. We realized that the opportunity is much, much larger as evidenced by all of our new wins outside of that space. So that's one element of it. The other is really focused on people who can truly benefit from what we offer. And while it's a very large set of people, it's not everybody.

And I think focusing on the folks who can really take advantage of what we do,

for both of us and their business. You know, I think the folks that we've brought on board have something to do with that as well in terms of the expertise and depth and e-commerce at scale across multiple different industries and the ability to meet our clients where they are and help articulate a credible roadmap, you know, it resonates, but is 80%, you know, a normal win rate? Of course not, you know, but multiple times through the year we've sort of drawn a...

I've dropped about it internally. As long as we keep going to the table every single time with everything we've got to build value that's sustainable for clients, we'll see how that number progresses. And we're not that fixated on it.

We're really just fixated on continued growth, the right targets that we're meeting with, and making sure that we're creating attributable to monsterable value. And let me add one more thing. And I think you know this, but I'm not sure all our listeners do. We really don't have a direct competitor.

Oh, there's lots of different ways to do e-commerce, but most of them are do-it-yourself, one form or another, whether it's with a very large company like Salesforce, Adobe, or with Shopify. But with any of those, you need a team, you need an SI, you need third-party partners. You need to do it yourself, build it like a set of Legos.