Q1 2024 E2open Parent Holdings Inc Earnings Call
Greetings and welcome to the E. Two open first quarter fiscal year 2024 earnings call. At this time, all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Please note this conference is being recorded.
I'll now turn the conference over to your host Dusty Bill you may begin.
Good afternoon, everyone. At this time I would like to welcome you all to the East you open fiscal first quarter 2024 earnings Conference call I Am does keep your head of Investor Relations here at each open.
Today's call will include recorded comments from our Chief Executive Officer, Michael <unk>, and our Chief Financial Officer Marie Armstrong.
After those comments well open the call for a live Q&A session. A replay of this call will be available on the company's Investor Relations website at investors don't eat two open dot com information to access. The replay is listed in today's press release, which is also available on our Investor Relations website.
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 our fiscal second quarter and full year 2024.
These forward looking statements are subject to known and unknown risks and uncertainties.
Two open cautions that these statements are not guarantees of future performance.
We encourage you to review our most recent reports, including our 10-Q or 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 todays call well 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 at investors Dot H, you open dotcom and <unk>.
With that we'll begin by turning the call over to our CEO Michael <unk>.
Thank you Rusty and thanks to everyone for joining us today.
I'll begin with some high level remarks on our fiscal first quarter performance as well as an update on our key strategic focus areas.
I'll highlight a few important client success stories by my perspective, or the indicates our strategic market position and our go forward growth potential.
Finally, where we will review our first quarter financial results and provide our second quarter guidance.
We'll then open up the call for your questions.
Let's begin with our first quarter performance overall, we had a solid quarter led by our subscription business.
Subscription revenue for the first quarter was $135 million, representing 84% of our total revenue and above the high end of our quarterly guidance.
Although we beat guidance, our Q1 subscription growth rate of 4% in my view is below our potential.
Despite the slower growth period, we are experienced in FY 'twenty four during the quarter, we maintain high profit margin drove strong cash flow and continue to build operating leverage of our business as we grew adjusted EBITDA faster than revenue.
As we communicated on our Q4 earnings call.
The software subscription revenue growth we are experiencing this year is primarily a function of two factors.
The first is a delay in large deal closings as clients continue to scrutinize their spend on long range strategic projects due to the current macro environment.
So far in FY 'twenty four as we had expected the overall macro trends have remained similar to the second half of 'twenty three.
It is still taking longer to close new deals. However, during the first quarter, we were able to close several deals that were delayed from FY2023.
Rob one of those for you in more detail in a few moments.
Our professional services business continues to be impacted by weaker spending by some of our larger technology clients on ongoing services projects.
That's it.
Our professional services results also reflect the early signs of success in building a robust ecosystem of system integrators as part of our broader growth strategy.
As a reminder, our.
Our system integrator strategy as well as our addition of new subscription products that have little to no attached services revenue.
Will cause our services growth rate to be lower than our subscription growth rates as we transition a portion of the question services work so the Si ecosystem.
This is consistent with our bedrock principle of profitable growth as we focus our attention on driving very high margin subscription revenue.
As I emphasized on last quarters call a top priority for you to open this transitioning from an acquisition oriented company to one that can drive rapid and sustainable organic growth at scale.
Over the last year, we are taking multiple actions to strengthen our go to market capabilities, including a brand refresh.
Our first regional EMEA President.
And bringing in new leadership professional services and sales operations.
In Q1, we made changes to our sales model to increase sales coverage ratios for high potential clients.
And reallocate spend for account based marketing.
Today, we took another important step in this process with our announcement that Greg Randolph will join either open in the newly created role of Chief Commercial officer.
His new role Greg will lead our commercial organization with a keen focus on increasing our subscription growth rate.
Greg is a highly accomplished executive who has led high performing sales teams and go to market transformation at leading software enterprises, such as quest software and CA technologies.
She has significant hands on experience and selling motions that are similar I need to OCA.
Including managing complex sales cycles, with large enterprise clients marketing and selling our platform that consists of a diverse solutions and utilize the cross sell to expand existing clients use of our platform.
Greg is a great fit for our organization and for the new role of Chief Commercial Officer.
He and I worked closely over the coming quarters to enhance and further build out our repeatable sales model to drive the organic base of ETA opens growth.
