Q1 2022 E2open Parent Holdings Inc Earnings Call
Okay.
[music] Goodbye.
Across our multi year strategic plan, we are seeing great momentum in this category simply put.
We have 300, plus enterprise clients all of which has.
<unk> has the potential to become platform clients.
And of course, we announced the combination of <unk> solutions and have begun on missiles.
Integration planning work.
As a reminder, before growth levers, we're executing to increase our growth rate beyond 10% are to build a new logo sales team, we discussed that on last call.
Create new <unk>.
On the partnerships, we announced 3 since becoming a public company.
Revamp our pricing and packaging model. This program is in place on ramping.
Build new products and revenue streams from our network.
We announced the partnership with Dun <unk> Bradstreet is well underway.
All 4 are on track on it.
Tangible results are evident.
Since we are 100% subscription based company.
These initiatives are being executed this year will mostly show up on incremental revenue in FY 'twenty 3.
1 note on our reference to bookings we are adding this color to provide information on the progression of the business is making as we migrate from challenges.
The global pandemic in FY 'twenty 1.
Will not be providing bookings information as part of our non financial disclosures in the future.
Based on these highlights and what we see in the business, we expect to meet or exceed our 10% growth target for FY 'twenty 2.
The 10% plus growth we see in the back half of 'twenty 2 is underpinned by very strong Q1 bookings.
Pipeline growth.
And the yield on pipeline returning back to pre Covid performance.
Our FY 'twenty 2 plan.
Cost for revenue.
Ramping to an excess of 10% in the back half of the year as the Covid related drag on revenue dissipates.
We have.
Increasing conviction to our organic growth rate beyond 10% in the future not including the additional growth rate improvement, we expect to gain with our pending bluejay combination.
As we did on our last quarterly earnings I'd like to start a conversation.
By sharing information about who we are.
What we do.
Why do we do what we do and how we go about our business.
It was may be repetitive for some on the call.
Newly public company we are.
Tracking new audience members. So please bear with me for just a few moments.
Let me start with our central purpose.
Which is to improve quality of life by enabling the most efficient and environmentally sound production and distribution of goods.
Our business serves a greater good by helping brand owners reduce their cost of goods.
Lowering the daily living expense familiar.
While improving the ecology of our planet. This is why we exist as an organization.
Moving to our mission, which is.
To build the most comprehensive and capable end to end global supply chain ecosystem.
Goodbye networks data and AI enabled applications.
This is our mission as we strive to deliver enduring value for our clients.
Everything we do every partnership we make.
Every combination we consider is grounded by our purpose and our mission.
And we have a firm foundation on why we do what we do.
What it is we strive to do we also want to be direct and transparent in terms of how we accomplish these important goals.
That is embodied in our operating assets.
Be prepared.
Build relationships on trust and respect.
These direct and transparent.
Learn and operate with intensity.
Make and meet with commitments reliably.
These add value.
And on the results.
We publish operating principles. So we can more closely live up to them.
I'm certain there will be times, where we do not do that.
So I'm, just a certain debt being public and transparent with these principles.
Allow us to better achieve them and.
And 2 surface to us where we have not.
With that we're very pleased to share the results of our fiscal first quarter.
We're very proud of our execution during the quarter.
We're pleased to report that we ended the first quarter with strong results that position us well for the balance of fiscal year 'twenty 2.
Sure.
We are solidly above target for FY 'twenty 2 plan on every operating metric.
In fiscal quarter 2022.
We generated $89 million and total non-GAAP revenue.
In addition, we generated strong adjusted EBITDA results for the quarter of over $29 million.
In May we announced the combination of Blue day solutions Blue Jay is transformative for us it is strategically and financially accretive.
As we begin our planning to integrate 2 companies. We are confident that the combination will create a company that grows faster as a combined unit.
Incrementally the combined gross margin and EBITDA and free cash flow as compared to each company operating independently.
I am thrilled to welcome you to open the exceptional team and great customers of Bluejay solutions.
Combining ido open end to end platform and large trading partner network with Blue Jays, leading logistics execution platform <unk>.
