Q4 2021 E2open Parent Holdings Inc Earnings Call
Good afternoon, My name is Gabriel and I'll be your conference operator today at this time I'd like to welcome everyone to the E. Two open fiscal fourth quarter and fiscal year 2021 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question and answer session if you'd like to ask.
Good question. During this time simply press star followed by the one on your telephone keypad, if you'd like to withdraw your question press. The pound key. Thank you Adam Rogers Senior director of Investor Relations You May begin your conference.
And good afternoon, everyone. Welcome to the you open fiscal fourth quarter and fiscal year 2021 earnings Conference call.
Today's call has been prerecorded and will include comments from our President and Chief Executive Officer, Michael part of the guidance followed by our Chief Financial Officer, Gerry <unk> and then we'll open the call for a live Q&A session.
An audio replay of the call can be accessed through may 25th and an archived webcast will also be available on our website <unk>.
Information to access the replay is listed in today's press release, which is available at E. Two open dot com under the Investor Relations section.
Before we begin I'd like to remind everyone that during today's call, we will be making forward looking statements regarding future events and financial performance.
Including guidance for full fiscal year 2022.
These forward looking statements are subject to known and unknown risks and uncertainties.
E. Two open cautions that these statements are not guarantees of future performance.
We encourage you to review our most recent reports, including our 10-K and any applicable amendments for a complete discussion of these factors and other risks that may affect our future results or the market price of our stock.
And finally, we're not obligating ourselves to revise our results or these forward looking statements in light of new information or future events.
Also during today's call, we will refer to certain non-GAAP financial measures.
Reconciliations of non-GAAP to GAAP measures and certain additional information are included in today's earnings press release, which can be viewed and downloaded from our investor Relations website.
And with that we'll begin by turning the call over to our CEO Michael far Lucas.
Thank you Adam.
Thank you for joining us on our fourth quarter and fiscal 2021 earnings call.
This is our first earnings call as a publicly listed company. So I'd like to start our dialogue with a few thoughts about how we will build our relationship with our investors as well as a few words regarding the ongoing pandemic.
As we begin any new endeavor at either open we start with our principles. These principles are meant to be foundational and act as our North Star and.
In fact, we publish our operating principles in every office on every badge and they're also listed on our website.
We're public about these principles with the belief that we can more closely to move up to them and also hold ourselves accountable to that.
Our principles for communicating with public investors are as follows we prepare.
Build relationships on trust and respect the.
Redirect and transparent.
Learn and operate with intensity.
Make and meet commitments reliably.
I always add value and own the results.
While these tenants are our operating principles. We believe they are equally applicable for our relationship with the investment community.
The second item I'd like to address relates to the ongoing pandemic.
We're all very grateful and thankful for the frontline workers and medical communities, who have stepped in to take care of all of us over the past 14 months during this tragic situation.
The speed to which the medical community evaluated this disease to offer lifesaving remedies and ultimately a vaccine.
There's nothing left on remarkable.
I must say however.
While parts of our world to a very strong way at the end of a very dark tunnel menu.
Many parts of our global community are very much in the middle of this awful disease.
Our hearts and prayers and thoughts go out from our team members and brother in Asia, especially those in India. We're feeling that prompted this disease at this very moment.
With that said, we're very pleased to be here today to share the results of our fourth quarter and fiscal year 'twenty one.
I'd like to thank each of our team members for continuing to perform at the highest level and for our clients, who humblest every day with their confidence and support.
Without all of our valuable teammates on clients. These results would simply not be possible.
During our listing process, we were able to provide guidance and projections for FY 'twenty, one and FY 'twenty two.
Since we decided to be very clear in articulating the organic growth rates and operational metrics of our business. These projections, where in some cases based on non-GAAP revenue and adjusted EBITDA.
In the spirit of our operating principle number three to be direct and transparent.
We will endeavor to give you a direct comparison to these projections, while fully complying with SEC guidelines for providing our GAAP financial results.
We are pleased to report that we ended fiscal year 'twenty, one with a strong fourth quarter that positions us well for fiscal year 'twenty two.
We exceeded our FY 'twenty, one revenue guidance by more than $3 million based on strong performance on our fourth quarter.
Where we generated $89 million and total non-GAAP revenue.