Before concluding my remarks ill turn the call over to Murray.
What are you described views of exciting business highlights from the first quarter.
In the first quarter, we closed a large project with Ford Motor company that builds and it opens prior success and strength in the automotive industry transformation.
We believe this win demonstrates our ability to deliver on multiple levers of Ito.
With the strategy.
It advances <unk> is poised to become the service supply chain platform provider of choice the largest network of neighborhood multi tier supplier collaboration across the automotive industry.
Simplifies the need for multiple solutions across our connected supply chain platform for business operations.
It also improves our ability to engage our clients for cross sell opportunities and demonstrates that system integrators, who are integral strategic partners, particularly on large projects.
This new project deserves special attention because it highlights the value and potential we see in our platform in areas such as technology leadership.
<unk> partnerships and organic growth.
Our prior work with electronic client allowed us to build.
Deep collaborative relationships and provide a strong basis for engaging them on additional areas of their business.
The automotive industry is undergoing a major technology shift from traditional internal combustion engine vehicles to smart electric vehicles that heavily rely on micro chips in sensors.
These critical components are globally constrained.
There are simply not enough of them to meet the diverse needs of the global economy.
As a result the <unk>.
Auto industry has been challenged to meet customer demand for cars and is now adapting to manage constrained supply much in the same way at the high Tech industry adapted over the past 20 years.
Our network and applications were built specifically for this purpose and are ideally positioned to help the auto sector adapt to an increasingly complex manufacturing process.
So I'll, let you open his deep experience in executing a transformative projects with automotive leaders. This win demonstrates <unk> ability to expand client relationships and implement multiple solutions across our connected supply chain platform.
A key ingredient to success, especially for supplier collaboration.
It opens reusable network over a 420000 connected parties.
This win and several other transformational wins in the quarter highlight our primary competitive advantages, namely the unique nature of our network centric software platform and our deep experience, serving large customers with complex global supply chains.
We also had several other success stories for our first quarter.
During the quarter, a leading provider of Iot services for transportation and logistics application selected eat opened advanced supply chain planning and collaboration solutions to manage demand and supply and inventory across the operations.
Well now be able to automate more tools and communications across the supply chain network.
Stay ahead of potential disruptions and respond more quickly to changes in customer demand.
Our technology leadership also received a major recognition during the first quarter for the first time you do open was named a leader in the 2023, Gartner Magic quadrant for transportation management systems.
We believe that combining key aspects of our global network and platform with the highly scalable multi mode multi regional transportation management system, we acquired the <unk> combination helped us achieve this improved position.
During the quarter, we completed multiple go lives across a number of product suites industries and geographies.
This includes deploying it opens global trade management solution for Rio Tinto, the worlds second largest metals and mining company operating in 35 countries.
Each quarter, we add new functionality to our software platform to better serve and supply chain needs of our diverse client base.
As just one example, during the first quarter, we released enhancements to our global logistics orchestration solution or G. L. O that further automate and reduce the risks associated with global shipments.
These enhancements automate previously time consuming manual tasks, such as Rebooking, all legs of committed shipments and screening against government list of denied or restricted parties.
Speaking more broadly about software innovation I also want to comment on our company's approach to artificial intelligence.
While the world is now paying close attention to how AI can be commercialized more fully.
I want to make clear.
Open is use artificial intelligence and machine learning to enhance our software offerings for nearly two decades.
AI is a core element of our demand sensing and inventory optimization solutions that support the global operations some of the world's largest companies.
We also rely heavily on AI to process the billions of transactions that flow through our network and perform critical functions such as data anomaly detection.
AI is and will remain very important to our product innovation strategy.
As you make further investments in our software platform. We will continue to look for ways to further leverage the power of AI for the benefit of all of our clients and our company.
Before closing I want to express my many thanks to either opened 4000 talented team members around the world for demonstrating our company's operating principles and values every day.
Your commitment to build stronger client relationships to innovate and to operate efficiently are key to our company's success and to the unique value proposition, we provide to our clients.
And now I'd like to hand, the call over to Maria to review, our first quarter financial results Murray.
Thank you Michael and good afternoon, everyone I wanted to start by thanking the Ito can finance team as we've had an incredibly productive start to the year with several notable accomplishments.
