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spk01: 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.
spk03: 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.
spk06: 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.
spk03: Thanks, Sharyar. 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, with that, please open the call for Q&A.
spk00: As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A roster. And also, the companies request that each participant limit their comments to one question and one follow-up. Please stand by while we compile the Q&A roster. The first question comes from Jeff Van Sinderen with B. Riley. Your line is open.
spk04: Hi, everyone. 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. It sounds like some of them are still in negotiation or what you're anticipating there. And then maybe give us a sense of the APEX savings associated with those businesses as you exit the line, those lines. And kind of the, you know, when, when we'll see a clean P&L. Thanks.
spk03: All right. So let me, let's start there and you can ask your, your follow-ups in the, all we want to part in a second. So the lines of business, there's, there's three ways to think about it. One, if you know, there's one company that we've been the, not just the merchant of record, like we are for everyone, but we actually, procure the products and it's really, we're the licensee. And that's what for the most part generates our product revenue. Uh, and that is the one where the process of exiting and a, we don't have a, I can't give you an exact date, but we expect, we expect maybe aggressive. We believe we will be able to exit before the end of this year. Um, and so that's, That's what we're moving towards. I'll let Shara go into more details on terms of savings. And savings is two-part. It's one is there's OPEX savings, but also there's negative margin associated with some of that. So by not selling things or losing your money, you lose less money. So that's one. I'll let him go into more detail in a second. The second piece is we have As you know, one JV, and we have one business that's now 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 our new JV partner, one replacing the current JV partner, we hope, and the other one would be coming in the one that we're wholly owned on. Both of those, that group is the one who we signed an LOI with and ends up coming to fruition. They're 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 be back to doing what we do, doing e-commerce for them and generating our e-commerce revenue. as well as owning a piece of the business, 50% in each case. So hopefully over time, we'll create equity value. But I think in the near term, 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, the way we normally make money, and two, over time, creating enterprise value. And then the third I mentioned, there was one customer we had that exited the very beginning, the first week of Q2. They had been sold to a new company who has their own e-commerce engine, and so they moved onto their own platform and left us. But that's really the one. So there isn't a whole lot of savings because those people get transitioned to all the new business that we're winning. So it's not OPEX savings. per se, but that did lead to a decline in the revenue, which I guess wasn't part of your question, but I answered it anyway.
spk04: No, that's good. 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 going to come on board and then kind of the outlook there
spk03: um what you're seeing in new business so far on q3 and and how it's looking for 2024. sure so first off the number i gave you is year to date so it's more than just q2 the 27 plus million um but that said it really the new business started coming in for the most part at towards the end of q1 and throughout q2 and into q3 uh the i i Few of them, not many, but a few have already come online, just started to over the last month. So we're starting to get those. But the bulk of it, the bulk of them will come on in Q3 and Q4. We expect all of the business ones 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, you know, to sell this quarter and next. and in the future.
spk04: Okay. Great to hear. Thanks. I'll take the rest offline. Thank you. Appreciate it.
spk01: Thank you. One moment for our next question, please. Our next question comes from the line of Jack Van Der Arde with Maxim Group. Your line is now open.
spk05: Okay, great. Hey, guys. I appreciate the update. Good to hear you're on track to, you know, 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% on new proposals for the cash service business.
spk07: Yeah.
spk05: That sounds exceptionally strong. So, I guess the obvious question is, is this sustainable? And then, What is kind of key to this level of win rate success? Is it the quality and cost efficient of the platform, or is it more of like low-hanging fruit relationships and whatnot?
spk03: Just curious to hear your thoughts 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 things. I'll share or add onto the ones I come up with. I think the first thing is a – a broadening and narrowing of our focus in two different ways. Broadening beyond fashion, which historically fashion and accessories had been the vast majority, if 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 has helped us get the win rate. Obviously, if we're putting, you know, spaghetti against the wall, you wouldn't have an 80% win rate. So I think that's another element to it. Yeah. Yeah, sorry, did you want to add something?
spk06: Yeah, I think that... It's also our approach in working with our clients is more of a partnership model versus sort of a vendor model. And while a lot of folks say that, I think our economic model, you know, screams it from the hilltops. And the way that we engage with prospects is one where we, first and foremost, to really understand their business and ensure that we're building a relationship based on solid underpinning. So we do that with extremely high transparency and collaboration with them. So it's not an instance of forcing square pegs into round holes. It's one where we're making sure that for the benefit of both parties, what we're discussing is both the right thing and the right time for both of us and their business. 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 in 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. Look, is 80%, you know, a normal win rate? Of course not. You know, but multiple times through the year, we've sort of, you know, John and I have joked 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 progressives. 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, demonstrable value.
spk03: Let me add one more thing. I think you know this, but I'm not sure all our listeners do. We really don't have a direct competitor. 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, one way or another. With us, it's a different story. We come to the table with a platform, with a team, and that enables folks who want that to go to market very quickly with us, typically in less than 60 days, and very efficiently. And so if that's what they're looking for, if they're unhappy with what they've done in the past or what they're currently doing, or like many of our B2B clients have never thought about using a D2C platform, both to D2C and to B2B, which is typical, we bring them a solution that can be easily adopted with zero capex. And that's what gets them excited.