In addition, we also exceeded our FY 'twenty, one on adjusted EBITDA guidance by nearly $5 million.
We surpassed our projections and guidance for FY 'twenty one.
We're also raising the low end of our previously announced guidance of non-GAAP revenue for fiscal year 'twenty two to a range of $369 million to $371 million based again on a very strong Q4 and extremely strong start to Q1.
We are highly confident we will meet our guidance of 10% organic growth in FY 'twenty two.
The strong growth in the quarter was fueled by broad based demand across all of our services and global footprint.
We saw continued momentum from our supply chain operating platform, which helps us drive our FY 'twenty, one non-GAAP subscription revenue.
These results are a testament to the ever increasing value and reach of the Ito open platform.
In a few moments I will turn the floor over to John <unk>, our CFO to walk us through our financials in more detail, including our revenue guidance for FY 'twenty two.
But first I'd like to provide an update on some of our most important developments during the past quarter.
As we became a public company, we articulated for specific growth levers that we will implement in FY 'twenty two to further increase our growth rate beyond 10% in FY 'twenty three.
<unk> increased our distribution through building strategic partnerships.
Identify new value drivers by leveraging on network and our data.
Improved packaging and pricing of our solutions to increase sales velocity.
Build a new logo sales team to augment our current go to market strategy focused on existing clients.
We are ahead of plan on all four initiatives.
We have stood up our new logo sales team with the addition of eight quota carrying reps and the requisite management and pre sales teams.
We previously announced two partnerships, one with Dun <unk> Bradstreet and the other with Maersk and have three more partnerships in our pipeline.
We began our data journey with a significant relationship with Dnb when you combine our efforts and leverage each other's platform and distribution.
We have completed our packaging and pricing work and have begun implementation phase of this program.
As we have previously stated we have high visibility to our 10% growth rate for FY 'twenty, two which is not predicated on these four initiatives.
These four initiatives are meant to expand our growth rate beyond 10% as we enter FY 'twenty three.
We're also proud that Gartner recently placed either open in the leaders quadrant for multi enterprise supply chain business networks with the highest ability to execute and completeness of vision for the second year in a row.
We're a bit of background either open is 100% cloud subscription base supply chain management software platform.
We are a platform company.
Pure cloud.
Upon the largest supply chain network comprises over 220000 participants.
In fact on a revenue basis, we are a largest pure cloud provider of supply chain software solutions.
Our platform combines networks data and applications natively spin on mission critical platform that allows the most iconic brands in the world to maximize revenue reduce costs and.
And increase agility and resiliency and their supply chains.
Our solutions are mission critical and we will work very hard to maintain long term relationships with each of our clients.
This is demonstrated by an average customer tenure of 14 years for our top 100 clients.
These clients represent 77% of our subscription revenue.
In aggregate, we serve more than 200 customers in over 180 countries across a wide range of end markets.
Including technology, consumer food and beverage pharma industrial and transportation.
We operate in an attractive industry with strong secular tailwind.
A large and growing addressable market of 45 billion.
This tam is comprised of more than 85% white space, including what we estimate to be more than a $1 billion opportunity within our own existing client base.
You to open typically replaces a combination of on premise legacy homegrown applications, many of which are tied together with manual processes and frankly spreadsheets.
As manufacturers have evolved from from companies owning the full production of distribution lifecycle to orchestrator.
Mostly outsourced manufacturing distribution and selling process.
Supply chains have grown even more complex increasing the demand for EDA opens unique end to end multi enterprise platform.
We believe our fully cloud based platform offers a differentiated solution that provides differentiated value.
As compared to our clients current solutions and what is available by other point solution providers change.
Changing topics for a moment.
I'd like to spend two to three minutes to articulate our plans regarding environmental social and governance or ESG. This is an important topic for us and all of our clients.
We are fortunate to start our ESG conversation by sharing the dramatic impact our various solutions have to the world economy and our environment.
We play a key and vital role in the ESG journey from many of our clients.
Our stated purpose is to improve quality of life by enabling the most cost effective and environmentally sound production and distribution of goods and services.
We do this by enabling our clients to use the most economical and lowest impact modes of transportation.
By eliminating waste throughout the supply chain.
Reducing the environmental impact and lower the cost of goods sold for the world's most well known brands.
