Thanks for everyone joining us today. My name is Scott Berg. I lead our enterprise software and SaaS research efforts here at Needham. Today we have with us, checking the calendar, it's still the newest IPO in the software world.
Oh, really? Okay.
World. Navan, we have the company's Co-founder and CEO, Ariel Cohen, with us. Ariel, thank you so much for joining us.
Of course.
Today. Appreciate the time. This is actually your first conference post-IPO, so I know we're keeping you busy this morning at least. But for those that are not familiar with Navan, how about giving an overview of what the company does today?
Perfect. So I'm sure that everybody here are travelers, so traveling for work. So what we are doing will resonate with you. And actually, some of you are users. Some of you actually approached me and told me that you are using us. So we have one goal: to make the life of business travelers easy. So if you use Navan, you're going to connect to everything that is out there. So you're going to come to our system. You're going to book your trip, on average, in seven minutes. And these are very, very. By the way, can you hear me well? Because there is a lot of noise from the outside.
Would someone mind grabbing the door? That would probably help. Thank you.
So super easy, super fast to book your trip. Then when you're on the road, you're always one click away from help. You know, New York in the winter, I'm sure that everybody needs help. And when you're coming back, you don't need to expense. Everything is automated. So the entire T&E process, super, super, super easy for the travelers, for the road warriors, for the EAs, for the finance team. Easy to do reconciliation, get reporting. Everything is easy. We are an AI-first company. We've been using machine learning from day one to make sure that we really understand you and what do you need. That's why it's so fast to book a trip, but also to save company money. So companies that are using Navan will save, on average, 15% on their entire travel budget. This is not on some Wi-Fi that is free or some booking fees.
This is on the entire travel budget. So if you spend $100 million on travel, you're going to spend $85 million with us. So this is significant. And the way that we do that, we give rewards for employees to book under policy to later book their personal trip through the platform. So really engaging platform, easy to book, saving a lot of money. And that's why you see our momentum in the marketplace.
Great. Quick customer check. Needham, we here are Navan customers. We implemented over the summer. I think if you ask anyone here that actually has to use it on a regular basis, way better than American Express Global. No, that's not a surprise.
Yeah, that's not a bar.
But we.
That's not a bar.
It's a low bar. It is. But me, as someone that travels almost every week, it's been personally very helpful. But let's start with the travel industry as a whole. I've kind of viewed the travel software kind of areas, the only corporate application kind of subsector in the last 20 years that has not really benefited from any modernization. I mean, I just mentioned American Express, whether it's Concur, others. Most of that is very much an aging vendor set there. But I guess, why has this been the case? And why is Navan so well positioned versus these legacy vendors? Because it's more than just GUI.
Yeah. First of all, I don't think you have real software companies out there that are doing corporate travel or business travel. That's why I know that a lot of times people in the public market will look to some comparison. It's actually very hard to find a comparison. We are doing something very unique, and the reason is, in theory, if you manage travel, you're going to stitch together some systems, so it will be Concur connected to an American Express. Concur will be the booking tool to kind of the UI, and then you have American Express as the travel agency that will actually allow you to book a trip and to support yourself, so first of all, it's very fragmented, which means that the experience will be very, very hard, and for the finance team to actually understand how much we've spent would be extremely hard.
It will take two months to reconcile the entire thing and to understand your spend. In Navan, it's real time. So the first thing, you don't really see software out there. You can say Concur is the software. First of all, it's something from the 1990s. It is an ERP system. So it means that I'm coming to the system, I'm filling up some form, then there will be some workflow around it, and then you're going to buy a trip. That's kind of in theory. Buying stuff is definitely on a personal level, is definitely not an ERP system. So to think it's a thing. So that's very antiquated. And the reality is that you are ending up calling or emailing your travel agency, American Express, Carlson, and so on. So it's actually a very manual process, not a software process. You can actually compare it.
Amex GBT employs more than 19,000 agents. We're employing 600. So you can see the difference. And you can do the math. We are not that small compared to Amex. So this is really not a software play. We came and made it a software play. So why? You ask me why that's the case. The industry, first of all, works on a cost-plus model, which means that I'm basically charging you every time that you contact me on a transaction. We've introduced a one-time fee that you use us, and you can contact us as many times as you want to. You can change your trip as many times as you want to, and so on. So we had a huge incentive to automate everything. That's actually why we use AI.
