E2open Parent Holdings, Inc.

Good afternoon, everyone. At this time, I'd like to welcome you all to the E2 Open Fiscal Second Quarter 2022 Earnings Conference Call. I'm Adam Rogers, Senior Director of Investor Relations here at E2 Open. Today's call will include recorded comments from our Chief Executive Officer, Michael Farlickus, followed by our Chief Financial Officer, Jared Janik. And then we'll open the call for a live Q&A session. If you have a question to ask, please chat me directly to be placed into the queue or use the raise hand function. A replay of this webinar will be available on our website. Information to access the replay is listed in today's press release, which is available at e2open.com in 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 S-1, 10-K, and 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 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 will refer to certain non-GAAP financial measures. Reconciliations of non-GAAP to GAAP measures and certain additional information are included in today's earnings press release, which can be viewed and downloaded from our Investor Relations website. And with that, we'll begin by turning the call over to our CEO, Michael Farlickus.

Thank you, Adam, and thank you all for taking time to join us for our second quarter fiscal year 22 earnings call. Q2 was a blockbuster quarter for E2 Open across the board. We exceeded our targets on every dimension and accomplished a quarterly organic growth rate of nearly 13%. We reached double-digit organic growth one quarter earlier than expected and also raised our guidance for the second time in six months. E2Open will reach an 11% annual organic growth rate on a standalone basis for FY22, as compared to our original projections of 10% growth for this fiscal year. Before I provide more detail regarding our recent results, I'd like to share my perspective on the long-term trends that are contributing to our success and to our accelerating growth rate. Our core client base of very large global companies demand supply chain visibility and control across their extended supply chain networks. Their networks are increasingly complex, relying on hundreds, if not thousands of trading partners and tens of thousands of people to make and bring goods to market. The well-publicized product shortages, poor congestion, and overall supply chain challenges have created more focus on global supply chains than at any other point in my 30-year career in this industry. The trend towards more complex supply chains is accelerating, and our core client base are turning to Eat Open to resolve this complexity. Supply chain excellence is no longer relegated to functional leaders. It's now firmly a board and CEO imperative. Their focus is on improving their end-to-end supply chains, and to do so, they need better software. We have a tremendous opportunity in front of us, as evidenced by our very strong second quarter earnings, a robust and growing pipeline, expanding yield on that pipeline, and expanding new client wins. Our platform helps clients avoid problems on one hand and react to problems more quickly on the other. We do this by bringing a company's entire ecosystem of partners into one interconnected platform. Our approach creates a much more accurate and granular view of future demand while allowing our clients to adapt more quickly to changes they will inevitably encounter. The only way to solve these seemingly intractable supply chain problems is to connect real-time data with the world's best algorithms. That is E2Open. Our largest clients view us as their supply chain. While companies require the ability to adapt to rapidly changing environments, they also want more sustainable supply chains. I'm proud of how we are helping our environment by making our customer supply chains more environmentally friendly. We do this by reducing waste and helping our clients use the lowest cost transportation, which typically carries the lowest carbon footprint. Think ocean transportation versus air transportation. Ocean transportation is eight times less expensive than air transportation and comes with a much, much lower carbon footprint. I'll note that we released our first ESG report earlier this week, and it's available on our website. Our vision is to become the supply chain operating platform for the world's best and largest companies. All brand owners operate complex supply chains. Some more complex than others. Some more global than others. They all invest heavily in supply chain software. We believe the current fragmented nature of supply chain technology provides a unique opportunity for E2Open. We are quite simply the best positioned company to capitalize on this unique moment in time. The supply chain software market is very large, over $50 billion. This market is now growing at double digits and continues to inflect upwards. Most large brand owners have a significant footprint of on-premise siloed legacy software. They need end-to-end software. They need that software in the cloud. The move to cloud has clearly begun, but it is still in very early innings. We are an end-to-end cloud-based software company. Most supply chain software companies of our scale are converting to the cloud and provide a siloed or singular solution. We are the largest cloud provider in supply chain software. We have the broadest set of functional capabilities, the largest network, and we serve a wide array of industries. We have a powerful and proven M&A engine to further extend our capabilities and our platform. We are in the process of networking the world's industrial capacity, client by client, network by network, function by function. Our marketing perspective informs us on how to capitalize on our unique position. Our vision is to be the definitive cloud software provider that helps the world's largest companies make and bring products to market. Our second quarter was record-setting on nearly every dimension. We accelerated our revenue growth to 13%, the highest revenue growth the company has had in the past six years. We reached our goal of over 10% growth one quarter earlier than projected. we generated over $92 million in total non-GAAP revenue. Given the strong performance in our first half, in early September, we announced Get Open will be at 11% organic growth for fiscal 2022 on a standalone basis. This raised our revenue guidance for the second time in six months. We raised our revenue guidance again for three reasons. One, very high confidence in future revenues given 82% of our revenue is derived from subscription contracts, most of which are three years or longer. 