As one example, we are currently deploying what we believe is the world's largest end to end planning system from $80 billion company.
The ROI from this project is derived from shifting much of their air transportation to Ocean transportation.
We enable this result by connecting planning and execution together in one end to end process.
The results of lower cost and more importantly, a significantly lower environmental impact and reduced carbon footprint.
We look forward to sharing opens first ESG report with you in the next few months.
Lastly, we are two weeks from the end of our Q1 on.
I'm pleased to report that we're off to a great start.
We've already set a record for Q1 sales on a net and gross basis on our RPI remaining performance obligations are over $550 million.
As I wrap up there is no question that you had opened provides essential infrastructure.
Little transportation at the world's largest companies are undertaking.
Businesses around the world require supply chain ecosystems that connect supply and demand and one connected real time platform.
Our network connects our clients to over 220000 trading partners across supply logistics global trade and demand ecosystems.
We can take data from this network to AI and machine learning applications natively to provide a comprehensive end to end supply chain operating platform.
We are emerging from a strong FY 'twenty, one, but you had that brought both challenges and opportunities that we never could have anticipated.
Our business continues to gain momentum and we are poised to accelerate our organic growth in FY 'twenty, two and beyond we can't wait to show you, how we realize our potential.
With that I'll turn it over to Jarrett to provide more detail regarding our financial results Jarrett.
Thank you.
As Michael mentioned, we're pleased with our results for the fourth quarter and full fiscal year.
I'd like to remind everyone that our fiscal year begins on March one so when we talk about fiscal year 'twenty. One we are referencing our financial year, which ended on February 28 2021.
I'll begin by reviewing our fiscal fourth quarter and fiscal year 2021 results and then I'll comment on our full fiscal year 2022 financial outlook.
Thereafter, well open the call to your questions.
So moving to our income statement.
Talk about our results on a non-GAAP basis, we show a reconciliation to GAAP measures in the press release, which is available in the Investor Relations section of our website at <unk> opened dot com.
For the fourth quarter, we generated total revenue of $88 8 million, representing an increase of five 5% from the fiscal fourth quarter of 2020.
Broken down by reporting segment subscription revenue was $72 6 million up seven 6% over the prior year period.
Our professional services revenue was $16 2 million or two 9% decrease from the fiscal fourth quarter and 2020.
The principal non-GAAP adjustment to revenue, we are presenting relates to the fair market value reduction of our deferred revenue balance from the FCC and be one combination and its corresponding impact on our subscription revenue.
The decline in services revenue year over year was due primarily to the impact of COVID-19, we're on.
Customers delayed projects or projects, where elongated while our customers focused on reacting to remote work on the immediate disruptions in their supply chain caused by the pandemic.
Gross profit was $63 4 million in the fiscal fourth quarter up eight 6% from the prior year period.
Which generated a gross margin of 71%.
This increase was due in part to the acquisition of Amber Road in the first part of fiscal 2020.
Alright, adjusted EBITDA was $28 2 million compared to $19 7 million in the prior years fiscal fourth quarter.
Now I'll recap our full fiscal year 2021 results again, focusing on non-GAAP.
Results.
Total revenue was $337 8 million up 10, 7% year over year.
Subscription revenue was $281 6 million increase from 15, 4% over 2020.
A portion of this increase was attributable to the Amber Road acquisition, which was completed in the first half of fiscal 2020.
Professional services revenue was $56 2 million day.
And on eight 1% from prior year.
The decline in annual services revenue again was due primarily to the impact of COVID-19, which I mentioned previously.
Our gross profit for the year was $240 8 million up 14, 5% year over year, and representing a 71% gross margin alright.
Alright, adjusted EBITDA was up 59, 8% to $109 5 million compared to $68 5 million in the prior fiscal year.
Now I'd like to finish with our guidance for fiscal year 2022 on a non-GAAP basis.
For the full fiscal year of 2022, we expect total non-GAAP revenue to range from 369 to 371 million, which is an increase from our previous guidance of $367 million to $371 million, representing an organic revenue growth rate of approximately 10%.
We expect non-GAAP gross profit to be on the range of 268 to 270 million or 72% of non-GAAP revenue and approximately 10% higher than 2021.
We expect adjusted EBITDA to be on the range of $120 million to $122 million or 32% of non-GAAP revenue.
