Navan, Inc. (NAVN) Earnings Call Transcript & Summary

Let's kick off day 3 of Communacopia. I am pleased to be joined by Navan, Ariel Cohen, the Co-Founder and CEO; and Aurelien Nolf, the CFO. Thank you guys for joining us.

Thank you for having us.

Thank you for having us.

Of course. So take us back. Navan was founded in 2015, but in many ways, you guys sound like an AI-native company. So talk to us about your strategy, building the key technology building blocks of the company. What early technical decisions paid off?

So when you think about business travel, it's actually an extremely traditionally manual process. Somebody is sending an e-mail to a travel agent, then the travel agent needs to do a lot of things. Don't think about it as like "I'm flying to New York, I have one hotel and I'm coming back." It tends to be multi-city. People are changing it a lot. There are -- people are very sensitive to their loyalty. There is a lot of details. If you cancel the trip, you need to get the money back and then the financing needs to reconcile it. So very, very manual. So when we came to the industry, just bringing these things to a browser by the thing, right? I remember Andreessen was an early backer and I remember I talked about it with Mark and he was like, you can do AI and you can do machine learning and all the things, this is in 2017. And I said, no, no, we are kind of disrupting the phone from the phone people are calling an agent, to a browser. Now why is that important? Because once you take the time to automate everything, to basically create an API for everything. I can change a flight. I can get it reconciled. I can get the credit back. I'm connected to everything globally. Like you need to connect to buy a flight in Brazil, that's the acquisition in Brazil. You need to have an IATA license in Brazil. You need to have a point of sale in Brazil. You need to have a United Airlines deal in Brazil. So it's very, very manual, very, very fragmented, but we wanted to bring it online and also wanted to have it efficient. So you'll book your flight really fast. You'll get support for it. So before Gen AI became a thing, I'm talking in 2017, our first team was a machine learning team. And the idea was to really get to know you, to know what are the flights that you are likely to book, what is the hotel, what you are likely to do in the system and really show that hotel to you, that flight. That's it. So we've built all of this infrastructure. We also had a good AI team. And when Gen AI came, we said, okay, "let's go". Now we can take the level of service that we had back then of -- I don't know, it takes 10 minutes to book a trip, to now it will take you seconds. It will take you minutes. We'll always get you. You can talk with Ava chatbot and change everything in minutes. So AI was always the developing stories from 2016 all the way to now. And you can see us keep innovating there. Ava is a chatbot. It's not like your AT&T chatbot that you call a new sales representative and so on. This is someone that you can have a discussion with and saying, "book my flight, change my flight, I want this, book me a restaurant, do all of these things for me." And you will see that you are talking with the person. And in fact, sometimes you are because we are completely orchestrating the AI agent, with the person. And sometimes, somebody needs to call the airline. Somebody needs to do something with the receipt. So we really perfected AI on the application level to create value for our users and our customers.

Great. So last night, you guys reported earnings, you announced the acquisition of BoomPop, an AI-native Meetings and Events company. Talk to us about the thought process behind this acquisition and how it fits into your broader M&A strategy.

Yes. So first of all, I will clarify because I think it's important, is people are -- we talk about AI. So people go to ChatGPT and asking ChatGPT so what is the revenue of BoomPop. And there was some confusion there between GBV, which is basically the cost of the hotel room and flight ticket to revenue, they are not the same. Usually, it's 6% to 7% out of the GBV. So people got excited that BoomPop is probably doing $100 million. It's GBV, okay? So I'm clarifying this because then people really get confused with the numbers. But the really important part about this acquisition is actually what it gives us. Meeting and Event is a big part of the way that companies are thinking about business travel. You have the transient travel. I'm a sales person, I'm flying to New York and then continuing to Paris. But there is the sales kickoff. There is the team's off-site. There is all of these things that people are doing when they're coming to an event like this. Somebody in Goldman and probably a pretty big team. We're working on this event, and they teamed up with this hotel. And they made sure that there is some food there in all of these things. If you go to the Goldman team and ask them, so what does it mean? They'll tell you a lot of phone calls, a lot of e-mails, a lot of contracts just for these meetings. So very, very complex, very old school, you book events today in the same way, whether it's a team event for 10 people or an event for 1,000 people, you book it like you're in the '80s. And we, for quite some time are getting more and more excited about this use case. So Navan, we have our own functionality. We call it team travel. This is up to 50 people, okay? When he wants to book an event from us today, events like this one, are you actually using Reed & Mackay. The Reed & Mackay team has an events team, and they will partner with you, they will contract with you. And they will do it like any other old school travel agency. The question is and the opportunity is, can you automate it? Can you bring it to the AI era and BoomPop developed really cool technology that you can actually go and do a conversation like in ChatGPT and start to plan the event. I want to build an event in San Francisco. There will be 1,000 people there. I have some ideas of the level of hotels. Here is the event go to the other side to all of the vendors and start to ask them for a -- so for prices, for agreements and so on, they completely automated the two sides of it. We partnered with them so that our customers like this technology, which is usually a pattern for Navan, first partner, and then we kind of see that it's working from a tech perspective, but also a go-to-market perspective. And now we see that there is a huge attachment play here. We actually were already integrated, because we partnered. And now we can basically open our sales force and give our sales team the ability to sell all of these events to all of our customers and also excites new customers. You can land and expand with an event. And then take it to the other side. So we see it as a huge opportunity to tap to 30% of the top of this travel market.