A more robust capability and value to our clients unlock a greater opportunity to further accelerate our long term growth rate.
This transformative acquisition advances our strategy and is consistent with the 11 other M&A transactions, we executed over the past 5 years.
In summary, our first quarter was strong.
We are excited about the multiple growth opportunities in front of us.
We remain focused on executing on our initiatives.
With that I'll turn it over to Jarrett.
More detail regarding our financial results Jack.
Thank you Michael.
As Michael mentioned, we're very happy with our results for the first quarter and we continue to see positive momentum in the market today.
Today, I'll begin by giving an update on the bluejay combination.
Then review our fiscal first quarter results.
Finally, I'll comment on our outlook for the full fiscal year 2022.
Thereafter, we will open the call to your questions.
I will start with an update on the bluejay combination.
The integration planning work is progressing as scheduled and we are fully on track with our initial synergy views as well as revenue gross margin and EBITDA on the combined business.
In addition, 1 aspect of this transaction I'd like to highlight is that our core investors that were subject to a lockup that was set to expire on August 4th of this year as part of this transaction have agreed to extend their lockup for an additional 6 months from the closing of the combination.
This afternoon I'll 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 EDA open.
We generated total revenue in the fiscal first quarter of $88.8 million representing.
An increase of 6.9% from the fiscal first quarter of 2021.
1 area I'd like to discuss is how the 6.9% growth rate in Q1 contributes to our 10% growth rate for the full year.
Due to the effects of COVID-19 in fiscal 'twenty, 1 subscription bookings, we expect our quarterly revenue growth rate to increase sequentially each quarter of this year for yield of 10% organic growth rate for the full year of fiscal 2022.
And exceeding 10% in our fiscal third quarter.
Since 83% of our revenue is from annual subscriptions, an increase or decrease in run rate bookings in any series of quarters generally appears in the following year's revenue growth rate.
Our run rate of fiscal year 'twenty, 1 bookings was severely impacted by the pandemic and despite that impact we grew our revenue at nearly 7% in the first quarter of fiscal 'twenty 2.
As we progress through each quarter, the COVID-19 related drag on revenue growth dissipates as bookings ramp through the year in excess of pre pandemic levels.
Broken down by reporting segment subscription revenue was $73.5 million up 5.6% over the prior year period.
Professional services revenue was $15.3 million or 13, 3% increase from the fiscal first quarter in 2021.
The principal non-GAAP adjustments to revenue in the period are related to the amortization of the fair value adjustment to deferred revenue associated with the purchase price allocation and the <unk> combination.
As noted in the press release, we are adding this adjustment back to better compare our financial performance and demonstrate our organic growth rate.
The increase in subscription revenue quarter over quarter was mainly due to new organic sales in prior periods across our customer portfolio.
The increase on our services revenue reflects a return to normal for our business as the prior year quarter was impacted by delayed delivery of services due to the COVID-19 pandemic.
As a reminder, our fiscal first quarter starts on March 1st and Thats. The prior year was 100% impacted by the global pandemic.
I'd like to turn for a minute to discuss our quarterly bookings performance as Michael noted. This is the only time, we are providing certain booking on quarterly revenue projections in order to help you understand the impact of COVID-19 on our recent financial statements.
And when we expect the comparable periods to be normalized which will happen in the last half of our current fiscal year.
Our gross profit was $65.4 million in the fiscal first quarter of 10, 2% from the prior year period.
The increase in adjusted gross profit was primarily related to new subscription sales from the prior year, coupled with the return to normal of our services business.
Furthermore, overall costs were generally flat year over year.
With some services efforts being redirected into strategic product development and our R&D expense line.
Gross margin improved to 74% for the first quarter of fiscal 'twenty 2 from 71% for the first quarter of fiscal 2021.
Our adjusted EBITDA was $29.2 million compared to $27 million on the prior year's fiscal first quarter adjusted.
Adjusted EBITDA margin improved to 33% for the first quarter of fiscal 'twenty, 2 compared to 32% for the first quarter of fiscal 'twenty 1 and.