So we've reported in Q4, Q3, sorry, that 54% of the interaction with our support are actually done with Ava, our chatbot. That's an LLM-based chatbot with high satisfaction. Because we have the incentive to automate, because we are a software company, we are doing it. If I'm a traditional travel agency, I actually want you to call me. I'm charging you every time that you call me. Then I will do something that is called shifting share, which means that I will convince you to book on the airline that will make sense to me. These kind of things you don't do as a software company. It's actually not allowed to do if you are running an online business. So completely, completely different business model. The comparison is extremely wrong. What we are doing is something new for business travelers, for frequent travelers.
If you care about travel, whether you're in the managed space, the Amex kind of Concur space, or the non-managed, this is everybody out there. If you care about that, you're going to use us.
So, within the travel industry, there's kind of two facets that I've been hyper kind of interested in since we started working more with you all: one on the leisure side.
Yeah.
I mean, I like to blend business and leisure as much as I can, as I'm sure lots of people do. But then just trying to understand how much spend is actually unmanaged on most platforms for a lot of companies today is, how do we think about those opportunities? Because you guys have a great net revenue retention rate.
Yeah.
You talk about this big market, but so much of it's unmanaged. How do you think about those two relative to what I think the average person looks at as traditional corporate travel today?
It's interesting so when Ilan, my co-founder, and I started Navan, we actually didn't know about the non-managed. We kind of thought, OK, we're going to go and replace some Concur and Amexes, and we realized that the non-managed space is actually bigger than the managed for two reasons. First of all, you do have a lot of companies out there that have chosen not to manage travel and basically tell the EAs, the office admin, the employees, go out there and do whatever you want to. You are spending more money when you're doing it, and also, your employees will spend a lot of time doing that, and you're talking about your most expensive employees. The people that are traveling are your sales team, your Corp Dev people, your C-level, so you're wasting a lot of their time, and you're paying a lot for that.
But people were doing it because the alternative, I'm always calling it, is to go to the dentist. The alternative is to book a flight by either using Concur or Amex or the combination of the two. And then when you're getting service, I'm always looking at the airport of who is running to the airline kind of counter when something goes wrong. And it's usually people that are kind of out and about and cannot really get support. So this is a really big market, but it was very, very hard before us to access this market. They behave like consumer. If you don't have an ability to automate everything and to support through a chatbot, it's actually very hard to make the economics work. So we actually have access to this segment, first of all, by giving a product that makes sense for this segment.
The other thing, when we are signing a big enterprise account, it is common that around 50% of the spend will get done outside of the system. Why is that? First of all, hotels booking is not really enforced by companies. You can actually book outside. People that are using Navan will book the hotels through us. It's, by the way, having higher yield. So it's also there is a win-win there. But also, nobody is going to fire a salesperson that is selling extremely well because that person decided to book outside. So we view this as part of the non-managed. We are very good when we are taking a new customer to have all of the employees using us, but also accessing the non-managed space. So we are very, very bullish on the non-managed side.
Good. By the way, from a housekeeping perspective, I don't think I mentioned. I am going to take questions from the audience at the end here for anyone that has a question. Let's talk about product a little bit. 80% of your revenues come from the flagship travel solution, at least at the time of the IPO. Maybe that changes going forward. One of your key advantages is access to inventory.
Yeah.
If any of you have used some of these other travel management companies like I have, it's amazing how inaccurate their inventory is or just missing data. How do you take a different approach to inventory that the traditional TMCs don't? Because at least as a, like I said, professional user or personal user, I've clearly noticed a difference in inventory.
Yeah. So first of all, we started by flipping the entire model on its head by focusing on the travelers. So while everybody is selling to procurement, CFO, CFO's travel team, we know that we need to sell to them to access the employees. But we care about the employees because we know that they can book outside. So they are like consumers. So to do that, you need to gain their trust. It means that if they are searching in Google and they are searching in Navan, they need to see more content inside Navan. When you don't use Navan, traditional kind of travel agencies will have you kind of in the corporate inventory. We wanted to connect to everything. So when you're using Navan, we are connecting directly to airlines, which gives us unique prices and unique inventory.
