Wejo Group Limited Q3 2022 Earnings Call Transcript

Wejo Group Limited (NASDAQ:WEJO) Q3 2022 Earnings Call Transcript December 2, 2022

Operator: Greetings, and welcome to the Wejo’s Third Quarter Business Update Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to turn the call over to Wejo’s Senior Vice President and Investor Relations, Tahmin Clarke. Please go ahead.

Tahmin Clarke: Thank you, Darrell. Good morning, everyone, and thank you for joining Wejo’s business update call to discuss our third quarter 2022 operational and financial results. With me on the call today are Richard Barlow, our Founder and CEO; and John Maxwell, our CFO. Remarks made today on this call about future expectations, events, strategies, objectives, trends or projected financial results, and other similar items are forward-looking. Forward-looking statements are subject to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of future performance and as such should be taken in the context of the risks and uncertainties that are outlined in the SEC filings of Wejo, including our recently filed quarterly report on Form 10-Q, as well as other documents filed with the SEC.

Forward-looking statements speak only as of the date made and the Company undertakes no obligation to update such statements in the future. In addition, during this call, we will be discussing certain financial metrics that do not conform to Generally Accepted Accounting Principles in the U.S. better known as GAAP. For a reconciliation of these financial metrics to GAAP, please refer to our quarterly report on Form 10-Q filed with the SEC. Over to you, Richard.

Investments, Finance

Richard Barlow: Thank you, Tahmin, and thank you for joining us on Wejo’s third quarter 2022 business update. Cementing Wejo’s status as a global market leader in the Smart Mobility solutions for connected, electric and autonomous vehicles has always been one of my primary goals. We are starting to deliver on that goal given the very strong operation momentum that we generated this quarter. Despite the challenging economic conditions, restrictive access to capital and tight labor markets, Wejo has successfully delivered on our plan to date. We have made significant investments in our technology platform and product portfolio, successfully managed resource challenges and created a innovation. Additionally, we are strengthening our strategic partners, including our development plans with Palantir to accelerate our marketplace development.

These investments are paying off with strong customer engagement in U.S. Traffic Management market base and early positive signs of significant new opportunities in end-to-end insurance, audience and media measurement, and automated company software-as-a-service offerings. Our strong our business performance are clear indication that we are heading in the right direction. We delivered revenue of $2.6 million in the quarter, which is up 632% over the prior-year period and its more revenue than we generated in all 2021. We generated strong levels of Total Contract Value, TCV and Annual Recurring Revenue. We engaged with record number of customers, which was driven by our expanding product portfolio and increasing vehicles on platform. All of this is testament to the focus the entire Wejo team has had on delivering the plan and building a track record of consistent execution.

Not only we are currently executing on our plan, but we’ve also created a tangible roadmap of what future success looks like in the form of strong customer pipeline and new products and marketplaces that we anticipate adding in the near future. To date, our booked contracts in Q4 support more than half of the revenues to ensure we achieve our full-year 2022 revenue guidance of $10 million plus net revenue. We expect that our strong pipeline will generate balance to the revenue and need to attain that goal. We expect that based on current operating performance and the strength of our future pipeline, we will be well positioned to accelerate both our revenue profitability in 2023. Critical to revenue acceleration is our customer base and all times customers recognized the value of our products and solutions and how transformative they are for their operations.

Our customer base is broadening, nearly doubling since this time last year and we are translating that success into several sizable opportunities in both private and public sector. Let me highlight a few of these examples for you. Expanded the company’s relationship with Ford to offer end-to-end insurance solutions in the United States. Wejo’s offering will include data and insights to help insurers understand driver behavior in better assessing their risk profile, minimize fraud and reduce risks for safer journeys. Also, as we previously announced, a major SaaS deal with a large North American OEM will be signing a longer term expansion of SaaS relationship in the fourth quarter. This is the start of a very large revenue opportunity for Wejo in providing services to the automotive industry.