And as a direct result of strong operating results related to organic revenue growth followed by relatively flat scaling of costs. As we are just beginning the return to normal as it relates to travel marketing and certain office related expenses.
We ended the quarter with over $220 million in cash on the balance sheet, our net debt of $296 million, resulting in total leverage ratio using current year EBITDA projection of about 2.4 times.
Now I'd like to finish by reiterating our guidance for the remainder of fiscal year 2022 on a non-GAAP basis.
For the full fiscal year 2022, we expect total non-GAAP revenue to range from $369 million to $371 million still representing an organic growth rate of approximately 10%.
We expect our non-GAAP gross profit to be in the range of 268 to 270 million or 72% of non-GAAP revenue and approximately 10% higher than 2021.
And finally, we expect adjusted EBITDA to be in the range of 120 to 122 million or 32% of non-GAAP revenue.
As we began on the call we had a very good first quarter delivering the results we predicted reaffirming our full year guidance and accomplishing several other strategic initiatives. We have previously communicated culminating with the announcement of the acquisition of Blue Jay solutions.
In summary, you to open had a solid first quarter from both a financial and operational perspective.
And we remain focused on executing our growth strategies to capitalize on our multibillion dollar market opportunity.
And now with that we would like to take your questions Adam.
Ready to begin the Q&A session. After a brief pause.
Okay.
Thank you Jared.
Everyone can please give us a moment so we can turn on cameras on and.
Get situated.
Yeah.
So our first question will come from Mark Chapelle.
From benchmark.
Go ahead Mark.
Hi.
Yeah, Hi, Mark how are you doing Mark Hey, guys.
Thank you for taking my question on.
I guess my first question is around the bookings I was wondering Michael for required.
For additional color on bookings in the quarter, specifically for Hollywood declines.
I'm not free.
What we've talked about.
Also while not what's possible.
Uh huh.
Yeah. Thanks for the question Mark.
We kind of measure obviously bookings on a gross and net basis on our bookings definition internally is 1 year of subscription revenue unless it meets certain criteria in terms of fixed contracts on certain duration. So we measure them specifically had been doing that for some time.
And the reason, we don't give bookings guidance for the future is that it's a it's a number that can change pretty dramatically from 1 quarter for the next.
Based on if a deal aside.
1.
29 for the month of the first for the following month and that doesn't really I don't really know, meaning in terms of our financial performance because of the scripts for subscription nature of our business. So we feel it best to give projections on an annual basis on to give guidance on that basis.
Great. Thank you that's helpful and then.
Michael from a product perspective, I was wondering if you can.
It's tough for parts of video supply free space, where you saw particular strength on the quarter we're on.
Yeah, It's a great question not.
Not just in the quarter, but also on our pipeline I think that's consistent and has been for the last couple of quarters in really 3 areas 1 is.
Logistics and visibility.
And that's really been on area for the new growing consistently over the past 3 or 4 quarters.
The 1 new logo, we've talked about it in our press release yesterday, you know specifically in that area Global trade has been very very good in terms of people wanting to understand global trade and then demand sensing is 1 thing that has been really strong for sure.
1 thing of note however is the.
The supply supplier collaboration part of our platform, which was originally to open.
Is getting more and more momentum.
It's a longer sales cycle. When you think about the complexity of that type of solution, where youre connecting multiple suppliers to 1 platform, but that is researching and a really big way and across multiple industries and we see that in CPG on we're seeing that in certain industrial categories as well as traditionally a high.
So those would be the areas to what our platform has performed its not 1 area or the other.
It's 1 of the reasons, we're so confident about our performance of growing through a simple sum plus company of them were beyond is that we see strength in all areas.
Okay, Great and just 1 last question.
Thanks for your for global trade products with us for how much of those for Hudson's Danielle.
For the new customs and compliance rules on budget.
You know I'd say, some but I don't think it's driven by that 1 initiative I think it's more companies are really hard to really understand what the different trade regulations are and we see more companies trying to take advantage of trade regulations, which really speak to landed cost.
I think it's more companies are really doing more sophisticated overall about global trade and the second piece of that is compliance.