We are going like traditional travel agencies through aggregators, basically GDSs. We are connected to every OTA, every rail kind of supplier that is out there, every low-cost carrier that is out there. If you are using travel in Europe, you do need EasyJet. If you are in India, you do need low-cost carriers. So you have to connect to everything that is out there. We have this concept that is called Navan Cloud. This is our connectivity to book everything on the right price in every geo, to change, to give you the credit, to give you unused credits, everything. So our approach to connectivity, which is unique in the marketplace, if it's out there, it's in the platform. And we are doing everything afterwards to automatically make changes and support you. Completely, completely different than the industry kind of business model.
So, I travel or traveled. I've covered a software company in the travel space for, it just got acquired before, we'll call it 12 or 13 years. So, I'd had some exposure to NDCs, but I didn't really understand the importance of NDCs until we started talking a little bit more. But, what's the impact of your airline capabilities with the introduction of these NDCs over the last couple of years? And, I guess, a couple of components in there. Why is that a big deal for you and your model?
Yeah.
But then, too, why doesn't every airline have this capability today? Because I'm a frequent Delta flyer, but Delta hasn't adopted the standard yet.
Yeah. So first of all, the NDC, just for if you don't know what it is, it's to connect directly through a new protocol to the airlines instead of going through GDSs, Sabre, and Amadeus, or any type of aggregators. The first thing, it allows you to make sure that you have the right price. So basically, the equivalent price of the airline's website price and also the right availability. You'd be surprised, but when you see content that is going through an aggregator, some of it will actually be there through a manual process. That's why there are some strange classes there and so on. So first of all, if the airline will show it, we will show it.
The other thing, it allows you to merchandise something that creates a win-win between our users that can actually get the right packages and the airlines that want to display it. So I'll give you an example. You mentioned Delta. Delta has this product, Delta One. It has this type of a seat. United has another type of product, Polaris. It has a different type of a seat. People care about it. They want to see the picture of the seat. When you come to the Navan platform, you can actually see it. They care about the likelihood for this flight to get delayed. They care about the likelihood of this flight to get canceled. When you connect directly to an airline, you have all of this information in your system, which, by the way, supports your LLM model. So it gives you a huge advantage around AI.
But then you can also do other things. I can give you a Wi-Fi or a lounge access while you're buying the flight ticket, not after. So this is what we mean by packaging and merchandising. You can only do it if you are connected directly to the airlines. The reason that you don't see every airline supporting it, it takes time to develop these APIs. Historically, airlines did not have these APIs. With some airlines, they developed it with us. We are, from day one, we're extremely, extremely bullish on connecting to airlines directly. And airlines want it. So it created win-wins. We recently, we just announced the NDC with Emirates, which will give us better everything for our travelers.
Yeah. I guess after COVID, the company kind of went on a little bit of an international acquisition spree. Call it little. You didn't spend that much money.
A lot.
How does your global footprint benefit these customers, whether they're large or small? Couldn't you already, didn't you already have a lot of those capabilities? Help us understand what those acquisitions brought.
Yeah. One of the biggest moats in this industry is the ability to buy stuff globally. When I'm buying a flight ticket from SFO to London, when I'm in SFO, it will be one price. When I'm doing it from London, it will be a different price. It is a different point of sale, which requires different licensing. It requires you to incorporate there. It even requires a different deal with the airline. The same United, I will have one deal with them in London and one deal with them in San Francisco. So think about doing it globally. So first of all, doing these acquisitions that you are talking about allowed us to expand really, really fast and then to make it online and automate. The second, we've bought Reed & Mackay, which is actually the leading VIP agency on the planet.
We could only buy them during COVID because their revenue went to zero. So we were able to do it in the right price. This allowed us, as we started to win the enterprise segment, to support the C-level. So this is super important. So the acquisition strategy was to actually buy stuff that it will take us a very long time to do if it was more organic. Today, 40% of our revenue is actually coming from Europe. Part of this is because of these acquisitions.
The VIP services that you're talking about were interesting. One of the things you can book on there is a police escort, is my understanding.
Yeah.
I haven't done that yet, but I thought I should try it for research purposes once.
Actually, it also goes well with private jets and all of this stuff that are kind of how they're sold.
Sounds like wonderful research purposes.
Yeah, exactly.
Where's my money go?
I gave you a good excuse.