77% of that revenue is from clients with an average tenure of over 14 years. We know our clients. Two, the four growth investments we previously outlined are materializing much, much sooner than we expected, driving increasing revenue for fiscal 22. I'll provide more detail on this in a few minutes. We continue to see net pipeline growth and our conversion rate and average selling price are meaningfully expanding. In addition to growth acceleration, we generated strong adjusted EBITDA results for the quarter of nearly $34 million. We have previously announced building four growth levers this year to drive incremental growth next year. Those initiatives were bundling and packaging our solutions more effectively. building a new logo sales team, developing and signing strategic partnerships, and monetizing our network. Those growth levers are converting to revenue much, much sooner than we had ever imagined. I'll give you an update on our effectiveness for these four areas. Bundling and packaging. Historically, for all contracts that are renewed in a year, the average subscription increase from price and upsell has been 14%. On record company bookings, for the first half of FY22, that metric is 22%, providing us confidence that our approach to packaging and bundling is driving the intended results. New logos. At the beginning of this fiscal year, we announced the addition of a new logo sales team. That addition to our go-to-market engine is clearly kicking in much faster than we had expected. On record first half bookings, our new logo composition was 22% versus our historical average of 16%. Partnerships. We articulated our objective of signing three to four new strategic partnerships. We have now signed two in the first half and have three in total. The partnership with Vizient is a great example and very strategic. Vizient is one of the largest GPOs for the healthcare provider industry. Think hospital networks. And we've all seen just how much supply chain improvement the U.S. healthcare system needs. And monetizing our network. Our previously announced partnership with DMV is providing revenue sooner than expected. We are still in very early innings in a multi-year growth plan. In summary, for these four growth levers, we had a plan. We thought it was realistic. It turned out to materialize much more quickly than we'd ever expected. Moving to some highlights from our second quarter. We signed notable new existing client platform deals this quarter. As a reminder, a platform relationship is where we have strategic alignment to roll out significant portions of the platform across a multi-year strategic plan. An existing global automotive client signed a five-year extension, more than doubling their $2 million annual subscription. A new logo in the transportation industry signed a $2.5 million annual subscription. a new logo in the contract manufacturing sector signed a million dollar annual subscription and a new logo win for nearly $1 million of annual subscription with a leading specialty apparel company. Before I turn it over to Jared, I'll reflect on our recent recognition by our industry and what we are doing to further build the machinery of our business. In recognition, We are the leader in multi-enterprise supply chain management, which is, in fact, what supply chains are. We are the number one provider with each analyst that has a report in this category, Gartner, IDC, and Nucleus. In addition to our business, on September 1st, we announced the closing of our largest and latest acquisition of Blue Jay Solutions. Like the previous 11 combinations we have made in the past five years, we integrate quickly, having already effectively combined the business into one organization and selling platform. The first release of the combined solutions will occur in February. We are well on our way and ahead of pace when we compare to the previous 11 combinations. Jarrett will speak in more detail about the integration shortly. With the progress that Eat Open has made achieving its growth target and to capitalize on the momentum in the marketplace, we continue our investments in sales and marketing. Most recently hiring Chief Marketing Officer Kari Janowitz. Kari joins us from TE Connectivity and is known as an innovative and game-changing CMO with a proven track record growing companies and brands. She will be a vital part of our leadership team as we continue to accelerate growth. Lastly, as I mentioned in my opening, Eat to Open released its inaugural environmental, social, and governance report this week. While our own company's environmental impact is small, we believe our software can have an enormous impact by reducing the environmental impact for our clients as they produce, transport, and distribute their products. You can find the report on our website at eatopen.com. With that, I'll turn it over to Jarrett to provide more detail regarding our financial results. Jarrett? Thank you.

