Earnings Transcript for OTMOW - Q1 Fiscal Year 2022

Operator: Good day and thank you for standing by. Welcome to the Otonomo’s First Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there’ll be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the call over to Miri Segal, CEO of MS IR. Please, go ahead.

Miri Segal: Thank you, operator, and thank you all for joining us today. Welcome to Otonomo’s first quarter 2022 financial results conference call. Before we begin, I would like to remind you that our discussions today will include forward-looking statements that are subject to risks and uncertainties relating to future events and the future financial performance of Otonomo. Actual results could differ materially from those anticipated in the forward-looking statements. Forward-looking statements made today speak only to our expectations as of today, and we undertake no obligation to publicly update or revise them. For a discussion of some of the important risk factors that could cause actual results to differ materially from any forward-looking statements, please see the Risk Factors section of Otonomo’s 20-F form filed with the SEC on March 31, 2022. If you have not received a copy of the earnings press release, please download one from the Investor Relations section of the company's website. Today's call will be accompanied by a PowerPoint presentation. You're welcome to view the presentation on Otonomo’s Investor Relations website. Following the call, a replay of the webcast will be available on the Otonomo’s Investor Relations website. Please also note that we will present non-GAAP operating loss on today's call, which is a historical non-GAAP financial measure. Because this financial measure is used in Otonomo’s internal analysis of financial and operating performance, Otonomo believes that it provides increased transparency to investors of management's view of our economic performance. Otonomo also believes the presentation of this measure allows investors to more effectively evaluate and compare the performance of Otonomo to that of its peers. Although, Otonomo’s presentation of this non-GAAP measure may not be comparable to other similarly titled measures of other companies. A reconciliation of this measure to its most directly comparable GAAP financial measure is included in our earnings release. Today, we are joined by Ben Volkow, CEO, Director and Co-Founder of Otonomo; and Bonnie Moav, CFO; and Doron Simon, Executive VP, Strategy and Corporate Development. Ben will start with the current state of the market and an update of the business. He will be followed by Bonnie who will share an overview of the company's financial results. We will then open the call for a live question-and-answer session. During the Q&A session, Ben will be joined by Bonnie Moav and Doron Simon. With that, I'd like to pass the call over to Ben Volkow. Ben, please go ahead.

