Near Intelligence, Inc. Price & Performance (NIR)

You may now Hello, and welcome to the NEAR Intelligence Second Quarter 2023 Earnings Conference Call. Hello, and welcome to the NEAR Intelligence 2nd quarter 2023 earnings call. Today, we'll be discussing the results announced in our earnings press release issued after the market closed yesterday. With me on the call today are Anil Matthews, NEAR's Chief Executive Officer and Rahul Agrawal, the company's Chief Financial Officer. The primary purpose of today's call is to provide you with information regarding our Q2 2023 performance and offer an outlook for our Q3 2023. Certain statements made on this call that are not historical facts, including those related to our future plans, objectives and expected performance are forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward looking statements represent our outlook only as of the date of this conference call. While we believe any forward looking statements made on this call are reasonable, actual results may differ materially because the statements are based on our current expectations and are subject to risks and uncertainties. These risks and uncertainties are discussed in our filings with the SEC, including our most recently reported report on Form 10 Q.

Please refer to and consider these factors when relying on such forward looking information. Any forward looking statement made speaks only as of the date on which it was made, and we do not undertake and expressly disclaim any obligation to update or alter our forward looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. I encourage you to visit our Investor Relations website at investors. Nearedot To access our Q2 earnings press release, SEC reports and the webcast replay of today's call. During the course of today's call, we will refer to certain non GAAP or adjusted financial measures. We use these non GAAP financial measures to review and assess our performance and for planning purposes. These non GAAP financial measures should be considered in addition to Now that discusses 24 or in isolation from GAAP measures. Additional information about these non GAAP measures, including a reconciliation of non GAAP to comparable GAAP measures is included in our press release issued after the market closed yesterday and is available on our website. Finally, unless otherwise noted, all financial comparisons on this call will be made to our 2Q or fiscal year 2022 results on a historical basis.

And with that, let me turn the call over to Anil.

Welcome, everyone, and thank you for joining us today. We are pleased with our execution during our 1st full quarter as a public company. 2nd quarter revenue was $17,700,000 The midpoint of our guidance range. Our net revenue retention for quarter continues to be greater than 100% and came in at 112%. More importantly, we were able to achieve our revenue target while maintaining discipline With our cost structure resulting in an adjusted EBITDA of negative $5,100,000 for Q2, which is better than expected. We continue to remain focused on improving our year end adjusted EBITDA results. For some of our newer listeners, I would like to briefly review how our products work, highlight our go to market strategy and then review some of this quarter's highlights. NEAR's solution brings together different types of data to help our customers understand people and places better. Our customers use this info to make smart decisions in their marketing or operations. This means they can learn more about their customers and figure out things like where to open new stores or how to attract more people to their businesses. Now let's revisit our 3 core pillars: Data, privacy and AI. These pillars work together to elevate our solutions to unparalleled heights.

First up, data. This is what makes NEAR stand out. We have worked hard To gather the best data around, it's unique to us and really massive. The painstaking investment we have made in refining data quality and scope is the bedrock upon which our AI models are trained. With strong data, we are helping companies make better decisions. The 2nd pillar, privacy, is super important to us. It isn't just a word. It's a guiding star for NEAR. We know that being a trusted data company means we need to protect people's and our customers' privacy. Our products are meticulously crafted with privacy led ethos, affording us the honor of being the unparalleled source of people and Places Intelligence. Lastly, AI. We've been using AI for 10 years now. It's like our secret sauce. Our platform uses AI to do cool things like answering questions in regular language and helping us find trends Looking ahead, we're getting ready for a big shift with generative AI, A transformation that's about to shake industries, including our own. We foresee our proprietary data emerging as a strategy differentiator, Setting us apart as we train our models not only to earn us invaluable insights, but also to bridge knowledge gaps, All while safeguarding the sacred tenets of privacy.