As Michael mentioned, we're pleased with our results for the second quarter, and we continue to see positive momentum in the market. Today, I'll begin by giving an update on the Blue Jay integration and then review our fiscal second quarter results. I'll comment on our outlook for the remainder of our full fiscal year 2022, and then finally quickly touch on our long-term growth targets. Thereafter, we'll open the call to your questions. We'll start with an update on the BlueJ integration. We are deep in the execution phase of our integration of BlueJ solutions, which we closed on September 1st. Total synergies related to the recent BlueJ combination are projected to be 25 million, or 25% better than previously announced, 20 billion. The company expects to achieve between 50 to 60% of run rate savings by the end of fiscal 2022. The action synergies of 50 to 60% represent the achievement of run rate savings as compared to the total annual synergy value. Realized synergies of between 25 to 30% will be earned in fiscal 22, and they represent the portion of those action synergies that have been recognized in earnings during the periods presented. We anticipate this metric moves to nearly 90% for fiscal 2023, with 100% of the synergies being executed. And just the remaining year-over-year growth and earnings from those synergies that we anticipate will action in the first half of 2023 to come in the following fiscal year. As a reminder, one aspect of this transaction I'd like to highlight is that most of our core investors that were subject to a lockup that was set to expire on August 4th have agreed to extend their lockup as part of the transaction for an additional six months from the closing of the combination, which occurred on September 1st, including the significant selling shareholders of Blue Jay Solutions. This afternoon, I'll talk about our results on a non-GAAP basis. We show a reconciliation of GAAP measures in our press release, which is available in the investor relations section of our website at eatopen.com. We generated total revenue in the fiscal second quarter of $92.3 billion, representing an increase of 12.8% from the fiscal second quarter of 2021. As Michael mentioned earlier, we're very excited to have achieved this important milestone one quarter earlier than we had planned at the beginning of the year. Broken down by reporting segment, subscription revenue was $75.9 million, up 10% over the prior year period. Our professional services revenue was $16.4 million, a 27.9% increase from the fiscal second quarter in 2021. The principal non-gap adjustment to revenue in the period is related to the amortization of a fair value adjustment to our deferred revenue balances resulting from the business combination with CCNB1 in February. We expect to have a similar adjustment related to the acquisition of BlueJ. The increase in subscription revenue was mainly due to new organic sales in prior periods across our customer portfolio. The increase in services revenue reflects a return to normal revenue for our business as the prior year quarter was impacted by delayed delivery of services due to the COVID-19 pandemic. Our services margin also improved and was due to this return to more pre-COVID levels, but was partially offset by our ramping of headcount for increased services demand that we are currently seeing in the business and projecting in the back half of this year. Continuing down the income statement, gross profit was $68.1 million in the fiscal second quarter, up 16.5% 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. Gross margins improved to 73.8% for the second quarter of fiscal 2022, from 71.5% for the second quarter of fiscal 2021. Adjusted EBITDA was $33.5 million compared to $26.2 million in the prior year's fiscal second quarter. Adjusted EBITDA margin improved to 36.3% for the second quarter of fiscal 2022 compared to 32% for the second quarter of fiscal 2021. And as a direct result of strong operating results related to organic revenue growth, coupled with the leverage we've built into our business around scaling of our costs. Also, we are just beginning the return to normal as it relates to travel and certain office related expenses. Now I'd like to reaffirm our non-GAAP revenue guidance and increase our guidance for adjusted EBITDA for the remainder of fiscal year 2022. For the full fiscal year 2022, we expect total non-GAAP revenue to range from 470 to 474 million, representing an organic revenue growth rate of over 10% and up from the initial guidance of 466 million on a like-for-like basis. Adjusted EBITDA is expected to be in the range of $161 to $163 million, an increase of $3 to $5 million from the $158 million guidance provided at the announcement of the Blue Jade transaction, again, on a like-for-like basis. Non-GAAP gross profit margin is expected to be in the range of 70 to 72%. To provide the appropriate comparison of our actual results, we've included in the press release of tables that will help walk forward the projected pro forma performance of the business, including Blue Jay for the full fiscal year 2022. We have for comparison purposes shown the full fiscal 2021 for ETA Open and the period September 1, 2020 through February 28, 2021 for Blue Jay. Similarly, for the as-reported guidance, we are incorporating the full year of ETA open and the period from closing, September 1, 2021, through February 28, 2022, based on our original acquisition model. We are increasing our guidance based on the anticipated performance of the combined business. I want to finally quickly touch on our long-term growth targets and remind everyone what we said last year and how we are progressing towards them today. Because of our momentum and progress, we are confident in reaffirming our long-term growth objectives. We believe we can grow in the low double digits for a very long time, and this quarter we achieved that important milestone. We have a lot of operating leverage in our business, which you can see in our margins, which we will operate in the mid-70s for gross margin. and mid-30s for our EBITDA margin. We will continue to invest in our ability to grow faster as we grow larger, balanced with the appropriate return on those investments. We will continually reevaluate these targets and update you as our business expands and as we continue to invest in the company to accelerate our growth rate. In summary, EDA Open had a fantastic second quarter from both a financial and operating perspective. We remain laser focused on executing our growth strategies to capitalize on our multi-billion dollar market opportunity. With that, we would now like to take your questions. Adam, we're ready to begin the Q&A session after a brief pause.