Ben Volkow: Thank you, Miri. Hi, everyone, and thank you for joining Otonomo’s first quarter 2022 financial results conference call. Today, we will provide insight into how we see the market evolving from connected cars to mobility services and now that is shaping our strategy. We will provide a high-level summary of the first quarter and a review of recent business development, including the acquisition of The Floow. Our Q1 results reflected strong growth year-over-year of our leading indicators, continued momentum in demand for key mobility service use cases as well as net new customer levels joining the Otonomo ecosystem. I will elaborate on these points later in today's call. At Otonomo, we believe mobility should be more fair, accessible, sustainable and safe. We believe that harnessing the power of mobility data will be the catalyst to forever change how people move. In the same time, we see new emerging complex cross-segment used case is rising, changing the mobility ecosystem in our results. We believe that those multilevel mobility-related exonic [ph]changes require a platform that can capture, translate and unify low mobility data. So our ecosystem can create, reach new experiences and services. That's Otonomo. We are building the platform to power the mobility economy. At the auto Otonomo platform, it's connected vehicle data. We take over 150 data points historical and real-time and shape them into active curated data set that our partners can use to build or enrich mobility services and applications. But we see a wall shaping up where it's connected vehicle data and micro mobility data and mobile phone data and infrastructure data, such as charging points, traffic signs, road conditions, et cetera. More than this, we see an ecosystem shaping up where its data and insight with the ability to use technology to map and highlight parcels [ph], visual complex interdependencies and create the needed insights to propel business forward. What we are describing is an evolution from connected cars to a larger broader market that encompasses all forms of mobility and mobility related infrastructure. This view is what is driving our platform development and acquisition strategy. Let me explain. Otonomo smart mobility data platform intakes streaming data from tens to hundreds of millions of mobility devices, indexing, processing and create valuable insight around environmental, vehicles, mobility and infrastructure data. We use our unique IP to normalize, standardize and anonymize both static and streaming data. We use machine learning to create vale added curated datasets to meet and empower, a wide range of use cases from smart city planning, traffic management, fleet management and connected insurance. We employ additional data science to create insights for clients to support our business critical decisions. All of this is applications and services ready. We have one API and one contract. We deliver Otonomo is highly depreciated in the market. Here are a few examples. One, the breadth of curated data we provide covering the mobility spectrum, not just connected cars. Two, the integration of AI work pace and utilization tools into our platform to enable mobility intelligence analytics. Three, the enabling technologies we developed to accelerate market transformation in specific sectors. Today, dozens of our ecosystem customers and partners are using autonomous smart mobility data platform across a wide range of segments like insurance, fleet management, open planning, traffic management, electric vehicle infrastructure, running and monitoring and more. For every one of them, Otonomo provide rich data sets and intelligent insight, to enable them to unlock the value of mobility data. We recognized that, this is a fast-moving and growing market. That's why we embarked on a rapid acquisition strategy to both build depreciation and address and also to address the large growth sectors. The Neura acquisition last October gave us the ability to integrate data science tools directly into our platform. No third-party partnerships relying on the third party is needed. Customers in smart city planning, traffic management, EV infrastructure planning or micro mobility suite to name just a few examples, value our ability to provide data processing, engineering and data science all in one unified platform. We will continue to enhance the inside mobility intelligence tools to address key ecosystem requirements and fast-moving segments in the mobility sector. During Q1, we announced the next element of our growth strategy with the acquisition of The Floow, a search provider of connected insurance technology for major carriers globally. We successfully closed the acquisition early in Q2. The Floow is making mobility safer and smarter for everyone with a proven set of products and services, used by some of the largest insurance companies in the world. We expect The Floow will materially contribute to autonomous success in multiple vectors. First, exiting 2021, The Floow grew their client base by more than 50% and has a very strong pipeline coming into 2022. With long cycle time to revenue in the insurance sector, we expect to see strong growth in the Floow’s revenue through the second half of this year. Further, as the Floow business is recurring revenues by nature, we feel this will be a strong contributor to autonomous success and recurring revenue. Second, on a more strategic basis, we believe that the fusion of connected car data via Otonomo and mobile device data via the Floow is a game changer in the insurance industry. To date, market feedback from partners, clients and industry analysts has been extremely positive about the combination of the two companies. Clearly, there is an opportunity for both OEM insurance companies right to accelerate the utilization of their data, create new products, improve customer experiences and accelerate business transformation. On top of that, our belief is that the Floow technology can be deployed and used in new emerging services outside the insurance vendors. Like, for example, fleet management and others. We are already engaged with ecosystem partners outside the issuance sector that confirmed the breadth of opportunity with our combined technology. Otonomo is uniquely positioned to work across both aggregate and re-based data use cases in the market and focus on two of the largest revenue segments in mobility, fleets and insurance, using our differentiating data and IP. We believe that we have the capital to successfully operate and fund the business as market adoption accelerates over the next few years. We expect to aggressively grow our revenue in 2022, including ARR and further separate ourselves in the market, with the IP and value we deliver to clients. So, how is our position and strategy translating into traction for the business? Based on Q1 results, we are seeing positive momentum across key attributes. We added 10 new customers in Q1. Quarterly recurring revenues grew 40% in compared to the previous quarter. Recurring revenue backlog more than doubled compared to the previous quarter. Booking of recurring revenues nearly doubled compared to the previous quarter. Backlog increased 61% compared to the previous quarter and 207% year-over-year. We signed one of the top five global OEMs, bringing the total number of OEM contracts to 23. Those combined contracts represent over 50 million addressable connected vehicles. Average sales cycle time decreased 30% compared to the previous quarter and decreased over 20% year-over-year. And of course, we acquired The Floow, a leader in connected insurance technology. Finally, we continue to see demand for our core market of connected car use cases. For example, Waycare, a subsidiary of ecosystems, uses Otonomo connected vehicle data through government agencies with crush prediction, congestion detection as well as incident management and identification. Waycare collects data from transportation agencies existing infrastructure, which is then synthesize with additional data from mobile apps, connected vehicles, weather analysis and advanced management system. For all of these use cases, Waycare needs large amounts of connected vehicle data to increase the efficiency of their applications. This is where Otonomo and its smart mobility data platform brings value. Our total traffic and weather network, the user provider of traffic, transit and vendor transformation in the United States. TTWM reaches more than 200 million monthly radio and TV, internet across the more than 200 markets. They provide graphical as well as average speed information for all segments around the U.S. TTWN is using autonomous data to do ground truth average speed studies for road segments around the U.S. Prior to meeting with Otonomo, TTWN was paying drivers to help calculate average speed on road segment. Otonomo provides average speed data for a specific time frame at the customer request, making it faster and easier for TTWN to perform these studies as well as a set new road segments in the future, the disruption of the time and cost. Finally, a recent competitive win against the competitor with Suba, a European analytics company. Suba was using physical roadway sensors to collect data around speeding an accident prone road segment. Now Suba is partnering Otonomo, who used connected car data to revolutionize the way European road authorities are able to improve the safety and efficiency of fraud operations. To summarize, we are increasing our daily volume, decreasing sales cycle time, winning new customers in our focused use cases, building a strong recurring revenue base for our company and growing our core business organically. We believe that all of these sectors show positive momentum. Looking ahead, I'm confident that the momentum in bookings, recurring revenues new customers will continue. Furthermore, we expect significant revenue contribution from the Floow will be reflected in autonomous financial results from April 14. For more detail on our Q1 financials, I hand it over to Bonnie Moav, Otonomo’s CFO.