These include platform-as-a-service, PaaS, which is the licensing of Wejo’s entire platform and software-as-a-service, which is the licensing of specific Wejo platforms. During the other parts of the fourth quarter, we have been awarded new contracts from three state Departments of Transportations, including Texas, Virginia and Georgia. We also have our first customer for Real Time Traffic Intelligence or RTTI we call it, as part of the award with the State of Texas. This deal is important as we firmly believe are the Departments of Transport and numerous other public and private sector organizations will see immense value gain in Real Time Traffic Intelligence. We see RTTIs significant revenue stream to the business in the future, especially given that there are 47 other U.S. states, which like Texas and another two previously mentioned are focused on safety and sustainability.

In addition, there are counter-cities and municipalities that will be interested in our platform after they see firsthand how these states will benefit from Wejo’s insights and capabilities. We also believe there will be very tangible opportunities to leverage the Jobs and infrastructure bill in the future. The U.S. government expects to award over $7 billion in grants, including money focused on increase the number of electric vehicle charging stations, EV to help accelerate adoption. We believe this will enhance opportunities to serve customers in the federal and state and DOT space. We expect the web effect from multiple DOTs will create opportunities to demonstrate the breadth of solutions that run our platform, including the EVOS. The insights that we best derive from our EVOS solution can help any state, city or municipality determine where an EV charging station should be located as well as merged how and when EV Infrastructure should be used.

Finally, on customer relationships, we signed a co-development agreement with Sompo to deliver Smart Mobility solutions, including enhancing safety and sustainability to the Japanese and South Asian markets. We set out at the start of the year to broaden our customer base and deliver products that accelerates our revenue profitability. We are doing that. This is substantiated, that attraction we are seeing in our financial performance and KPIs. Speaking of financial performance, that’s a good opportunity to bring our CFO, John Maxwell into this discussion. Over to you, John.

See also 10 Best Cryptocurrency Stocks To Invest In and 12 Best Blockchain Stocks To Buy.

John Maxwell: Thank you, Richard. I’m very excited about our Q3 performance and the fact that we are beginning to experience the benefits of the strong foundation we have put into place. As Richard mentioned, we have attained record levels of performance including net revenue, ARR and total customers. The KPIs show that we are continuing to deliver on what we said we would do and our success is now starting to manifest in our revenue. We are building a strong track record of execution and we are also well positioned for future growth given the strong pipeline that we have. Our customer base grew more than 80% over the same period last year continuing a strong trend. As we look at our customer base, what excites me the most is not just the growth in the customer base, but the increasing variety of customers that leverage Wejo’s platform and products ranging from small businesses to large enterprises and universities to government agencies.

The broadening of our customer base fits with Wejo’s vision, that over time the company will not only rely on large enterprises, but we will also support thousands of smaller customers from all realms of business and public sector line. Total contract value similar to customer activity was up 71% over last year. Our TCV continues to demonstrate a strong book of business the company is building for the long-term, our growing pipeline will bolster that number even further as we continue to engage with new customers and their eyes are open to the value proposition that we offer. Gross bookings were down year-over-year on a sequential basis or on a year-over-year basis when compared to Q3 of 2021, but on a nine-month year-to-date bookings, we were up 75% when compared to the same period last year.

The third quarter has some seasonality around summer vacation that affected the timing of a few deals between Q3 and Q4, we expect that Q4 will be our strongest booking quarter to date based on the current activity and expected deal closings in the next few weeks. ARR was at record levels during the period, up 64% as subscription-based contracts increased as a percentage of our total product mix. ARR also increased sequentially up $1 million to $7.2 million highlighting the impact of our service offerings us having on our customers who are opting for longer contracts. Our average contract point has increased now to 24 months versus 20 months a year-ago. With all of these factors, net revenue for the quarter was $2.6 million, representing a 600% plus increase when compared to the same period in the prior year.

Today, we are reaffirming our guidance for $10 million of net revenue for the full-year 2022. Our revenue performance to date of $4.6 million leaves a little over $5 million of additional revenue in the fourth quarter. Based on where we are today, we need a few deals to complete to exceed $10 million and they are in process. As Richard mentioned, we have signed several large state DOTs and in one instance there are a few steps in the process on their end that are needed in order to complete delivery and that is expected to occur in the next few days and that’s about $500,000 to $600,000 of revenue tied to that. We also are in the final stages of our first major automotive cloud solutions deal, being signed and working through the final technical points before that deal is signed.