I like it. You're talking a little bit about AI support through Ava.
Yeah.
You mentioned, I think it was 54% of your customer inquiries were handled in the third quarter through Ava, and one of the big benefits there is it's drastically improved your gross margins.
Yeah.
Using technology versus human labor, obviously, in those scenarios. But you've also talked about shifting AI focus towards just the R&D platform as a whole. How do you balance the AI innovation kind of across the platform? Because my guess is you have a lot of opportunities today.
Yeah. The way that we look at this, it's kind of gross margins is almost like an outcome. We started the company, and we really mean it. We started the company to really hyper-focus on the experience of the frequent traveler. There is so much that you can do with machine learning. Machine learning will give you kind of what you see in Netflix, to choose the right movie or to choose, in our case, the right flight or the right hotel without spending a lot of time. LLMs are taking it to the next level where I can really get you. I can get you on a discussion level. I can know a lot about you. So you will like this discussion. So the way that we are thinking about it is what if there is a personalized virtual travel agent for you. Why virtual?
Because of gross margins and cost and so on. But can I give you the same level of service that you can get from the best VIP agent, but doing it completely automatically? So three and a half years ago, when there were some obviously huge breakthroughs around LLMs, we've developed Navan Cognition, which is our own agentic platform. It uses different models. The biggest component there is memory, which is based on all of the data that we stored in the last 10 and a half years in the platform. And it allows me to have really good discussion with you. So when you are stuck in New York and there is a storm, if you'll try to call an airline, it will take you a very long time. If you'll try to talk with one of our competitors, it will take you a very long time.
In the Navan platform, you click on Ava, and a few minutes afterwards, you will find yourself in the solution that is available, either the hotel, because the airport is shut down, or the one kind of seat that you have in one kind of airplane to go out, and it kind of is a race to the seat. So you better get your service fast. That's what Ava gives us much, much, much better service for our travelers. It's also cheaper. So you see it from a COGS perspective, and therefore you see the gross margins expansion. I've mentioned the Reed & Mackay business. The Reed & Mackay, the VIP segment today is not going through Ava. So think about the real on-platform gross margins. It's actually higher because it's all mixed together. There is a pretty big program in Navan right now to bring VIP to on-platform.
So that's a huge opportunity. Navan Cognition, this AI platform, is allowing us to develop another thing that will actually impact revenue. We are going to release Navan Edge. Navan Edge is a new product that is focusing on how travel will look like in the next 10 years. We are going to release it very soon. It will allow us better engagement with the non-travel segment, therefore more revenue.
Okay. Sticking in the product team a little bit, the company has two other products, expense management and corporate card kind of modules. I wanted to spend some time on the corporate card kind of opportunity there because, as I know that when we were going through the IPO roadshow, questions I had is, I think that's part of the business that's not well understood.
Yeah.
But you previously restricted access to credit, or the company did. With the new liquidity post-IPO, how does that corporate card kind of portfolio change? And how do you take the new capital opportunity to invest towards the travel side of the business?
Yeah. So we deliberately slowed down in the last two years the corporate card business, and then it impacts your expense business. And the reason is it's actually our balance sheet. Our balance sheet became super complex during COVID, added converts, added debt. And we actually needed to clean it up to be competitive in the market from a credit perspective. So actually, the IPO completely cleaned it up. When we were in the markets with payment terms that are not equivalent to our competitors, which are mainly Brex and Ramp, it means that the terms would be how fast you're going to pay us back. So you basically give credit to the companies that are using us. Everybody is giving 30 days plus 10 days. We were giving 7 days. Okay? So huge difference. Everybody is giving 1.5% cashback. We are giving 1%.
So in a way, I think that it tells you how much our product is better because while we were restricting these terms, we didn't lose customers there. So we restricted terms to existing customers, and we continued to grow. The IPO cleaned it. We actually have one warehouse that allows us to do this credit from Goldman. We are extending very soon another warehouse. Our capacity is actually really, really good. Now our sales team now is free to sell as much as they can to do this touch. But we need to remember something. Our main focus is travel. You are actually making way more yield from travel compared to payments. So this is our focus. We are partnering with everybody. So Brex is a partner. Citibank is a partner. Citizens is a partner.