We went live with the ERP integration of our acquired logistics business drove a variety of improvements focused on driving cash flow and operational efficiency across multiple company functions and completed the build out of our finance leadership team.
These efforts helped each open achieved strong profitability and drive operating leverage during the first quarter. Despite the below normal topline growth rate.
As a marked my one year anniversary as the CFO of each open I'm proud of what the finance team has accomplished in a short time.
Turning to results I'll start by reviewing our fiscal first quarter 2024, and then close with a discussion of our Q2 and full year FY 'twenty for guidance.
Subscription revenue in the fiscal first quarter 2024, with $134 9 million.
Reflecting an organic growth rate of four 2% and four 4% on a constant currency basis, when adjusting for the negative zero point $3 million year over year impact from foreign exchange fluctuations.
Our subscription revenue came in above the high end of our $131 million to $134 million guidance range, primarily due to the timing of large deals that closed earlier than expected during the quarter.
Professional services and other revenue in the fiscal first quarter was $25 2 million, reflecting an organic growth rate of negative 18, 2% and negative 17, 1% on a constant currency basis.
When adjusting for a negative <unk> 3 million year over year impact from foreign exchange fluctuations.
On our last earnings call, we noted that our fiscal 'twenty four first quarter services revenues were expected to decline sequentially from our Q4.
FY2023.
We expected this decline in part due to the strategy, we have undertaken to transition services revenue to our system integrator partners.
Q1 services revenues came in weaker than expected primarily due to the continued trend of weak spending by large customers and ongoing service projects that have traditionally been an important source of baseline service revenues for us.
As Michael noted earlier.
We have recently brought new leadership into our services organization as part of our larger plan to enhance and reorganized our go to market function.
These changes should help us maintain our profitable services franchise.
Even as we continue our strategic pivot to shift services work integrators partners as a means to drive faster future subscription growth.
We're seeing positive momentum with our customer base on expanding existing PFS projects and discussing new engagements.
We expect services revenue to be sequentially flat to <unk>.
Slightly higher in the second quarter and to further improve sequentially in the second half of the year.
Total revenue for the fiscal first quarter was $160 1 million.
Selecting organic growth of negative <unk>, 2% over the prior year quarter, and 0.2% growth on a constant currency basis.
After adjusting for a negative <unk> $7 million year over year.
From foreign exchange fluctuations.
Turning to gross profit in the fiscal first quarter of 2024.
Our gross profit was $110 4 million.
<unk>, 8% decrease on an organic basis.
0.7% decrease on a constant currency basis.
Gross margin was 69.0% in the first quarter were 68, 7% on a constant currency basis compared to 69, 4% in the prior year quarter.
The small year over year reduction was mainly due to lower Q1 professional service margins, which we expect to improve in the second half our services resource utilization improves.
Turning to EBITDA, our first quarter adjusted EBITDA was $53 8 million.
<unk> to 51 4 million in the prior year quarter and.
An increase of four 6% and three 4% on a constant currency basis.
First quarter adjusted EBITDA margin was 33, 6% or 33% on a constant currency basis.
<unk> EBITDA margin of 32.0% for the prior year quarter.
This continued growth in adjusted EBITDA, which grew faster than total revenue during the first quarter.
Reflects an incremental benefit in the first quarter from head count related cost actions as well as lower spend on consulting contractors and facilities.
More broadly our EBITDA performance again demonstrates our ability to realize the benefits of operating leverage which is fundamental to how we run the business.
While accelerating growth is our number one goal and we are committed to invest as needed to drive the top line, we will maintain our strong focus on an efficient cost structure and operational discipline.
Finishing up on profitability net loss for the fiscal first quarter of 2023 was $369 million.
This net loss figure includes a noncash goodwill impairment charge of 410.0 million during the quarter.
As previously discussed the carrying value of each Wilkins goodwill increased significantly as part of our IPO transaction, because it was reset using the offering price of $10 per share.
GAAP requires companies to continually monitor goodwill carrying value by evaluating potential triggering events.
<unk> share price decline.
It is important to note that the triggering event for the Q1 impairment was the decline in our share price.
That took place following our Q4 FY2023 earnings release.
We want to emphasize that the impairment charge was not driven by operational performance issues related to any of our products are acquired businesses.