To sum it up, NEAR's power comes from data, Privacy and AI working together. We believe the convergence of high quality proprietary data with generative AI An ever changing regulatory compliance landscape will give us an even greater advantage in the future. Our goal is to maximize data utility While protecting privacy, we believe our high quality data coupled with generative AI will put an end to having to choose between The value of data and compliance. A good example of the power of our combination of data, privacy and AI He's our customer Earth Dot Vision, a mapping and research services company providing a range of offerings to the retail focused commercial real estate industry such as retailers, property owners and brokers. 3rd. Vision has helped its real estate clients to identify customer demographics, Analyze trade areas and assess cannibalization risks to make informed decisions, optimize market strategies and closed real estate transaction using NEAR's privacy safe platform, resulting in almost 488 successfully completed projects. Before discussing our quarterly highlights, I want to review our go to market strategy and how it will accelerate our growth in 2024 and beyond. Our GTM strategy has been a land and expand model.

We target a small specific use case in 1 geography or division and then through superior execution, We are able to expand to more use cases to other geographies and additional divisions within a large company. A good part of our customer base is large multinational corporations that understand we can provide solutions across the globe With the strength of our massive data universe of 1,600,000,000 unique user IDs across 44 countries, which means these customers have significant expansion opportunities. Our go to market strategy also relies on a mix of direct sales and Channel Partners. To unlock the fullest potential of our data and attain optimal outcomes, the integration of diverse systems Into an activation platform, a visualization tool, our personalized dashboard demands a reasonable investment in professional services. Fulfilling this crucial requirement for our customers, we rely on our valued channel partners to deliver these indispensable and strategically significant services. Since our inception, we have placed significant emphasis on technology and the development of our robust data platform. This journey has been facilitated by our agile and streamlined direct sales strategy, complemented by robust partner model, both of which have been instrumental in shaping our successful land and expand methodology.

A pivotal catalyst Driving our decision to go public has been the imperative to amplify our direct sales force, bolster sales support infrastructure and allocate the necessary resources to fortify our robust enterprise sales machinery. In preparation for our transition into a public company, we proactively made strategic investments to strengthen our direct sales force led by a dynamic new leadership team. By the close of 2022, our dedicated team of sales representatives had grown to 25, complemented by an additional 50 experts providing exceptional pre and post sales support. This remarkable expansion represented an impressive surge of approximately 100% compared to our figures in 2021. Now our aspirations were high, aligned with our commitment to growth. However, as a thriving young organization, We recognize the importance of striking the right balance between ambition and prudence. While we celebrated the commendable progress of numerous new team members, We acknowledge that certain areas experienced variations in performance, primarily stemming from a need for enhanced support and comprehensive training initiatives. In response to those observations, we embrace the opportunity for refinement. While the initial trajectory anticipated a 9 month ramp up period for reps, we are adapting to new realities and trending towards a year long expectation.

This adjustment reflects our dedication to ensuring that each team member is well equipped for success and that they received the guidance needed to flourish. In alignment with our commitment to optimization, We undertook a strategic restructuring process to align our sales organization with the scale of our pipeline and the evolving needs of our valued channel partners. This evolution included the establishment of a cutting edge channel partnership team, strategically focused on specific verticals. The inspiration for this innovation was drawn from our achievements within the tourism vertical, further emphasizing our commitment to innovation and excellence. As we embrace these transformative changes, we remain steadfast in our pursuit of excellence, nurturing a sales force that embodies our dedication to delivering exceptional value to our customers and stakeholders alike. Let me run through some quarterly highlights. As mentioned earlier, expanding our utility and use cases within our existing customers is a leading driver of our business, which you can see in our net revenue retention number. Last quarter, we mentioned a large European retailer who signed on a few years ago with a 6 figure subscription that expanded greatly in 2022 to a 7 figure deal. In Q1 of 2023, Not only did they renew their 7 figure ARR contract, they expanded it yet again to an 8 figure deal.

