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spk04: Good afternoon. My name is Gabriel. Now I'll be your conference operator today. At this time, I'd like to welcome everyone to the E2 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 speaker's remarks, there will be a question and answer session. And if you'd like to ask a 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 bound key. Thank you. Adam Rogers, Senior Director of Investor Relations. You may begin your conference.
spk03: Thank you and good afternoon, everyone. Welcome to the EU 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 Farlikas, followed by our chief financial officer, Jared Janik. 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. Information to access the replay is listed in today's press release, which is available at e2open.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 a full fiscal year 2022. These forward-looking statements are subject to known and unknown risks and uncertainties. E2 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 are 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'll 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 Farlacus.
spk02: Thank you, Adam. And 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 an E2 endeavor at E2 Open, we start with our principles. These principles are meant to be foundational and act as our North Star. In fact, we publish our operating principles in every office, on every badge, and they're also listed on our website. We are public about these principles with the belief that we can more closely move up to them and also hold ourselves accountable to them. So our principles for communicating with public investors are as follows. Be prepared. Build relationships on trust and respect. Be direct and transparent. Learn and operate with intensity. Make and meet commitments reliably. 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 investing community. The second item I'd like to address relates to the ongoing pandemic. We are all very grateful and thankful to 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 life saving remedies and ultimately a vaccine is nothing less than remarkable. I must say, however, that while parts of our world see a very strong light at the end of a very dark tunnel, many parts of our global community are very much in the middle of this awful disease. Our hearts, prayers and thoughts go out to our team members and brethren in Asia, especially those in India, who are feeling the brunt of 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 21. I'd like to thank each of our team members for continuing to perform at the highest level and for our clients who humble us every day with their confidence and support. Without all of our valuable teammates and clients, these results would simply not be possible. During our listing process, we were able to provide guidance and projections for FY21 and FY22. Since we desire to be very clear in articulating the organic growth rates and operational metrics of our business, these projections were, in some cases, based on non-GAAP revenue and adjusted EBITDA. In the spirit of 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 21 with a strong fourth quarter that positioned us well for fiscal year 22. We exceeded our FY21 revenue guidance by more than $3 million based on strong performance in our fourth quarter, where we generated $89 million in total non-GAAP revenue. In addition, we also exceeded our FY21 adjusted EBITDA guidance by nearly $5 million. We surpassed our projection to guidance for FY21. We are also raising the low end of our previously announced guidance of non-GAAP revenue for fiscal year 22 to a range of $369 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 FY22. 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 helped us drive our FY21 non-GAAP subscription revenue. These results are a testament to the ever-increasing value and reach of the e-to-open platform. In a few moments, I'll turn the floor over to Jared Janik, our CFO, to walk us through our financials in more detail, including our revenue guidance for FY22. 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 four specific growth levers that we will implement in FY22 to further increase our growth rates beyond 10% in FY23. Those were Increase our distribution through building strategic partnerships. Identify new value drivers by leveraging our network and our data. Improve the 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 local sales team with the addition of eight quota-carrying reps and the requisite management and pre-sales teams. We previously announced two partnerships. One was done in Bradstreet, and the other was Maersk, and have three more partnerships in our pipeline. We began our data journey with a significant relationship with DMV, where we will combine our efforts and leverage each other's platform and distribution. We have completed our packaging and pricing work and have begun the implementation phase of this program. As we have previously stated, we have high visibility to our 10% growth rate for FY22, which is not predicated on these four initiatives. These four initiatives are meant to expand our growth rate beyond 10% as we enter FY23. We're also proud that Gartner recently placed Eta 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. For a bit of background, Eta Open is a hundred percent cloud subscription-based supply chain management software platform. We are a platform company, pure cloud. built upon the largest supply chain network comprising over 220,000 participants. In fact, on a revenue basis, we are the largest pure cloud provider of supply chain software solutions. Our platform combines networks, data, and applications natively in a mission-critical platform that allows the most iconic brands in the world to maximize revenue, reduce costs, and increase agility and resiliency in their supply chains. Our solutions are mission-critical. and we 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 1,200 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 tailwinds and 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 billion-dollar opportunity within our own existing client base. Eat Open typically replaces a combination of on-premise, legacy, and homegrown applications, many of which are tied together with manual processes And frankly, spreadsheets. As manufacturers have evolved from companies owning the full production and distribution lifecycle to orchestrators of a mostly outsourced manufacturing, distribution, and selling process, supply chains have grown even more complex, increasing the demand for EatOpen's 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. 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's economy and our environments. We play a key and vital role in the ESG journey for 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 lowering 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 for an $80 billion company. The ROI for 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 are lower cost, and more importantly, a significantly lower environmental impact and reduced carbon footprint. We look forward to sharing Eat Open's first ESG report with you in the next few months. Lastly, we are two weeks from the end of our Q1. 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, and our RPO, remaining performance obligations, are over $550 million. As I wrap up, there is no question that Eat Open provides essential infrastructure to the digital transportation that the world's largest companies are undertaking. Businesses around the world require supply chain ecosystems that connect supply and demand in one connected real-time platform. Our network connects our clients to over 220,000 trading partners across supply, logistics, global trade, and demand ecosystems. We connect 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 FY21, a year 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 FY22 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.