Now turning to cash flow.
During the first fiscal quarter, we generated $37 3 million of adjusted operating cash flow.
The primary driver of the strong cash flow with good collections performance during the quarter.
Which is a testament to the broader finance team's commitment to driving working capital improvements this year.
I would note that due to a combination of seasonal factors in our annual cash bonuses being paid now in the beginning of Q2, we expect sequentially lower cash flow in the second quarter.
Growth in cash flow continues to be a core objective for our management team.
And we view cash flow growth as a strong indicator of the competitive advantage of our business model and is an important source of financial flexibility as we seek to optimize our capital structure and funding future strategic growth.
Before turning to guidance I.
I wanted to provide an update on our integration efforts related to our acquisition of logistics.
Since closing this transaction in 2022 multiple each open teams have worked hard to drive the integration process and meet our cost and operating synergy targets.
I'm very pleased to report that shortly after the end of the first quarter, we completed the integration of logistics into our existing ERP platforms.
With this project behind US the logistics integration is now substantially complete and all of you to opens for business operations and entities are on a single ERP instance, I'm also pleased to report that we have exceeded our synergy targets for the logistics acquisition.
Total transaction synergies were originally projected to be just over $10 million.
As of the end of Q1, we have action $10 1 million of synergy and now expects to realize approximately $11 6 million in synergy savings so full year FY 'twenty four.
This completes my remarks in our fiscal Q1 2024 results at.
At this point I will turn to a discussion of financial guidance.
In terms of new guidance for the fiscal second quarter of this year.
We expect FY 'twenty for second quarter subscription revenue to be in the range of $130 million to $235 million.
This represents a growth rate of 0.3% to two 6% as compared to the prior fiscal year first quarter.
Turning to full fiscal year 2024.
We are reiterating the full year guidance, we issued last quarter.
Which is a reminder consists of the following elements.
We expect subscription revenue in the range of 545 million to $555 million for FY 'twenty four.
We expect FY 'twenty for total revenue to be within the range of 655 million to $670 million we.
We expect FY 'twenty for gross profit margin to be within a range of 68% to 70%.
Finally, we expect FY 'twenty for adjusted EBITDA to be within the range of $218 million to $228 million.
This range implies an adjusted EBITDA margin of 33% to 34% from FY 'twenty four.
Yes.
On our fourth quarter earnings call. In addition to providing formal guidance on revenue margin and adjusted EBITDA. We also provide additional details around certain key drivers of cash flow generation correctly 24.
Emphasizing the strong importance, we place on cash flow generation as a key performance indicator I would like to provide an update on our cash flow expectations for the year.
Overall, we continue to expect FY 2004 to be a strong cash flow year, and we're off to a strong start with our robust Q1 cash performance.
In terms of key drivers for FY 'twenty for cash flow.
Our expectation around full year Capex not changed we still expect it to be approximately 5% of revenue in FY 'twenty four versus 7% of revenue in FY 'twenty, three which include an M&A related capex.
We still plan to drive significant year over year improvements in working capital and expect FY 'twenty for working capital to be a modest use of cash.
We now expect net cash interest to be within a range of 95 million to $99 million, an increase of approximately $5 million from our estimate provided last quarter.
This increase is primarily because the LIBOR sulfur curb through our fiscal year end has steepened, reflecting revised market expectations for sustained higher fed funds rates.
Our new projection for full year cash interest includes the benefit of interest income.
We are earning due to our strong cash generation and also cash receipts on the interest rate collars. We executed during Q1 that has now moved into the money because of rising rates.
Finally, we still expect onetime cash costs, including M&A integration, which were $29 million in FY2023 to be substantially lower in FY 'twenty four.
Given our outlook for strong FY 'twenty for cash generation, we still expect to reduce our net leverage to four times or below by the end of the fiscal year.
To sum up we continue to focus on driving cash flow and profitability, while strategically investing in our business to lay the foundation for faster organic revenue growth.
That concludes our prepared remarks.
You all for joining us today, and we look forward to continuing the dialogue as we move throughout the year.
With that Michael and I are ready to take your questions.
Operator, please open up the line and begin the Q&A session.
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One moment, please while we poll for questions.
Our first question comes from Adam Hotchkiss with Goldman Sachs. Please proceed.