We were pleased to execute on that expansion during Q2 2023 and continue to operate as an integral part of their operations. Over time, we have invested in verticalizing our solutions with the help of our partners who have built strong practices Focused on a particular niche. 1 of our strongest verticals is tourism. We work with over 50 major travel destinations Globally, including New York and Company as well as Hawaii Tourism. Last quarter, we mentioned a tourism partner in New York State that continue to expand the number of points of interest that we offer to the New York clients. During Q2, it was the breadth of our tourism partners that collectively were a strong driver of new revenues. In summary, we're very pleased with our 2nd quarter results and our ability to continue to execute on our initiatives, which we believe will drive a strong 2023. With that, let me turn the call over to my colleague, Rahul Agrawal.

Thank you, Anil. For the Q2 of 2023, GAAP revenue was $17,700,000 At the midpoint of our guidance and up 19% year over year, revenue from subscription customers came in at 89% of our top line revenue. Net revenue retention or NRR, which measures our success in retaining and growing revenue from our existing customers, was 112% in the quarter. We have seen this number fluctuate from quarter to quarter and the 2nd quarter NRR Was in line with our expectations. Now looking at some key profitability metrics, GAAP gross profit was $12,100,000 in Q2, representing a 68% gross profit margin. Our long term GAAP gross profit margin Is expected to be relatively steady in the 68% to 72% range barring any unusual items. GAAP operating expenses were $28,200,000 in Q2. This included stock based compensation of $5,100,000 and one time transaction related expenses of $3,200,000 Given the revised focus on sustainable and profitable growth, we have worked on rationalizing our cost structure, bringing in further efficiencies. We expect our operating expense structure to remain fairly stable over the next few quarters. GAAP operating loss for Q2 was $16,100,000 and GAAP net loss was $17,700,000 Non GAAP operating loss for Q2 was $7,800,000 and non GAAP net loss was $9,400,000 Adjusted EBITDA loss for Q2 was $5,100,000 slightly better than our guidance.

Looking at the balance sheet, we ended the quarter with $54,100,000 in cash and cash equivalents, including restricted cash. Our total outstanding debt based on GAAP as of June 30 was $101,300,000 Subsequent to the quarter close, the company came into an agreement with its senior secured lender, BlueToge Capital To prepay a portion of the total outstanding debt, details of which have already been filed publicly through an 8 ks. Our Q2 accounts receivable balance was $23,200,000 a $2,000,000 reduction from the Q1, But accounts receivable balances remain elevated due to delayed collections. We continue to work on reducing the overall days sales And expect our AR balance to normalize before the end of this year. Moving to our outlook. For Q3, we currently expect revenue to be in the range of $18,000,000 to $20,000,000 Adjusted EBITDA is expected to be in the range of negative $1,500,000 to negative $2,500,000 The company will need to raise additional capital in order to fund operating and investing cash flow needs and to satisfy its minimum liquidity covenant under the financing agreement, which provides that the company may not permit liquidity To be less than $20,000,000 While we have been continuing to execute on the business front To mitigate the risks of fundraising, the Board and the management have prioritized focus on executing towards a profitable growth.

In summary, we continue to execute well, delivering top and bottom line results as per our forecast and guidance and believe That NEAR remains well positioned to maintain its momentum and operating discipline throughout 2023 and beyond. And now, I would like to turn the call over to the operator for questions. Operator, please?

Certainly. And our first question will come from Mike Latimore of Northland Capital Markets. Your line is open.

All right. Good morning. Thanks. Yes. Quarter results look very good here. I think you had mentioned that the Tourism vertical was strong in the 2nd quarter. Just wanted to clarify that. And as you look at the pipeline, are there any particular verticals that We'll drive second half bookings here.

Hi, Mike. This is Anil here. Thanks for the question. Yes, the tourism vertical has been strong for us. Typically, tourism has been a very strong vertical for us in the past as well With a lot of big customers that we could only name a few there, but a lot of big customers that we work with. The other vertical that we see that's working really well for us is property, which is real estate. And of course, we see good traction around REIT All the time.

Great. And you had mentioned that you ended 2022 with, I think you said 25 salespeople. Kind of sound like you were making some changes. I guess, how many sales people do you currently have? And then Just to clarify, if there is changes there, it sounds like you maybe are making that up with more channel management perhaps?