Thanks, Jarrett. Please give us a moment to turn our cameras on and get situated. And as a reminder, if you have a question to ask, please chat me directly to be placed in the queue or use the raise hand function. And our first question will be from Taylor McGinnis from UBS. Taylor, your line should be open.

Great. Can you hear me? Yeah. Perfect. Hi, everyone. So congrats on the quarter and thanks for taking my question. Maybe to start, I think you mentioned bookings growth of 22%, which I think compares to 80% last quarter. So since we don't have much visibility into the trends historically, can you maybe bridge the gap between the two, like whether it was an easier compare or if there was a difference in large deal volume? And also maybe on that too, I know you guys made some pricing and packaging changes. So curious if that's started to contribute at all.

Yeah, that bookings number is not the bookings growth overall. That was to compare upsell from the previous periods, which historically ran 16% in historical periods and now is running 22%. And that's a result of our effectiveness in packaging and pricing on just the upsells. That's not our entire bookings number. I just want to focus on that one area of growth.

Got it. Are you able to bribe maybe like color or even directionally, you know, how the business has been trending from like a bookings perspective or a pipeline perspective relative to what we saw last quarter?

Sure, the pipeline continues to expand and we've seen that through the first half and it continues to expand even as we start the third quarter, as well as our yield is expanding as well. So we had a record first quarter and a record second quarter and we're hitting on all cylinders of booking. So very positive results in the booking side.