In summary.
<unk> had a solid fourth quarter and fiscal year from both a financial and operating perspective.
We remain focused on executing our growth strategy to capitalize on the multibillion dollar market opportunity.
Lies in front of us as a newly public company.
With that we would now like to take your questions. Operator, we're ready to begin the Q&A session.
Thank you.
As a reminder, in order to ask a question you will need to press star one on your telephone keypad.
Our first question will come from Chris Merwin of Goldman Sachs. Please go ahead.
Alrighty. Thanks, so much for taking my question and congrats here on that.
On a great quarter.
I wanted to ask you about the expansion opportunity I think.
You talked about $1 billion opportunity within the existing customer base can you talk a bit about.
The things Youre doing to realize that.
Either from sales perspective.
Hiring up there to push more on.
Expansion and anything you can share about increases in deal sizes for the existing base. Thank you yeah. Thank you Chris I appreciate the question.
We have a go to market as we've identified before that it was mostly built around focusing on our existing clients and increasing our penetration. So when we look at that $1 billion opportunity. It's really the current applications we have into.
Our penetration could be within our customer base given reasonable expectations. So today, we generate new sales roughly around 80% of new sales come from existing clients. So we have a fulsome.
Organic growth into our existing client base in that process. What we're adding is a new logo team on to that mix to increase the number of logos. We have to then start that penetration over and over again. So our growth rate today is largely because of that penetration, we see into that into that space in terms of deal size.
We sell both individual solutions on we have also platform sales I can tell you for the last 18 months, we've seen more and more larger transactions that look more like companies, saying, we're going to.
All in or a bunch of larger set of.
Of applications on one time, so the deal size is growing.
And as we get to a larger penetration with our customers reached a tipping point and then they tend to buy more on that obviously increases our penetration and stickiness. So we think that model works really well for us has been from last four years.
Okay, great. Thank you and maybe just a follow up question in terms of the drivers.
Accelerating organic growth.
So the 10% I know theres fewer net new logo sales new strategic partnerships further monetizing the data network can you talk a bit about like.
Which of those are kind of furthest along in terms of.
We might be the impact.
Most most imminently.
Yes, I think on the partnership side, certainly because we have two of those in place that are working and we expect to see some revenue growth latter part of the year. The new logo sales has stood up it's going to take a little while for that team to generate pipeline and then closed deals are rather long sales cycle six months to nine.
In many cases for new logos, especially on so we think the partnerships is where we will see kind of the most immediate impact on.
Kind of how we think about.
Our partnership with Dun <unk> Bradstreet in terms of how we can create new data products together with them. So those two areas I think will have more immediate impacts, but those four things are really meant.
To be implemented this year to help us grow faster next year. So our 10% organic growth is not predicated on any of those four initiatives for this current year.
A large degree of visibility into that 10% growth.
Yeah.
Great. Thanks, very much thank you Chris.
And your next question will come from Taylor <unk> of UBS. Please go ahead.
Hi, Congrats on the first quarter and thanks for taking my question.
First I just wanted to talk through the guide a little bit can you maybe walk through some of the assumptions that are embedded in that 10% organic growth guidance. So it sounds like that new logo growth might come later on in some of the sales reps ramp, but just in terms of the existing installed base I know that you guys have been historically given like the dollar dollar based net.
Tension right. So can you provide any color in terms of like a potential range of that going forward or just how we should think about that the upsell opportunity that's embedded in the guidance.
I'll start and ask Jarrod to chime in.
95% visibility into our revenue plan for FY 'twenty, two so we feel very confident.
On our guide on the revenue side, and that's mostly from what we see in our pipeline.
We see a contracts already under contract and.
Renewal rates that we have high visibility into those three things gives us a tremendous amount of confidence into our FY 'twenty to revenue guidance, we feel very comfortable in that 10% growth rate on I mean, John anything you'd add on to that.
Yeah, No I think Taylor.
We're still do on what we've historically done and Thats been very successful at the cross sell upsell opportunity that debt represents that billion dollar and white space that that Michael just spoke to with Christian's question.
That has historically represented about 80% of our new new sales activity and we anticipate that will diminish over time, but for this year I think we get to that 10% really largely due on what we've done in the past and then as we layer on these other growth initiatives that helps us transform.