spk07: 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 1st. So when we talk about fiscal year 21, we are referencing our financial year, which ended on February 28th, 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, we'll open the call to your questions. So moving to our income statement, 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 e2open.com. For the fourth quarter, we generated total revenue of $88.8 million, representing an increase of 5.5% from the fiscal fourth quarter of 2020. Broken down by reporting segment, subscription revenue was $72.6 million, up 7.6% over the prior year period. Our professional services revenue was $16.2 million, a 2.9% decrease from the fiscal fourth quarter in 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 CC and B1 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, where our customers delayed projects or projects were elongated while our customers focused on reacting to remote work and the immediate disruptions in their supply chains caused by the pandemic. Gross profit was $63.4 million in the fiscal fourth quarter, up 8.6% from the prior year period, and 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. Our adjusted EBITDA was $28.2 million compared to $19.7 million in the prior year's 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, increasing 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, down 8.1% 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. Our 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 2022, we expect total non-GAAP revenue to range from $369 to $371 million, which is an increase from our previous guidance of $367 to $371 million, representing an organic revenue growth rate of approximately 10%. We expect 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. we expect adjusted EBITDA to be in the range of 120 to 122 million or 32% of non-cap revenue. In summary, Eat Open had a solid fourth quarter and fiscal year from both a financial and operating perspective. We remain focused on executing our growth strategies to capitalize on the multi-billion dollar market opportunity that 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.
spk04: Thank you. As a reminder, in order to ask a question, you will need to press star 1 on your telephone keypad. Your first question will come from Chris Merwin of Goldman Sachs. Please go ahead.
spk06: All righty. Thanks so much for taking my question, and congrats here on a great quarter. I wanted to ask you about the expansion opportunity. I think you talked about a billion-dollar opportunity within the existing customer base. Can you talk a bit about, you know, the things you're doing to realize that, you know, either from a sales perspective, you know, hiring up there to push more on expansion and anything you can share about increases in deal sizes for the existing base? Thank you.
spk02: Thank you, Chris. I appreciate the question. we have a go-to-market as we've identified before that is mostly built around focusing on our existing clients and increasing our penetration so when we look at that billion dollar opportunity it's really the current applications we have into what our penetration could be within our customer base given reasonable expectations so today we generate new sales roughly around 80 percent of our new sales come from existing clients so we have a fulsome or organic growth into our existing client base in that process. What we're adding is a new logo team 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 space. In terms of deal size, we sell both individual solutions and 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 go all in or a much larger set of applications at one time. So the deal size is growing. And as we get to a larger penetration with our customers, we reach a tipping point, and then they tend to buy more. That obviously increases our penetration and stickiness. So we think that model works really well for us and has been for the last four years.
spk06: Okay, great. Thank you. And maybe just a follow-up question. In terms of the drivers of accelerating organic growth in excess of the 10%, I know there's a few of them, 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, you know, in terms of where we might see the impact most imminently? Sure.
spk02: Yeah, I think 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 of sales has stood up. It's going to take a little while for that team to generate pipeline and then close deals. We have a rather long sales cycle, six months to nine months in many cases for new logos especially. So we think the partnerships is where we'll see kind of the most immediate impact. That and kind of how we think about our partnership with Dun & Bradstreet in terms of how we can create new data products together with them. So those two areas I think will have more immediate impact. 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. We have a large rate of visibility into that 10% growth.