Great. Thanks, very much for taking my questions.
You talked a little bit about the organic sales efforts and some of the spend reallocation and reorganizing your sales efforts for organic growth could you just talk a little bit about how thats been going you know how you think about what the right level of spend there is and then what do you think about when you think about the timeframe around ramping that new sales coverage for that.
Reallocation.
What does that look like in terms of driving business outcomes guys. Thanks, so much.
Thanks, Adam good to hear your voice yeah.
So we've done most of that work in the early part of the fiscal year.
And we've kind of walked through kind of the change.
The change is really more allocating more resource to our largest clients, where we have the most opportunity.
So in the middle and back half of the year, we will start adding additional head count as we kind of work into into next year. So that that kind of lift is behind us now and we would expect to see.
That step up with the other initiatives, we have through the rest of the year all in the idea of getting our <unk> back to where we think it should be.
Great. That's Super helpful. Michael and then Maria just on the subscription revenue guidance. It looks like you maintained that despite the pretty strong results in the first quarter anything to read in there other than just being prudent around the uncertain macro environment.
Yeah. Thank you for the question Adam.
We're very proud of our Q1 results.
Coming into our guidance range.
As mentioned in my prepared remarks, it was really primarily due to sort of timing of some large deals closing earlier in the quarter.
Which again is a good sign but.
It's early in that year, we think it's prudent to maintain.
The guidance range of thought and again it was that.
Really two months ago.
And overall I would say things are progressing as we had expected.
So no update to full year guidance.
Great. That's really helpful. And then last one for me just wanted to touch on the services business could you just give us a sense on how you parse out that base of revenue between things like ongoing discretionary services that.
May be impacted like things you saw in the quarter versus the more one time implementation cost just it'd be great to understand and get some more color on how much of that services revenue is exposed to some of the headwinds that you mentioned in the first quarter number. Thanks.
Yeah, Thanks for that.
We have a fair amount of ongoing services work, mostly from many of our very large high tech customers who've been with US a long time, where they continually adjust and upgrade and tweak.
The implementation many customers have been using the platform for eight to 10 years.
That got.
Curtailed a bit really.
This period is a little bit after that.
Last year as you know most of the technology companies were suffering from a result macro conditions in their own their own desire to get more profitable.
We haven't really kind of broken that out, but it's a fairly large percentage of that and that kind of a reset which I think on a year on year basis is why it has come down.
We expect that to kind of normalize as you get into the back half of the year as that work on it comes back on.
The other thing that I'll mention is that on the service business, we are giving up some or all of our services revenue to the system integrators as that part of our growth strategy starting to materialize and then lastly, we are having additional subscription products that come with very low attach.
Attach rates, mostly on the network side of our business. So those three things kind of in unison are affecting our services.
Business for now which is why we expect that to continue to decouple from our subscription growth rate going forward.
Great really helpful. Thanks, Michael Thanks Marie.
Thanks Al.
The next question comes from Taylor Mcguinness with UBS. Please proceed.
Yeah, Hi, thanks, so much for taking my question. The first one I have is I know Greg it hasn't started yet, but just any high level thoughts you can share on expectations you have for him in this new role I know you've talked to like last quarter, you talked about some of the sales disruption and you know some of the changes it sounds like that you've made you're starting to see.
Normalization, there, but just curious if there was any you know future sales changes that you are anticipating or anything on that front and then the second part of the question is Murray just curious habit.
Impacts are not your comfort level with the guidance on the top line and the margins.
Yes, Taylor thanks for the thanks for the question.
We've kind of articulated when we built this business.
Over the past.
It almost decade now eight years around the idea of scaling rapidly. We did that grew the business <unk> and became very profitable company in doing so.
<unk> kind of centered our attention on operations as that was the necessary requirement for that part of our growth strategy and our COO.
And it was titled that way because it was operationally oriented.
I think our as part of our.
Multi step plan and we're kind of getting.
Where we want to be is that we really need to have a regular way.
Organic sales driven leader that has grown up in that part of the world and Greg brings all those attributes from those experiences.
Mostly around selling for large companies at scale.
<unk> was $1 two.