Bonnie Moav: Thank you, Ben. Hi, everyone. Revenues for the first quarter were $1.03 million compared to $215,000 in the first quarter of 2021. Growth was driven by our new mobility intelligence activities, new customers and new OEM agreements. We have one use case of mobility intelligence related to COVID-19, this use cases contributed to our year-over-year growth in revenues and went down in our quarter-over-quarter revenues. We do not rely on this use case in our business moving forward due to the unpredictable nature of this revenue. Before I move further into the numbers, I want to remind you that our non-GAAP items consist of stock-based compensation expenses and amortization of acquired intangible assets. Our GAAP financial results, along with the reconciliation between GAAP and non-GAAP results can be found in our earnings release. I will now turn to the detailed financial results for the quarter. Our GAAP operating loss was $15.1 million, compared to $4.3 million in the first quarter of 2021. The increase in GAAP operating loss was mainly driven from acquisition and the significant increase in our headcount year-over-year and expenses associated with the cost of becoming a public-listed company. In the first quarter, our non-GAAP operating loss was $12.5 million, compared to $3.8 million in the first quarter of 2021, a 231% increase, which were driven by the same reason mentioned before. Our cloud infrastructure mainly consists of costs related to the third-party cloud services, which increased by 260% and from $367,000 in Q1 2021 to $1.2 million in Q1 2022 due to our increase in the amount of data the company ingest, process and stores, and the amount of data used by our data consumer, which grew year-over-year by more than 147%. Our cost of revenues, mainly consist of purchasing of data costs, which represents the costs we pay to our data providers, including the OEMs for their data used in our products and remains in the same level year-over-year. Our research and development expenses, together with our sales and marketing expenses, continue to increase by 129% and 284%, respectively, year-over-year, mainly due to the accelerated workforce growth of more than 50 employees in both departments year-over-year, including the acquisition of Neura. General and administrative expenses for the first quarter 2022 were $5 million compared to $0.0 million in the same period a year ago, representing an increase of over 536% percentage. As mentioned earlier, this is mostly attributed to the expenses associated with our registration to the SEC and the cost of becoming a public company, in addition to the headcount and the acquisition. Turning to the balance sheet. We ended the quarter with $196.8 million in cash, cash equivalents and restricted cash, a decrease of $11.3 million from year-end 2021. This was primarily driven by operating cash activities in our ongoing business. I would like to reiterate the 2022 guidance we provided on March 31st. For the full year 2022, revenue is expected to be in the range of $13 million to $13.5 million with most of the revenues backend weighted. Revenues from The Floow will be reflected in Otonomo’s financial results starting from April 14th. Thank you very much. I will hand it back to Ben.

Ben Volkow: In closing, Otonomo is uniquely positioned with a solid portfolio of technology assets in IT, a committed and strong team and with the first mover advantage. We remain positive about our outlook for the year ahead and even behind it. The upscale adoption of mortality data is in its infinity and Otonomo is perfectly positioned for this promising future. With focus, execution include strategy, my colleagues and I on the management team are committed to leading this market and creating value for our customers, partners, investors and employees. Before we move into the Q&A session, I'd like to update that we will be hosting a virtual solution showcase for investors on June 22, and we will share more details about the event over the coming weeks. Operator, we are now ready for the Q&A session.

Operator: Thank you. [Operator Instructions] Your first question today comes from the line of Josh Nichols from B. Riley. Please go ahead. Your line is open.

Josh Nichols: Yeah. Thank you. And good to see the progress being made in terms of the recurring revenue and customer base growth. I was going to ask like since The Floow acquisition closed early in the second quarter, could you provide a little bit more detail on how that integration is going? Is there much to be done there, or is it going to be run as a separate entity initially and what's the expectations on that front?

Ben Volkow: Doron, are you with us? Do you want to try to take it first?

Doron Simon: Yes. I would be glad to take that. And Josh the operating mode for The Floow is primarily running as a separate entity. We are working on joint use cases where some data is shared, and we would be bringing up a common platform in the long-term. But initially, if you think about it as a separate entity with some joint functions.

Josh Nichols: Thanks again. And just to follow-up, you're talking about reaffirming the guidance and then it being second half weighted. Do you think near-term, at least over the next, let's call it 12 months or so, that fleet and insurance are going to be the primary revenue drivers, or are there other areas as well that you think are going to be near-term revenue contributors to the company's go-to-market business model?