Assuming those points are resolved, we have just under $1 million at 2022 revenue that will be recognized after signature. Finally, we have an R&D platform that is in late stage discussions with about $600,000 to $700,000 of revenue tied to it and depends upon completion of that contract. All of these deals are likely to occur in 2022 and therefore we maintain our guidance. We are very excited about all of these opportunities and what they mean to the building of Wejo’s business. Whether we are talking about a multimillion dollar deal with state DOTs, which is the first for us, or our first major cloud solutions deal with the global automotive company or a platform R&D deal for the Japanese insurance market. They all demonstrate how Wejo’s business is reaching an inflection point and beginning to accelerate growth at multiple levels.

We expect this to continue as our business progresses forward. Irrespective of the timing, these deals will be impactful on our financial performance and bolster our gross bookings in total contract value. The remainder of our financials and other key metrics, that we want to talk about this year are adjusted EBITDA loss of $22 million and a 16% increase in live vehicles on platform. Adjusted EBITDA loss was impacted by cost reduction initiatives that we put in place and also the weakening of the pound versus the dollar, which also impacted our expenses. We expect that adjusted EBITDA also as a proxy for cash burn will step down as we move further towards a burn rate of $5 million to $6 million in this quarter as we exit 2022. We will continue to focus on efficiency and our cost base as we exit 2022 and enter 2023 to further improve our cash burn rate, while continuing to drive strong revenue growth.

Given that traction, we believe that we will hit our adjusted EBITDA loss target and be in the range of $85 million to $95 million for the year. With respect to vehicles on platform, we are likely to come in less than our guidance of $27 million to $32 million by year-end 2022. We are onboarding new vehicles closer to the time. We expect them to generate revenue, this saves data, cloud and people cost and ultimately enhances our ability to become a profitable company in the long-term. We ended the third quarter with $14.7 million of cash on hand after incorporating the cash raised from the PIPE transaction we executed in July. On Monday, we filed an 8-K announcing a binding term sheet with a strategic partner with respect to the sale of a $10 million of convertible notes and warrants.

Completion of the offering is subject to due diligence and negotiation of the definitive agreements, which we expect will occur in a week or so. We also are in dialogue with several other potential investors that are participating in the convertible offering to try to raise an additional $5 million to $10 million and we will update you as that occurs. We also have our equity financing facilities that we expect to use to raise capital and we will continue to utilize plug capital strategies like the PIPE we completed in July and the convertible notes offering that we are working on currently and we are continuing to pursue long-term capital strategies that will complete our financing picture and provide liquidity that positively positions the company until cash flow breakeven.

We will update the market as these strategies being pursued become certain and disclosable. Back to you, Richard.

Richard Barlow: Thank you, John. To broaden our revenue profile, we need to find ways to design new products and services that expand our current revenue use cases and positions to deliver to continue to deliver on the power of innovation. Our prime example is our revolutionary AVOS platform, which is focused on accelerating the EV future. To become an integral part within the AV ecosystem, we are building AVOS to one day offer a full suite of service that need to our data platform to generate insights and analytics that can solidify that path forward. These AV solutions while innovative and toughens new market segments, build in basic capabilities that we have in our portfolio today and with investment of time resources we can monetize in the near future.

In the traffic marketplace, we are aggressively positioning RTTI, Real Time Traffic Intelligence as our all our consumers, customers. Why? Because we are the only company in the mobility space that can deliver real time traffic insight to have a level of granularity RTTI can provide, but RTTI is not just an application that can used in traffic. As the company continues to expand its offering into end-to-end insurance, audience and media measurement markets, RTTI will play a pivotal role in assessing risk profiles and measuring efficiency €“ the efficacy of media on driving behavior. As we come to close this business update, I just want to reiterate some key elements that demonstrate the progress of the business we continue to build. Operationally, we are continuing to deliver on the goals we set out for the year.