Yes, maybe I can add here the great opportunity that this represents for us in terms of growth next year. And we believe this acquisition is going to be accretive in fiscal '28. For fiscal '27, given the sales cycle and the fact that we just acquired them, we expect maybe a couple of million dollars of revenue and some costs. So no significant...

No $100 million.

Yes, no significant impact, but we are very excited about this opportunity because the combination of this great technology and a very broad base of enterprise customers, we believe it's going to create a lot of revenue synergies.

Great. Another thing you disclosed with your results yesterday was that new signed GBV was up 60% year-over-year to $4 billion. How can we contextualize that $4 billion number versus your business outlook?

Yes. So very, very, very excited to share first for the first time this new metric. It's a very important metric for us. It actually -- maybe let me step back about what this is exactly, right? So every time our sales team go and sell to a new customer, usually large enterprise customers. We estimate how much bookings. They are going to proceed on the process on the platform when they achieve their run rate, right? So that's what this $4 billion. It's the sum of all the new contracts we signed over the last 12 months, and that's the annual run rate of all those customers. Remember, those customers usually sign for 3 to 5 years contract with us. So the $4 billion GBV is just 1 year of run rate of those customers. From there, we've been explaining that those customers are ramping. So when we signed the deal, we pay a commission to our sales team. So that's what you will see in our marketing and sales line on our P&L, we pay a commission to our sales team. But then from then, we help our customers deploy. So usually it takes roughly 2 months before we start seeing the first booking on the platform. And then from there, 5 to 6 months before we achieve the run rate. And that's at this point that the $4 billion start compounding for the next 12 months, right, because it's obviously a run rate. So as you can see, there is a lag between the moment when we signed those contracts in the moment when we see the bookings on our P&L. But this is a very key indicator of future growth for us, right? This is the metric that I use to make sure we spend the right amount of marketing and sales. That's the metric that I use to measure our payback and how fast we're going to get a return on our sales and marketing investments. And that payback has been very, very attractive, right? And that's why you see us leaning into marketing and sales because of that payback. So we thought that sharing this number was an important part of the puzzle when you think about the way we make money at Navan and the way we invest money to generate future growth. And that number keeps accelerating, right? So that's what we see. It's up 60% year-over-year. But just the Q2 portion of that number was the highest ever. And we've reported that Q4 of last year was 50%, now it's 60%, like we keep seeing more and more customers joining the platform. And actually, not even in that number, we just signed the biggest deal ever for the company, right? So with the sales team keeps really overperforming, and we have great success in the market today. That's what this metric is measuring.

Great. I think one of the things that investors are debating today, and we've gotten some inbounds from our clients on this is the fact that the revenue guidance for the year assumes a pretty decent step down in the growth rate off of the front half of the year. So can you help us think through what are some dynamics that could have been -- be impacting prior year compares? What's conservatism? Just help us think through the guidance.