So to our customers, we are telling either use our payments or use somebody else's, what is best for you. It's actually extremely hard to go in the enterprise segment to anybody and to tell them, move from your JPMorgan to Navan, Navan, or to Brex or to Ramp. Navan is very unique by actually providing both. But we will see an acceleration there, which, by the way, impacts yield. You make more yield, more outcome from travel, significantly more. But still, the around 1% that you can get from payments attachment, it's something that we like. And we definitely expect acceleration there.
That's great. When you think about your customer set that's using the corporate cards and kind of the unlocking that occurred, is the initial benefit more to existing customers and the credit that they unlock, or is this more of a better opportunity for you to acquire new customers?
It's actually both. First of all, we lead with travel. We land with travel. But if we can attach payments and expense during the sales cycle, we're going to do that. And we feel really, really good post-IPO on that side. But also retaining customers. If you are with payments, you are with terms that are not equivalent to the market, the customer is more likely to look outside for a payment solution. Travel is extremely, extremely sticky. It is extremely rare that people will leave us. On payments, we are actually, we got back to all of our customers and told them we are back to where we were before we made these changes.
Okay. Let's talk about kind of go-to-market here a little bit. It's your first public speaking opportunity, or at least conference, so making this be a little educational. Navan serves businesses really of all sizes. There's a couple of well-known large companies, smaller companies like obviously us that need them, but what are seeing the healthiest kind of around demand? Are you seeing any differences out there, whether it's size of company or maybe industries in general, or just the trends in general that are buying your solution, not how they're using the product, but where are you kind of seeing that focus today?
Yeah. If you'd asked me that question, let's say five years ago, I will tell you we are only selling to tech and to maybe new or cutting-edge kind of companies. Today, and probably in the last two to three years, we are selling to everybody globally. And it's unique. We built a company as kind of mid-market went up market and then added PLG. It's unique. I don't think that there are a lot of companies that are able to do that. So why we are able to do that? The product is extremely consumerized. So if it works for an employee in Unilever, which are a customer, it will also work for an employee of a company of 100 employees. And that's very unique.
Both go-to-markets, what we are calling sales-led growth, and the other one, which is PLG, you come, usually to Instagram or TikTok, you see an ad, and you kind of sign up. Both are extremely, extremely, I would say, healthy, both from a growth perspective, but also efficiency.
Okay. 90% of the company's revenue is usage-based.
Yeah.
Take rate from the different products people are using. How much visibility do you have into demand? I think one of the questions I got a lot around the IPO is the revenues aren't recurring based on how we define recurring, but there is a lot that's reoccurring. How do you think about that in any given quarter?
So first of all, we are not a SaaS company. So that's something to understand. We don't have some licenses, and we recognize them immediately and so on. So that, I would say, creates more of a challenge with the way that you guys are looking at the company. I'll talk about that in a second. From predictability perspective, when an enterprise is using our product, we take their GL info from NetSuite. So we know how much they spent last year and when did they do that. And we actually shove it in through our machine learning model. And we will know on a daily level for a user on a company how much we are expecting that user to use us. And it's actually from an operational perspective.
If it's a user that suddenly is not in the system, the product will start to do stuff to re-engage the user. If it's on a company level, the account management team will actually know something is kind of off with this company. Let's talk with them. So while it's not a SaaS business, our predictability is really, really high. So we know what we're going to make, and our finance team have a good idea of what we're going to make in the next, I would say, 18 months. So that's extremely predictable and helps with forecast. Yeah. In terms of the way that this business works, and that's something that I think when you just look at the P&L, you can get to the wrong conclusion.
The way that we sell, we sell today, we pay commission today, we deploy later in the next two months, and then you get to full ramp in six months, and then you get to full kind of ARR kind of equivalent in the next 18 months. So in fact, if you see us spending a lot on go-to-market today, that's a good thing. When we are reporting our GBV, how much was spent in what we reported in Q3, what you kind of saw is what we did 12 months ago. So if you see me spending a lot of money today, it's actually a good thing. If I want to be in the Rule of 40 tomorrow, I can cut spend by half on go-to-market. It will not significantly impact the revenue on that quarter or the next quarter. You guys will get excited.
It will actually be on the Rule of 80, and you'll actually make the wrong kind of conclusion on the company, so we're going to continue to invest a lot in, I would say, two areas: go-to-market to gain more share and faster, and our entire innovation, especially when it comes to AI.