A – Ben Volkow: I will take it Josh, you have still a very good question. I -- definitely, we believe that those two in the short-term and near-term will be the main revenue providers. First of all, those are the biggest potential markets out there, based on most analyst [ph] like McKinsey. With the acquisition of the Floow, we shared that we -- it's a company that has done about $7 million last year and has very strong pipeline. So definitely, we are very excited about what we see in insurance. And we are also -- we mentioned it, we are taking some of the technology outside of the insurance -- outside of insurance vendors. We see OEMs are interested in that to go towards their own insurance offering and some other industries or segments in mobility that we refine some of the insurance-related capabilities like driver scoring 1.07 of high interest. So insurance is definitely up in the list. SWATs is same -- we built a strong solution and formed also some exciting partnerships in the segment. For example, we share the partnership with Salesforce. So the pipeline is growing. Those opportunities are all recurring by nature and growing, we always want more and faster and better, but they are growing very nicely quarter-over-quarter. We see some other segments rising in other use cases, but right now, the two use -- the two segments that we see running in front of the pack is insurance and fleets. And we're excited because we bring a lot of value there beyond just providing data with the technology we either build inhouse or got through the Floow. Bonnie, Doron, anything you want to add on top of that?

Doron Simon: I think that was perfect.

Josh Nichols: Last question for me and then I'll hop back in the queue. Any comments about -- there's been a lot of changes, macro changes going on recently, whether it's ongoing supply chain tensions the war in Ukraine, rapidly rising interest rates, how is that impacting the company's industry and end markets and how should investors be thinking about that?

A – Ben Volkow: So definitely, we are not immune to whatever is happening on the planet. In the end, we also we’ll get. Interest rates, what is happening in the stock market, what is happening in Ukraine, the lack of vehicles, definitely all of those are not -- having said that, we don't see a material impact to our business. We are in a fast-growing market, a market that is a blue ocean. And all those macro events are not healthy, but definitely, we don't see them impacting or changing our annual focus in growth rate.

Josh Nichols: Thanks. That’s all for me.

A – Ben Volkow: Thank you.

Operator: Thank you [Operator Instructions] Your next question comes from the line of Chad Taibao [ph] from Needham and Company. Please go ahead. Your line is open.

Q – Unidentified Analyst: Hi, guys. It's Chad on for Ryan Koontz. Just wanted to touch on the decrease in average sales cycle time both sequentially and year-over-year. Can you sort of talk about the drivers of that and how you see that evolving over the coming year?

Ben Volkow: Yes, Chad, this is Ben, and I'll take it. I think that the decrease, first of all, it’s a [indiscernible] fee and it’s us to sign and get the revenues many times in the same quarter. I think it's a result of number of fees. First of all, we are becoming better. We are learning to work better, faster. I think our legal framework is tighter and our ability to handle customer requests, provide them same peers [ph] and move in the process is improving all the time with maturity. I think it's also an indication to growing maturity in the market. And customers know what they want. Customers have a business, depressing business time lines. It's not innovation projects anymore like two or three years ago. It's there for the business. So the other side also is keen to move forward as fast as possible. So I think it's a combination of those two mainly. I think we'll continue to see a decrease. I cannot promise another 30% quarter-on-quarter. But definitely, we are improving all the time and we ought to deliver another decrease there. And Bonnie, Doron, anything you want to add? I guess that's enough. I hope it answers the question.

Unidentified Analyst: Yes. Got it. That's helpful. And then just an update on where you guys stand from a hiring standpoint and what your outlook is for the rest of the year in terms of hiring?

Bonnie Moav: Hi. This is Bonnie. Happy to take your question. Obviously, you've seen a significant increase when we see that this starting August 2021, until now we have more than doubled our headcount. Now with – in Q2, with additional 100 employees coming from our new acquisition, we will end up with approximately 240 employees, which is very significant for us. In terms of the rest of the year, we are looking to recruit – we have our road map. We are looking to recruit to support the road map to support our business plan, but you won't see a massive recruitment like we had in the past nine months since de-stocking and our recruitment will be in areas where we think we need to -- we want to scale up SaaS. This goes both to Otonomo and the Floow -- and -- but I can tell you that you won't see doubling our headcount in the near future.

Unidentified Analyst: Got it. That's all for me. Thank you.

Bonnie Moav: Thank you, Chad.

Operator: Thank you. With that, I will now hand the call back to Ben Volkow, Otonomo’s CEO for closing remarks.

Ben Volkow: Thank you all for joining us today. And I hope to see you here next quarters in the earnings call. Thank you.

Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.