Yes. So what we have done is, like I had mentioned, we actually relooked at how do we Create verticalized approach and tourism was one of the examples that I gave. So we created a channel partner team, which Goes to market, specifically looking at these verticals. Today, We and that resulted in the number of reps changing from 25 to 20 globally at the moment.

Okay. Got it. And then just, I know you're giving 3rd quarter guidance here. I guess in terms of 4th quarter, is there any seasonality there positive or negative tied to marketing or Verticals, how do you generally think about 4th quarter seasonality?

Sure. Rahul, do you want to take this? Yes, sure. Hi, Mike. So Typically, we've seen 4th quarter either flat or higher than Q3. At this stage, we are not giving out the guidance given the Work that is being done around capital raising and reworking on the overall team structure, but We don't expect the Q4 to be lower than Q3.

Great. And I guess just one last question on AI. Can you give an example of how generative AI may improve the user experience or capabilities of your platform?

Yes, of course. So generative AI, one of the reasons we are so excited about this And I touched upon this earlier as well is, if you look at the fodder for training models is actually Data, superior data. And we're sitting on a lot of that. So you would see generative AI being implemented in many aspects So far offering. And I don't think there will be any offering that will be untouched with that in the future. The immediate things that you would See coming up as one is because we get lot of data There is which is used to understand consumer journey. There is still gaps in those journeys. So generative AI Allows us to actually plug in these gaps and give a fuller picture of consumer journey without sacrificing privacy. So that's one of the big things that you would see coming from us.

Okay, great. Thanks very much.

Thank you so much.

One moment for our next question. And our next question will come from Mark Zugudowitz of The Benchmark Company.

Thank you. Hi, Anil and Raul. Just so I'm clear here. So initially, specifically on your direct sales force, initially you had targeted 25 And now you're targeting 2020. Is that a reduction based on Your measures to stay closer to profitability, and how is that impacting your pipeline, if you will, So it looks like your guidance for 3Q at the low end implies flat sequentially. So just curious if that is a result of a change in your direct sales force account, I'll start there. Thanks. Yes. Thanks Mark for the question. So the way to look at this is obviously we are realigning to market realities. These Folks that we spoke about the 25% to 20% is more moved from One focus to, they're focusing more on channel approach, channel partner approach, so rather than going direct to market. And I think so that we have seen because we have seen in the past the channel partner approach working really well for us, which I touched upon in detail as well because the channel partners are able to provide additional services on top of our offering, which becomes a lot more valuable and stickier for our customers.

So we are, I would say, leading a little bit more towards That channel approach than the direct approach in based on where the market is shifting and how we are seeing The sales cycles are getting longer and things like that. The pipeline for our direct sales still remains strong. And like you've seen in the guidance is for this quarter is primarily because We obviously have a big focus on profitability by next quarter and that becomes A priority for us now. Rahul, you want to add something to that? I think that was it. So, Sumant, just reiterating, yes, There is some realignment on the overall growth expectations given the core focus on profitable and sustainable growth. So it will have some short term impact, but overall, I think we are trying to make sure that we still grow at a healthy run rate Why becoming profitable? So that will be the goal for the next 2 quarters.

Okay. And are you still expecting or do you expect I should say NRR to improve through the balance of the year? And secondly, do you still expect adjusted breakeven adjusted EBITDA breakeven by 4th quarter? Thanks.

Yes. So the EBITDA breakeven is definitely going to be the most important aspect. But With respect to NRR, yes, we are not expecting it to go down. We've hopefully we've seen some incremental In our uplift in the Q2 over the Q1, we expect that momentum to continue.

Okay, great. And maybe just one follow-up on the channel partner realignment. Is are there new channel partners that You are utilizing now or are these existing channel partners? No, there are new channel partners. There are new channel partners. Yes. So basically, it's a combination of obviously working closely with the existing channel partners And adding your partners as well. So you would see that we have added another significant partner in Europe And we continue to add new partners.

Okay. That's good to know. Thank you very much.

Of course.

This concludes today's conference call. Thank you for participating and you may now disconnect.