Yes, absolutely. The -- I just described is this ramp for our customers, right? So that impacts obviously our growth rate, depending on how fast some customers are going to ramp on the platform depending on how many customers we're going to launch in a given quarter, that impacts -- or as we scale this business, that impacts the particular growth rate of a specific quarter. So that's the first part of this answer. Secondly, we just raised our guidance, right, for fiscal '27 to 32% year-over-year revenue growth, which is obviously already an acceleration versus the 31% we reported last year. So when I look at the last 12 months of bookings and revenue and the trend in the business, the only thing I'm seeing is acceleration, right? So we are very, very pleased, like we just discussed about the $4 billion of new signed GBV that is going to further accelerate the business going forward. So the way we are thinking about the business trajectory today is clearly acceleration. And then to your question about conservatism, maybe that's not the way I would qualify our guidance, we like to guide to a number. We have a high confidence we can achieve. And as a reminder, we are a usage-based business, right? So there's a lot of things we control, some things we don't control, we make money, when our customers use our platform, and that's why it's so important for us to deliver the best service. So there's -- we will see. It's still early in the year, still 5 months to go before the end of the fiscal year. but we are very, very confident and we really like what we are seeing right now in the business.

I would add to this, without getting to the mathematics of obviously, 32% is bigger than 31%. And I think that I'm always asking myself several questions, how do we do in SLG and we just described, if we are doing well, it gives you a good visibility for the next 6 to 18 months because of the run rate principle there and so on. So that's the first question. The second question, how are we doing with PLG, right? And we didn't report how much money this adds, right? We reported the $4 billion GBV. PLG has a much shorter cycle. So therefore, it translates to revenue really, really fast. If you think about the size of Navan of net new, it's actually bigger than $4 billion because of the PLG. So I'm asking is PLG doing well. And I said it's actually more than doubled, right? And by the way, it's always more than doubling. So it's actually growing really nicely. And then how are we doing with payments and expense, right? When we went public, it was a business that was decelerating and actually, now it's accelerating. So we're doing well there. And how are we doing with our new bets like Navan Edge, Navan Anywhere, new product. And from where I see it, again, without getting to the model in the numbers and all of these, all of these things doing better than what we could have imagined a year ago when we went public. So I think this kind of gives you the hint of how I'm seeing it. Now it's also important we are a new company in the public market. I think it is important to be very, very prudent in not making a mistake in what we are reporting and kind of be responsible there. And that's why you see 32% guidance.

Okay. You mentioned some of the new bets. I mean, if we think about your AI road map, what has accelerated in your R&D approach or your conversations over the last 12 months? What are you hearing from customers that they want from you? And what are you getting behind?

I think the one thing that surprises me how fast it accelerates with our team and how much it impacts the quality of our discussions, like I'm talking about bot discussions is actually the use of our model. It was interesting. It was even a debate like 8, 9 months ago, if we really want to go to our model or use more frontier models and also kind of open source. And we -- I didn't think -- and also Ilan, my co-founder with the CTO, we don't think it will be so impactful. 50% usage of our own model with Ava, impacts first thing actually CSAT. Customer the satisfaction of our customers from the discussion. The discussion is way more relevant. It's also a faster discussion because I don't need to go to somewhere else and to be on the line, kind of virtual line with everybody else. This is the reasoning that you see over time. I don't need to do that. So it's faster. It's much more relevant. Obviously, it's cheaper. So this is -- when we reported now we are at 50% and it's growing. This is for us a huge investment, but also very surprising. The outcome of this thing and it impacts across the board, right, on every AI product in the company. The next thing, Navan Edge, like, well, for me, it's obvious that people will want this kind of EA or travel agent in their pocket that really know that they like the Marriott and they like this seat in the United Airlines. And they would probably like this restaurant. And this, I don't know, the Lady Gaga show in Madison Square Garden but all use case, really use cases. So for me, it's kind of obvious that I'm tacky. I like to think that people will actually do that. And see them doing that. and see them do that in a product that we've never had a product that accelerates so fast in terms of usage and actually, more importantly, repeating usage. I booked once, and I'm coming in the next months to book again. I think the potential of Navan Edge, we are just getting started there. Now it's early. We are not sharing numbers yet. There is a lot of engineering work. There a lot of product work there. And probably most of the time that I'm spending on products is around Navan Edge, but it's really, really exciting.

That's exciting here. I mean it gets into the fact that the bar for consumer experiences is going up with AI and it feels like that's translating to an extent to the enterprise world as well. And I know historically, ripping and replacing incumbents has been difficult, but maybe the pain points are getting bigger, maybe there's a modernization push. I mean is this something that as you guys go to market, as Michael talks to customers, is this something that you guys are seeing?