spk06: Great. Thanks very much. Thank you, Chris.
spk04: Your next question will come from Taylor McInnis of UBS. Please go ahead.
spk00: Hi, congrats on the first quarter and thanks for taking my question. First, I just want 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 guide? So it sounds like that new logo growth might come later on as some of these sales reps ramp. But just in terms of the existing install base, I know that you guys have been historically given like this dollar base net retention rate. So can you provide like any color in terms of like a potential range of that going forward or just how we should think about the upsell opportunity that's embedded in the guide.
spk02: Yeah, I want to start and ask Jerica to chime in. We have 95% visibility into our revenue plan for FY22. So we feel very confident on our guide on the revenue side. And that's mostly, you know, from what we see in our pipeline, what we see if contracts are already under contract, and, you know, our renewal rates that we have high visibility into. So those three things give us a tremendous amount of confidence into our FY22 revenue guide. We feel very comfortable in that 10% growth rate. I mean, Jared, anything you'd add to that?
spk07: You know, I think, Taylor, you know, we're still doing what we've historically done, and that's being very successful at the cross-sell, up-sell opportunity that represents that billion-dollar in white space that Michael just spoke to with Chris's question. That has historically represented about 80% of our new sales activity. And we anticipate that will diminish over time. But for this year, I think we get to that 10%, really largely doing what we've done in the past. And then as we layer on these other growth initiatives, that helps us transform the business closer to the long-term growth projections that we provided.
spk00: 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 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 the key characteristics that create deals of that magnitude and if there's anything specific with those customers and the applicability to the remaining 90% of the install base.
spk02: Yeah, so just some metrics around that. Our top 100 customers generate something like 77% of our subscription revenue. And of those customers, the kind of median kind of subscription is around $800,000. Our top 10 customers' median is around $7 million. And the top 10 are only different from the top 100 in that we've been with them longer and they were further penetrated. So we think all of those top hundreds have the potential to be multimillion-dollar clients. And that's kind of the growth we've seen. And a normal pattern for us would be to sign a new logo in the order of magnitude of $300,000 to $400,000 for a new logo is kind of our average. And then that grows over, say, a three- to four-year period to something that looks like, you know, $2 million to $3 million. And then beyond that, it can be even larger. So that's kind of the growth pattern we see within our install base.
spk00: Great. Thanks so much.
spk04: Thanks, Taylor. Your next question will come from Mark Chappell of Benchmark. Please go ahead.
spk05: Hi. Thank you for taking my question, and congratulations on your 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 for? So, for example, would it be like ocean shipping or global trade?
spk02: Yeah, I say three categories. Demand sensing for us has always been a very strong category and 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 at the item store level. We have reams of examples of that being the best demand forecasting system in the world. So that's always something that's 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. Those two things go in tandem. So we're really pretty unique to have both of those in one platform. But those are the three areas that we see right now as kind of really driving our pipeline and actually our new subscription sales.
spk05: Great. Thank you. Question or two on your recently announced partnerships with the NeoNav solution that you're coming out with. How does that differ or complement your current intra-ocean shipping solution?
spk02: It works hand-in-hand. So Maersk 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 intra-platform, as you're aware. They also have great operational capabilities, and they have 4PL services. So think of this as having a combination of their great teams using our platform more fulsomely to help their clients manage that very complex global transportation problem around the world. So think of it as using their people and expertise and our platform to drive a differentiated value for our combined customers.
spk05: Okay, great. Thanks. And then On the Dun & Bradstreet partnership, you know, analytics has been, supply chain analytics has been something that organizations have talked about doing for years, but it's either rarely implemented or they struggle to implement it. And I was wondering what changes you're seeing there in the supply chain analytics space. Are you starting to see customers move beyond just kicking the tires?