spk05: Fantastic. I appreciate the color. If I could just sneak one more in, more modeling. Sure, go for it. You mentioned that you're working towards exiting the business where you're the licensee that shows up in the product revenue. And that's moving parts. But it's going to impact the guide. Obviously, it's got to be factored in some way. Can you just help me out? Maybe when you look at the product revenue line, it did about $4.7 million in the second quarter. Are we expecting that in the third quarter to kind of be at that same level, or is it going to wind down regardless of your plans to exit the business? Sorry, you want to comment on that?
spk06: Sure. So we think you're going to – you'll see that be – be in the neighborhood of where it was for Q2 and Q3. But what will be happening there is one business with product revenues currently, which is the one we've discussed in the past, Justice, that business declining over the course of the quarter in product revenues And then MOTFOS, the wholly owned subsidiary that we're working with a JV partner on, depending on the timing of signing that deal, if that business is growing into seasonally strong late Q3 and Q4, 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, or without the product component, you may see increases partially offsetting or wholly offsetting 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.
spk03: Yeah, so that should happen, I would expect, by the end of the year. I can't tell you it's going to be in Q3 or Q4, but by the end of the year, we're hopeful that... Yes, as far as trajectory, relatively...
spk06: not too dissimilar in Q3 versus Q2, plus or minus, but then in Q4, as John said, that should trend to zero.
spk05: Okay, great. That's helpful, guys. That's it for me. Congrats. Good to see you continue to move the chains. Thank you very much. Appreciate the support.
spk01: Thank you. One moment for our next question, please. Our next question comes from Brian Kinslinger with Alliance Global Partners. Your line is now open.
spk02: 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, moreover, how have you started the third quarter in new brand additions?
spk03: yeah so what we the number we gave and you 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 um but we can we expect that we'll continue to add more throughout the rest of this quarter and next quarter i think one thing that i hadn't mentioned that's that's worth mentioning is their average order value has gone up in terms of the average booking value i should say per customer and the average margin percentage per customer as well, not just because the order value is up, but because we're really focused on selling our core e-commerce as a service, the CAS business as we call it, 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. So that's a good way to sharpen their...
spk02: in July and partially into August. The earnings have been uneven from companies right now. Have you been able to continue to hit on that several additions in the first half of this third quarter? Do you see any changes in the marketplace?
spk03: I would say we're accelerating, let's put it that way.
spk02: Accelerating. The second half of the year should be more than 12.
spk03: Well, I know, well, the 12 includes, you know, 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, right? When we changed the sales team, got some more technology under our belt and really focused on moving beyond just the core fashion apparel. And since then, we've been on a very good track.
spk02: Okay. Now the $27 million of bookings, do I think about that as e-commerce revenue that's annual from those brands plus some expected improvement based on your platform? No.
spk03: Well, the way it is, what a bookings metric is for us is our expected revenue first 12 months revenue that we generate from them once they go live. So if we sell someone today and they go live in 60 days, for argument's sake, let's just call it end of October. So from end of October to the following beginning of October, that would be whatever revenue we expect to get would be our bookings. Now, these are not one-year contracts. I don't think we've signed any one-year contracts as far as I'm aware of. Everything's multi-year contracts. And so it's not like at the end of 12 months this number stops. You'd assume it's accelerating, right? So the way I look at it is if you think about that $27 million number is that that's what incremental revenue to where we exit this year, we would expect to have next year already effectively baked in.
spk02: That's all I can say. I understand that. Sorry, let me ask you a different way so you understand it differently.
spk07: Yeah.
spk02: I understand $27 million is incremental revenue from you. Is that based on you've 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 expectation of the revenue maybe they did in the last 12 months. Plus you expect to improve those revenues on your cast by so much.
spk03: Sometimes we do. Sometimes we don't. It's on each one. Like some is a new business. Some of the B2B, they haven't done it this way before. So it's our expectation. And we try to be conservative, you know, conservative in the eyes of the holder. And we think of it that way because I don't want to disappoint 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 it really is a best guess on our part based on understanding the customer and what we think will happen under ours, again, through what we believe is a lens of conservatism.
spk06: Thank you. Just a couple of things on one of those customers as an example is actually one, John's absolutely right. We haven't signed anything that's less than two years from the fact, and it's generally been three. And secondly, the largest of the deals from a GMV and customer size perspective, we've actually signed a five-year initial term deal with. And the bookings that we've included in the $27 million only assume over the first 12 months that 50% of their current activity is moved over onto the platform. So to provide a little bit more context around how we're thinking about the bookings number.
spk03: And that's a B2B, just to be clear. It's about the only time we ever have something that it doesn't completely come to us. All of our DGC customers come to us completely. This is a somewhat special case.
spk01: That's right.
spk02: Okay. Thank you.
spk03: Thank you.
spk01: Thank you. At this time, I'm showing no further questions. This concludes the Q&A. I'd like to turn the call back over to Mr. Huberman for any closing remarks.
spk03: All right. Thank you all for listening in. We appreciate it and look forward to talking to you next quarter. Have a good afternoon.
spk01: Thank you. Thank you for joining us today for Noggin's second quarter 2023 earnings conference call. You may now disconnect. Everyone have a wonderful day.
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