On the business closer to the long term growth projections.
Projections that we provided.
Got it and then my next question is just on the 10% or so customers that make up the large majority of your revenue. So so clearly that demonstrates the potential for these large average deal sizes, but I'm. Just wondering if you could provide a little bit more color on on the key characteristics that create deals of that magnitude.
If theres anything specific with those customers on the applicability to the remaining 90 per cent of the installed base. Yes. So just some metrics around that our top 100 customers generate something like 77% of our subscription revenue.
And all.
All of those customers the kind of median.
Subscription is around $800000, our top 10 customers medians around $7 million and the top 10 are only different from the top 100 and that we've been with them longer than they were further penetrated. So we think all of those top 100 has the potential to be multimillion dollar.
Clients and Thats kind of the growth we've seen.
On a normal pattern for us will be to find a new logo.
The order of magnitude of three to $400000 for our new logo is kind of on average and then that grows over say three to four year period to something that looks like $2 million to $3 million and going beyond that.
It can be even larger.
On the gross pattern, we see within our install base.
Yes.
Great. Thanks, so much thanks Bill.
Your next question on come from Mark Chapell with benchmark. Please go ahead.
Alright. Thank you for taking my question and congratulation on the first quarter as a public company. Thank you.
Michael with respect to the different supply chain segments that you compete in which ones are you currently seeing the highest demand source. So for example would it be like ocean shipping or global trade.
On Monday.
The three categories demand sensing for US has always been a very strong category has been for the last five years and continues to be so demand sensing is a machine learning algorithm that takes external data and creates a very accurate forecast of the item store level we.
We have range are examples of that being the mass demand forecasting system in the world. So that's always very.
Something is very strong for us more immediately global logistics visibility has been extremely important and a big part of our pipeline as well as global trade management of those two things go in tandem so were you.
Pretty unique lab both of those on one platform, but those are the three areas that we see right now is kind of really driving our pipeline and actually are on the subscription sales.
Great. Thank you and then.
So two on your recently announced partnerships with the near NAV solution that Youre that youre coming out with how does that differ or complement your current.
Ocean shipping solution.
So <unk>, obviously is a great company the world's largest ocean shipping company in the World, We do a lot of bookings with them through our <unk> platform as you are aware.
They also have great operational capabilities and they have for PL services. So think of this as having a combination of their great teams using our platform more full suddenly to help their clients manage that very complex.
<unk> transportation problem around the world, So think of it as using their people and expertise.
On our platform to drive differentiated value for our combined customers.
Okay, great. Thanks, and then.
On the Don and Brad True partnership analytics has been a key supply chain Airlines has been.
Something that the organizations have talked about doing for years, but it's either really implemented are they struggled to implement it and I'm just wondering what changes you are seeing there.
And the supply chain analytics space are you starting to see customers move beyond just kicking the tires.
Yes for sure I mean, it's really one of the most important places and with our partnership with Dun <unk> Bradstreet we're.
We're making investments with them they are making investment also.
But they have really great sets of data and then we have data on our work as well and we're really thinking about that is combining those data sources integrating new insights and then having two distinct distribution channels.
Almost every company in the world with Dnb customers. So they have huge distribution to take some of our combined data elements and then.
On available for their.
Their clients as well as embed some of the data that they have available back into our platform itself. So we think that distribution channel works both ways and we're super excited about it. It's our first step into thinking about how do we come really much more robust and mature and kind of on the analytic space and they are the one of the best if not the best company in the World.
So we're extremely excited and humbled to be partnering with them.
Okay, great. Thank you very helpful. That's all from me.
Excellent.
Our next question on come from Yun Kim of Loop capital. Please go ahead.
Alright, Thanks, guys congrats on the first.
Reported as a public company I will tell you without really a non event with your pre announcement, but.
Can you talk about the momentum that you're seeing with your supply chain applications versus maybe the.
On the core platform first how much of your revenue mix is really driven by beef.
Supply chain applications.
Can you comment on which areas or which.
Applications are you a top revenue generating.
Obviously, it sounds like the demand that you saw.
He is one of them.
We have seven product categories application categories.
And we market and sell subscription agreement.
Agreements for applications. So that's the agreements we signed so far our clients leverage our network and on our connections to get data from that.
On the network.