Last question for me, and we'll turn it over to the audience. If we go back to the third quarter results, thought your first quarter out of the gate was very strong, like the guidance in the fourth quarter here. I think the biggest surprise on the quarter that I had was your free cash flow guidance for fiscal 2027.
Yeah.
You talked about being break-even positive, and that we'll call modestly positive. My words, not yours, but that was a $50 million difference than my model had, and I think a lot of my peers that were involved with the syndicate is, where is that coming from? Because $50 million, given your size and scale, that's a really big change relative to our expectations.
I would say, you know, I keep mentioning Navan Cognition as our AI platform. This technology is extremely good and becoming efficient by the minute. It's a technology that allows you to play with any type of model that is out there that you guys are familiar with, whether it's Google, whether it's OpenAI, whether it's Anthropic, and our model, and to decide right now in that minute which model I'm going to use, because that will be the most efficient, then sending an agent, I mean an AI agent, to the right API in our platform to do something, so basically change your flight, do something, so this thing is very efficient, which really affects our economics, our gross margins. We do see how the Reed & Mackay business will get into the platform.
We are a company that is innovating all the time and looking at how we spend money all the time and see what we can automate. We took from day one, we went and automated, I would say, the most mundane, boring things in the travel industry. Go to any website out there of an OTA and try to change a flight. Why can't you do that? Because it is actually really, really, really hard to automate on every airline basis. Every airline kind of behaves differently when it comes to credits and so on. So we are really good on doing that. Cognition accelerates us, which gives us more confidence on our efficiency. I'll give you something that we never talk about, which is affecting efficiency. Cognition is even doing the marketing ads based on usage behaviors and what will convert somebody on the platform.
We are deciding to say something on Meta. It's actually based on something that Cognition told us. This makes marketing more efficient. You can see efficiency across the board coming from the Cognition, basically from our AI platform.
Okay. Fascinating. All right. We've got five, six minutes. Happy to take any questions from the audience if there are any. Yes.
You talked about the 15% cost savings that you generate for your customers. How much of that are you able to then retain as business? How much of your customers, how much of that your customers allow you to monetize?
The 15% are all going to the customer. So the way that it works, when you come to the platform, we're making this game with you. We are showing you this hotel, that hotel, and so on, and different types of rooms inside the hotel that comes from different inventory. We are, through machine learning, deciding what is the right price for you to book right now that trip. And if you book under it, we are giving you rewards to later book your personal trip in the platform, which is the big kind of big league kind of part. People love it. It creates a lot of stickiness with the employees. But that creates an immediate saving to the company on that transaction. You're basically booked under the market price and under policy. So that's one part of savings. The other one, there are other concepts there.
One is dynamic policy. I will not get into this right now because it's kind of complex. All of these things together are reporting to the finance team on this transaction. This is how much money you saved. We report it on a transaction level, on a company level. So when you aggregate this in average, it's 15%. All of this is value to the customer. We think that if our customers, so in theory, you can kind of say our revenue would be 15% higher. But we think that if we are creating this value to our customers, we'll gain share faster and actually will take the market.
Maybe it'll capture some of that unmanaged spend offset that as well.
Yeah. 100%.
Opportunities there. Anything else? Any other questions? Yeah, Andrew.
I guess the throttling of the card spend that happened, that kind of stopping and kind of opening back up again, how does the modeling change for the business going forward?
We assumed that when we gave you the model, so we knew that we are basically not optimized in the payments business. We know that there is demand, both from a sales team perspective, but also our past. You know, the fact that we came to customers and told them overnight, you need to change from 30 plus 10 to seven days, and they didn't leave us, tells me that we have really good value proposition from a product perspective. So we knew that once we are removing that issue, we'll be in a good place. So we actually modeled the ability to do that. So when we are saying, hey, we are confident on the 7% yield, I know that in the Q, a lot of people looked, okay, we went from 7.5 Q3 last year to 6.9 this year. So what does it mean?
Are you going to continue to trend down? We feel very good on the 7%. This part is part of the reason that we feel good.
Probably time for one last one. Well, with that, we'll let everyone go and get three more minutes to fight the elevators. Ariel, thank you so much for joining us.
Thank you.
I really appreciate it.