And really understanding how to build a scale a skilled sales team that is on repeatable process and thats kind of what is necessary for us going forward. So I think it was the next part of our process Super thrilled to have them and really excited about the go forward in terms of that in terms of next steps, we have been making there.
Incremental steps along the way.
So I don't expect a rapid or dramatic shift, but just incremental improvement as we kind of build a very repeatable organic sales engine.
Yeah, absolutely just to add to that in terms of the impact to our topline again, we're reiterating our full year guidance.
A lot of the changes that we've talked about it's all part of the plan for the year right and was contemplated when we set guidance.
And in terms of the cost impact go same way there is no change to guidance from from this change we talked about incremental investments.
On the sales team and go to market overall.
But nothing really to update again. This is all part of the plan sort of for the year.
That's Super helpful. And then my last question is you talked about when you think about the back half.
Uh huh.
Guidance or what's implied for the full year on a sequential basis. It sounds like subscription revenue improving versus what we saw in <unk> you talked about services revenue sequential growth improving versus what we saw in <unk>. So just curious on what you guys are seeing maybe from a booking perspective or you talked about some law.
Deals that closed in the quarter that I guess is giving you that comfort that we could see some recovery in those numbers.
Yes, absolutely so.
As mentioned.
As you're referencing we had mentioned that we expect.
Second half of the subscription business.
To be better and that's primarily driven really the first half.
Churn be more first half weighted this year.
And then as you mentioned, we have seen some large deals.
Close in Q1, which is encouraging but again in terms of the macro and overall I would say, it's as expected sort of stabilizing but we're not seeing.
Anything very different than what we discussed two months ago in terms of the macro impact and then on the services side.
As we mentioned earlier.
We do expect.
Services revenues to be sort of flat to slightly up in Q2.
We are seeing some encouraging signs in the business very excited about the new.
New leadership there.
And just really the momentum that some of the changes are taking on and we're really hopeful that.
In the second half will be better based on the initial signs in again.
No real change in terms of.
What we saw when we last spoke two months ago.
Okay. The next question comes from Fred Lee with Credit Suisse. Please proceed.
Hi.
It could get to.
Hear from you.
Last quarter, just to just to expand a little bit more on macro.
Just because last quarter you.
You talked about.
The first half being tougher than the second half for fiscal 'twenty. Four I was just wondering if macro deteriorated sequentially from fiscal Q from Q4 to Q1 at.
It sounds like it's stabilized a little bit, but I was just wondering just to be crystal clear if its deteriorate or if it's stabilized into into the end of June .
Alright, Brad How're you doing.
The goods.
<unk> I mean, it's still.
The market is still choppy and you look at kind of.
In other parts of our business, especially on the freight side still kind of trying to working through its process on the trucking side you see that all over the place, but I don't really think it's deteriorating.
Just think its choppy some companies doing well some companies aren't doing so well. So I just think it's choppy for right now, but I would not say deteriorating I would say more it's more on a stabilizing seither deteriorating at this point.
Characterize it.
Okay. Okay. That's good to hear my second question is related to your appetite for incremental acquisitions now that the integration of logistics sounds like its largely behind the company. It sounds like most synergies have been realized.
Have valuations come in the private marketplace enough to pique your interest.
Yeah listen we've up we grew our business through acquisitions, and we have a great mechanism to do that however.
For us to really realize the potential we see we really kind of need to focus our attention on.
Our sustainable organic growth rate in kind of a more regular way.
Sales organization as we are a scale business now in our revenue size.
Our primary focus I don't think it will be a product from us forever, but it is our primary focus for the time being and in terms of valuations look there's going to be a time when all of these smaller companies coming to market audience, there yet and I think.
Price expectations are still pretty high so I think now it's a great time for us to.
Organic sales engine that we know we can.
Got it. Thank you. My last question is just related to your conviction in churn declining in the back half as we kind of look through your subscription revenue the implied numbers and the growth in the back half of the year.
Do we gain conviction that trend is going to downtick over the next couple of quarters. Thank you yeah.
We've done a lot of analysis on this.
We kind of looked at it nine page for Sunday brands. So we have a we have a very specific way of understanding where our clients are.
And.
We have a pretty strong conviction that in the back half of this year and into next.
<unk> normalized.