spk02: Yeah, for sure. I mean, it's really one of the most important places. And with our partnership with Dun & Bradstreet, We're making investment with them. They're making investment also. But they have really great sets of data, and then we have data on our network as well. And we're really thinking about that as combining those data sources into creating new insights and then having two distinct distribution channels. You know, D&D, almost every company in the world is a D&D customer. So they have huge distribution to take some of our combined data elements and then, you know, make them available for 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 kind of into thinking about how we come – you know, really much more robust and mature in kind of the analytics space. And they're one of the best, if not the best company in the world. So we're extremely excited and humbled to be partnering with them.
spk05: Great. Thank you. Very helpful. That's all for me.
spk04: Thanks, Mark. Our next question will come from Yoon Kim of Loop Capital. Please go ahead.
spk01: Hi, Yoon. Hi. Hey, thanks, guys. Congrats on the first earnings report for the public company, although it was clearly a non-event with your pre-announcement. But congratulations. Can you talk about the momentum that you're seeing with your supply chain applications versus maybe the core platform? First, how much of your revenue mix is really driven by these supply chain applications? And if you can comment on which areas or which applications are your top revenue generating. Obviously, it sounds like the demand sensing is one of them. Thanks.
spk02: We have seven product categories, application categories, and we market and sell subscription agreements for applications. So that's the agreements we sign. So our clients leverage our network and our connections to get data from the network to fund, if you will, or present it to our application. So we sell applications. That's 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, you know, in terms of revenue mix, it's actually quite balanced across all seven product families. But the ones that are showing up more and more in our pipeline are, you know, global logistics visibility, global trade management, and demand sensing are the ones that are really kind of showing up, you know, more and more at this point.
spk01: Okay, great. And then, obviously... There was an announcement in your press release about the formation of a new account, Logos Health Team. I know you talked about it a little bit earlier in the call, but can you give us a little more detail regarding how big that group will be versus your existing sales group? And, you know, is it something that we can expect to ramp this year, or is it more likely fiscal year 23? And then just questions around that, you know, Will you be targeting global 2000s or more of just existing opportunities around the new customer with the existing supply chain network? If you could just kind of give us a little more insight into exactly what the opportunity that this new account local sales team will be focusing on.
spk02: Yeah, absolutely. So for the past four years, as we built our platform, we identified that we had a lot of penetration we could do within our existing customer base. So strategically and somewhat thoughtfully, we really focused on building a really well-running operation around cross-sell, up-sell 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, you know, I'd say 55 or so quarter carrying reps that focus on our existing clients. And just to give you some scale, each salesperson would have four to six accounts in that existing client management organization. And their job is to know that customer inside and out. Their job is to not show up when there's a project, but to actually work with them to expand our platform. into their supply chain operations. And that's where roughly 80% of our subscription comes from today. And the 20% that we get, we just get because people come to us. Now, that work having been done and built, which is driving our growth rate to 10% this year, we now are in a position at a 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'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. And in terms of What this generates for us is that our average new logo sale is around $250,000 to $300,000. Every one of those new logo sales to us represents a $3 million to $5 million opportunity over a course of three to five years. So that's how we think about the new logo sales team. So in terms of the focus area, you know, we focus on super tier one and tier one, you know, clients with really the most complex products. global supply chains, and that's really where their 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, build an operation around it, and have a permanent additional growth lever for us.
spk01: Great. Thanks for the detail. Jared, so deferred revenue is trying to get a better grasp 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% visibility that you have? Should we see that number sequentially decline over the next three quarters and pick up in Q4? Or how should we think about that deferred revenue dynamics?
spk07: Yeah, so you and the adjustment that we're making to revenue represents the 20 some days subsequent to the business combination and our year end. And it's solely a purchase accounting concept where we effectively revalued the remaining deferred revenue to be recognized down to its liability fair value in purchase accounting. So we're showing that as an add back on the P&L, and that'll be a material amount for the first year where the impact is biggest, but actually lasts for a couple of years until all of that has rolled off of the life of the contracts in our RPO. Effectively, it's deferred revenue that we collected as the operating company, but the technical accounting viewed us as being the company being acquired in the SPAC transaction, which is why we had to do the fair value 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, that will subsequently just go away. So the deferred revenue will grow, and as we move forward, that adjustment will decline. Does that get your question in?
spk01: Yes. Yes, purchase accounting stuff really makes things a little bit more complicated. But, yep, that does explain things. So thanks for that, Jared. Thanks.
spk04: Absolutely. 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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