Fund if you are to present to our application. So we sell applications Thats. The primary go to market driver.
And we saw as we had mentioned three year contracts that are committed.
In terms of the product families that are.
In terms of our revenue mix is actually quite balanced across all seven product families with the ones that are showing up more and more on our pipeline are.
Well, we'll just because its ability.
Global trade management on demand sensing are the ones that are really kind of showing up more and more at this point.
Okay, Great and then obviously.
There was an announcement in your press release about the formation of a new account local sales team.
I know you talked about it a little bit earlier on the call, but can you give us a little more detail regarding.
How big that will be versus your existing sales group.
Hum.
It is something that we can expect to ramp this year weighted more likely fiscal year 'twenty three.
And then just.
Questions around debt.
Will you be targeting.
Global two thousands or more and more of a just up existing.
Sure.
Just around the new customer.
You're just seeing supply chain network and if you could just.
Kind of give us a little more insight into exactly what the opportunity differently.
A cat local sales team will be focusing on yeah, absolutely. So for the past four years as we build our platform on we identified that we had a lot of penetration we can do within our existing customer base.
Strategically on those.
Hopefully, we really focused on building, a really well running operation around cross sell upsell into our client base. We thought that was the most important thing to do first and we've really focused on that area and in that case, we have 55 or so of quota carrying reps to focus on our existing clients and just to.
Give you some scale each sales person would have four to six accounts.
Existing client management organization and their job is to know that customer inside and out the drivers do not show up when there is a project, but to actually work with them to expand our platform.
Into their supply chain operations, and Thats, where roughly 80% of our subscription comes from today.
And the 20% debt, we get we just yet because we will come to us now.
Work, having been done and built which is driving our growth rate to 10% this year.
We now are in a position on the scale to build a new logo sales team to further increase the number of existing clients. We have so in terms of ramping that up many of those people have been with us in training for about nine to 12 months. So we put them in the field and they are ready they're ready to go it will take time, so we don't.
Have much in the way of incremental revenue built into our plan from that team.
Right now, we have eight and that would likely ramp to something in the mid teens as we kind of get through the rest of this year and so that's how we think about it in terms of what this generates for US is that our average new logo sales is around 250 to $300000.
Every one of those new logo sales to off represents a $3 million to $5 million opportunity over the course of three to five years. So that's how we think about the new logo sales team. So it on in terms of the focus area.
We focus on Super tier one tier one.
For our clients with the most complex global supply chains, and that's really where the focus will be so we think there's a lot more opportunity out there and now we have the scale and size to be able to put together a thoughtful plan built on operation around it and have a permanent additional growth lever for us.
Great. Thanks for the detail.
Jeremy.
So deferred revenue.
Yes.
On a better class and understanding of how that deferred revenue dynamics will happen for the year.
In Q4, it looks like there was some write down in there that's why it's a little bit lower.
But how should we think about how the deferred revenue should trend this year.
Assuming your 10% organic growth rate assumption and then 95 per cent visibility that you have shall we see that number sequentially decline.
Over the next few quarters and pick up in Q4, or how should we think about that deferred revenue dynamics.
Yes.
The adjustment that we're making to revenue represents two on.
On some days subsequent to the business combination and our year end and is solely on purchase accounting concept, where we effectively revalued debt remaining deferred revenue to be recognized down to that.
Liability fair value and purchase accounting, so we're showing that is on <unk>.
Add back on the P&L and that'll be a material amount for the first year, where the impact is baked.
But actually last for a couple of years until all of that has rolled off of the.
Life of the contracts in our RP O.
Hum.
Effectively its deferred revenue that we collected at the operating company, but the technical accounting viewed us as being the company being acquired in the stack transaction, which is why we had to do the the fair value is almost as if we bought ourselves.
Our deferred revenue with our growth in bookings and new sales will continue to grow over time and as we replace what's left of that.
Deferred revenue adjustment with renewals within our customer base.
Subsequently just go away so the deferred revenue will grow and as we move forward that adjustment will decline.
That gets your question Yaron.
Yes.
Yes.
Just accounting stuff really makes things a little bit more complicated but.
Yep that does explain things so thankfully.
Thanks for that Darren.
Absolutely.
And those are all the questions. We have today. This will conclude today's conference call. Thank you all very much for joining you may now disconnect.
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