We are broadening our customer base, signing new customer deals and expanding partnerships with the likes of Ford and the Texas, Georgia, and Virginia DOTs. We signed a co-development agreement with Sompo and we’ve enhanced the partnership with Palantir to accelerate development of product verticals for our marketplace. And as John mentioned, we have advanced the financial progress significantly by reaffirming our financial guidance for the year, increasing our revenue for over in the quarter and reporting backward levels of ARR. We are also continuing to focus on the efficiencies of our cost space as we exit 2022 and enter 2023 to further improve our cash burn rate or continue to drive strong revenue growth. In terms of capital, as John highlighted on Monday, we filed an 8-K announcing a binding term sheet with a strategic partner with respect to sale of $10 million of convertible notes and warrants.

We are also in dialogue with several of the potential investors that are participating in the to try to raise an additional $5 million to $10 million and will update as needed. Most of our equity facilities are expected to raise capital. We will update the market, these strategies being pursued become more certain and disclosable. I’d like to thank you for your time today and John and I will now take your questions. Thank you.

Operator: Thank you. We’ll now be conducting a question-and-answer session. Our first question comes from the line of Jeff Meuler with Baird. Please proceed with your questions.

Jeffrey Meuler: Yes. Thank you. I would just love any more perspective on kind of the long-term capital raising strategies and on the equity facilities. I think there’s been a pretty minimal drawdown and I think there is some restrictions on how much you can impact share count, which is impacted in turn by the stock price. So just wondering how viable those still are as a funding mechanism at the current stock price. But I know you tried to give us a lot already, but just in terms of getting past this, like $10 million to $15 million per turn, given the current burn rate, would love any perspective on other funding plans longer term or any other steps of contemplating to reduce the burn rate further into 2023?

John Maxwell: Sure. Let me provide some color and Richard can add as well. With respect to the long-term capital strategy, if we’re going to look at whether it is a strategic partnership that would enable us to fund in a more robust way or it could be an acquisition of a company that has a significant cash position, it could be really anything that would enable us to significantly strengthen our balance sheet and also strengthen our business. The capital markets are in tough shape and so we tend to take a more creative approach, once we’ve found that solution, which we’re in dialogue actually on several of them. But once we’ve found the solution that we think works, we will update the market and hopefully that’ll be soon, but I can’t promise timing, but we’ll do it as soon as we can.

With respect to the equity facilities, you’re exactly right. The reason that we’re doing €“ we did the PIPE in the summer and the reason that we are doing the convertible deal now is really to make sure that we’ve got capital that supports us beyond those equity facilities. Those equity facilities are limited. They’re limited by the volume that our stock trades at and they’re also limited by the price of our stock. So we have to find other means to fund, which we’ve been able to successfully do to date. And then with respect to cash burn, we’re continuing to really focus on where prioritization, we’ve talked about that, but we’ve deprioritized some things that are not as critical to near-term revenue. We have focused on efficiency doing what we need to do.

We are now focused on where can we automate and where can we get more automation needed working with our partners in terms of how we deliver to customers or even internally where we do. So we will continue to reduce our burn through those types of measures, through working with our vendors to right-size our relationship, whatever it happens to be that we need to do. And then the other factor of course is revenue. Our revenue is really inflecting well. We have a very strong pipeline and as revenue grows, that will also obviously reduce our cash burn.

Richard Barlow: John was saying the strategic, are not only helping us with capital, but they’re also helping us in terms of bringing more support to the business, whether, for example, John mentioned automation is a great example of how we’re working with Palantir. So we’re continuing to scale the business in terms of revenue whilst maintaining or reducing our cost space and our strategics are making capital available to us at a fair market rate. So we have visibility to how we scale revenues next year without significant scale costs, which fundamentally improves our profitability, improves our margin as a business.

Jeffrey Meuler: Got it. And then great to see the progress on building the access to data for the insurance use case. Can you talk a bit more about the pipeline from a monetization perspective? I just don’t know how far out that is on the horizon. In the past you’ve made references to a potential large insurer in the U.S. that you’re in conversations with. I don’t think that’s come to fruition, just curious on monetizing the insurance use cases?