Got it. And maybe my last one, just on Blue Jay, Now that it's part of the business, can you talk a little bit more about the cross-sell potential and overlap between the two businesses and maybe anything that could be embedded in the guide or what could be potential upside going forward? And then as a part two to that, just on the EBITDA margin raise and the additional synergies, can you just provide a little bit more color on what are the drivers there?

Yeah, I mean, sorry, Chad, you want to take the second question and I'll spin back and answer the first?

Yeah, absolutely. So just a quick update, Taylor, on where we were, where we are on the synergies. We've executed all of the people synergies and communications during the month of September. And in finalizing all those plans and putting the right people in the right seats and assigning people, reps to accounts and the like, we ended up doing better than we had originally built into our forecast model to underwrite the deal. So we ended up landing on total run rate savings of 25. Part of that is reflective in the upping the EBITDA guidance. Part of that is just from the normal health of the business doing better than we had anticipated at the beginning of the year. So it's a little blend of both. The bulk of the synergy realization will happen next year. And then there's a little bit of year over year that will benefit from looking 23 versus 24. But all of the synergies will be done in our next fiscal year in terms of achieving that run rate save.

And on the opportunity with Blue Jay, our acquisition strategy or competition strategy is predicated on functional additions where we don't like to think about overlapping products. And this is no different. Blue Jay has about 250 or 300 enterprise customers, and that's the same number we have. There is very little overlap, maybe 10%. And Blue Jay had primarily the TMS focused on that enterprise class customer, which is one product. We have seven other product families. So we think the upsell, cross-sell opportunity is extraordinary because they sell to the same types of customers that are large, over $10 billion in revenue and have the complexity and need for all of our products. So that process starts immediately. We reset the team to one go-to-market platform starting on September 22nd. And, you know, we are actively pursuing opportunities as we speak. So we think there's a tremendous opportunity, you know, for us to continue cross-selling, upselling, just into a much larger overall customer base.

Great. Thanks so much.

Thank you, Taylor. All right. Our next question is from Andrew Obin of Bank of America. Andrew, your line should be open. Andrew, I think you're still on mute. Okay, can you hear me now?

Yeah, hi, Andrew. Let's try this Zoom thing. So I guess one of the questions in terms of client response to supply chain pressures, have you seen any noticeable shift in the sales cycle, basically clients speeding up or slowing down over the last six months?

Yeah, I think overall... Projects are moving through our customers system faster. And I think that shows up in our new logo uptick. Usually those cycles take much less longer. And we're seeing those kind of actually happen more quickly. You know, we we noticed one automotive customer and we're going to start with the chip side. And we think we had a great amount of opportunity to help them smooth out some of those issues. So I do think things are moving faster. And the big reason is this is now a much more cross-functional decision at a much higher point in the organization. So no longer are our sales cycles at functional levels mostly. they're much higher. And that would be at the board and CEO level. And those projects tend to move faster than a functional leader trying to drive a project. So we do see kind of acceleration in our overall sales cycles.

And I'd add that I think you can see some of that too in where clients would have bought in three parts are now buying in one part. And we're, you know, we don't have enough data points yet, Andrew, to say it's a complete trend, but the ASP and the number of things that are being bought together has, I believe, increased so far in this fiscal year.

Gotcha. And maybe among the seven product groups, you know, sort of just to talk about demand across solutions, What's seeing the strongest uplift in demand currently versus the start of the year?

Yeah, I think transportation logistics for sure. And then we're also seeing a pretty big uplift in our collaboration side of our business. That part of our business connects the supply base to the manufacturers and multi-tiers. And we've seen significant traction in that area. So those are two big areas. Demand sensing for us is a very differentiated product. And that always has a high demand. But I think from an uptick from maybe nine months ago, I think those two areas I mentioned would be the greatest uplift.

And I'm going to be very selfish. And, you know, it's but it's just a question I get asked every day. When do you guys think supply chain pressures will get better?

