Nogin, Inc.

Good morning. Welcome to Noggin, Inc.' 's first quarter 2023 earnings 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. Joining us today from Noggin are Jonathan Huberman, President and CEO, and Shariar Ramati, COO and CFO. 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 the forward-looking statements. Forward-looking statements include but are not limited to Noggin's expectation 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 outlook. Forward-looking statements are subject to risk uncertainties and assumptions, and they are not guarantees of performance. 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 four looking statements on this call can be found in the risk factors section of our annual report on Form 10-K for the year ended December 31st, 2022, filed on March 23rd, 2023. 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 the 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 flows from operations or any other profitability, liquidity, or performance measures derived in accordance with the GAAP. You should be aware that the company's presentation of these measures may not be comparable to similarly titled measures used by other companies. A reconciliation of each historical non-GAAP measure to the comparable GAAP measure is available in our earnings release on Noggin's investor relations page at www.ir.noggin.com. Finally, I would like to remind everyone that a webcast replay of this call will be available via the link provided in today's earnings release, as well as our company's website at www.noggin.com. Now, I would like to turn the call over to Noggin President and CEO, Jonathan Huberman.

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 the call over to our COO and CFO, Shahar Rahmadi, to discuss our financial results for the quarter. After that, I'll share some closing remarks before opening the call for questions. At 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, Nugget's commerce as a service platform, provides a headless end-to-end technology platform that merchants can plug into instead of paying to integrate multiple technologies, develop complex and difficult to 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 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, Noggin'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, Noggin eliminates the need to re-platform because as we build features and tools, they are immediately available to our clients. Thus, the platform is inherently future-proof. At Noggin, our revenue model is a percentage rate against e-commerce sales conducted through our CAS platform, which ensures complete alignment between ourselves and our clients. Further, our onboarding methodology includes understanding our clients' 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 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. A testament to our businesses 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 combine 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 Sharder and I inherited Noggin'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 customers had structures that hampered our profitability. We've worked over the last several months to recalibrate, prioritizing health, profitable revenue growth. As Sharia 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 cost 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 customer wins and our robust business development pipeline. We believe that Q1 was a period in which we needed to take these decisions so we can focus on profitable growth ahead. Even though we've only realized a portion of the benefits of the cost optimization so far, we are already seeing significant benefits to our gross margin, which we expect to allow us to be cash flow positive beginning in 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 our business into 2024 and beyond. We successfully completed an oversubscribed $22 million raise last month, which included material participation from management. In total, we expect that our efforts over the last few months will have us on the right path to drive our preferred long-term operating model, 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 are confident in our technology, our team, and our strategy, and look forward to capitalizing on 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 the first quarter financial results in greater detail. Shariar.

Thank you, John. Turning now to our financial results for the first quarter ended March 31st, 2023. As noted last quarter, our net revenue includes product-related revenue that stems from two previous deals that involve sales-related to first-party inventory purchases. If that inventory is sold, generated revenue appears within net revenue. in our GAAP results. Our non-GAAP revenue, however, is revenue generated by the core commerce as a service platform and associated services. We typically view non-GAAP revenue as a more accurate indicator of the business and expect our GAAP and non-GAAP revenues to converge over time. GAAP net revenue in the first quarter of 2020 decreased 34% to $16.7 million from $25.2 million in the first quarter of 2022. The decrease in net revenue was primarily due to a decrease in product revenue and net revenue from related parties. As John noted previously, much of this impact comes from our revenue recalibration efforts, which have involved scaling back from several legacy customers while we prioritize opportunities that will help us drive our profitability metrics moving forward. We believe these adverse revenue impacts to be short term in nature and are confident that our expected long term profitability will benefit necessitated these initiatives. For the first quarter of 2023, non-GAAP revenue, a non-GAAP measurement of operating performance, decreased 25% 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 cash 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 other one-time items. The expected impact of the company's cost and performance improvement program, based on initiatives already implemented thus far in 2023, is expected to be between $15 and $20 million. Further, we expect that these activities will be achieved to their full run rate impact before the end of Q2 2023. Adjusted EBITDA loss decreased to $5.9 million compared to an adjusted EBITDA loss of $8.9 million in the comparable year-ago period. The decrease in adjusted EBITDA loss was driven by our cost 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 the year and beyond. Moving to our outlook for 2023. As of today, and based on our progress here today, we expect to drive growth via both existing customer sales as well as new customer agreements, both of which will have a positive impact on our ability to increase revenue over time. Additionally, based on the initial results of our cost reduction and performance improvement program, we expect to improve our operational efficiency, increase adjusted EBITDA, and generate significantly increased operating leverage in the future. Therefore, we're providing the following financial outlook for a full year 2023. We expect net revenue to range between $70 million and $75 million, and expect non-GAAP revenue to range between $60 million and $65 million. We're also setting our financial forecast for the 2024 calendar year for non-GAAP revenue and adjusted EBITDA margins. 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 greater than 10%. 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'd now like to turn the call back over to John.