Richard Barlow: So as you noted, we made announcement yesterday where we now represent Ford in both Europe and the U.S. for their insurance marketplace. We are not yet giving 2023 guidance, but we now have our first European and U.S.-based wide insurance offering from an OEM and we expect that make a cyclical contribution to our revenues next year. Meanwhile having strategic support from Sompo puts us in a very firm place to be aligned with the partner in APAC and Japan and further field later on. That helps us scale our products without taking an unnecessary or expensive product deployment, which may €“ will not drive the revenues in the short-term. So we’re navigating through support from Sompo, the great support now from Ford on European and U.S. base is somewhere we’re excited about what insurance can do this next year, but we’re not yet giving 2023 guidance.

Jeffrey Meuler: Right. And then on gross bookings, just what’s the cause of the change in the estimate of prior period bookings and how material is that? Just trying to understand I guess the quality of the gross bookings metric and the potential for other revisions to prior periods.

John Maxwell: There is no revision to prior periods as much as there was. The way of timing, the gross bookings metric is important to us to help you understand how we’re booking business. So you take the million dollars that we booked in Q3, that’s a low quarter for us actually. We had several million dollars of deals that were actually signed in early October that were originally slated and we thought they would come in, in September, they didn’t. And so you’re always going to have timing and I even though as we talk about revenue as we come into the end of the year, we expect to get to $10 million plus, but there’s always timing factors that could cause something to slip into the next quarter. We’re focused really on building our business, and the building of the business is very strong.

That shows up in gross bookings. It’s showing up in our revenue, it’s showing up in our ARR and we think that will continue as we go. So there’s not really any factor that would cause that other than

Jeffrey Meuler: Doesn’t the release say there was also a change in the estimate of prior period bookings?

John Maxwell: I have to get back to you. I don’t know. I guess, I’m not sure what that is, so.

Jeffrey Meuler: Okay. And then you got into some contract specifics on like the full-year guidance. So you have about a little over $2.5 million of revenue already booked from things that you subsequently sold and then a little over that that you need to still sell and recognize this revenue, I guess in the final month of the quarter. Is that correct?

John Maxwell: Yes. I mean that’s

Jeffrey Meuler: I guess just given that some of your contracts result in revenue being recognized over longer periods of time, not always in period, just trying to understand just line of sight or confidence and potentially getting to that number. It sounds like there’s a decent risk that maybe it slips.

John Maxwell: Well, I want to build out for you a clear way, what we’re working towards, just to be as transparent as we can possibly be. And if I take the SaaS relationship as an example, most of the revenue associated with that contract will be recognized in future periods. There’s a lot of setup type work that we’ve already done actually that once we get the technical points resolved then we will sign the deal and then that revenue would actually get recognized in the period that we sign the deal. So that’s a significant amount of revenue. It’s there, it’s waiting to be done, it’s just now working through the details. If I take the state DOT, that’s also a multimillion dollar contract and there’s about, roughly $500,000 of revenue in the period that we’ve contracted for, we’re waiting on, but their process won’t take delivery until certain signatures are received, and it’s a multi-party organization basically.

So we work through that with them and we’re ready to go when they sign, but we don’t control when they sign, and they complete their own internal paperwork. And those are the kinds of things that we are working for. So we’re positioned to deliver the revenue, assuming the pieces that I described are completed. And all I was laying it out for you was, look, we are in a position to get to in excess of $10 million, but it does depend on those things completing, I just wanted to be transparent.

Jeffrey Meuler: Okay. And then on the, DOTs and I guess Texas buying RTTI in particular, what would the past be for like future expansion of say the Texas relationship? And then as you think about RTTI, it seems to make a lot of sense for a lot of other state DOTs, so just where are you in those conversations?

Richard Barlow: So Jeff, without giving away too much, the idea of RTTI then supporting our proposition where we’re seeing live charging of vehicles, where we can advise utilities companies on demands on the grid, we see that amalgamation of products being really powerful for DOTs. And indeed that’s the feedback we’re getting. So our contracts with DOTs are now starting to go into the million dollar range of value in terms of TCV, and we see significant scale from going there by being the only source of real time data. But real time data’s not just real time location data, it’s real time active understanding of charging demand from vehicles, for example, as one example or another real time example is identifying crashes or in terms of audience and media measurement, knowing how people are responding to news broadcasts on radio or other devices in the car.