Remember, we have world class churn and it ticked up a bit it just happened that it happens in seventh Avenue in Q4 in the first half of this year. So we expect it to normalize and then kind of be back where we were and then obviously that has an impact for revenue is a lagging indicator.
We expect that to kind of get better as we go into next year.
Okay. The next question comes from Mark Scheffel with loop capital markets. Please proceed.
Hi, Good afternoon. Thank you for taking my question.
Michael starting with you I was wondering.
If you could just give a little more comments or details them afford when I. Appreciate your comments, but I was wondering if you'd probably additional details on maybe some of the products or solutions that you are using and also what were some of the drivers for their decision to it looks like deepen the relationship with them.
Yeah.
It was a great win are a great company, obviously iconic company and.
Couldnt be any happier the super important to us have been and are obviously now.
Unfortunately, we are not really able to kind of go into more details. We are thankful for them to allow us to use their name was that was a big lift a.
A big appreciation that I have for them.
I can speak a little bit about.
The automotive industry, what I see there.
From a supply chain perspective. This is a generalized comment about automotive supply chains.
Automotive supply chains are multi tier.
<unk> knows this tier one two and three suppliers and for a long time autumn automobiles that made with readily available materials needs aluminum tires.
Tires are the things that are made in Ras and readily available. The change that has happened in the last three years is that the supply materials and componentry is much more constrained on a global basis, so understanding deeper into a company supply chain.
They are constrained supply is has a really big impact to what they can actually produce every day on our production line and further they can look out into what that supply base looks like.
The more of the conference will have to be able to not have a car that's.
99, 9% complete but doesn't have the ratio has to be reworked. This has the same problem that the high tech industry saw literally 20 years ago, which is has to do with making a much more network based connected supply chain. So that's an industry automotive industry.
Your perspective that I have and I've been talking to many automotive company. So I just want to give you that perspective in terms of the auto industry as kind of the change that is happening with within the auto industry, but towards great company and I really cant speak any more about what we're doing with them other than our comments I've made in the press release.
I appreciate your comments there and then secondly in your prepared remarks, you noted the subscription growth well above guidance was still below what you thought was the company's potential I was wondering if you just.
Some clarity to those remarks or was there something you saw in the quarter that led you to that.
Just going back to prior quarters.
This is just a general comment I appreciate that clarification youre willing to make.
We have more potential to grow this business organically and.
I think we have to kind of change our business a bit to kind of get to that potential. So it has nothing to do with a quarter.
But with US we have long term guidance out there.
12%, plus we think that's very possible at these margin levels and I think that's an important clarification. We are focused on generating high margins in our business. We think we can do both.
Which makes us very unique kind of company.
That's what I meant by below our potential.
I believe that we have greater potential grow and we have some operational things.
Take care of in terms of our go to market.
I appreciate that that's all for me thanks.
Thanks.
Okay. The next question is from Chad Bennett with Craig Hallum. Please proceed Chad.
Great. Thanks for taking my question. So just just wanted to make sure I understand the large deal commentary I think Murray you you indicated in your prepared remarks that you saw several large deals hit earlier in the quarter and then I think Michael indicated that.
There were large deals that you actually recouped from prior quarters. This quarter are those one and the same commentary was.
Oh yeah.
Good to hear voice, Greg Yeah, I think what we're saying is we had as we said last time or our large deal pipeline has grown well that's because they pushed.
Because of that we're able to get some of those and we are.
Pretty good quarter with large deals and this happened to happen a little earlier in the quarter, which kind of help us out from a revenue perspective, we saw.
We sign large deals.
Somewhat impactful given the kind of quarterly revenue as well. So I think there are one of the thing that's a good that's a good catch.
Okay, so with that in mind, if you recoup some and.
I guess you incrementally added some.
Youre calculated subscription billings were reflected were effectively flat year over year and.
And you guided for subscription growth of let's call. It 1.4 mid 1% growth for the second quarter here year over year.
So.
And I think other people have asked this on the call. So the conviction I guess.
Turn improving in the second half.
Are you expecting the macro to improve in the second half how do we and I'm not saying, it's a high bar, but you got to see pretty significant reacceleration in the second half relative to where we are in Q2 and where billings were in Q1.
To get to kind of your mid point.
So I'm just kind of on just trying to understand the logic there.