There are a lot of regulations and rules around who you can ship to under what circumstances from country to country. So I think gross 2 reasons, we still have the strong areas I don't think it's just Brexit, although that obviously helps.
Thank you for call.
Thank you Mark.
Alright, our next question comes from UN Kim with loop capital.
On.
Okay.
Hello, Brian.
Hi.
Sure.
Okay, I cant figure out the video part of it but hey, congrats on a solid quarter on especially on the strong bookings.
Michael Obviously on you pointed out subscription revenue is really a lagging indicator or a metric on your bookings. So you know we're going to focus on the bookings.
Book is part of your business.
In terms of the strong bookings that you saw obviously you did face easy comp year over year basis, but you know what words, what was the driver behind on 80% on bookings.
Growth was that on a couple of those 2 platform deals you mentioned for you know 1 new customer win that you mentioned or is it really a combination of a lot of different growth drivers.
I think it's we measure our pipeline growth very specifically every quarter and we also measure the yield that we get on pipe on the pipeline that we think we can close within the quarter and what we saw with the pandemic is that the pipeline continue to grow but as companies really started focusing on the other 1 specific needs in the here and now with the yield on pipe.
On the drop as you would expect.
It's because all of those.
Attunity is that had been pending really our yield on pipeline is returning to not quite then.
It had before the pandemic, we're inching closer but the bigger reason is that the pipeline is growing and even though we had a very strong Q1.
Our our pipeline growth exceeded what we've closed and losses and that's on the key metrics I focus on is is the pipeline growing faster than what you're close or don't win and in our case. It has been happening for the last several quarters. So it's more of the demand we're seeing and then our ability to execute on on for Matt.
Okay, great so that kind of at least for my next question.
Can you share with us on what has been the initial feedback that you're getting from your customers on regarding the Blue day acquisition.
I think you mentioned it but since the announcement of the acquisition have you seen your pipeline grow on result, not just <unk>.
<unk> product, but really your core product as well for them.
Customers and then also any feedback that you're getting from your partners regarding the Blue day acquisition and whether or not.
The acquisition on May potentially changed on.
Your current partner strategy.
Yeah, I'm overall very positive low some of our customers on their customers.
For those we obviously talk to we don't we can't talk to their customers for obvious reasons, we're not closed yet.
But where we have you know what.
For our customers reach out for US has been overwhelmingly positive and they can see that the solutions are completely complementary and they can see how we can associate you know a very robust logistics and transportation for capability.
Through our platform and I think that's been really.
Very well received in terms of the partner ecosystem, Yes. In fact, we've had low.
A lot of interest in the partner ecosystem and we have you know I think we've talked about a growth lever of strategic partnerships. We've talked about that 1 of the things that we're very focused on is building.
Building, a more robust integrator partner ecosystem, and we see that as very strategic for us over the next year on <unk>.
Few months, having more capabilities and having more clients need more opportunity for those integrators and I think that's attracting a lot of attention. So that's something that we'll be talking about more as the quarters go on but that's a key initiative that we're working on now that will help us create incremental capabilities for ourselves down the road.
Okay, Great and I have 1 last question for.
Sharon.
Capex came in a little bit high I am assuming that there is a 1 time event item. That's in there can you just explained on Gary Yeah.
Yeah, absolutely and good point and we.
We had some payments related to accruals at year end that flowed through the first quarter, making the first quarter from a cash flow statement higher.
Then our model would be in those were mainly related to some <unk>.
Enhancements in our.
Security infrastructure for our data centers.
Which we're always enhancing but this was a fairly significant upgrade that we did at the very tail end of last year, where the invoices got settled in the first quarter of this year.
So not not a run rate more of a timing issue as well.
You know a significant kind of 1 off upgrade.
Got it okay, great. Thank you so much absolutely.
Yes.
Alright, our next question comes from Taylor Mcguinness with UBS.
Hey, Tyler.
Hey, there you might need on mute your phone.
No.
Okay. There you go can you guys hear me, Yeah, Hi, how.
How're you bought them Hi, hi, good yeah, they pay for.
