Nogin, Inc. (NOGNW) is an e-commerce technology platform provider that delivers Commerce-as-a-Service (CaaS) solutions to brands and retailers. The company's headless, flexible full-stack enterprise commerce platform with cloud services and optimizations enables its clients to focus on their core business while Nogin manages the front-to-back-end operations.

Financials

Nogin's financial performance has been mixed in recent years. For the fiscal year ended December 31, 2022, the company reported annual revenue of $94.47 million, a decrease from the previous year. However, the company's net loss for the year was $52.73 million, a significant improvement from the prior year's net loss of $67.89 million. The company's annual operating cash flow was -$26.59 million, and its annual free cash flow was -$28.18 million.

In the latest quarter, ended September 30, 2023, Nogin reported total net revenue of $10.90 million, a decrease of 48.0% compared to the same period in the prior year. The company's net loss for the quarter was $14.24 million, compared to a net loss of $28.90 million in the same quarter of the previous year. Nogin's operating cash flow for the quarter was -$12.58 million, and its free cash flow was -$13.35 million.

Business Overview

Nogin's CaaS platform provides its clients with a comprehensive e-commerce solution, including website development, photography, content management, customer service, marketing, warehousing, and fulfillment. The company's business model is based on a revenue-sharing arrangement, where it earns a defined commission on the gross revenue processed by its clients through the Nogin platform.

The company's target market consists of online businesses whose needs are too complex for low-cost SaaS e-commerce platforms, yet require more flexibility and economic viability than provided by enterprise solutions. Nogin's platform helps these brands develop direct relationships with their customers, leading to accelerated revenue growth, improved customer engagement, and reduced costs related to re-platforming and third-party integrations.

Nogin operates in the apparel and ancillary industry's multichannel retailing, business-to-consumer (B2C), and business-to-business (B2B) domains. The company's CaaS revenue, which accounts for the majority of its total revenue, is recognized on a net basis as Nogin acts primarily in an agency relationship with its clients.

Quarterly Performance

In the third quarter of 2023, Nogin's net service revenue decreased by 44.2% to $5.59 million, compared to $10.01 million in the same period of the previous year. This decline was primarily due to lower sales, a reduction in the service percentage charged to certain clients, and the offboarding of some clients.

Net product revenue also decreased by 46.8% to $4.60 million in the third quarter of 2023, compared to $8.65 million in the same quarter of the prior year. The decrease in product revenue was mainly attributable to the closure of one product line and lower sales in the company's other product lines, partially offset by the addition of ModCloth's product revenue.

Net revenue from related parties decreased by 68.8% to $722 thousand in the third quarter of 2023, compared to $2.32 million in the same period of the previous year. This decline was due to ModCloth's revenue being recorded in product revenue starting in the third quarter of 2023, as opposed to being classified as related party revenue in the same quarter of the prior year.

Cost of services decreased by 50.6% to $3.11 million in the third quarter of 2023, compared to $6.30 million in the same quarter of the previous year, in line with the decrease in service revenue. Cost of product revenue also decreased by 45.7% to $4.32 million, compared to $7.96 million in the same period of the prior year, following the trend of the decrease in product revenue.

Sales and marketing expenses increased by 20.8% to $1.12 million in the third quarter of 2023, compared to $925 thousand in the same quarter of the previous year, primarily due to increased outsourced marketing firm engagement. Research and development expenses decreased by 10.0% to $1.26 million, compared to $1.40 million in the same period of the prior year, due to a rebalancing of the technology team.

General and administrative expenses decreased by 28.9% to $11.36 million in the third quarter of 2023, compared to $15.97 million in the same quarter of the previous year, primarily due to a decrease in salary, benefits, and contractor costs.

Nogin recognized a goodwill impairment of $6.75 million in the third quarter of 2023 related to its ModCloth acquisition, as the company's constrained liquidity and working capital have raised substantial doubt regarding the future viability of the affected assets and their operations.

Liquidity

As of September 30, 2023, Nogin had a cash balance of $1.89 million and a working capital deficit of $95.71 million. The company's current liabilities exceeded its current assets, raising substantial doubt about its ability to continue as a going concern for at least the next twelve months.

To address its liquidity challenges, Nogin is executing various strategies, including strategic growth plans, ongoing cost reduction and performance improvement programs, reduced headcount, and steps to improve the operational efficiency of its fulfillment operations. However, the company's failure to obtain additional financing as needed could have significant negative consequences for its business, financial condition, and results of operations.

Risks and Challenges

Nogin faces several risks and challenges that could impact its future performance. These include:

1. Litigation, complaints, and adverse publicity:

   The company may be subject to litigation, product liability claims, and negative publicity, which could harm its reputation and financial performance.

2. Privacy and data protection:

   Nogin's business is subject to various privacy and data protection laws, and any data breaches or loss of data could have a material adverse effect on the company.

3. Macroeconomic conditions:

   Nogin's performance is influenced by changes in customer spending patterns, local and regional economic conditions, weather, demographic trends, and employee availability.

4. Convertible note covenants:

   The company's failure to comply with the covenants under the indenture governing its convertible notes could have a significant impact on its operations and financial condition.

Outlook

Nogin has not provided any formal guidance for the upcoming fiscal year. However, the company's recent performance and the challenges it faces suggest that its financial results may continue to be under pressure in the near term. Investors should closely monitor the company's progress in addressing its liquidity issues and its ability to execute on its strategic initiatives.

Conclusion

Nogin, Inc. (NOGNW) is an e-commerce technology platform provider facing significant financial and operational challenges. The company's recent quarterly performance has been weak, with declines in both service and product revenue, as well as the recognition of a substantial goodwill impairment. Nogin's liquidity position is also a major concern, with the company's current liabilities exceeding its current assets and raising substantial doubt about its ability to continue as a going concern. While the company is taking steps to address these issues, the success of its efforts remains uncertain. Investors should closely monitor Nogin's progress and the company's ability to navigate the risks and challenges it faces in the highly competitive e-commerce industry.