Nogin, Inc.

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. Joining us today from Noggins are Jonathan Huberman, President and Chief Executive Officer, and Shariar Rahmati, Chief Operating Officer and Chief Financial Officer. 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 future financial or business performance of Noggin. Actual results 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 outlook. Forward-looking statements are subject to risk and uncertainties and assumptions, and they are not guarantees of performance. 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. In addition, a description of some of the risks and 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 your annual report form 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 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, or any other profitability, liquidity, performance measures derived in accordance with GAAP. 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-GAAP measure to the comparable GAAP measure is available in our earnings release on Noggin's investor relations page at www.rr.noggin.com. Finally, I would like to remind everyone that the webcast replay of this call 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 Huberman. Please go ahead, sir.

Thank you. Welcome everyone. And thank you for joining us this afternoon for Q2, 2023 financial update and earnings call. The demand for our solutions is strong and we continue to add new customers and penetrate new verticals. 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. 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. Our progress in the B2B sector is especially exciting as it opens up a very large and virtually untapped market for us. As I mentioned on last quarter's call, we have also opened up a new channel to market via our 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-stocked new business pipeline. As to the top line this quarter, we reported $12.7 million in revenue for Q2. 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 been unprofitable for us, and we are in the process of winding it down, which hopefully will be accomplished before the end of this year. 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 was in a JV, both of which contributed to the year-over-year sales decline. If these negotiations are successful, these two properties would become self-sustaining and healthy with good growth prospects. 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. As we drive bookings, we are equally mindful of reducing costs wherever possible. 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 EBITDOT despite the revenue decline. 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. Shariar will cover the specifics in the financial review. 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 leave to Shariar to expound on, is our new additions in both senior talent and our tech platforms. 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. As for our tech platform, we continue to innovate and are adding features and functionality that are helping our customers run their business more efficiently and grow their revenues and gain unique insights into our current customers and prospects alike. In total, we expect our efforts to pursue only profitable sales and discontinued support and performance of certain unprofitable channels and customers will provide us with healthy, sustainable, and margin accretive revenue growth moving forward. Given the current economic environment, companies are consistently searching for ways to reduce costs while driving improved results. And with our platform is uniquely positioned to help our 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 capitalize on our strong momentum over the rest of 2023. With that, I will turn the call over to our COO and CFO, Sharyar Ramadi, to discuss our second quarter financial results in greater detail. Sharyar.

Thank you, John. So turning now to our financial results for the second quarter ended June 30th, 2023. As we've noted previously in our quarterly 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, as John 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. The decrease in net revenue is primarily due to continued reductions in revenue related to a non-profitable 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 quarter. 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 and quite certainly within the fourth quarter of 2023, pending the successful consummation of our new partnership. Further, during the quarter, we had a nominal revenue contribution from new customers. However, the run rate contribution from new customers has been accelerating over the course of the current quarter and is expected to continue to accelerate throughout the end of the calendar year, 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. The increase in operating loss year-over-year was primarily due to expenses incurred in conjunction with our warehouse consolidation activities, severance costs related to certain reductions, as well as the recording of a $2.2 million legal expense included in our operating losses. The sequential improvement is a result of increased realized savings from previously executed cost reduction activities, as well as contribution and profitability related to the reduction of unprofitable revenue. 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 our cost optimization initiatives, 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. The rate of these losses was reduced over the course of the second quarter. Moving to our outlook for 2023. 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 offer. with nearly $27 million in new bookings in 2023 to date. 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. Further, it is worth noting that the profitability of the aforementioned bookings is materially improved versus our historical business, both in part due to the lack of fulfillment-related bookings as well as the enhancements to cost to serve driven through the utilization of our technology and data assets. With respect to our cost profile, we recognized further benefits from actions taken during the Q2 period and have taken actions since. During the current quarter, we expect to recognize in excess of $500,000 per month of savings related to a number of actions taken, including a facility consolidation that not only benefits our cost profile, but reduces the national average shipping cost our customers incur. And we've reduced headcount in the area where we have driven other forms of efficiency. 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. This drives 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 previously 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, Shob Khan, who joined us from his previous role as CTO of RUGS USA, where I had the pleasure of working closely with him while I was COO of that business. Shob was a key driver of success, for the business at RUGS USA, playing a critical role in its growth of several hundred percent in both revenue and EBITDA over a few short years, with revenue over that timeframe growing by over $300 million. With Shaw, we gained a leader who has a broad range of expertise in working with a small group of our internal team members to build some technology assets that once completed will generate massive value for our customers and create revenue opportunities previously unavailable to us and to most companies in the e-commerce space. The data capability we're building should begin to provide our customers with value before the end of this calendar year 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 further. Overall, we now have a flatter organization where accountability and ownership are intrinsic and clearly placed, and with a 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 EBITDA 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 EBITDA projections would be incrementally benefited from a favorable rebound in performance from the related party entities alluded to earlier and would be further benefited from our ability to onboard certain new customer wins already awarded sooner than presently forecasted. We're also setting our financial forecast for the 2024 calendar year for net revenue and adjusted EBITDA margin. 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%. Our margins are expected to continue to improve as we realize the benefits of the aforementioned cost initiatives, realize operating leverage associated with revenue growth, and benefit from the favorable next profile of customer wins that have greater reliance and emphasis on the core technology and service platform we provide our clients. As we execute against our strategy over the course of this year, we expect to have continued results that drive towards profitability and sustained operational solidity from going forward. That completes my summary. I'd like to turn the call back over to John.