Taking the question so well on whatever on was talking about earlier, you talked about really strong bookings growth on a couple of platform Gill of 9 on our last quarter. You guys mentioned that you had 95% visibility to the full year revenue guidance. So I guess why why the reaffirm maybe you can talk about some of the assumptions embedded in that guidance and what might be some other areas.
Our caution.
Yeah, Jerry I'm, taking on 1 yeah, absolutely so.
We had a good first quarter, we still have great visibility, even better than the 95 per cent now the professional services is kind of the area. That's the biggest piece of that last 5% Taylor.
And that's an area that has been initially in the year somewhat impacted by the <unk>.
Sicknesses and in India, where we provide a lot of those professional services. So we're inching towards.
Higher in the Ninety's in terms of visibility.
I would say services is really kind of the 1 area that still has some variability into it as we are working through completing our second quarter.
Got it and then my second question is just I know on you guys have talked in the past about organic growth being around 7% pre pre pandemic. So anything you can provide on on why you believe that 10% plus organic growth is more durable longer term. So I'm curious if you're able to give any update maybe on how dollar.
Our net expansion rate has trended more recently versus the hundred 7 per cent, you've actually given out by prior yeah yeah.
So I think 1 of the biggest Keith Taylor is that that 7% historic was a number that was influenced and impacted and it was a pro forma number.
For several other significant acquisitions, we did where we layered in their growth rates for periods before we had on those businesses. When they didn't have the cross sell upsell opportunity that we have once we bring them into the platform.
We saw our <unk> growth in excess of 10% as we exited fiscal 'twenty and then we had the pause from a financial performance perspective from Covid, where the as Michael noted pipeline continue to grow but the conversion of that into.
On contracts has slowed down and so as we work through this year.
We have great visibility, obviously into the back half of the year, where we exceed the 10% growth rate to get to an annual total 10% growth rate.
But we're still kind of working off the vacancy for lack of a better word of some of the bookings that debt on a normal year. We would have gotten in Q1 Q2 Q3 that are kind of bleeding through the revenue recognition model now.
Got it and then my last.
To answer your question Yeah go ahead.
Does that makes that no debt.
Yeah that makes sense and then just my last question is just on for the the really strong bookings performance and I know you talked about some cash like some some bigger deals in there. So can you just talk about like I guess the visibility is and when you guys are looking at the pipeline like Q. These platform deals I know that you guys for very long sales cycles. So is this like was this more of an anomaly quarter right.
Maybe some of those deals some of these larger deal fell in for something that you guys see as the.
That you have more visibility to going forward can you maybe just comment on that.
Yeah, I'd be happy to and this is something that's been ongoing across.
Across our client base is on.
Customers on all our strategy is.
To add capabilities to our <unk>.
Use of our Oh on from a profit for our clients and what we found is as they go from 1 product families..2 product families that are customers starting to think about on much longer term for.
Strategic alignment and we've seen more and more about where 3 years ago on it was really an anomaly and you know it's you know several per quarter, we're talking about doing that and those transactions look more like we agree on a 3 to 5 year plan, we put in a multi multiyear plan on what we're gonna rollout.
Now and then what brought next and those type of transactions, where we believe all of our clients will eventually end up.
And I think that's what really gives us a tremendous amount of confidence to our long term growth rate in excess of 10 per cent.
Because of the subscription expansion is pretty dramatic when that happens it usually doubles or triples for each customer and as we said we have 300 clients.
That will expand on over 600.
Good day, all of which have the opportunity to take that really kind of explosive growth with in each client. So way to think about our businesses. Every client book represents its own growth engine that will grow really rapidly and I think that's what's given us a tremendous amount accounts, we're seeing more and more of that.
Happening on a more repeatable basis, and we're really excited about that I mean, that's kind of been the plan all along and we're really seeing it manifest itself not just on bookings, but also and you know the opportunities we see with our clients and that's not easy on me.
Many times customers, taking on a long time months and months.
On his years to get to that point, when we talk about it for months, but we really are encouraged by the amount of pipeline activity, we have in that category. The other.
Other thing I know and we talked about the new logo success, we had with other new logos, obviously the quarter book, we're seeing areas that they are starting out for a larger dollar amount.