So we’re seeing an amalgamation of marketing we’re doing from having this unique real time data output from tens of millions of vehicles.

Jeffrey Meuler: Got it. And then just in part of John’s answer to my first question, he referenced, one option would be acquiring a company with a sizeable cash position. Could you talk through, what else kind of aligns with your acquisition criteria and if you’d acquire another company in the space, just how duplicative our expense structures that we could get some sort of sense of how material expense synergies could be or how complimentary is the data? Is there risk of any cannibalization, et cetera?

Richard Barlow: I mean, from what we’ve learned from feedback from the industries and marketplace we are operating such as mapping, we are the only source of real time high quality location data. And in terms of how we see that being applied in terms of an M&A model, as you recall in our original S-1 filing, we intended €“ subjects access to capital to build deals flow, in fact, we’ve done that on one of our tests, which we set the time on S-1 would be to provide a better quality data asset at a lower cost, which then provides a higher margin. There are businesses, there are number of business that would fit that, that make, where we’d fundamentally have a net benefit, net revenue and net margining benefit from replacing a poor data quality asset with the data asset we have. And as we build our own synthetic data lake, we see that also being a massive contributing to other businesses where we can fundamentally produce the data acquisition costs.

Operator: Thank you. And we do have someone else in the queue here. Our next question comes from the line of Ryan Koontz with Needham & Company. Please proceed with your questions.

Ryan Koontz: Hi, thanks for the opportunity here and thanks for color on the update on the company. I want to get more color you could share around go-to-market with regards to your kind of updated near-term view on different market verticals around the traffic insurance and fleet, et cetera. Like, are you still, what’s the balance of kind of direct versus indirect and can you find ways to plug into other vendors, other established vendors solutions to kind of minimize your investment levels required on go-to-market? Thanks.

Richard Barlow: So Ryan, as you know, partnerships important to us and we set out in our Q2 business update that we’d be investing in partnerships. We publicly talk about a partnership with Microsoft. We’re building partnerships with other corporates and blue chips as well. So direct sales, we feel is still important to us in terms of winning the larger contracts with especially the DOTs where we have a unique product offering that’s difficult to market through partnerships. But we’re very mindful that and especially going to next year, the partnerships will with the right quality products, be a very powerful inbound source in new sales inquiries. So we’re very much minded on not duplicating what partnerships can do in terms of our own cost base.

Ryan Koontz: Got it. Okay, helpful. Thanks. And on the cloud cost, it sounds like you’re trying to onboard vehicles now closer to revenue generation. How should we think about kind of optimization of cloud costs here going forward? And is that a concern for you that we should consider also in terms of keeping the burn rate down?

Richard Barlow: I mean our strategic partners and our own partners to being very supportive about how we prioritize the onboarding of vehicles. We’re not varying our guidance for onboarding vehicles. And we have a robust pipeline, but at the same point as you noticed, we’re now at a point where we’re processing 18 billion data points a day and more, we’re aiming for 27 plus million vehicle life on platform. We have critical masks in a lot of places in the U.S. and we expect to start seeing the same in other parts of the world as well. So we are being very selective now about how we onboard and when we onboard and the business case needs to support onboarding. So we’re not reducing our margins by having vehicles being processed on platforms which don’t make an immediate revenue contribution or near immediate revenue contribution. It’s very much where part of our focus and the support we’ve had from our partners is helping us get that methodology refined.

Ryan Koontz: Got it. Helpful. Thanks so much.

Richard Barlow: Thanks, Ryan.

John Maxwell: Thank you, Ryan.

Operator: Thank you. There are no further questions at this time. I would like to hand the call back over to management for any closing comments.

Richard Barlow: Thank you all for attending today. We’ve had a great number of attendees considering our last minute notes to make this business update. We will continue to inform the market. We are very much focused to deliver ahead of guidance this year and to continue to monitor our costs and to maximize the margin, the opportunity for you all as stakeholders in Wejo. Thank you for your time.