Oh, you know, they're going to get incrementally better. It takes time. And I know that, you know, obviously the president made some comments today about focus on ports, which will be helpful. But, you know, you essentially have a supply demand imbalance going on at this point. And it's going to take a while for that to work its way through the system. So I think this issue is going to be here with us for six, nine months at least. And I think the implication for us is that people need a different kind of infrastructure to manage a more complex supply chain. And what companies really want to do is understand demand more clearly and then be able to react to problems more quickly. And our platform does just that. So I think the companies that invest in these areas will do better. The ones that don't will continue to struggle. I really appreciate your questions. Thank you. Thank you.

Thanks, Andrew. Our next question comes from Mark Chappelle with Loop Capital. Mark, your line is open.

Hey, Mark. Hey, guys. Can you hear me okay?

Yeah.

How you doing, Mark? First up, very nice job in the quarter. Congratulations, and thanks for taking my question here. Some of my questions have already been answered, but Michael, starting with you, given the growing headlines around the logjams we're seeing in the U.S. ports, are you seeing increased interest in your intra-ocean shipping platform along that front? Yeah.

More on the visibility side. So we already have a very large percentage of ocean bookings and that continues. But we definitely see visibility being one of the very hot topics. So companies, obviously, if they don't know where their products are in the cycle, they want to understand first where it is. And then you also want to link that to what the order was so they can start to understand what implications they have upstream and downstream. So companies ship product for a specific reason. And our platform allows them to understand not only where the product is, but also understand, you know, why it was shipped in the first place. And then what that means is they can react more proactively to try to meet the needs of the business on an ongoing basis.

Great. Thanks. And then while I'm on the ocean shipping theme, you know, on the partner front, I realize it's still early days, but I was wondering if you could just give us an update on your partnership with shipping giant Mayorsk.

going really well, going really well. And I think we're seeing a lot of positive momentum and uptick. We are in the process of kind of calibrating for, you know, what they see as very, very large demand. And we're super excited about what that means to us on a very long-term basis. So couldn't be any happier with that partnership and couldn't be any happier with the reception in the marketplace for that product.

Great. And then finally here, if one of you could just Just comment a little bit on pipeline yields. I mean, they have been growing throughout the last couple of quarters, which is good. And I assume it's fair to assume that pipeline yields continue to improve for you.

Yeah, we measure pipeline and yields very carefully. The pipeline size gives us an indication of what the future is going to hold. Pipeline continues to grow, even though we're having very large booking quarters. And we're getting incrementally better yield on a larger pipeline. So we see that as very positive for our business and very positive for next level quarters.

Okay, great. That's all for me. Thank you.

Thank you, Mark. Our next question comes from Will Caffour from Elevation. Will, your line is open.

Hey, Will. Hey, guys. Congrats on the results. Thanks. Thank you. So you mentioned this year some new logo and partnerships this year, and I guess what I would consider less represented industries for EDA open historically. I guess healthcare was mentioned this most recent quarter. Maybe talk about what you're seeing from a more broad basis and demand from those industries and how large this might be potentially.

Yeah, it could be very large for us. We expect it to be. And it'll take time because what we're really identifying are markets that really need our platform, but are a little off center for us in terms of our core market presence. And we identify companies that have large market presence in those areas, but don't have technology solutions, but would like to offer them. So for us, it's a matter of developing a much more larger indirect channel and allowing us to participate in markets more quickly than we otherwise could. So we think we can add these partnerships sequentially over time, and we think they grow larger as they go. So we think there's a compounding element. to these partnerships. And we, you know, Maersk is the one where we signed earliest and we're actually seeing that, you know, compounding opportunity happening, you know, as, as we enter the quarter. So we're super excited about those and we have several more of those types of partnerships, you know, in the pipeline that we're actively pursuing.

Great. Thank you.

Okay. That concludes our conference call this afternoon. Thank you everyone for attending.

Thank you all. Have a great day.