In the first quarter, where normally the first.
On the client purchases for soup broth isn't the $300000 category I think 3 this year this quarter where over 800000.
That just tells me, we're having more success selling more into that initial clients to start with.
Got it that's super helpful. Thank you. Thank.
Thank you.
Thanks Taylor our final question. This afternoon will be from Chris Merwin with Goldman Sachs. Good for us.
The gross debt and much on so.
So I wanted to first ask about.
Yeah. It was related to the Blue Jay acquisition in particular their sales force I know part of the plan I think there was with that sales force you've got a team that was more focused on new logo additions and existing issue open sales force for smart focused on expansions.
Do we think about the process of integrating those sales forces and maybe when we might start to see the benefit of a blue Jay kicking in in the form of more new logo.
Acquisition. Thanks, Yeah, I think I think it will show up in 2 places 1 is new logos and also increasing our cross sell up sell so the strategy is underpinned by our platform and our 7 product and will be available to blue JC on 300, plus enterprise clients. So we have a very strong.
Upsell motion for their clients were in their solutions that they only have 1 or 2 additional packages. So we have a lot more to offer their clients. So we'll see on the uptick.
Not just for new logos, but also from the ability of our.
Being able to market and sell our solutions back in for that client base. That's very powerful and then obviously, we have the additional ability to sell new logos.
Our go to market as you mentioned is the most of the focus on that upsell cross sell was firmly in place we have a process of a strategy on the structure to support that and as we bring these 2 organizations together, we're going to continue that so we will put a lot more attention on their existing customer base as well as being able to get a lot of hunters that are on different profile.
Onto our structure. So we expect that at the time, we close we are hopeful that we'll be able to have all the team members and their territories all accounts assigned a comprehensive place and ready to hit the ground running we would expect to be able to show combined solutions declines on a demo format.
Within 90 days and.
On the uptick in bookings will happen later on that we would think in 6 to 9 months given the sales cycles are 3 to 6 months long, we would expect that to start kicking in in terms of pipeline growth in the first call.
For months, and then closing starting you know on the.
For the back half of you know 8 or 9 months from now so we've.
We've done this 11 times and they all kind of run the same pattern.
Which is get the sales force is operating as 1 immediately.
Being able to show the product in demo form within a very short amount of time and then the pipeline grows and then the bookings growth. So we expect that to happen in that in that same for them.
Youre pretty quickly.
Michael if I can add that there's an important organizational element to whereby we will continue to have dedicated people going after new logos and then the rest of the sales organization is organized around customers not products. Chris. So we don't have multiple sellers going into the same okay.
I'm trying to sell different products, we have sellers that have a very small dedicated group of accounts that they then go through that cross sell upsell motion with.
Okay perfect. Thank you and then Tim.
My last question was just around <unk>.
Some of the new product attach I guess I think you.
You spoke to like bigger deal sizes with some of your land.
Are there any other metrics you could share with us just to give us a sense of with those new lands like how many products are taking now versus a year ago as your suite continues to expand.
Just anything you could share there would be would be helpful. Thanks, Yeah, that's what.
I don't have them resolved now, but I'll talk with Jared and see if we can get some more color in terms of growth in a number of solutions for clients might be a good metric for us we'll take that back as a suggestion for us I think that'll be.
<unk> information I can tell you however that.
80% of our you know new bookings come from existing customers and we will not.
We are volumetric type of solution. So most of that means they are buying additional solutions from us. So we know we know where we're growing and expanding our footprint within our clients because of that 80% of the.
Top level metrics and you know as we said before the new logos for US represent you know not what they buy initially but what they represent for US is what that will grow to over a 2 to 3 year period and typically it is as I've mentioned before customers will purchase something in the 3 to $400000 range, but we expect.
That customer to grow to 2 or $3 million over a 2 or 3 year period.
So the new logos are very impactful to the current view, but I'm, even more impactful to our long term growth strategy.
Great. Thanks, very much thank you.
Chris.
All right that concludes our conference call. This afternoon, and we'd like to thank everyone for attending you can disconnect now.
Thank you all.
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