So Todd I think when Youre looking at.
Billings growth it was over 4% in Q1, I think maybe what you're not doing is normalizing out the logistics impact from year ago.
But I would agree with subscription billings and subscription billings, yes.
Yes.
Okay.
Could you go through those numbers specifically with you later.
Sure, but I think maybe youre not taking out the logistics.
From last year.
Well logistics it is annualized rate.
Yes, so normalized for logistics.
Scripps in billings year over year growth.
Just over 4%.
So I'm sorry.
Follow up from that question I, just wanted to correct that but.
Okay.
Didn't you have the logistics of full quarter last year also or am I wrong.
So.
That's a you basically need to normalize that out from the balances from that quarter.
It's a normalized change in the accounts receivable.
But having okay.
Happy to walk through how that normalization work.
Okay.
And so.
You don't expect any macro improvement in the second half maybe that's the best way to ask it.
I think we're expecting it to be as we kind of said, Greg I think we're kind of seeing.
As expected.
We didn't build a lot of macro built into our into our overall plan for the year. So I think things are progressing as expected.
Okay.
And then is there a way to think about just in the existing base today, Michael how many how many customers have you.
More than 234 modules from a penetration standpoint.
We do some of that work and we know that especially with the addition of the last two acquisitions, which were at more customers and specifically bluejay have a lot of larger customers added.
We are seeing incremental pickup, but many of them have either one or two.
Still when we kind of bring them in so by definition they come in with a single point solution company, because all of that company.
So that process it doesn't happen overnight, we have many examples of adding solutions.
Solutions to clients.
We've kind of mentioned one on the call today, but.
Process.
It continues I think that's really the long term potential we see in the business is that people don't change their supply chain applications overnight.
I'll just change them out because.
I'll have more access under a single partner, but over time.
Our probability of success is incremented, because they're already clients already know us already have proven success with us.
What takes me back to.
Mark's question around our conviction about growth.
We have a lot of solutions, we have a lot of customers and it's just a matter of penetrating.
Penetrating that over time, which gets us back to the long term nature of our strategy.
Because those customers don't they aren't going to go away and their need for supply chain software only increases over time.
Got it thanks for taking my questions.
Great to hear your voice.
The next question comes from Andrew <unk> with Bank of America. Please proceed.
Good evening. This is David Ridley Lane on for Andrew Open.
So.
Just wondering on the second quarter guidance.
And what that implies sort of on a sequential basis for subscription revenue.
How much of that is just the last bit of this elevated churn.
Versus what you're expecting in bookings what are sort of the puts and takes if you looked at it sequentially.
I would say churn as you mentioned.
A big part of that.
And again, we don't provide specific bookings guidance, but obviously churn have elevated churn in the first half that we've talked about.
In prior quarter and this quarter has the main impact here.
Got it and then.
Based on the on the bookings so far this.
This year.
Are you starting to.
You mentioned.
A couple of client wins, but more broadly I think you had a large client.
Behavior was the sort of the thing that it had.
Has shifted on you are you starting to see signs that that's improving.
I would say.
It's partly because we had a number of deals in our pipeline for a long time to come through.
But I don't I don't really see I still think big companies are very judicious about.
Writing long term commitments for.
For large ticket items overall.
And Theyre very cautious at this point are not rushing to do that to the things that do get approved go through multiple steps I don't think that really has changed so the duration is has increased and our and our pipelines we see that now.
Now obviously that means they tick up a bit and then whether you have a lot of ours, you'll go if it goes down with it.
So I don't I don't think there is a lot of change in behavior or sentiment at this point I think people are still trying to understand this macro environment, where you have.
High inflation.
Employment at the same time and you have an increasingly aggressive.
Monetary policy. So I think I was trying to rush to go figure out what that looks like.
As the year goes on.
And.
Theres been a forecast of recession now for the last five quarters or six quarters.
Just trying to figure out is that going to happen or not happen. So I think this is.
For for Us in our particular markets a bit of a normal having abnormal is going to last a bit to be honest with you.
Understood. Thank you very much.
Great. Thank you.
We have no further questions in queue. We have reached the end of the question and answer session. This concludes today's conference you may disconnect. Your lines at this time. Thank you.
You for your participation.
Thank you.
Okay.